Borealis Foods Inc.: Form 10-Q for the period ended Jun 30, 2025

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the interim unaudited condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report, and our audited consolidated financial statements and related notes in our Annual Report filed on Form 10-K for the year ended December 31, 2024 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on April 15, 2025.

The following discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, those set forth under Item 1.A., “Risk Factors,” included in Part I of the Annual Report.

Overview

Borealis Foods is a pioneering, integrated food science and manufacturing company that is redefining affordable nutrition. Known for popular ramen noodle brands like the high protein Chef Woo, Chef Ramsay, 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.

The Company continued to execute a strategic repositioning of its revenue base and customer portfolio in 2025, with an emphasis on gross margin expansion and operational efficiency. While total revenue declined compared to the prior year, gross profit turned positive, reflecting improved pricing dynamics, a more favorable product mix, and a deliberate move away from low-margin, high-volume retail partnerships.

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.

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.”.

Unless otherwise indicated, references to the “Company,” “our,” “us” or “we” in this Item 2 refer to Oxus Acquisition Corp., or Oxus, before the consummation of the Transaction. References to our “management” or our “management team” refer to our officers and directors, and references to the “sponsor” refer to Oxus Capital Pte. Ltd. The term “New Borealis” refers to Borealis Foods Inc. after the consummation of the Business Combination.

The Reverse Recapitalization (continued)

Basis of Presentation

Borealis Foods’ unaudited condensed consolidated financial statements were prepared in accordance with U.S. GAAP. See Note 1 to our unaudited condensed consolidated financial statements for a full description of our basis of presentation.

Results of Operations

Comparison of the Six Months Ended June 30, 2025 and 2024

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

Adjusted EBITDA is a non-GAAP financial metric. See “How we Evaluate Our Operations” below for an explanation of the terms EBITDA and Adjusted EBITDA and a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Revenue and Customer Trends

For the six months ended June 30, 2025, net revenue increased to $14.0 million compared to $13.2 million in the prior-year period, an improvement of $0.8 million, or 6%. This growth was driven by a stronger customer mix and expansion into institutional channels, partially offset by lower mass retail volume.

The Company continued to diversify its customer base during the first half of 2025, reflecting strategic progress in reducing dependency on any single retail partner.

• Revenue concentration from a previously dominant retail customer was significantly reduced.
• A major institutional customer generated $3.9 million in its first two full quarters of shipments.
• Two additional institutional clients expanded volume, contributing $1.6 million and $0.8 million, respectively.
• The Company launched a prominent global brand partner, gaining early traction in the premium retail segment.

These shifts demonstrate management’s deliberate focus on food service and institutional markets, which provide improved pricing leverage, margin stability, and predictable demand patterns.

Product Mix and Margin Enhancement

Gross profit for the six months ended June 30, 2025 was $1.41 million, or 10% of net revenue, compared to $0.67 million, or 5%, in the prior-year period. Excluding depreciation, gross margin (a non-GAAP measure) improved to approximately 17% versus 16% in the prior year. The improvement reflects operational efficiencies, an improved sales mix, and cost control initiatives.

Key drivers of margin expansion in the period included:

• Increased contribution from institutional and branded product lines
• Reduced exposure to discount-driven mass retail
• Lower freight and promotional costs relative to prior-year levels

The Company’s branded portfolio continued to perform well. Chef Woo High Protein Ramen remained a flagship product, with sustained demand in both retail and institutional channels. Ramen Express Flats experienced renewed growth, particularly within institutional food service accounts.

Operating Expenses and SG&A Trends

The Company anticipates a seasonal uplift with the launch of our Woodles brand and the shipment of higher-margin SKUs that typically extend through April. To support this transition, we have invested significantly in business development and research and development to position our product portfolio for sustainable growth. These investments are aligned with our strategy to expand into higher-margin categories and capture greater profitability during our key seasonal periods.

