Blue Star(BSFC) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section covers unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) Presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with detailed accounting notes Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity at specific points in time | Metric | June 30, 2024 | December 31, 2023 | |:---------------------------|:--------------|:------------------| | Total Assets | $8,104,796 | $6,362,498 | | Total Liabilities | $3,489,951 | $3,767,576 | | Total Stockholders' Equity | $4,614,845 | $2,594,922 | - Total Assets increased by approximately $1.74 million, driven by increases in cash and cash equivalents, accounts receivable, inventory, and other current assets[8] - Total Liabilities decreased by approximately $0.28 million, primarily due to a reduction in derivative and warrant liabilities, and debt[8] - Total Stockholders' Equity increased by approximately $2.02 million, reflecting new common stock issuances for cash and note payments, partially offset by net loss[8][10][11] Consolidated Statements of Operations and Comprehensive Loss Details financial performance, including revenue, cost, gross profit, and net loss for the three and six months ended June 30 | Metric (Three Months Ended June 30) | 2024 | 2023 | Change (%) | |:------------------------------------|:--------------|:--------------|:-----------| | Revenue, Net | $1,776,558 | $1,655,562 | 7.3% | | Cost of Revenue | $1,482,041 | $1,574,547 | -5.8% | | Gross Profit | $294,517 | $81,015 | 263.5% | | Loss from Operations | $(691,723) | $(1,076,252) | -35.7% | | Net Loss | $(1,841,967) | $(1,451,735) | 26.9% | | Net Loss per Common Share (basic & diluted) | $(1.52) | $(30.68) | -95.0% | | Metric (Six Months Ended June 30) | 2024 | 2023 | Change (%) | |:----------------------------------|:--------------|:--------------|:-----------| | Revenue, Net | $4,036,887 | $3,554,001 | 13.6% | | Cost of Revenue | $3,571,608 | $3,188,624 | 12.0% | | Gross Profit | $465,279 | $365,377 | 27.3% | | Loss from Operations | $(1,533,922) | $(2,026,460) | -24.3% | | Net Loss | $(2,935,062) | $(3,403,137) | -13.7% | | Net Loss per Common Share (basic & diluted) | $(3.39) | $(83.85) | -95.9% | - Gross profit significantly increased for both the three-month and six-month periods due to higher sales and reduced cost of goods sold (three months) or increased sales (six months)[121][126] - Net loss increased for the three months ended June 30, 2024, primarily due to a loss from the change in fair value of derivative and warrant liabilities and higher interest expense[124][125] - Net loss decreased for the six months ended June 30, 2024, mainly due to the absence of a significant loss on settlement of debt compared to the prior year[130][131] Consolidated Statements of Changes in Stockholders' Equity (Deficit) Outlines changes in stockholders' equity, including stock issuances and net loss, from December 31, 2023, to June 30, 2024 - Stockholders' Equity increased from $2,594,922 at December 31, 2023, to $4,614,845 at June 30, 2024[10][11] - Key drivers of the increase include common stock issued for cash ($2,146,055) and for note payments ($1,684,751), partially offset by a net loss of $1,841,967 for the quarter[10] Consolidated Statements of Cash Flows Presents cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30 | Cash Flow Activity (Six Months Ended June 30) | 2024 | 2023 | |:----------------------------------------------|:--------------|:--------------| | Net Cash (Used in) Operating Activities | $(2,639,077) | $(1,573,217) | | Net Cash (Used in) Investing Activities | $(57,797) | $(15,351) | | Net Cash Provided by Financing Activities | $2,650,048 | $1,538,386 | | Net Increase in Cash and Cash Equivalents | $48,947 | $(2,170) | | Cash and Cash Equivalents – End of Period | $73,110 | $7,092 | - Cash used in operating activities increased significantly in 2024, primarily due to decreases in payables and customer refunds, and increases in inventory and other current assets[132] - Cash provided by financing activities increased, driven by proceeds from common stock offerings and short-term loans, with no repayments of the working capital line of credit in 2024[133] Note 1. Company Overview Outlines Blue Star Foods Corp.'s business, revenue sources, and recent corporate actions, including a reverse stock