Blue Star(US:BSFC)2024-05-15 15:54PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited consolidated financial statements for Q1 2024, including balance sheets, statements of operations, equity, cash flows, and notes Consolidated Balance Sheets (Unaudited) | ASSETS / LIABILITIES AND STOCKHOLDERS' EQUITY | March 31, 2024 | December 31, 2023 | | :-------------------------------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $22,298 | $24,163 | | Accounts receivable, net | $910,815 | $534,195 | | Inventory, net | $2,280,480 | $2,608,521 | | Total Current Assets | $4,539,604 | $4,095,876 | | Total Assets | $6,858,362 | $6,362,498 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable and accruals | $1,061,169 | $661,377 | | Total Current Liabilities | $3,669,807 | $3,196,661 | | Total Liabilities | $4,282,022 | $3,767,576 | | Total Stockholders' Equity | $2,576,340 | $2,594,922 | Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenue, Net | $2,260,329 | $1,898,439 | | Cost of Revenue | $2,089,567 | $1,614,077 | | Gross Profit | $170,762 | $284,362 | | Loss From Operations | $(842,199) | $(950,208) | | Net Loss | $(1,093,095) | $(1,951,402) | | Comprehensive Loss | $(1,015,062) | $(1,865,828) | | Net loss per common share | $(0.04) | $(1.10) | | Weighted average common shares outstanding | 26,387,484 | 1,688,843 | Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited) - Stockholders' Equity (Deficit) decreased slightly from $2,594,922 as of December 31, 2023, to $2,576,340 as of March 31, 2024, primarily due to a net loss of $1,093,095, partially offset by common stock issuances for cash, services, and loan commitment fees179189219 Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash (Used in) Operating Activities | $(679,928) | $(1,406,778) | | Net Cash (Used in) Investing Activities | $(23,146) | $(15,351) | | Net Cash Provided by Financing Activities | $622,626 | $1,515,941 | | Net Increase in Cash and Cash Equivalents | $(1,865) | $179,648 | | Cash and Cash Equivalents – End of Period | $22,298 | $188,910 | Notes to Unaudited Consolidated Financial Statements Note 1. Company Overview - Blue Star Foods Corp is an international sustainable marine protein company importing, packaging, and selling refrigerated pasteurized crab meat and other premium seafood products under various brand names. The company's revenue sources include blue and red swimming crab meat, steelhead salmon, rainbow trout, and packaged seafood inventory from its subsidiaries193297 - On February 1, 2024, the Company entered into a Master Services Agreement with Afritex Ventures, Inc., taking responsibility for Afritex's operations and finance functions, providing working capital, and purchasing inventory. This agreement automatically extends for three 30-day periods if Afritex's debt is below $325,00019267 - On February 12, 2024, the Company entered into an Option Agreement with Afritex to potentially purchase its intangible assets, machinery, and equipment for $554,714 cash and 5,000,000 shares of common stock held in escrow. The closing is contingent on Afritex's debt restructuring182 Note 2. Summary of Significant Accounting Policies - The financial statements are unaudited interim consolidated statements prepared in accordance with SEC rules and GAAP, reflecting normal recurring adjustments. They should be read in conjunction with the 2023 Annual Report on Form 10-K223 - Revenue is recognized when customers obtain control of goods or services, reflecting the expected consideration. The Company's revenue streams include crab meat, steelhead salmon, rainbow trout, and packaged seafood, primarily sold to food service distributors, wholesalers, and retail establishments197198224 - Inventory is valued at the lower of cost or net realizable value, using the specific identification method for crab meat and raw materials, and estimated biomass for fish in process. An inventory allowance of $336,049 was recorded for the three months ended March 31, 2024202229231 - The Company accounts for leases under ASC 842, recognizing right-of-use assets and lease obligations on the balance sheet. As of March 31, 2024, operating lease assets were $114,807 and operating lease liabilities were $35,650 (current) and $79,157 (noncurrent)204205206232234 - Financial instruments, including derivative and warrant liabilities, are measured at fair value using the Black-Scholes option pricing model. The derivative liability on convertible debt was $957,265 and warrant liability was $402 as of March 31, 202459240 Note 3. Going Concern - The Company's ability to continue as a going concern is in substantial doubt due to a net loss of $1,093,095 for the three months ended March 31, 2024, an accumulated deficit of $34,903,827, and reliance on increasing revenues, acquiring complementary companies, and