Total SG&A expenses declined 42% year-over-year to $7.69 million for the six months ended June 30, 2025, compared to $12.83 million in the prior-year period. This reduction was primarily driven by:

• The conclusion of non-recurring professional services engagements
• Lower marketing and promotional spending
• Reduced training costs as institutional customer onboarding processes became more efficient
• Sales and marketing expenses decreased by $2.72 million, or 69%, to $1.23 million, while training expenses fell 56% to $0.39 million. General and administrative expenses declined by $1.88 million, or 28%, to $4.94 million.

Loss from operations narrowed significantly to $(6.27) million compared to $(12.16) million in the first half of 2024, reflecting improved gross profit and reduced operating costs. Adjusted EBITDA (a non-GAAP measure) was $(1.33) million compared to $(1.07) million in the prior-year period, with the modest decline attributable to timing of certain operational expenses.

Cash Flows

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

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2025 was $3.57 million, primarily driven by the net loss of $8.79 million, adjusted for non-cash charges of $0.95 million for depreciation and amortization, and $0.31 million for stock-based compensation. This represents an improvement from the $11.00 million used in the same period of 2024, 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 $0.03 million for the six months ended June 30, 2025, primarily attributable to purchases of property and equipment to support production scale and efficiency improvements. This decrease from $1.21 million in 2024 aligns with our 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 six months ended June 30, 2025, was $3.15 million, financing was driven by advances from related parties. In comparison, net cash provided by financing activities in the six months ended, was $7.73 million, and largely attributable to borrowings on the line of credit and proceeds from convertible debt. The financing activities in 2025 primarily support working capital needs and strategic investments in growth initiatives.

Balance Sheet and Contractual Obligations

Our cash position, though lower than prior periods, reflects its active investment in operational scale-up and the expansion of high-margin product lines. Borealis Foods’ contractual obligations, including operating leases, accounts payable, and convertible notes, remain in line with planned financial commitments and reflect our strategic focus on sustainable growth.

Future Capital Requirements and Liquidity

We need additional capital to meet our funding requirements through fiscal year 2025, particularly to support our expansion into the premium retail segment with a prominent global brand. As of June 30, 2025, we had cash-on-hand of $0.21 million and negative working capital of $29.49 million. Our current business plan has mitigated some capital expenditure requirements, as operational efficiencies in existing production lines have reduced the need for immediate expansion. We are 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. If we cannot obtain adequate additional financing, among other things, we may have to substantially curtail or limit our research, marketing, production or distribution activities, sell assets of the Company or seek protection from creditors under bankruptcy laws, which could materially and adversely affect our business plan. Inadequate financial resources could also continue to raise substantial doubt about our ability to continue as a going concern.

Going Concern

Management has identified recurring losses and negative cash flows from operations as factors raising substantial doubt about our ability to continue as a going concern. We are focused on executing our 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 we seek to navigate these challenges and achieve financial stability. Substantial doubt continues to exit about the ability of the Company to continue as a going concern within one year from August 19, 2025.

Management has implemented several strategic and operational initiatives aimed at improving liquidity and financial performance. For the six months ended June 30, 2025, the Company significantly reduced sales, general, and administrative expenses by 51% year-over-year, driven by the conclusion of one-time transaction-related costs and a disciplined reduction in discretionary spending. Gross margin, excluding depreciation, a non-GAAP measurement, improved to 17% from 16% in the prior year period, reflecting a shift toward higher-margin branded and institutional sales.

The Company has not raised external capital in the first half of 2025 but is actively evaluating financing alternatives, including debt and equity issuances, to support ongoing operations and strengthen the balance sheet.

Management is also aligning inventory and production levels with committed demand from stable institutional customers, which is expected to enhance working capital efficiency and cash flow conversion through the remainder of the year. However, there can be no assurance that such funding will be available on favorable terms or at all. If we cannot obtain adequate additional financing, among other things, we may have to substantially curtail or limit our research, marketing, production or distribution activities, sell assets of the Company or seek protection from creditors under bankruptcy laws, which could materially and adversely affect our business plan. Inadequate financial resources could also continue to raise substantial doubt about our ability to continue as a going concern.

