UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2024

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

Commission file number: 001-40991

 

BLUE STAR FOODS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware		82-4270040
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

3000 NW 109th Avenue Miami, Florida 33172

(Address of principal executive offices)

 

(305) 836-6858

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value		BSFC		The NASDAQ Stock Market LLC (NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of May 15, 2024, there were 52,659,795 shares of the registrant’s common stock outstanding.

 

 

 

BLUE STAR FOODS CORP.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

 

TABLE OF CONTENTS

 

		PAGE
PART I - FINANCIAL INFORMATION		4
Item 1.	Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II - OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include, among others, those statements including the words “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans” and words of similar import. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include changes in local, regional, national or global political, economic, business, competitive, market (supply and demand), regulatory conditions and the following:

 

	●	Our ability to raise capital when needed and on acceptable terms and conditions;
	●	Our ability to make acquisitions and integrate acquired businesses into our company;
	●	Our ability to attract and retain management with experience in the business of importing, packaging and selling of seafood;
	●	Our ability to negotiate, finalize and maintain economically feasible agreements with suppliers and customers;
	●	The availability of crab meat and other premium seafood products we sell;
	●	The intensity of competition; and
	●	Changes in the political and regulatory environment and in business and fiscal conditions in the United States and overseas.

 

A description of these and other risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 which we filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024. The risks and uncertainties described under “Risk Factors” are not exhaustive.

 

Given these uncertainties, readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

 

All references in this Quarterly Report to the “Company”, “we”, “us”, or “our”, are to Blue Star Foods Corp., a Delaware corporation, and its consolidated subsidiaries, John Keeler & Co., Inc., d/b/a Blue Star Foods, a Florida corporation (“Keeler & Co.”), and its wholly-owned subsidiary, Coastal Pride Seafood, LLC, a Florida limited liability company (“Coastal Pride”), Taste of BC Aquafarms, Inc., a corporation formed under the laws of the Province of British Columbia, Canada (“TOBC”) and Afritex Ventures, Inc., a Florida corporation (“AFVFL”).

 

All references to shares of common stock of the Company in this Quarterly Report have been adjusted to reflect the Company’s 1:20 reverse stock split effective as of June 21, 2023 (the “Reverse Stock Split”).

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 

Blue Star Foods Corp.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		MARCH 31, 2024				DECEMBER 31, 2023
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	22,298			$	24,163
Accounts receivable, net of allowances and credit losses of $34,968 and $31,064			910,815				534,195
Inventory, net			2,280,480				2,608,521
Advances to related party			-				95,525
Other current assets			1,326,011				833,472
Total Current Assets			4,539,604				4,095,876
RELATED PARTY LONG-TERM RECEIVABLE			435,545				435,545
FIXED ASSETS, net			324,077				303,857
RIGHT OF USE ASSET			114,807				125,014
ADVANCES TO RELATED PARTY			1,299,984				1,299,984
OTHER ASSETS			144,345				102,222
TOTAL ASSETS		$	6,858,362			$	6,362,498
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accruals		$	1,061,169			$	661,377
Customer refunds			178,874				189,975
Deferred income			47,263				47,819
Current maturities of lease liabilities			35,650				35,428
Current maturities of related party long-term notes			100,000				100,000
Loan payable			412,265				156,938
Related party notes payable - subordinated			86,038				165,620
Derivative liability			957,265				1,047,049
Warrants liability			402				1,574
Other current liabilities			790,881				790,881
Total Current Liabilities			3,669,807				3,196,661
LONG-TERM LIABILITIES
Lease liability, net of current portion			79,157				89,586
Debt, net of current portion and discounts			533,058				481,329
TOTAL LIABILITIES			4,282,022				3,767,576
STOCKHOLDERS’ EQUITY
Series A 8% cumulative convertible preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024, and 0 shares issued and outstanding as of December 31, 2023			-				-
Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,785,371 shares issued and outstanding as of March 31, 2024, and 23,086,077 shares issued and outstanding as of December 31, 2023			3,593				2,324
Additional paid-in capital			37,654,859				36,659,648
Accumulated other comprehensive loss			(101,962	)			(179,995	)
Accumulated deficit			(34,903,827	)			(33,810,732	)
Treasury stock, 7,564 shares as of March 31, 2024 and 7,564 shares as of December 31, 2023			(76,323	)			(76,323	)
TOTAL STOCKHOLDERS’ EQUITY			2,576,340				2,594,922
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	6,858,362			$	6,362,498

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

		Three Months Ended March 31
		2024				2023
REVENUE, NET		$	2,260,329			$	1,898,439
COST OF REVENUE			2,089,567				1,614,077
GROSS PROFIT			170,762				284,362
COMMISSIONS			4,221				973
SALARIES AND WAGES			301,790				530,838
DEPRECIATION AND AMORTIZATION			1,299				2,669
OTHER OPERATING EXPENSES			705,651				700,090
LOSS FROM OPERATIONS			(842,199	)			(950,208	)
OTHER INCOME			1,535				1,902
CHANGE IN FAIR VALUE OF DERIVATIVE AND WARRANT LIABILITIES			82,636				-
LOSS ON SETTLEMENT OF DEBT			-				(648,430	)
INTEREST EXPENSE			(335,067	)			(354,666	)
NET LOSS			(1,093,095	)			(1,951,402	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(1,093,095	)		$	(1,951,402	)
COMPREHENSIVE LOSS:
CHANGE IN FOREIGN CURRENCY TRANSLATION ADJUSTMENT			78,033				85,574
COMPREHENSIVE LOSS			(1,015,062	)			(1,865,828	)
Loss per common share:
Net loss per common share - basic and diluted		$	(0.04	)		$	(1.10	)
Weighted average common shares outstanding - basic and diluted			26,387,484				1,688,843

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2024 AND 2023

 

		Shares				Amount				Shares				Amount				Capital				Deficit				Income (Loss)				Stock				Equity
		Series A Preferred Stock $.0001 par value								Common Stock $.0001 par value								Additional Paid-in				Accumulated				Accumulated Other Comprehensive				Treasury				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Income (Loss)				Stock				Equity
December 31, 2023			-			$	-				23,086,077			$	2,324			$	36,659,648			$	(33,810,732	)		$	(179,995	)		$	(76,323	)		$	2,594,922
Stock based compensation			-				-				-				-				8,800				-				-				-				8,800
Common stock issued for service			-				-				261,897				26				32,974				-				-				-				33,000
Common stock issued for conversion of note payable			-				-				750,000				75				68,245				-				-				-				68,320
Common stock issued for cash											11,332,787				1,133				835,227				-				-				-				836,360
Common stock issued for loan commitment fees			-				-				354,610				35				49,965				-				-				-				50,000
Net Loss			-				-				-				-				-				(1,093,095	)			-				-				(1,093,095	)
Cumulative translation adjustment			-				-				-				-				-				-				78,033				-				78,033
March 31, 2024			-			$	-				35,785,371			$	3,593			$	37,654,859			$	(34,903,827	)		$	(101,962	)		$	(76,323	)		$	2,576,340