raising capital211 Note 4. Other Current Assets - Other current assets increased to $1,326,011 as of March 31, 2024, from $833,472 as of December 31, 2023. This balance primarily includes prepaid inventory ($404,000), prepaid legal fees ($158,000), and receivables for shares issuance ($390,000) from ClearThink14242 Note 5. Fixed Assets, Net | Fixed Assets Category | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Computer equipment | $47,908 | $47,908 | | RAS system | $138,588 | $140,214 | | Leasehold improvements | $17,904 | $17,904 | | Building Improvements | $159,798 | $136,653 | | Total | $364,198 | $342,679 | | Less: Accumulated depreciation | $(40,121) | $(38,822) | | Fixed assets, net | $324,077 | $303,857 | - Depreciation expense for fixed assets was approximately $1,300 for the three months ended March 31, 2024, an increase from $1,000 in the same period of 2023274 Note 6. Debt Working Capital Line of Credit - The $5,000,000 revolving line of credit with Lighthouse Financial Corp was terminated on June 16, 2023, with approximately $108,400 paid, including principal, accrued interest, and fees34118 John Keeler Promissory Notes - As of March 31, 2024, approximately $86,000 in principal remained outstanding on unsecured promissory notes to John Keeler, accruing 6% annual interest. The Company made principal payments of $79,582 during the three months ended March 31, 2024, compared to no principal payments in the prior year period113276 Walter Lubkin Jr. Note - The outstanding principal balance on the Walter Lubkin Jr note was $100,000 as of March 31, 2024, and December 31, 2023. Interest expense for this note was approximately $1,000 for the three months ended March 31, 2024, down from $3,500 in the prior year period36277 Lind Global Fund II LP notes - The 2022 Lind Note, with a principal of $5,750,000, was extinguished on September 15, 2023, after a payment of $2,573,142. Amortization expense related to this debt discount was $0 for the three months ended March 31, 2024, compared to $273,614 in the prior year period69131215 - The 2023 Lind Note, a $1,200,000 convertible promissory note, was issued on May 30, 2023, with a variable conversion price, leading to an embedded conversion feature accounted for as a derivative liability. During Q1 2024, $60,000 of principal was converted into 750,000 shares of common stock3841251 - On July 27, 2023, an amendment to the Purchase Agreement with Lind allowed for the issuance of an additional $300,000 convertible promissory note and warrants, with the embedded conversion feature also treated as a derivative liability72252284 Agile Lending, LLC Loans - On January 2, 2024, the Company entered into a $122,491 term loan with Agile, due May 31, 2024, with weekly payments of $7,795. As of March 31, 2024, the outstanding balance was $50,110, after principal payments of $72,381128254 - A $210,000 term loan with Agile, dated October 19, 2023, was fully repaid by March 31, 2024, with principal payments totaling $112,000 and interest payments of $47,250 during Q1 202442 - On March 1, 2024, another $210,000 term loan was secured with Agile, due August 29, 2024, with weekly payments of $11,146. The outstanding balance was $176,562 as of March 31, 2024, after principal payments of $33,43874139 ClearThink Term Loan - On January 18, 2024, the Company entered into a 33-week term loan of $200,000 with ClearThink Capital LLC, with a 25% annual interest rate and biweekly payments of $14,706. As of March 31, 2024, the outstanding balance was $141,176, after principal payments of $58,82443140 - A commitment fee of $50,000 for the ClearThink loan was paid by issuing 354,610 shares of common stock on January 25, 20244376140 Note 7. Stockholders' Equity - During Q1 2024, the Company issued 11,332,787 shares of common stock for $836,360 in cash proceeds from ClearThink, with $446,360 received by March 31, 2024, and the remaining $390,000 in April 2024263288 - The Company issued 5,000,000 shares of common stock with a fair value of $630,000 to be held in escrow for the Option Agreement with Afritex Texas on February 12, 202445 - 750,000 shares of common stock were issued to Lind on March 11, 2024, as partial conversion of $60,000 principal from the May 2023 convertible promissory note257 Note 8. Options | Option Activity | Number of Options | Weighted Average Exercise Price | | :------------------------ | :---------------- | :------------------------------ | | Outstanding – Dec 31, 2023 | 316,540 | $31.11 | | Exercisable – Dec 31, 2023 | 219,908 | $31.11 | | Outstanding – Mar 31, 2024 | 316,540 | $29.50 | | Exercisable – Mar 31, 2024 | 230,152 | $29.50 | - The Company recognized $8,800 of compensation expense for vested stock options issued to directors, contractors, and employees during Q1 2024290 Note 9. Warrants | Warrant Activity | Number of Warrants | Weighted Average Exercise Price | | :------------------------ | :----------------- | :------------------------------ | | Outstanding – Dec 31, 2023 | 730,944 | $12.04 | | Exercisable – Dec 31, 2023 | 555,710 | $15.41 | | Forfeited or Expired | (50,000) | - | | Outstanding – Mar 31, 2024 | 680,944 | $6.31 | | Exercisable – Mar 31, 2024 | 680,944 | $6.31 | - No warrant activity occurred during the three months ended March 31, 2024. Series A-1 and A-2 warrants issued in September 2023 are not considered outstanding as of March 31, 2024, as their exercise is contingent upon stockholder approval, which has not yet been obtained48260292 Note 10. Commitment and Contingencies - The Company has various lease agreements, including a month-to-month verbal lease for executive offices ($17,400 paid in Q1 2024) and a month-to-month verbal lease for Coastal Pride's operations ($4,500 paid in Q1 2024). Total rental and equipment lease expenses were approximately $42,600 for Q1 2024495079261 Note 11. Subsequent Events - On April 4, 2024, the Company entered into a two-year contract manufacturing agreement with Afritex Ventures, Inc and Eagle Rising Food Solutions LLC, effective March 21, 2024, for food product manufacturing and consulting services51267 - In April 2024, the Company issued 9,000,000 shares of common stock for $518,000 cash proceeds to ClearThink and 119,565 shares for consulting services528196 - On April 16, 2024, the Company issued a $138,000 convertible promissory note to 1800 Diagonal Lending LLC, with a $23,000 original issue discount and a $26,220 interest payment due January 15, 202582299 - On April 16, 2024, the Company issued a $300,000 promissory note to Hart Associates, LLC, with a $50,000 interest payment due May 15, 2024 (extendable up to 90 days)86264 - On April 9 and April 22, 2024, the Company issued 1,351,351 and 1,403,508 shares of common stock to Lind as partial conversion of $100,000 and $80,000 principal, respectively, from the May 2023 convertible promissory note294 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial performance, condition, and liquidity, highlighting operational changes and recent events Overview - Blue Star Foods Corp is an international seafood company focused on importing, packaging, and selling refrigerated pasteurized crab meat and other premium seafood products. Revenue is generated from various seafood products distributed in the US and Canada, primarily to food service distributors297 Recent Events - The Company entered into a Master Services Agreement with Afritex Ventures, Inc on February 1, 2024, taking over operations and finance functions, providing working capital, and purchasing inventory. This was followed by a two-year contract manufacturing agreement with Afritex and Eagle Rising Food Solutions LLC, effective March 21, 202499267 - The Company received a letter from Nasdaq on March 26, 2024, regarding non-compliance with the minimum bid price requirement. An appeal was filed, and Nasdaq granted continued listing subject to meeting specific compliance criteria by May 30, 2024, including a $1.00 bid price for ten consecutive trading sessions56100298 - Stockholders approved a reverse stock split (ratio 1-for-2 to 1-for-50) on April 30, 2024. On May 3, 2024, the Company entered into an At The Market (ATM) Offering Agreement with H.C. Wainwright & Co, LLC to sell up to $2,199,769 of common stock for working capital and debt repayment87101269 - Silvia Alana, Director and Chief Financial Officer, notified the Company of her resignation effective May 28, 2024538897169270 Results of Operations (Three months ended March 31, 2024 and 2023) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2123 | Change (YoY) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net Revenue | $2,260,329 | $1,898,439 | +19.1% | | Cost of Goods Sold | $2,089,567 | $1,614,077 | +29.5% | | Gross Profit | $170,762 | $284,362 | -39.9% | | Commissions Expense | $4,221 | $973 | +333.8% | | Salaries and Wages Expense | $301,790 | $530,838 | -43.1% | | Depreciation and Amortization | $1,299 | $2,669 | -51.3% | | Other Operating Expense | $705,651 | $700,090 | +0.8% | | Other Income | $1,535 | $1,902 | -19.2% | | Change in Fair Value of Derivatives and Warrants Liabilities | $82,636 | $0 | N/A | | Loss on Settlement of Debt | $0 | $648,430 | -100% | | Interest Expense | $335,067 | $354,666 | -5.5% | | Net Loss | $(1,093,095) | $(1,951,402) | -44.0% | Liquidity and Capital Resources - Cash used in operating activities decreased to $679,928 for Q1 2024 from $1,406,778 for Q1 2023, primarily due to a decrease in inventory and payables, offset by an increase in other current assets95 - Cash used in investing activities increased to $23,146 for Q1 2024 from $15,351 for Q1 2023, mainly due to increased purchases of fixed