Contractual Obligations and Commitments

The following table summarizes our non-cancellable contractual obligations and other commitments as of June 30, 2025, and the effects that such obligations are expected to have on our liquidity and cash flow for future periods (in thousands):

(*) 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 June 30, 2025 and December 31, 2024, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities, or variable interest entities.

Warrants

The following represents a summary of warrants outstanding and exercisable on June 30, 2025 and December 31, 2024:

Following the closing of the Reverse Recapitalization, Borealis Foods has the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of Common Shares equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 days within a 30 trading day period commencing once the warrants become exercisable and ending on the third trading day prior to the date on which Borealis Foods gives proper notice of such redemption and provided certain other conditions are met.

The public warrants are identical to the private placement warrants in material terms and provisions due to the expiration on the transfer of the private placement warrants 30 days after the completion of the Reverse Recapitalization.

Comparison of the Three Months Ended June 30, 2025 and 2024

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

Adjusted EBITDA is a non-GAAP financial metric. See “How we Evaluate Our Operations” below for an explanation of the terms EBITDA and Adjusted EBITDA and a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Revenue and Customer Trends

For the three months ended June 30, 2025, net revenue was $7.2 million, an increase of $1.86 million, or 35%, compared to $5.3 million in the same period of 2024. The improvement reflects growth in institutional and branded product sales, partially offset by reduced exposure to low-margin mass retail accounts as part of the Company’s ongoing SKU rationalization strategy.

The Company’s customer base continued to diversify during the quarter:

• Revenue concentration from a previously dominant retail partner was significantly reduced.
• A major institutional customer contributed approximately $1.9 million in sales during the quarter.
• Two additional institutional clients expanded their volumes, generating $.90 million and $0.50 million, respectively.
• A prominent global brand partner was launched in the premium retail channel, providing early traction in a high-value segment.

These results underscore the Company’s strategic focus on food service and institutional markets, which provide greater pricing power, improved margins, and more stable demand patterns.

Product Mix and Margin Enhancement

Gross profit for the quarter was $0.50 million, or 7% of net revenue, compared to $0.42 million, or 8% of net revenue, in the same period last year. Excluding depreciation, gross margin (a non-GAAP measure) was approximately 14% in the three months ended 6/30/2025 and 15% in the three months ended 6/30/2024. While gross margin percentage was flat year-over-year, the Company realized higher absolute gross profit dollars, reflecting increased revenue volume and an improved sales mix.

The quarter’s margin performance was supported by:

• A higher proportion of institutional and branded product sales
• Reduced reliance on discount-driven mass retail channels
• Ongoing cost control efforts in freight and promotions

Chef Woo High Protein Ramen, Gordon Ramsay Cups, and food service SKUs continued to drive branded sales growth. Ramen Express Flats, previously a Walmart-focused item, demonstrated renewed strength within institutional accounts.

Operating Expenses and SG&A Trends

The Company anticipates a seasonal uplift with the launch of our Woodles brand and the shipment of higher-margin SKUs that typically extend through April. To support this transition, we have invested significantly in business development and research and development to position our product portfolio for sustainable growth. These investments are aligned with our strategy to expand into higher-margin categories and capture greater profitability during our key seasonal periods.

Total SG&A expenses for the quarter declined 51% to $3.87 million, compared to $5.61 million in the second quarter of 2024. Key drivers included:

• Lower sales and marketing expenses, which fell $1.76 million, or 37%, to $0.66 million due to reduced promotional spending and targeted campaigns
• Reduced training expenses, down $0.21 million, or 5%, as institutional customer onboarding became more efficient
• Stable general and administrative expenses, increasing modestly by $0.13 million to $2.50 million, primarily due to timing of certain corporate costs

Loss from operations improved to $(3.36) million from $(5.19) million in the prior-year quarter, a $1.83 million improvement. Adjusted EBITDA (a non-GAAP measure) was $(0.80) million compared to $0.68 million in the same period last year, with the decline primarily reflecting higher depreciation and the absence of certain one-time cost recoveries that benefited the prior-year quarter.