 

		Series A Preferred Stock $.0001 par value								Common Stock $.0001 par value								Additional Paid-in				Accumulated				Accumulated Other Comprehensive				Treasury				Total Stockholders’ Equity
		Shares				Amount				Shares				Amount				Capital				Deficit				Income (Loss)				Stock				(Deficit)
December 31, 2022			-			$	-				1,338,321			$	134			$	28,329,116			$	(29,339,120	)		$	(235,853	)		$	-			$	(1,245,723	)
Balance			-			$	-				1,338,321			$	134			$	28,329,116			$	(29,339,120	)		$	(235,853	)		$	-			$	(1,245,723	)
Stock based compensation			-				-				-				-				20,190				-				-				-				20,190
Common stock issued for service			-				-				3,288				1				22,999				-				-				-				23,000
Common stock issued for note payment			-				-				373,533				37				1,743,193				-				-				-				1,743,230
Common stock issued for cash			-				-				473,705				47				1,880,645				-				-				-				1,880,692
Repurchase of common stock			-				-				-				-				-				-				-				(76,323	)			(76,323	)
Net Loss			-				-				-				-				-				(1,951,402	)			-				-				(1,951,402	)
Cumulative translation adjustment			-				-				-				-				-				-				85,574				-				85,574
March 31, 2023			-			$	-				2,188,847			$	219			$	31,996,143			$	(31,290,522	)			(150,279	)		$	(76,323	)		$	479,238
Balance			-			$	-				2,188,847			$	219			$	31,996,143			$	(31,290,522	)			(150,279	)		$	(76,323	)		$	479,238

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		2024				2023
		Three Months Ended March 31
		2024				2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(1,093,095	)		$	(1,951,402	)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Stock based compensation			8,800				20,190
Common stock issued for service			33,000				23,000
Depreciation of fixed assets			1,299				1,046
Amortization of intangible assets			-				1,623
Amortization of debt discounts			113,352				273,614
Allowance for inventory obsolescence			160,049				-
Loss on settlement of debt			-				648,430
Lease expense			10,207				16,422
Credit loss expense			4,051				-
Gain on revaluation of fair value of derivative and warrant liabilities			(82,636	)			-
Changes in operating assets and liabilities:
Accounts receivables			(380,671	)			(231,928	)
Inventories			167,992				1,294,534
Advances to related parties			95,525				-
Other current assets			(102,539	)			(251,352	)
Right of use liability			(10,207	)			(16,457	)
Other assets			6,254				-
Accounts payable and accruals			388,691				(1,234,498	)
Net Cash (Used in) Operating Activities			(679,928	)			(1,406,778	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets			(23,146	)			(15,351	)
Net Cash (Used in) Investing Activities			(23,146	)			(15,351	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock offering			446,360				1,880,692
Proceeds from working capital line of credit			-				1,165,765
Proceeds from short-term loan			532,491				-
Repayments of working capital line of credit			-				(1,454,193	)
Repayments of short-term loan			(276,643	)			-
Repayments of related party notes payable			(79,582	)			-
Purchase of treasury stock			-				(76,323	)
Net Cash Provided by Financing Activities			622,626				1,515,941
Effect of Exchange Rate Changes on Cash			78,583				85,836
NET INCREASE IN CASH AND CASH EQUIVALENTS			(1,865	)			179,648
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD			24,163				9,262
CASH AND CASH EQUIVALENTS – END OF PERIOD		$	22,298			$	188,910
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	234,051			$	86,811
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Common stock issued for partial settlement of note payable			68,320				1,743,230
Common stock issued for loan commitment fees			50,000				-

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Company Overview

 

Blue Star Foods Corp., a Delaware corporation (“we”, “our”, the “Company”), is an international sustainable marine protein company based in Miami, Florida that imports, packages and sells refrigerated pasteurized crab meat, and other premium seafood products. The Company’s main operating business, John Keeler & Co., Inc. (“Keeler & Co.”) was incorporated in the State of Florida in May 1995. The Company has three other subsidiaries, Coastal Pride, TOBC and AFVFL which maintain the Company’s fresh crab meat, steelhead salmon and packaged seafood and other inventory businesses, respectively. The Company’s current source of revenue is from importing blue and red swimming crab meat primarily from Indonesia, Philippines and China and distributing it in the United States and Canada under several brand names such as Blue Star, Oceanica, Pacifika, Crab & Go, First Choice, Good Stuff and Coastal Pride Fresh, steelhead salmon and rainbow trout produced under the brand name Little Cedar Farms for distribution in Canada and purchasing raw materials for packaged seafood and other inventory under AFVFL to be sold to various customers in the United States.

 

On February 3, 2022, Coastal Pride entered into an asset purchase agreement with Gault Seafood, LLC, a South Carolina limited liability company (“Gault Seafood”), and Robert J. Gault II, President of Gault Seafood (“Gault”) pursuant to which Coastal Pride acquired all of the Seller’s right, title and interest in and to assets relating to Gault Seafood’s soft-shell crab operations, including intellectual property, equipment, vehicles and other assets used in connection with the soft-shell crab business. Coastal Pride did not assume any liabilities in connection with the acquisition. The purchase price for the assets consisted of a cash payment in the amount of $359,250 and the issuance of 8,355 shares of common stock of the Company with a fair value of $359,250. Such shares were subject to a leak-out agreement pursuant to which Gault Seafood could not sell or otherwise transfer the shares until February 3, 2023.

 

On June 9, 2023, the Company amended its Certificate of Incorporation to affect a one-for-twenty reverse stock split (“Reverse Stock Split”), which became effective on June 21, 2023. All share and per share amounts have been restated for all periods presented to reflect the Reverse Stock Split.

 

On February 1, 2024, the Company entered into a ninety-day Master Services Agreement (the “Services Agreement”) with Afritex Ventures, Inc. a Texas corporation (“Afritex”), pursuant to which the Company will be responsible for all of Afritex’s operations and finance functions. The Company will provide Afritex with working capital in order to sustain operations and will purchase certain inventory listed in the Services Agreement. In consideration for its services, during the term of the Services Agreement, the Company will earn all of the revenue and profits by the purchase and sale of Afritex’s inventory. Under the Services Agreement, Afritex may not sell or otherwise use as consideration any of its intellectual property without the Company’s consent. The Company must maintain certain commercial liability insurance during the term of the Services Agreement. The Services Agreement also provides that the Company may not solicit Afritex employees for 24 months nor circumvent existing business relationships of Afritex for three years, after the term of the Services Agreement. The term of the Services Agreement will automatically extend for three thirty-day periods, if Afritex’s outstanding debt is no greater than $325,000. To date, the Company has automatically extended the Services Agreement for the first additional 30-day period.

