BRLS

Business Context and Reporting Period

Borealis Foods Inc. (Nasdaq: BRLS) is a food technology integrator and manufacturer of ready-to-eat meals, including the Chef Woo and Ramen Express brands. This Form 10-Q covers the quarterly period ended March 31, 2025. The Company is classified as a non-accelerated filer, a smaller reporting company, and an emerging growth company. As of May 20, 2025, there were 21,381,852 common shares outstanding.

Key Financial Metrics

Liquidity Note: Cash on hand decreased from $0.65 million at year-end 2024 to $0.19 million at March 31, 2025. The Company has a $7.6 million line of credit fully drawn and significant related party debt of $16.5 million.

Material Changes vs. Prior Period

• Revenue Decline: Net revenue decreased 13% year-over-year to $6.85 million, driven by a strategic pullback from low-margin mass retail accounts and SKU rationalization.
• Margin Expansion: Despite lower revenue, gross profit increased 272% to $0.90 million. Gross margin excluding depreciation improved to 20% from 16%, reflecting a shift toward higher-margin branded and institutional sales.
• Expense Reduction: Total Sales, General, and Administrative (SG&A) expenses dropped 47% to $3.82 million, primarily due to the elimination of one-time transaction costs from the 2024 reverse recapitalization and reduced marketing spend.
• Depreciation Change: The Company changed its depreciation method for manufacturing assets from straight-line to machine hours, resulting in a $0.61 million increase in net income for the quarter.
• Customer Concentration: Revenue concentration shifted; a major institutional customer contributed $2.0 million in its first full quarter, while reliance on a previously dominant retail partner was reduced.

Outlook, Risks, and Management Commentary

Going Concern Warning: Management and the independent auditor have expressed substantial doubt about the Company's ability to continue as a going concern within one year of the report date. This is due to recurring losses, negative operating cash flows, and a substantial debt burden.

Capital Needs: The Company did not raise external capital in Q1 2025. It is actively evaluating debt and equity financing alternatives. Without additional funding, the Company may need to curtail operations or seek bankruptcy protection.

Key Risks:

• Insolvency: Outstanding notes exceed cash on hand. Failure to refinance or repay debt maturing in 2025 could trigger default.
• Internal Controls: The Company identified material weaknesses in internal controls over financial reporting, specifically regarding inventory management, which were not remediated as of March 31, 2025.
• Customer Concentration: Four customers accounted for approximately 60% of net revenue in Q1 2025.
• Related Party Dependence: Significant liquidity support came from advances by the Chairman and CEO ($1.7 million in Q1 and subsequent events).

Investor Verification Checklist

• Debt Maturity Schedule: Verify the specific repayment dates for the $5.77 million in debt due in 2025 and the $25.27 million due in 2026.
• Financing Progress: Confirm if the Company has secured the additional financing mentioned as "actively evaluating" to address the going concern doubt.
• Related Party Terms: Review the terms of the $16.5 million owed to related parties, including interest rates (10%) and demand provisions.
• Inventory Valuation: Assess the adequacy of the $0.77 million inventory reserve given the material weakness in inventory controls.
• Institutional Contract Stability: Verify the duration and volume commitments of the new institutional customers contributing $2.0 million and $1.95 million in revenue.