Liquidity and Capital Resources

Liquidity remained constrained during the quarter; however, operating improvements, higher sales volumes, and tighter expense management are expected to support improved cash conversion in the second half of 2025. The Company did not raise external capital in the second quarter but continued to receive financial support from its Chairman and Chief Executive Officer, who together advanced $3.43 million during the first half of the year.

Inventory purchases are being closely aligned with committed institutional demand to preserve cash. Management anticipates that growing contributions from high-volume institutional accounts, coupled with disciplined expense control, will strengthen working capital efficiency in the remainder of the year.

As of June 30, 2025, the Company continued to operate under liquidity constraints. However, ongoing improvements in product mix, operating efficiency, and SG&A reductions have begun to stabilize working capital requirements. Management remains focused on cash preservation and aligning inventory purchases with committed demand from large institutional customers.

During the first half of 2025, the Chairman and Chief Executive Officer advanced funds totaling $3.43 million to support operations. The Company did not raise external capital during the period. If the Company cannot obtain adequate additional financing, it may be required to substantially curtail or limit research, marketing, production, or distribution activities, sell assets, or seek protection from creditors under bankruptcy laws.

Looking ahead, management expects that increased contribution from high-volume institutional channels, combined with disciplined cost control, will enhance cash conversion and support improved working capital efficiency in the second half of 2025.

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 Foods 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 Foods’ 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.

We 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 Foods 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 Foods 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, we are 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. We 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) our 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 we take advantage of such reduced disclosure obligations, we may also make comparison of our 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.

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 the Company’s 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.

For the six months ended June 30, 2025, “Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) depreciation and amortization, of $1.0 million, (3) interest expense, of $2.5 million, (4) new product launch of $1.2 million, (5) training, of $0.4 million, (6) deferred stock compensation $0.3 million, (7) business transaction costs, of $1.0 million, and (8) business development and other extraordinary charges, of $1.1 million. For the three months ended June 30, 2025, “Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) depreciation and amortization, of $0.5 million, (3) interest expense, of $1.2 million, (4) new product launch of $0.7 million, (5) training, of $0.2 million, (6) deferred stock compensation $0.3 million, (7) business transaction costs, of $0.5 million, and (8) business development and other extraordinary charges, of $0.5 million. 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 U.S. GAAP.

Adjusted EBITDA (continued)

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) depreciation and amortization, of $1.4 million, (3) interest expense, of $2.6 million, (4) new product launch of $4.0 million, (5) training, of $0.9 million, (6) deferred stock compensation $1.3 million, (7) business transaction costs, of $1.5 million, and (8) business development and other extraordinary charges, of $2.1 million. 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, (2) depreciation and amortization, of $0.4 million, (3) interest expense, of $1.1 million, (4) new product launch of $2.4 million, (5) training, of $0.4 million, (6) deferred stock compensation $1.3 million, (7) business transaction costs, of $0.4 million, and (8) business development and other extraordinary charges, of $0.4 million. 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 U.S. GAAP.

Recent Accounting Pronouncements

See Note 1 to Borealis Foods’ unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for information about recent accounting pronouncements, the timing of their adoption, and Borealis Foods’ assessment, if any, of their potential impact on Borealis Foods’ financial condition and results of operations.

We are exposed to market risk in the ordinary course of our business. Market Risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates.

Concentration Risk

The Company extends unsecured credit to its customers in the ordinary course of business. Payment terms are generally net 30 days with discounts amounting up to 2% for early payments. Accounts receivables are written off when they are determined to be uncollectible based on the financial stability of its customers and existing economic conditions.