 

 

In connection with the Services Agreement, on February 12, 2024, the Company entered into an Intangibles Assets and Machinery Option To Purchase Agreement with Afritex (the “Option Agreement”). Pursuant to the Option Agreement, the Company has the option to purchase Afritex’s intangible assets, machinery and equipment set forth in the Option Agreement for a purchase price of $554,714 for machinery and equipment and 5,000,000 shares of the Company’s common stock were issued on February 12, 2024 to be held in escrow, for intangible assets. In addition, for one year from the date of the Option Agreement, Afritex has an option to purchase up to $1,000,000 shares of the Company’s common stock at a 10% discount to the lowest volume-weighted average price in the immediately prior five days. The sale of any shares acquired by Afritex under the Option Agreement are subject to a “leak-out” provision as set forth in the Option Agreement. The closing of the Option Agreement is subject to, among other things, the successful restructuring of Afritex’s accounts payable debts so that no individual debt of $85,000 or aggregate debt of more than $325,000 is outstanding. The Option Agreement may be terminated if, among others, the closing has not has not occurred within 90 days, unless extended for two additional 30-day periods at the Company’s sole discretion. To date, the Company has extended the Option Agreement for the first additional 30-day period and has not exercised its option to purchase such intangibles assets, machinery and equipment.

 

In connection with the Services Agreement, on February 1, 2024, AFVFL, a wholly-owned subsidiary of the Company, was incorporated in the State of Florida for the purpose of purchasing raw materials from Afritex for the preparation of packaged seafood and other inventory to be sold to various customers in the United States.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet as of December 31, 2023 has been derived from the Company’s annual financial statements that were audited by our independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024 for a broader discussion of our business and the risks inherent in such business.

 

Advances to Suppliers and Related Party

 

In the normal course of business, the Company may advance payments to its suppliers, including of Bacolod Blue Star Export Corp. (“Bacolod”), a related party based in the Philippines. These advances are in the form of prepayments for products that will ship within a short window of time. In the event that it becomes necessary for the Company to return products or adjust for quality issues, the Company is issued a credit by the vendor in the normal course of business and these credits are also reflected against future shipments.

 

As of March 31, 2024, and December 31, 2023, the balance due from the related party for future shipments was approximately $1,300,000. No new purchases have been made from Bacolod since November 2020. There was no cost of revenue related to inventories purchased from Bacolod recorded for the three months ended March 31, 2024 and 2023.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, as such, we record revenue when our customer obtains control of the promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company’s source of revenue is from importing blue and red swimming crab meat primarily from Mexico, Indonesia, the Philippines and China and distributing it in the United States and Canada under several brand names such as Blue Star, Oceanica, Pacifika, Crab & Go, First Choice, Good Stuff and Coastal Pride Fresh, steelhead salmon and rainbow trout fingerlings produced by TOBC under the brand name Little Cedar Farms for distribution in Canada and purchasing raw materials for packaged seafood and other inventory under AFVFL. The Company sells primarily to food service distributors. The Company also sells its products to wholesalers, retail establishments and seafood distributors.

 

 

To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer by receipt of purchase orders and confirmations sent by the Company which includes a required line of credit approval process, (2) identify the performance obligations in the contract which includes shipment of goods to the customer FOB shipping point or destination, (3) determine the transaction price which initiates with the purchase order received from the customer and confirmation sent by the Company and will include discounts and allowances by customer if any, (4) allocate the transaction price to the performance obligations in the contract which is the shipment of the goods to the customer and transaction price determined in step 3 above and (5) recognize revenue when (or as) the entity satisfies a performance obligation which is when the Company transfers control of the goods to the customers by shipment or delivery of the products.

 

The Company elected an accounting policy to treat shipping and handling activities as fulfillment activities. Consideration payable to a customer is recorded as a reduction of the arrangement’s transaction price, thereby reducing the amount of revenue recognized, unless the payment is for distinct goods or services received from the customer.

 

Accounts Receivable

 

Accounts receivable consist of unsecured obligations due from customers under normal trade terms, usually net 30 days. The Company grants credit to its customers based on the Company’s evaluation of a particular customer’s credit worthiness.

 

Allowances for credit losses are maintained for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. Receivables are written off as uncollectible and deducted from the allowance for doubtful accounts after collection efforts have been deemed to be unsuccessful. Subsequent recoveries are netted against the allowance for credit losses. The Company generally does not charge interest on receivables.

 

Receivables are net of estimated allowances for doubtful accounts and sales return, allowances and discounts. They are stated at estimated net realizable value. As of March 31, 2024, the Company recorded allowances for sales returns, allowances and discounts of $34,968 and refund liability of $178,874. For the three months ended March 31, 2024, the Company recorded an allowance for bad debt of approximately $4,000. As of December 31, 2023, the Company recorded sales return, allowances and discounts of $31,064 and refund liability of $189,975. There was no allowance for bad debt recorded for the year ended December 31, 2023.

 

Inventories

 

Substantially all of the Company’s inventory consists of packaged crab meat located at a public cold storage facility and merchandise in transit from suppliers. The Company also has eggs and fish in process inventory from TOBC and raw materials for packaged seafood and other inventory from AFVFL. The cost of inventory is primarily determined using the specific identification method for crab meat and raw materials for packaged seafood inventory. Fish in process inventory is measured based on the estimated biomass of fish on hand. The Company has established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques. Inventory is valued at the lower of cost or net realizable value, cost being determined using the first-in, first-out method for crab meat and raw materials for packaged seafood inventory and using various estimates and assumptions in regard to the calculation of the biomass, including expected yield, market value of the biomass, and estimated costs of completion.

 

Merchandise is purchased cost and freight shipping point and becomes the Company’s asset and liability upon leaving the suppliers’ warehouse.

 

 

The Company periodically reviews the value of items in inventory and records an allowance to reduce the carrying value of inventory to the lower of cost or net realizable value based on its assessment of market conditions, inventory turnover and current stock levels. For the three months ended March 31, 2024, the Company recorded an inventory allowance of $336,049. For the year ended December 31, 2023, the Company recorded an inventory allowance in the amount of $176,000 which was charged to cost of goods sold.