assets115 - Cash provided by financing activities decreased to $622,626 for Q1 2024 from $1,515,941 for Q1 2023, attributed to increased repayments of short-term loans and less proceeds from common stock offerings110 - As of March 31, 2024, the Company had cash of $22,298 and a working capital surplus of $869,797. Liquidity sources include inventory ($2,280,480) and accounts receivable ($910,815)109 - The Company has historically financed operations through cash flow, capital investment, notes payable, and a working capital line of credit. The Lighthouse Financial Corp line of credit was terminated in June 2023109118 - The Company issued 690,000 shares of common stock, along with Series A-1 and A-2 warrants and pre-funded warrants, in a 'best efforts' public offering on September 11, 2023. H.C. Wainwright & Co, LLC acted as placement agent, receiving a 7% fee134135136 - In a 2021 underwritten public offering, the Company sold 800,000 shares of common stock at $5.00 per share, generating approximately $3,600,000 in net proceeds for general corporate purposes, including working capital and potential acquisitions141142 - The Company currently has no off-balance sheet arrangements144149 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, detailed quantitative and qualitative market risk disclosures are not required - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk138 Item 4. Controls and Procedures Evaluates disclosure controls and procedures, identifies material weaknesses, and outlines remediation initiatives for internal controls Evaluation of Disclosure Controls and Procedures - As of March 31, 2024, management concluded that disclosure controls and procedures were not effective due to identified material weaknesses, including inadequate segregation of duties, insufficient personnel with technical accounting expertise, ineffective controls over financial close and reporting, and inadequate monitoring of third-party warehouse inventory145151166167 Management's Remediation Initiatives - To remediate identified material weaknesses, the Company plans to create a position to segregate duties and hire personnel with technical accounting expertise. Additionally, an internal control framework will be established to address the financial close and reporting process146157167 Changes in Internal Control over Financial Reporting - During the period covered by this Quarterly Report, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting170 PART II - OTHER INFORMATION Item 1. Legal Proceedings Confirms no material pending legal proceedings involving the Company or its key stakeholders - There are no material pending legal proceedings to which the Company is a party or in which any director, officer, or significant shareholder has an adverse material interest153168 Item 1A. Risk Factors As a smaller reporting company, risk factor discussion refers to the Annual Report on Form 10-K, not required in this report - The Company is a smaller reporting company and is not required to provide risk factor information in this report. A description of risks and uncertainties can be found in the Annual Report on Form 10-K for the year ended December 31, 2023158173 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports unregistered equity securities sales during the period, noting exemptions from registration requirements - No unregistered sales of equity securities were made during the period covered by this report that were not previously reported, except as noted. These issuances are believed to be exempt from registration requirements under Section 4(2) of the Securities Act of 1933154155 - On April 8, 2024, the Company issued 119,565 shares of common stock to ClearThink's designee for consulting services159 Item 3. Defaults Upon Senior Securities States no defaults occurred upon senior securities during the reporting period - There were no defaults upon senior securities during the three months ended March 31, 2024156160 Item 4. Mine Safety Disclosures Indicates mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable to the Company160169 Item 5. Other Information Reports CFO resignation and confirms no Rule 10b5-1 trading arrangements by directors or officers - Silvia Alana, a director and the Company's Chief Financial Officer, notified her resignation from both roles, effective May 28, 2024. Her resignation was not due to any disagreement with the Company156169 - During Q1 2024, none of the Company's directors or officers adopted or terminated any Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1 trading arrangements156 Item 6. Exhibits Lists exhibits filed as part of Form 10-Q, including certifications and Inline XBRL documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act of 2002) and various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File)161