Sales to four customers accounted for approximately 61% and sales to three customers accounted for approximately 52% of net revenues for three month periods ended June 30, 2025 and 2024, respectively. Sales to three customers accounted for approximately 48% and 53% of net revenues for the six month periods ended June 30, 2025 and 2024, respectively. Accounts receivable from two customers amounted to approximately 46% and three customers and 37% of total accounts receivable as of June 30, 2025 and December 31, 2024, respectively. Substantially all of the Company’s sales for the three and six month periods ended June 30, 2025 and 2024 occurred in the United States, Canada, Central America, South America, and Europe.

Purchases from 10 vendors accounted for approximately 54% and 51% of purchases during the three months ended and 49% and 48% of purchases for the six month periods ended June 30, 2025 and 2024, respectively. Accounts payable to these vendors totaled approximately $2,286,000 and $689,000 as of June 30, 2025 and 2024, respectively.

Foreign Currency Risk

Our customers are primarily located in the United States, Central America, South America, Europe, and Canada; therefore, foreign exchange risk exposures arise from transactions denominated in currencies other than our functional and reporting currency (U.S. dollars). To date, a majority of our sales have been denominated in U.S. dollars and a significant portion of our operating expenses are denominated in Canadian dollars. We also purchase certain of our key manufacturing inputs in Euros. As we expand our presence in international markets, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates. To date, we have not entered into any hedging arrangements to minimize the impact of these fluctuations in the exchange rates. We will periodically reassess our approach to manage our risk relating to fluctuations in currency rates.

We do not believe that foreign currency risk had a material effect on our business, financial condition, or results of operations during the periods presented.

Inflation Risk

We do not believe that inflation had a significant impact on our results of operations for any periods presented in our unaudited condensed consolidated financial statements. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with product price increases, and our inability or failure to do so could harm our business, financial condition, and results of operations.

Matching Revenues with Costs

Certain Selling, General and Administrative costs have been expensed in the period incurred. These costs, include business development costs, transaction costs and research and development costs, consist primarily of personnel and related expenses including salaries, benefits, share-based compensation, scale-up expenses, depreciation and amortization expenses, and facility lease costs. Scale-up expenses includes material waste costs, production personnel costs and various related expenses. These costs are focused on enhancements to our existing product formulations and production processes, as well as the scientific development of new products and economic verticals. We believe continued innovation and these new verticals are expected to capture a larger share of consumers. Monetization of future opportunities created by the above investment are expected to be realized in future quarters.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our unaudited condensed consolidated financial statements for external purposes in accordance with U.S. GAAP.

Internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error or overriding of controls. Because of the inherent limitations, only reasonable assurance with respect to financial statement preparation and presentation can be provided and misstatements may not be prevented or detected. Management evaluated the design and effectiveness of the Company’s internal control over financial reporting as of June 30, 2025 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework 2013. Based on its evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2025 due to material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

Consistent with December 31, 2024, the Company did not effectively design, implement and operate effective process-level control activities related to inventory management.

Evaluation of Disclosure Controls and Procedures (continued)

As a result of these deficiencies, material misstatements were identified and corrected in the consolidated financial statements as of and for the year ended December 31, 2024. Because there is a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis, we concluded the deficiencies represent material weaknesses in our internal control over financial reporting and our internal controls over financial reporting was not effective as of June 30, 2025. However, we have been in the process of remediating the internal control integrated framework in order to address this weakness.

Our Chief Executive Officer and Chief Financial Officer have taken additional steps to support that the unaudited condensed consolidated financial statements as of and for the six-month period ended June 30, 2025 are presented fairly in accordance with U.S. GAAP.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a–15(f) and 15d-15(f)) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

Subsequent to the year ended December 31, 2024, and under the direction of our Chief Executive Officer and Chief Financial Officer, we have been developing and implementing a comprehensive plan to remediate the identified material weaknesses. We began implementing certain measures as part of the remediation plan including: (i) development of a detailed plan addressing the material weaknesses related to the control environment, risk assessment and monitoring, (ii) institution of policies and processes to support the functioning of internal controls over financial reporting, (iii) design and implementation of a comprehensive risk assessment process, (iv) installation of new ERP system (v) hiring/outsourcing of individuals with appropriate skills and experience.