 

The Company’s inventory as of March 31, 2024 and December 31, 2023 consists of:

 Schedule of Inventory

		March 31, 2024				December 31, 2023
Inventory purchased for resale		$	1,994,332			$	1,708,311
Feeds and eggs processed			64,788				102,373
Raw materials for packaged seafood			442,733				-
Packaged seafood inventory			60,980				-
Inventory other			53,696				-
In-transit inventory			-				973,837
Less: Inventory allowance			(336,049	)			(176,000	)
Inventory, net		$	2,280,480			$	2,608,521

 

Inventory other is comprised of packaged inventory involving other protein items such as poultry, beef and pork.

 

Lease Accounting

 

The Company accounts for its leases under ASC 842, Leases, which requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. The Company elected the practical expedients permitted under the transition guidance that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard.

 

The Company categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow the Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. The Company did not have any finance leases as of March 31, 2024. The Company’s leases generally have terms that range from three years for equipment and six to seven years for real property. The Company elected the accounting policy to include both the lease and non-lease components of its agreements as a single component and accounts for them as a lease.

 

Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the lease. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

 

When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

 

 

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of March 31, 2024.

 Schedule of Lease-related Assets and Liabilities

		March 31, 2024
Assets
Operating lease assets		$	114,807
Liabilities
Current
Operating lease liabilities		$	35,650
Noncurrent
Operating lease liabilities		$	79,157

 

Supplemental cash flow information related to leases were as follows:

 Schedule of Supplemental Cash Flow Information Related to Leases

		Three Months Ended March 31, 2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	10,207
ROU assets recognized in exchange for lease obligations:
Operating leases		$	-

 

The table below presents the remaining lease term and discount rates for operating leases.

 Schedule of Remaining Lease Term and Discount Rates for Operating Leases

		March 31, 2024
Weighted-average remaining lease term
Operating leases			3.0 years
Weighted-average discount rate
Operating leases			7.3	%

 

Maturities of lease liabilities as of March 31, 2024 were as follows:

 Schedule of Maturities of Lease Liabilities

		Operating Leases
2024 (nine months remaining)			32,954
2025			43,939
2026			43,939
2027			10,985
2028			-
Total lease payments			131,817
Less: amount of lease payments representing interest			(17,010	)
Present value of future minimum lease payments		$	114,807
Less: current obligations under leases		$	(35,650	)
Non-current obligations		$	79,157

 

 

Long-lived Assets

 

Management reviews long-lived assets, including finite-lived intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset’s useful life on an undiscounted basis. If the evaluation indicates that the carrying value of the asset may not be recoverable, the potential impairment is measured using fair value. Fair value estimates are completed using a discounted cash flow analysis. Impairment losses for assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. No impairment was recognized for the three months ended March 31, 2024 and for the year ended December 31, 2023.

 

Foreign Currency Exchange Rates Risk

 

The Company manages its exposure to fluctuations in foreign currency exchange rates through its normal operating activities. Its primary focus is to monitor exposure to, and manage, the economic foreign currency exchange risks faced by, its operations and realized when the Company exchanges one currency for another. The Company’s operations primarily utilize the U.S. dollar and Canadian dollar as its functional currencies. Movements in foreign currency exchange rates affect its financial statements.

 

Fair Value Measurements and Financial Instruments

 

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:

 

Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

 

Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.

 

Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

 

Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, debt obligations, derivative liabilities and warrant liabilities. We believe the carrying values of our cash, accounts receivable, accounts payable, and accrued expenses approximate their fair values because they are short term in nature or payable on demand. The derivative liability is the embedded conversion feature on the 2023 Lind convertible note. All derivatives and warrant liabilities are recorded at fair value. The change in fair value for derivatives and warrants liabilities is recognized in earnings. The Company’s derivative and warrant liabilities are measured at fair value on a recurring basis using the Black Scholes Pricing model as of March 31, 2024 and December 31, 2023. There were no financial assets and liabilities that were measured at fair value on a recurring basis under Levels 1 and 2.

 Schedule of Derivative and Warrant Liabilities Measured at Fair Value

		Level 3 Fair Value
		As of March 31, 2024				As of December 31, 2023
Liabilities
Derivative liability on convertible debt		$	957,265			$	1,047,049
Warrant liability			402				1,574
Total		$	957,667			$	1,048,623

 

 

The table below presents the change in the fair value of the derivative liability convertible debt and warrant liability during the three months ended March 31, 2024:

Schedule of Change in Fair Value of Derivative Liability Convertible Debt and Warrant Liability

 

Derivative liability balance, January 1, 2024		$	1,047,049
Issuance of derivative liability during the period			-
Settlement of derivative liability			(8,320	)
Change in derivative liability during the period			(81,464	)
Derivative liability balance, March 31, 2024		$	957,265
Warrant liability balance, January 1, 2024		$	1,574
Issuance of warrant liability during the period			-
Change in warrant liability during the period			(1,172	)
Warrant liability balance, March 31, 2024		$	402

 

The fair market value of all derivatives and warrant liability as of December 31, 2023 was determined using the Black-Scholes option pricing model which used the following assumptions:

Schedule of Fair market value of all Derivatives

 

Stock price		$	0.14
Expected dividend yield			0.00	%
Expected stock price volatility			45.51% - 150.46	%
Risk-free interest rate			3.81% - 4.91	%
Expected term			1.42 – 5.00 years

 

The fair market value of all derivatives and warrant liability as of March 31, 2024 was determined using the Black-Scholes option pricing model which used the following assumptions:

 

Stock price		$	0.09
Expected dividend yield			0.00	%
Expected stock price volatility			50.84% - 139.57%
Risk-free interest rate			4.21% - 5.03	%
Expected term			1.17 – 4.83 years

 

Recent Accounting Pronouncements

 

There are various updates recently issued to the accounting literature and these are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

Note 3. Going Concern

 

The accompanying consolidated financial statements and notes have been prepared assuming the Company will continue as a going concern. For the three months ended March 31, 2024, the Company incurred a net loss of $1,093,095, had an accumulated deficit of $34,903,827 and a working capital surplus of $869,797, inclusive of $86,038 in stockholder debt. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, execute on its business plan to acquire complimentary companies, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

Note 4. Other Current Assets

 

Other current assets totaled $1,326,011 as of March 31, 2024 and $833,472 as of December 31, 2023. As of March 31, 2024, approximately $404,000, $158,000 and $390,000 of the balance was related to prepaid inventory to the Company’s suppliers, prepaid legal fees and receivables for shares issuance per the securities purchase agreement with ClearThink, respectively. The remainder of the balance was related to prepaid insurance and other prepaid expenses.

 

Note 5. Fixed Assets, Net

 

Fixed assets comprised the following:

 Schedule of Fixed Assets

		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
Fixed assets, gross			364,198				342,679
Less: Accumulated depreciation			(40,121	)			(38,822	)
Fixed assets, net		$	324,077			$	303,857

 

For the three months ended March 31, 2024 and 2023, depreciation expense totaled approximately $1,300 and $1,000, respectively.

