Borealis Foods(BRLS) - 2024 Q3 - Quarterly Report

Financial Performance - Borealis reported net revenues of $7.69 million for Q3 2024, a slight decrease of 0.5% from $7.73 million in Q3 2023[124] - Gross sales for Q3 2024 were $8.08 million, down 2.3% from $8.27 million in the same period last year, primarily due to lower demand for Ramen Express noodles[126] - Borealis reported a net loss of $4.83 million for Q3 2024, an improvement from a net loss of $6.59 million in Q3 2023, driven by favorable product mix and cost management[132] - For the nine months ended September 30, 2024, Borealis reported gross sales of $22.03 million, an 8% decrease from $23.87 million in the same period of 2023[136] - Net revenue for the same period was $20.91 million, down from $22.53 million in 2023, reflecting a decline of $1.62 million[136] - The net loss for the nine months ended September 30, 2024, was $19.56 million, an improvement from a net loss of $20.82 million in the prior year[142] Cost and Profitability - Cost of goods sold (COGS) decreased to $5.95 million, representing 77% of net revenue, down from 93% in Q3 2023, reflecting a 23% improvement[124] - Borealis achieved a gross profit of $1.27 million in Q3 2024, resulting in a gross margin of 17%, a significant increase from a negative margin of (6%) in Q3 2023[127] - Cost of goods sold (COGS) was $18.97 million, representing 91% of net revenue, a significant improvement from 108% in the prior year[137] - Borealis achieved a gross profit of $1.94 million, resulting in a gross margin of 9%, up from a negative margin of (8%) in the comparable period of 2023[137] Operating Expenses - Operating expenses totaled $4.89 million in Q3 2024, representing 64% of net revenue, an increase of 13% compared to the same period in 2023[128] - Sales and marketing expenses rose to $1.12 million, accounting for 15% of net revenue, up from $0.31 million (4%) in Q3 2023, driven by marketing efforts for Chef Woo and Woodles[129] - Business development expenses increased to $1.32 million, representing 17% of net revenue, reflecting a 14% increase from Q3 2023 as Borealis expands distribution channels[130] - General and administrative expenses improved to $1.99 million, or 26% of net revenue, down from $2.79 million (36%) in the prior year, due to optimized administrative costs[131] - Operating expenses totaled $17.72 million, which is 85% of net revenue, marking a 25% increase from the previous year[138] Cash Flow and Capital Needs - Cash used in operating activities was $14.27 million, an improvement from $16.06 million used in the same period of 2023[147] - Borealis anticipates needing additional capital to meet funding requirements through fiscal 2025, with cash-on-hand of $721,542 and negative working capital of ($16.87 million) as of September 30, 2024[153] Business Strategy and Market Position - The company is focused on scaling high-margin, premium products while managing the transition away from legacy offerings, expecting robust demand for Chef Woo and Woodles[143] - Borealis remains an emerging growth company until the market value of common shares held by non-affiliates equals or exceeds $700 million or total annual gross revenue reaches $1.235 billion[160] - Borealis is classified as a smaller reporting company, allowing it to provide only two years of audited financial statements until market value exceeds $250 million or annual revenues exceed $100 million[161] Risks and Challenges - Sales to four customers accounted for approximately 53% of net revenues for the three months ended September 30, 2024, indicating significant customer concentration risk[174] - Purchases from 10 vendors accounted for approximately 51% of total purchases during the three months ended September 30, 2024[175] - Foreign currency risk arises from transactions in currencies other than U.S. dollars, with a significant portion of operating expenses in Canadian dollars and key inputs in Euros[176] - Inflation has not significantly impacted Borealis' results, but potential inflationary pressures could affect the ability to offset higher costs with price increases[179] Adjusted EBITDA - Adjusted EBITDA for Q3 2024 was $17, a significant improvement from an adjusted EBITDA of $(921) in the same period last year[124] - Adjusted EBITDA for the nine months ended September 30, 2024, was impacted by expenses including new product launch costs of $5.07 million and business transaction costs of $1.77 million[166] Selling, General and Administrative Costs - Selling, General and Administrative costs include business development and research and development expenses, focusing on product enhancements and new product development[180]