split - Blue Star Foods Corp. is an international sustainable marine protein company importing, packaging, and selling refrigerated pasteurized crab meat and other premium seafood products[14][101] - The Company's revenue sources include blue and red swimming crab meat under various brands, steelhead salmon and rainbow trout under Little Cedar Farms, and packaged seafood raw materials via AFVFL[14][21][101] - AFVFL, a wholly-owned subsidiary, was incorporated on February 1, 2024, to purchase raw materials from Afritex for packaged seafood and other inventory[18] - A 1-for-50 reverse stock split became effective on May 20, 2024, with all share and per share amounts retrospectively adjusted[7][18][102] Note 2. Summary of Significant Accounting Policies Details significant accounting policies, including revenue recognition, inventory valuation, lease accounting, and fair value measurements for financial liabilities - The interim financial statements are unaudited and prepared in accordance with SEC rules and GAAP, reflecting normal recurring adjustments[19] - Revenue is recognized when customers obtain control of promised goods, primarily from selling crab meat, steelhead salmon, and packaged seafood to food service distributors, wholesalers, and retailers[21][22] - Inventory is valued at the lower of cost or net realizable value, with cost determined by specific identification for crab meat and raw materials, and estimated biomass for fish in process[26] - The Company recorded an inventory allowance of $546,923 for the six months ended June 30, 2024, compared to $176,000 for the year ended December 31, 2023[27] | Inventory Category | June 30, 2024 | December 31, 2023 | |:-----------------------------------|:--------------|:------------------| | Inventory purchased for resale | $1,955,424 | $1,708,311 | | Feeds and eggs processed | $50,979 | $102,373 | | Raw materials for packaged seafood | $248,186 | $- | | Packaged seafood inventory | $897,388 | $- | | Inventory other | $33,054 | $- | | In-transit inventory | $- | $973,837 | | Less: Inventory allowance | $(546,923) | $(176,000) | | Inventory, net | $2,638,108| $2,608,521 | - Leases are accounted for under ASC 842, with operating lease assets of $104,788 and current operating lease liabilities of $35,852 as of June 30, 2024[30][31][34] | Fair Value Measurement (Level 3 Liabilities) | June 30, 2024 | December 31, 2023 | |:---------------------------------------------|:--------------|:------------------| | Derivative liability on convertible debt | $484,350 | $1,047,049 | | Warrant liability | $550 | $1,574 | | Total | $484,900 | $1,048,623 | - The fair value of derivative and warrant liabilities decreased significantly, primarily due to the settlement of derivative liability and changes in fair value[41][42] Note 3. Going Concern Addresses the company's ability to continue as a going concern, citing net losses and accumulated deficit, and outlines plans for financial sustainability - The Company incurred a net loss of $2,935,062 and had an accumulated deficit of $36,745,794 for the six months ended June 30, 2024, raising substantial doubt about its ability to continue as a going concern[45] - Continuation as a going concern depends on increasing revenues, executing business plans to acquire complementary companies, raising capital, and maintaining adequate working capital[45] Note 4. Other Current Assets Details the composition and changes in other current assets, including prepaid inventory, legal and accounting fees, and receivables for share issuances - Other current assets increased to $2,455,069 as of June 30, 2024, from $833,472 as of December 31, 2023[46] - The increase is primarily due to prepaid inventory ($551,800), prepaid legal and accounting fees ($234,200), and receivables for shares issuance per the securities purchase agreement with ClearThink ($821,650)[46] Note 5. Fixed Assets, Net Presents the breakdown and net value of fixed assets, including computer equipment, RAS system, leasehold improvements, and building improvements | Fixed Asset Category | 2024 | 2023 | |:---------------------|:--------------|:--------------| | Computer equipment | $52,625 | $47,908 | | RAS system | $150,424 | $140,214 | | Leasehold improvements | $17,904 | $17,904 | | Building Improvements | $179,523 | $136,653 | | Total | $400,476 | $342,679 | | Less: Accumulated