 

Note 6. Debt

 

Working Capital Line of Credit

 

On March 31, 2021, Keeler & Co. and Coastal Pride entered into a loan and security agreement (“Loan Agreement”) with Lighthouse Financial Corp., a North Carolina corporation (“Lighthouse”). Pursuant to the terms of the Loan Agreement, Lighthouse made available to Keeler & Co. and Coastal Pride (together, the “Borrowers”) a $5,000,000 revolving line of credit for a term of thirty-six months, renewable annually for one-year periods thereafter. Amounts due under the line of credit are represented by a revolving credit note issued to Lighthouse by the Borrowers.

 

The advance rate of the revolving line of credit is 85% with respect to eligible accounts receivable and the lower of 60% of the Borrowers’ eligible inventory, or 80% of the net orderly liquidation value, subject to an inventory sublimit of $2,500,000. The inventory portion of the loan will never exceed 50% of the outstanding balance. Interest on the line of credit is the prime rate (with a floor of 3.25%), plus 3.75% which increased to 4.75% in 2022. The Borrowers paid Lighthouse a facility fee of $50,000 in three instalments of $16,667 in March, April and May 2021 and paid an additional facility fee of $25,000 on each anniversary of March 31, 2021. On January 14, 2022, the maximum inventory advance under the line of credit was adjusted from 50% to 70% until June 30, 2022, 65% to July 31, 2022, 60% to August 31, 2022 and 55% to September 30, 2022 at a monthly fee of 0.25% on the portion of the loan in excess of the 50% advance in order to increase imports to meet customer demand.

 

The line of credit was secured by a first priority security interest on all the assets of each Borrower. Pursuant to the terms of a guaranty agreement, the Company guaranteed the obligations of the Borrowers under the note and John Keeler, Executive Chairman and Chief Executive Officer of the Company, provided a personal guaranty of up to $1,000,000 to Lighthouse. For the three months ended March 31, 2023, cash proceeds from the working capital line of credit totaled $1,165,765 and cash payments to the working capital line of credit totaled $1,454,193.

 

On June 16, 2023, the Company terminated the Loan Agreement and paid a total of approximately $108,400 to Lighthouse which included, as of June 16, 2023, an outstanding principal balance of approximately $93,400, accrued interest of approximately $9,900, and other fees incurred in connection with the line of credit of approximately $4,900. Upon the repayment of the total outstanding indebtedness owing to Lighthouse, the Loan Agreement and all other related financing agreements and documents entered into in connection with the Loan Agreement were deemed terminated.

 

 

John Keeler Promissory Notes

 

The Company had unsecured promissory notes outstanding to John Keeler of approximately $86,000 of principal at March 31, 2024 and interest expense of $2,484 and $13,140 during the three months ended March 31, 2024 and 2023, respectively. These notes are payable on demand and accrue interest at an annual rate of 6%. The Company made principal payments of $79,582 during the three months ended March 31, 2024. The Company made no principal payments during the three months ended March 31, 2023.

 

Walter Lubkin Jr. Note

 

On November 26, 2019, the Company issued a five-year unsecured promissory note in the principal amount of $500,000 to Walter Lubkin Jr. as part of the purchase price for the Coastal Pride acquisition. The note bears interest at the rate of 4% per annum. The note is payable quarterly in an amount equal to the lesser of (i) $25,000 or (ii) 25% of the EBITDA of Coastal Pride, as determined on the first day of each quarter.

 

For the year ended December 31, 2023, $250,000 of the outstanding principal was paid in shares of common stock of the Company.

 

As of March 31, 2024, $1,041 of the outstanding interest for the first quarter was accrued on the note by the Company.

 

Interest expense for the note totaled approximately $1,000 and $3,500 during the three months ended March 31, 2024 and 2023, respectively.

 

As of March 31, 2024 and December 31, 2023, the outstanding principal balance on the note totaled $100,000.

 

Lind Global Fund II LP notes

 

2022 Note

 

On January 24, 2022, the Company entered into a securities purchase agreement with Lind Global Fund II LP, a Delaware limited partnership (“Lind”), pursuant to which the Company issued Lind a secured, two-year, interest free convertible promissory note in the principal amount of $5,750,000 (the “2022 Lind Note) and a five-year warrant to purchase 1,000,000 shares of common stock at an exercise price of $4.50 per share, subject to customary adjustments (50,000 shares of common stock at an exercise price of $90 per share after taking into account the Company’s Reverse Stock Split). The warrant provides for cashless exercise and for full ratchet anti-dilution if the Company issues securities at less than $4.50 per share (exercise price of $90 per share after taking into account the Company’s Reverse Stock Split). In connection with the issuance of the 2022 Lind Note and the warrant, the Company paid a $150,000 commitment fee to Lind and $87,144 of debt issuance costs. The Company recorded a total of $2,022,397 debt discount at issuance of the debt, including original issuance discount of $750,000, commitment fee of $150,000, $87,144 debt issuance cost, and $1,035,253 related to the fair value of warrants issued. Amortization expense recorded in interest expense totaled $0 and $273,614 for the three months ended March 31, 2024 and 2023, respectively.

 

The outstanding principal under the 2022 Lind Note was payable commencing July 24, 2022, in 18 consecutive monthly installments of $333,333, at the Company’s option, in cash or shares of common stock at a price (the “Repayment Share Price”) based on 90% of the five lowest volume weighted average prices (“VWAP”) during the 20-days prior to the payment date with a floor price of $1.50 per share (the “Floor Price”) (floor price of $30 per share after taking into account the Company’s Reverse Stock Split), or a combination of cash and stock provided that if at any time the Repayment Share Price is deemed to be the Floor Price, then in addition to shares, the Company would pay Lind an additional amount in cash as determined pursuant to a formula contained in the 2022 Lind Note.

 

 

In connection with the issuance of the 2022 Lind Note, the Company granted Lind a first priority security interest and lien on all of its assets, including a pledge of its shares in Keeler & Co., pursuant to a security agreement and a stock pledge agreement with Lind, dated January 24, 2022 (the “2022 Security Agreement). Each subsidiary of the Company also granted a second priority security interest in all of its respective assets.

 

The 2022 Lind Note was mandatorily payable prior to maturity if the Company issued any preferred stock (with certain exceptions described in the note) or, if the Company or its subsidiaries issued any debt. The Company also agreed not to issue or sell any securities with a conversion, exercise or other price based on a discount to the trading prices of the Company’s stock or to grant the right to receive additional securities based on future transactions of the Company on terms more favorable than those granted to Lind, with certain exceptions.