The material weaknesses being addressed by the above-mentioned remediation plan will not be considered remediated until the applicable controls operate for a sufficient period of time, and management concludes, through testing, that these controls are operating effectively. This has not occurred to date.

Although we have commenced the remediation process and intend to complete it as promptly as possible, we cannot estimate how long it will take to remediate these material weaknesses. In addition, new material weaknesses may be discovered that require additional time and resources to remediate. Until the remediation is complete, we plan to continue to perform additional analyses and other procedures to ensure that our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP.

Our risk factors are disclosed in Part I, Item 1A of our Annual Report on Form 10-K, filed with the SEC on April 15, 2025. There have been no material changes during the six months ended June 30, 2025 from or updates to the risk factors discussed in Part I, Item 1A, Risk Factors, of our Annual Report, except as set forth below.

The risk factor titled “Our potential insolvency, inability to pay our debt or bankruptcy would have a material adverse effect on our business, financial condition, results of operations, cash flow, cash available for distribution as well as our ability to service our debt obligations, and could result in our inability to continue as a going concern” is amended and restated as follows:

Our potential insolvency, inability to pay our debt or bankruptcy would have a material adverse effect on our business, financial condition, results of operations, cash flow, cash available for distribution as well as our ability to service our debt obligations, and could result in our inability to continue as a going concern.

If we were to default on our debt obligations, it would likely cause a significant or complete reduction in the operating cash flow generated by our product sales. As of the six months ended June 30, 2025 the amount we owe on outstanding Notes exceed the amount of cash on hand and consequently, unless we are able to raise funds to pay off the Notes, generate sufficient cash to pay off the Notes or extend and amend the maturity dates the Company is at substantial risk that the noteholders could assert rights against the Company. There can be no assurance that we would be able to avoid insolvency or to make timely payments on our debt or payments to our suppliers. If we were to default, we may incur substantial costs, that could have a severe adverse effect on our business, financial condition, results of operations and cash flow, and we might take actions to respond to any default including the curtailment or reduction in operations, the sale of assets of the Company, or seeking protection from creditors under bankruptcy or insolvency laws.

The risk factor titled “We have a limited operating history which makes it difficult to evaluate our business and prospects” is amended and restated as follows:

We have a limited operating history which makes it difficult to evaluate our business and prospects.

We have a limited operating history, which makes it difficult to evaluate our business and prospects to forecast our future results. We were founded in 2019. Although we have experienced substantial revenue growth on an annual basis, we have incurred losses since inception. As of June 30, 2025, we had cash-on-hand of $0.21 million and a negative working capital of $29.49 million USD. We are 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. There can be no assurance that revenue growth will continue in the future. In addition, we may experience substantial fluctuations in operating results in the future caused by various factors, including:

• General economic conditions;
• Specific economic conditions in the food and agriculture industry;
• The impact of inflation and rising interest rates across the economy, including higher food, grocery, raw materials, transportation, energy, labor and fuel costs;
• increases in the price of raw materials, labor, wages or other inputs that our suppliers use in manufacturing and supplying products, along with logistics, transportation, shipping and other related costs, may lead to higher production and shipping costs for our products. Any increase in the cost of inputs to our production could lead to higher costs for products in retail channels and could negatively impact our operating results and future profitability;
• the introduction of new products by us or our competitors; and
• the mix of products sold and the mix of channels through which those products are sold.

As a strategic response to a changing competitive environment, we may elect from time to time to make, among other things, certain pricing, product, or marketing decisions, and any such decisions could have a material adverse effect on our periodic results of operations, including revenue and profits from quarter to quarter.