depreciation | $(41,498) | $(38,822) | | Fixed assets, net| $358,978 | $303,857 | - Net fixed assets increased to $358,978 as of June 30, 2024, from $303,857 at December 31, 2023, driven by additions to computer equipment, RAS system, and building improvements[47] Note 6. Debt Details the company's debt obligations, including revolving lines of credit, promissory notes, and convertible debt, along with related interest expenses and repayments - The Company terminated its $5,000,000 revolving line of credit with Lighthouse Financial Corp. on June 16, 2023, by paying off the outstanding balance[51] - Outstanding principal on John Keeler Promissory Notes was approximately $44,000 at June 30, 2024, with $121,582 in principal payments made during the six months ended June 30, 2024[52] - The outstanding principal balance on the Walter Lubkin Jr. Note was $100,000 as of June 30, 2024, with $250,000 paid in common stock during 2023[53] - The 2022 Lind Note was extinguished on September 15, 2023, after a payment of $2,573,142[60] - For the 2023 Lind Note, $944,900 of principal was converted into 441,831 shares of common stock during the six months ended June 30, 2024, leaving an outstanding balance of $555,100[68] - The Company entered into several subordinated business loan agreements with Agile Lending, LLC in 2023 and 2024, with varying principal amounts and maturity dates, primarily for working capital[69][70][71][72][74] - Interest expense increased to $1,206,316 for the six months ended June 30, 2024, from $670,453 in the prior year, mainly due to amortization of Lind convertible debt discount and payments on the 2023 Lind note[79][130] Note 7. Stockholders' Equity Details changes in stockholders' equity, including common stock issuances for cash, note conversions, and commitment fees during the six months ended June 30, 2024 - During the six months ended June 30, 2024, the Company issued 1,339,656 shares of common stock for $2,982,415 in proceeds, with $2,160,765 received in cash by June 30, 2024[83] - An additional 441,831 shares of common stock were issued to Lind as partial conversion of $944,900 principal from the May 2023 convertible promissory note[84] - Other issuances include 7,092 shares to ClearThink for a commitment fee ($50,000 fair value), 100,000 shares for the Afritex Option Agreement ($630,000 fair value), and 10,000 shares to Hart for a commitment fee ($23,300 fair value)[83] Note 8. Options Summarizes option activity, including outstanding, forfeited, expired, and vested options, and the impact on stock compensation expense for the period | Option Activity (Six Months Ended June 30, 2024) | Number of Options | |:-------------------------------------------------|:------------------| | Outstanding – December 31, 2023 | 6,331 | | Forfeited | 896 | | Expired | 500 | | Vested | 4,078 | | Outstanding – June 30, 2024 | 4,935 | - The Company recognized a net credit to stock compensation expense of $5,623 due to option forfeitures[85] Note 9. Warrants Details warrant activity, including outstanding, forfeited, and expired warrants, and the accounting treatment for warrants issued in connection with debt | Warrant Activity (Six Months Ended June 30, 2024) | Number of Warrants | |:--------------------------------------------------|:-------------------| | Outstanding – December 31, 2023 | 14,619 | | Forfeited or Expired | (2,144) | | Outstanding – June 30, 2024 | 12,475 | - No warrant activity (granted, exercised) occurred during the six months ended June 30, 2024, other than forfeitures/expirations[88] - Warrants issued in connection with the May 2023 and July 2023 Lind promissory notes (8,701 and 3,505 shares, respectively) were recorded as liabilities[86][87] - Series A-1 and A-2 warrants issued in September 2023 are not considered outstanding as of June 30, 2024, as their exercise is contingent upon stockholder approval, which has not been obtained[87][88] Note 10. Commitment and Contingencies Outlines the company's various lease agreements for offices and facilities, and reports on rental and equipment lease expenses for the period - The Company has various office and facility lease agreements, including month-to-month verbal agreements and a five-year lease for TOBC's offices and facility[90][91] - Rental and equipment lease expenses were approximately $76,957 for the six months ended June 