 

If the Company failed to maintain the listing and trading of its common stock, the note would become due and payable and Lind may convert all or a portion of the outstanding principal at the lower of the then current conversion price and 80% of the average of the 3-day VWAP during the 20 days prior to delivery of the conversion notice.

 

If the Company engaged in capital raising transactions, Lind had the right to purchase up to 10% of the new securities.

 

The 2022 Lind Note was convertible into common stock at $5.00 per share ($100 per share after taking into account the Company’s Reverse Stock Split), subject to certain adjustments, on April 22, 2022; provided that no such conversion may be made that would result in beneficial ownership by Lind and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. If shares are issued by the Company at less than the conversion price, the conversion price will be reduced to such price.

 

Upon a change of control of the Company, as defined in the 2022 Lind Note, Lind had the right to require the Company to prepay 10% of the outstanding principal amount of the 2022 Lind Note. The Company may prepay the outstanding principal amount of the note, provided Lind may convert up to 25% of the principal amount of the 2022 Lind Note at a price per share equal to the lesser of the Repayment Share Price or the conversion price. The 2022 Lind Note contained certain negative covenants, including restricting the Company from certain distributions, stock repurchases, borrowing, sale of assets, loans and exchange offers.

 

Upon an event of default as described in the 2022 Lind Note, the 2022 Lind Note would become immediately due and payable at a default interest rate of 125% of the then outstanding principal amount. Upon a default, all or a portion of the outstanding principal amount may be converted into shares of common stock by Lind at the lower of the conversion price and 80% of the average of the three lowest daily VWAPs.

 

During the year ended December 31, 2023, the Company made aggregate principal payments on the 2022 Lind Note of $2,075,900 through the issuance of an aggregate of 1,379,212 shares of common stock, including a principal payment of $1,094,800 through the issuance of an aggregate of 373,532 shares of common stock during the three months ended March 31, 2023. On September 15, 2023, the Company paid $2,573,142 to Lind and the 2022 Lind Note was extinguished.

 

2023 Note

 

On May 30, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Lind pursuant to which the Company issued to Lind a secured, two-year, interest free convertible promissory note in the principal amount of $1,200,000 (the “2023 Lind Note”) and a warrant (the “Lind Warrant”) to purchase 435,035 shares of common stock of the Company commencing six months after issuance and exercisable for five years at an exercise price of $2.45 per share. The Lind Warrant includes cashless exercise and full ratchet anti-dilution provisions. In connection with the issuance of the Lind Note and the Lind Warrant, the Company paid Lind a $50,000 commitment fee. The proceeds from the sale of the Note and Warrant are for general working capital purposes.

 

In connection with the issuance of the 2022 Lind Note, the Company and Lind amended the 2022 Security Agreement to include the new 2023 Lind Note, pursuant to an amended and restated security agreement, dated May 30, 2023, between the Company and Lind.

 

The Company agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the shares of common stock issuable pursuant to the 2023 Lind Note and Lind Warrant. Lind was also granted piggyback registration rights.

 

 

If the Company engages in capital raising transactions, Lind has the right to purchase up to 20% of the new securities for 24 months.

 

The 2023 Lind Note is convertible into common stock of the Company after the earlier of 90 days from issuance or the date the registration statement is effective, provided that no such conversion may be made that would result in beneficial ownership by Lind and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The conversion price of the 2023 Lind Note is equal to the lesser of: (i) $2.40; or (ii) 90% of the lowest single volume-weighted average price during the twenty-trading day period ending on the last trading day immediately preceding the applicable conversion date, subject to customary adjustments. The maximum number of shares of common stock to be issued in connection with the conversion of the 2023 Lind Note and the exercise of the Lind Warrant, in the aggregate, will not, exceed 19.9% of the outstanding shares of common stock of the Company immediately prior to the date of the 2023 Lind Note, in accordance with NASDAQ rules and guidance. Due to the variable conversion price of the 2023 Lind Note, the embedded conversion feature was accounted as a derivative liability. The fair value of the derivative liability at issuance amounting to $264,687 was recorded as debt discount and amortized over the term of the note.

 

The 2023 Lind Note contains certain negative covenants, including restricting the Company from certain distributions, stock repurchases, borrowing, sale of assets, loans and exchange offers.

 

Upon the occurrence of an event of default as described in the 2023 Lind Note, the 2023 Lind Note will become immediately due and payable at a default interest rate of 120% of the then outstanding principal amount of the Lind Note.

 

The Warrant entitles the Investor to purchase up to 435,035 shares of common stock of the Company during the exercise period commencing on the date that is six months after the issue date (“Exercise Period Commencement”) and ending on the date that is sixty months from the Exercise Period Commencement at an exercise price of $2.45 per share, subject to customary adjustments. The Warrant includes cashless exercise and full ratchet anti-dilution provisions.

 

On July 27, 2023, the Company, entered into a First Amendment to the Purchase Agreement (the “Purchase Agreement Amendment”) with Lind, which provided for the issuance of further senior convertible promissory notes up to an aggregate principal amount of up to $1,800,000 and the issuance of additional warrants in such amounts as the Company and Lind shall mutually agree.

 

Pursuant to the Purchase Agreement Amendment, the Company issued to Lind a two-year, interest free convertible promissory note in the principal amount of $300,000 and a warrant to purchase 175,234 shares of common stock of the Company at an exercise price of $1.34 per share for $250,000. In connection with the issuance of the note and the warrant, the Company paid a $12,500 commitment fee. The proceeds from the sale of the note and warrant are for general working capital purposes.

 

Due to the variable conversion price of the convertible promissory note, pursuant to the Purchase Agreement Amendment, the embedded conversion feature was accounted for as a derivative liability. The fair value of the derivative liability at issuance amounting to $118,984 was recorded as debt discount and amortized over the term of the note.

 

During the three months ended March 31, 2024, $60,000 of note principal was converted to 750,000 shares of common stock. As of March 31, 2024, the outstanding balance on the notes was $1,440,000, net of debt discount of $906,942, and totaling $533,058. For the three months ended March 31, 2024 and 2023, amortization of debt discounts totaled $113,352 and $273,614, respectively.

 

Agile Lending, LLC Loans

 

On June 14, 2023, the Company, and Keeler & Co. (each a “Borrower”) entered into a subordinated business loan and security agreement with Agile Lending, LLC as lead lender (“Agile”) and Agile Capital Funding, LLC as collateral agent, which provides for a term loan to the Company in the amount of $525,000 which principal and interest (of $231,000) is due on December 15, 2023. Commencing June 23, 2023, the Company is required to make weekly payments of $29,077 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $25,000 was paid on the loan which was recognized as a debt discount and amortized over the term of the loan. In connection with the loan, Agile was issued a subordinated secured promissory note, dated June 14, 2023, in the principal amount of $525,000 which note is secured by all of the Borrower’s assets, including receivables. For the year ended December 31, 2023, the Company made principal and interest payments on the loan totaling $525,000 and $114,692, respectively, and the outstanding interest balance was refinanced in the January 2, 2024 loan.

