Borealis Foods(BRLS) - 2024 Q4 - Annual Report

Financial Performance - Net revenue declined 8% year-over-year to $27.7 million in 2024, primarily due to the rationalization of low-margin SKUs and reduced volume with mass retail partners [217]. - Gross profit improved to $2.2 million in 2024, compared to a gross loss of $1.3 million in the prior year, resulting in a net gross margin increase from 9% to 16% [217]. - Sales, General, and Administrative (SG&A) expenses rose 21% year-over-year to $22.6 million, or 82% of net revenue, compared to 62% in the prior year [222]. - Interest expense decreased to $5.1 million from $7.9 million in the prior year, attributed to improved product mix and operational efficiencies [224]. - Net cash used in operating activities for 2024 was $15.09 million, an improvement from $18.01 million in 2023, driven by enhanced gross profit from high-margin products [233]. - Net cash used in investing activities was $1.91 million in 2024, a decrease from $4.47 million in 2023, reflecting a focused approach to capital expenditures [234]. - Net cash provided by financing activities was $10.03 million in 2024, down from $24.94 million in 2023, primarily supporting working capital needs and strategic investments [235]. - Adjusted EBITDA for 2024 was impacted by various non-recurring costs, including $3.73 million for new product launches and $3.17 million for business transaction costs [254]. Revenue Concentration and Customer Relationships - Revenue concentration with Walmart decreased to 22% of total sales from 57% in the prior year, reflecting a strategic pivot to high-margin flagship brands [218]. - Chef Woo, the flagship brand, generated $10.4 million in revenue, a 200% increase year-over-year, representing 38% of total gross sales [220]. - Sales to two customers accounted for approximately 33% and sales to one customer accounted for approximately 57% of net revenues for the fiscal year December 31, 2024 and 2023, respectively [260]. - Accounts receivable from three and two customers amounted to approximately 37% and 50% of total accounts receivable as of December 31, 2024 and 2023, respectively [260]. Liquidity and Capital Structure - As of year-end, the company had $0.65 million in cash, down from $7.62 million the previous year, indicating liquidity constraints [228]. - Following the SPAC merger, the company did not receive any proceeds from the SPAC trust due to 100% redemption, impacting available working capital [229]. - Liquidity constraints limited the company's ability to pursue new customer relationships and invest in marketing initiatives, significantly affecting gross margins [230]. - As of December 31, 2024, cash-on-hand was $0.65 million with negative working capital of $13.61 million, indicating a need for additional capital [237]. - The company incurred approximately $1.51 million in transaction expenses and $1.27 million in employee stock compensation expenses related to the reverse recapitalization in 2024 [239]. - Total contractual obligations and commitments amounted to $59.24 million, with $33.84 million due within one year [240]. - The company is exploring financing options to strengthen its balance sheet and improve liquidity [242]. - Management has identified recurring losses and negative cash flows as factors raising substantial doubt about the company's ability to continue as a going concern [238]. Vendor Relationships and Purchases - Purchases from 10 vendors accounted for approximately 47% and 50% of purchases during the fiscal year December 31, 2024 and 2023, respectively [261]. - Accounts payable to these vendors totaled approximately $3,217,000 and $430,000 as of December 31, 2024 and 2023, respectively [261]. Currency and Costs - A majority of sales have been denominated in U.S. dollars, while a significant portion of operating expenses are in Canadian dollars [262]. - The company has not entered into any hedging arrangements to minimize the impact of foreign currency exchange rate fluctuations [262]. - Certain Selling, General and Administrative costs include business development, transaction costs, and research and development costs, focusing on enhancements to existing products and new product development [265]. - The company believes that continued innovation and new verticals are expected to capture a larger share of consumers [265].