30, 2024, a decrease from $92,705 in the prior year[92] Note 11. Subsequent Events Reports on significant events occurring after June 30, 2024, including stock issuances, new loan agreements, and a lawsuit filing - In July 2024, the Company issued 129,700 shares to Lind as partial conversion of a $200,000 principal from the May 2023 convertible promissory note[93] - In July 2024, 9,900 shares were issued to ClearThink's designee for $11,000 in consulting services[93] - On July 25, 2024, the Company entered into a $210,000 term loan with Agile, due January 31, 2025, with weekly payments of $10,889[93] - In August 2024, the Company entered into a private placement offering of $550,000 in promissory notes with Quick Capital and Jefferson Street Capital, issuing 39,300 shares as a commitment fee[94][95] - On July 16, 2024, TOBC filed a lawsuit in British Columbia against its landlords regarding the validity of its commercial lease[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, liquidity, and capital resources for the three and six months ended June 30, 2024, highlighting recent corporate events and performance Overview Provides a brief overview of Blue Star Foods Corp.'s business as an international seafood company and its primary revenue sources - The Company is an international seafood company focused on importing, packaging, and selling refrigerated pasteurized crab meat and other premium seafood products[101] - Primary revenue sources include blue and red swimming crab meat, packaged seafood raw materials via AFVFL, and steelhead salmon and rainbow trout fingerlings under the Little Cedar Farms brand[101] Recent Events Highlights key corporate events, including a reverse stock split, board resignation, NASDAQ compliance, and various debt and equity financing activities - A 1-for-50 reverse stock split became effective on May 20, 2024, following board and stockholder approval[102] - Silvia Alana resigned as a director and Chief Financial Officer, effective May 28, 2024[104] - The Company regained compliance with NASDAQ's minimum bid price and stockholders' equity requirements as of June 11, 2024, but is subject to a one-year discretionary panel monitor[104][105] - New Agile Loans were secured in May and July 2024, totaling $210,000 each, for general corporate purposes and to pay off existing loan balances[105][107] - A FirstFire Note for $240,000 (with a $40,000 discount) was issued on May 17, 2024, accruing 19% interest per annum, with mandatory monthly payments[107][108] - A waiver and acknowledgement agreement was entered with Lind Global Fund II LP on August 3, 2024, regarding an at-the-market offering, with specific conditions on sales volume and payments to Lind[109][110] - An August 2024 Private Placement Offering of $550,000 in promissory notes was executed with Quick Capital and Jefferson Street Capital, including commitment fees in common stock and a conversion option for investors[112][113] Results of Operations Analyzes financial performance, including net revenue, cost of goods sold, gross profit, operating expenses, interest, and net loss for the three and six months ended June 30 | Metric (Three Months Ended June 30) | 2024 | 2023 | Change (%) | |:------------------------------------|:--------------|:--------------|:-----------| | Net Revenue | $1,776,558 | $1,655,562 | 7.3% | | Cost of Goods Sold | $1,482,041 | $1,574,547 | -5.8% | | Gross Profit | $294,517 | $81,015 | 263.5% | | Salaries and Wages Expense | $295,449 | $466,127 | -36.7% | | Other Operating Expense | $689,414 | $662,699 | 4.0% | | Interest Expense | $871,249 | $315,787 | 176.0% | | Net Loss | $(1,841,967) | $(1,451,735) | 26.9% | | Metric (Six Months Ended June 30) | 2024 | 2023 | Change (%) | |:----------------------------------|:--------------|:--------------|:-----------| | Net Revenue | $4,036,887 | $3,554,001 | 13.6% | | Cost of Goods Sold | $3,571,608 | $3,188,624 | 12.0% | | Gross Profit | $465,279 | $365,377 | 27.3% | | Salaries and Wages Expense | $597,239 | $996,965 | -40.1% | | Other Operating Expense | $1,395,065 | $1,362,789 | 2.4% | | Interest Expense | $1,206,316 | $670,453 | 79.9% | | Net Loss | $(2,935,062) | $(3,403,137) | -13.7% | - Revenue increased for both periods due to higher poundage sold[121][126] - Salaries and wages expense decreased significantly due to a strategic reduction in