 

 

On October 19, 2023, the Borrowers entered into a subordinated business loan and security agreement with Agile and Agile Capital as collateral agent, which provides for a term loan to the Company in the amount of $210,000 which principal and interest (of $84,000) is due on April 1, 2024. Commencing October 19, 2023, the Company is required to make weekly payments of $12,250 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $10,000 was paid on the loan which was recognized as a debt discount and amortized over the term of the loan. In connection with the loan, Agile was issued a subordinated secured promissory note, dated October 19, 2023, in the principal amount of $210,000 which note is secured by all of the Borrowers’ assets, including receivables. For the three months ended March 31, 2024, the Company made principal payments on the loan totaling $112,000 and interest payments of $47,250. The outstanding balance on the loan was $0 as of March 31, 2024.

 

On January 2, 2024, the Company, and Keeler & Co. entered into a subordinated business loan and security agreement with Agile and Agile Capital as collateral agent, which provides for a term loan to the Company in the amount of $122,491 which principal and interest (of $48,996) is due on May 31, 2024. Commencing January 5, 2024, the Company is required to make weekly payments of $7,795 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $5,833 was paid on the loan. A default interest rate of 5% will become effective upon the occurrence of an event of default. In connection with the loan, Agile was issued a subordinated secured promissory note, dated January 2, 2024, in the principal amount of $122,491 which note is secured by all of the Borrower’s assets, including receivables. For the three months ended March 31, 2024, the Company made principal payments on the loan totaling $72,381 and interest payments of $28,952. The outstanding balance on the loan was $50,110 as of March 31, 2024.

 

On March 1, 2024, the Borrowers entered into a subordinated business loan and security agreement with Agile and Agile Capital as collateral agent, which provides for a term loan to the Company in the amount of $210,000 which principal and interest (of $79,800) is due on August 29, 2024. Commencing March 7, 2024, the Company is required to make weekly payments of $11,146 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $10,000 was paid on the loan which was recognized as a debt discount and amortized over the term of the loan. In connection with the loan, Agile was issued a subordinated secured promissory note, dated March 1, 2024, in the principal amount of $210,000 which note is secured by all of the Borrowers’ assets, including receivables. For the three months ended March 31, 2024, the Company made principal payments on the loan totaling $33,438 and no interest payments were made. The outstanding balance on the loan was $176,562 as of March 31, 2024.

 

ClearThink Term Loan

 

On January 18, 2024, the Company entered into the Revenue-Based Factoring MCA Plus Agreement with ClearThink Capital LLC (“ClearThink”) which provides, among other things, for a 33-week term loan in the principal amount of $200,000 (with an additional one-time commitment fee of $50,000). Interest accrues at the rate of 25% per annum with an additional 5% default interest rate or $50,000 will be added to the principal amount and accrue after principal is paid. The Company is required to make biweekly payments of $14,706, commencing February 1, 2024 for the term of the agreement. On January 25, 2024, the Company issued 354,610 shares of common stock to ClearThink as a commitment fee, with a fair value of $50,000. For the three months ended March 31, 2024, the Company made principal payments on the loan totaling $58,824 and no interest payments were made. The outstanding balance on the loan was $141,176 as of March 31, 2024.

 

Note 7. Stockholders’ Equity

 

In January 2023, the Company sold an aggregate of 23,705 shares of common stock for net proceeds of $182,982 in an “at the market” offering pursuant to a sales agreement between the Company and Roth Capital Partners, LLC (“Roth”). On January 31, 2023, 7,564 of shares were repurchased from Roth for $76,323. The offering was terminated on February 2, 2023.

 

 

On February 14, 2023, the Company issued 410,000 shares of common stock and 40,000 pre-funded warrants to purchase common stock to Aegis Capital Corp. (“Aegis”) for net proceeds of $1,692,000 in connection with an underwritten offering.

 

On August 22, 2023, the Company issued 200,000 shares of common stock with a fair value of $157,980 to Mark Crone for consulting services provided to the Company which is amortized to expense over the term of the agreement and no expense was recorded in 2023. The Company recognized stock compensation expense of $50,000 for the three months ended March 31, 2024 in connection with these shares.

 

On January 25, 2024, the Company issued 354,610 shares of common stock to ClearThink, with a fair value of $50,000, as a commitment fee on the term loan.

 

During February 2024 and March 2024, the Company issued an aggregate of 11,332,787 shares of common stock in consideration of $836,360 pursuant to a securities purchase agreement, dated May 16, 2023 with ClearThink. Cash proceeds received as of March 31, 2024 were $446,360 and the balance of $390,000 was received in April 2024.

 

On February 12, 2024, the Company issued 5,000,000 shares of common stock to be held by The Crone Law Group as Escrow Agent with a fair value of $630,000 in connection with the Option Agreement with Afritex Texas.

 

On March 11, 2024, the Company issued 750,000 shares of common stock to Lind as partial conversion of $60,000 principal pursuant to the May 2023 convertible promissory note.

 

During the three months ended March 31, 2024, the Company issued an aggregate of 261,897 shares of common stock to the designee of ClearThink for consulting services provided to the Company.

 

 

Note 8. Options

 

The following table represents option activity for the three months ended March 31, 2024:

 Schedule of Option Activity

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value
Outstanding – December 31, 2023			316,540			$	31.11				3.80
Exercisable – December 31, 2023			219,908			$	31.11				4.27			$	-
Granted			-			$	-
Forfeited			-			$	-
Vested			230,152				-
Outstanding – March 31, 2024			316,540			$	29.50				3.55
Exercisable – March 31, 2024			230,152			$	29.50				3.96			$	-

 

For the three months ended March 31, 2024, the Company recognized $8,800 of compensation expense for vested stock options issued to directors, contractors and employees during 2019 to 2024.

 

Note 9. Warrants

 

The following table represents warrant activity for the three months ended March 31, 2024:

 Schedule of Warrant Activity

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value
Outstanding – December 31, 2023			730,944			$	12.04				4.20
Exercisable – December 31, 2023			555,710			$	15.41				5.52			$	-
Granted			-			$	-
Exercised			-			$	-
Forfeited or Expired			(50,000	)		$	-
Outstanding – March 31, 2024			680,944			$	6.31				4.25
Exercisable – March 31, 2024			680,944			$	6.31				4.25			$	-

 

On May 30, 2023, in connection with the issuance of the $1,200,000 promissory note to Lind pursuant to a securities purchase agreement, the Company issued Lind a five-year warrant exercisable six months from the date of issuance to purchase 435,035 shares of common stock at an exercise price of $2.45 per share. The warrant provides for cashless exercise and full ratchet anti-dilution provisions. The fair value of the warrants of $381,538 was recorded as a discount to the 2023 Lind Note and classified as liabilities.