salaries[122][127] - Interest expense rose substantially, driven by the amortization of the Lind convertible debt discount and payments on the 2023 Lind note[125][130] Liquidity and Capital Resources Assesses the company's liquidity position, including cash, working capital, and cash flows from operating and financing activities - As of June 30, 2024, the Company had cash of $73,110 and a working capital surplus of $2,534,259[132] - Cash used in operating activities increased to $2,639,077 for the six months ended June 30, 2024, from $1,573,217 in the prior year, mainly due to changes in payables, customer refunds, and inventory[132] - Cash provided by financing activities increased to $2,650,048, primarily from common stock offerings and short-term loans, with no repayments of the working capital line of credit[133] Off-Balance Sheet Arrangements Confirms that the Company currently has no off-balance sheet arrangements - The Company currently has no off-balance sheet arrangements[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Blue Star Foods Corp. is not required to provide detailed quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to provide information under this item[135] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2024, due to material weaknesses, with remediation planned - Disclosure controls and procedures were deemed ineffective as of June 30, 2024[136] - Material weaknesses identified include: * Inadequate control over inventory monitoring in third-party warehouses * Ineffective controls over the financial close and reporting process * Inadequate segregation of duties, lack of personnel resources, and technical accounting expertise[137] - Planned remediation initiatives include creating a position to segregate duties, hiring personnel with technical accounting expertise, and establishing an internal control framework for financial close and reporting[138] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period[139] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, defaults, and other miscellaneous information and exhibits Item 1. Legal Proceedings There are no material pending legal proceedings to which the Company or its affiliates are a party, or in which any director, officer, or significant security holder has a material adverse interest - No material pending legal proceedings are reported[139] Item 1A. Risk Factors As a smaller reporting company, Blue Star Foods Corp. is not required to provide specific risk factor disclosures under this item in its Form 10-Q - The Company is a smaller reporting company and is not required to provide information under this item[140] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company reported several unregistered sales of equity securities, primarily common stock for consulting services and in satisfaction of convertible promissory notes - Common stock issued to ClearThink Capital's designee for consulting services: * January 23, 2024: 1,528 shares * February 1, 2024: 1,654 shares * March 8, 2024: 2,056 shares * April 8, 2024: 2,391 shares * May 10, 2024: 3,928 shares * July 1, 2024: 9,900 shares[141] - Common stock issued to Lind in satisfaction of a convertible promissory note: * June 6, 2024: 55,954 shares * June 13, 2024: 55,954 shares * June 27, 2024: 113,751 shares * June 28, 2024: 56,970 shares * July 17, 2024: 64,850 shares * July 23, 2024: 64,850 shares[141] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[141] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[141] Item 5. Other Information No other information was reported under this item - No other information was reported[142] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certifications, forms of agreements for the August 2024 Private Placement Offering, and Inline XBRL documents - Key exhibits include: * Certifications of Principal Executive and Financial Officers (31.1, 31.2, 32.1, 32.2) * Forms of Securities Purchase Agreement, Promissory Note, and Registration Rights Agreement for the August 2024 Private Placement Offering (10.86, 10.87, 10.88) * Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[144] SIGNATURES Lists the signatories and their titles for the report, confirming its official submission - The report was signed by John Keeler, Executive Chairman and Chief Executive Officer, and Claudia Campos, Corporate Controller, on August 14, 2024[146]