 

On July 27, 2023, in connection with the issuance of the $300,000 promissory note to Lind pursuant to the Purchase Agreement Amendment, the Company issued Lind a five-year warrant exercisable six months from the date of issuance to purchase 175,234 shares of common stock at an exercise price of $1.34 per share. The warrant provides for cashless exercise and full ratchet anti-dilution provisions. The fair value of the warrants of $72,208 was recorded as a discount to the 2023 Purchase Agreement Amendment and classified as a liability.

 

 

On September 11, 2023, in connection with the underwritten public offering, the Company issued five-year Series A-1 warrants to purchase up to 10,741,139 shares of common stock which warrants are exercisable upon stockholder approval at an exercise price of $0.4655 per share. Since the exercise of these warrants is contingent upon stockholder approval, which stockholder approval has not been obtained, such warrants were not considered as outstanding as of March 31, 2024.

 

On September 11, 2023, in connection with the underwritten public offering, the Company issued eighteen-month Series A-2 warrants to purchase up to 10,741,139 shares of common stock which warrants are exercisable upon stockholder approval at an exercise price of $0.4655 per share. Since the exercise of these warrants is contingent upon stockholder approval, which stockholder approval has not been obtained, such warrants were not considered as outstanding as of March 31, 2024.

 

There was no warrant activity for the three months ended March 31, 2024.

 

Note 10. Commitment and Contingencies

 

Office lease

 

On January 1, 2022, the Company entered into a verbal month-to-month lease agreement for its executive offices with an unrelated third party and paid $17,400 on the lease for the three months ended March 31, 2023. For the three months ended March 31, 2024, the Company paid $17,400 under this lease.

 

Coastal Pride leases approximately 1,100 square feet of office space in Beaufort, South Carolina which consists of a lease with a related party for $1,000 per month that expires in October 2024. For the three months ended March 31, 2024, Coastal Pride paid $3,000 on the lease.

 

Coastal Pride also leased a 9,050 square foot facility for $1,000 per month from Gault for its soft-shell crab operations in Beaufort, South Carolina under a one-year lease that expired in February 2023. On February 3, 2023, the lease was renewed for $1,500 per month until February 2024. On February 3, 2024, Coastal Pride entered into a verbal month-to-month lease agreement with Gault for $1,500 per month. For the three months ended March 31, 2024, Coastal Pride paid $4,500 on the lease.

 

The offices and facility of TOBC are located in Nanaimo, British Columbia, Canada and are on land which was leased to TOBC for approximately $2,500 per month plus taxes, from Steve and Janet Atkinson, the former TOBC owners. On April 1, 2022, TOBC entered into a new five-year lease with Steve and Janet Atkinson for CAD$2,590 per month plus taxes, and an additional five-year lease with Kathryn Atkinson for CAD$2,370 per month plus taxes. Both leases are renewable for two additional five-year terms.

 

Rental and equipment lease expenses were approximately $42,600 and $44,500 for the three months ended March 31, 2024 and 2023, respectively.

 

 

Note 11. Subsequent Events

 

Afritex Manufacturing Agreement

 

On April 4, 2024, the Company entered into a two-year contract manufacturing agreement with Afritex Ventures, Inc., a Texas corporation, and a commercial manufacturer of food products (the “Supplier), and Eagle Rising Food Solutions LLC, a Florida corporation and a national seafood distributor (the “Buyer”), effective March 21, 2024. The agreement automatically renews for successive one-year terms if not terminated by either party at least sixty days prior to the end of the then current term. Pursuant to the agreement, the Supplier will manufacture certain food products and provide consulting services to Buyer based on Buyer’s purchase orders. The Buyer granted the Supplier a non-exclusive, worldwide, royalty-free license to use its trademarks for such products. Under the agreement, the Supplier is responsible for product production and certain storage and the Buyer is responsible for the cost of freight and delivery of the products and is required to pay invoices within 35 days of receipt of the products. Late payments are subject to interest of 1% of the outstanding amount per month. The agreement may be terminated in the event of certain defaults which are not cured as set forth in the agreement. Either party may terminate the agreement in the event of the other party’s insolvency or inability to meet obligations, (ii) filing of voluntary or involuntary petition of bankruptcy, (iii) institution of legal proceedings against the other party by creditors or stockholders, or (iv) appointment of a receiver.

 

Shares issuances

 

During February 2024 and March 2024, the Company issued an aggregate of 11,332,787 shares of common stock in consideration of $836,360 pursuant to a securities purchase agreement, dated May 16, 2023 with ClearThink. Cash proceeds received as of March 31, 2024 were $446,360 and the balance of $390,000 was received in April 2024.

 

On April 8, 2024, the Company issued 119,565 shares of common stock to the designee of ClearThink for consulting services provided to the Company.

 

On April 9, 2024, 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 pursuant to the May 2023 convertible promissory note.

 

During April 2024, the Company issued an aggregate of 9,000,000 shares of common stock for cash proceeds of $518,000 pursuant to a securities purchase agreement with ClearThink, dated May 16, 2023.

 

Note Issuances

 

On April 16, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Hart Associates, LLC, a Delaware limited liability company (the “Hart”), pursuant to which the Company issued a promissory note in the principal amount of $300,000 and will issue 500,000 shares of its common stock to Hart (the “Hart Note”). The Hart Note has a one-time interest payment of $50,000 payable on the maturity date of May 15, 2024, which can be extended up to 90 days. The proceeds from the sale of the Hart Note are for general working capital. The Company may prepay the Hart Note at any time without penalty. The Company’s failure to comply with the material terms of the Hart Note will be considered an event of default and the principal sum of the Hart Note will increase by 20% of the outstanding balance for each subsequent 30 days it remains in default.

 

On April 16, 2024, the Company issued to 1800 Diagonal Lending LLC, a Virginia limited liability company (“Diagonal”), a convertible promissory note in the principal amount of $138,000 with an original issue discount of $23,000 (the “Diagonal Note”). The Diagonal Note has a one-time interest payment of $26,220 paid upon issuance and a maturity date of January 15, 2025. The proceeds from the sale of the Diagonal Note are for general working capital.

 

Upon the occurrence of an event of default as described in the Diagonal Note, the Diagonal Note will become immediately due and payable at a default interest rate of 150% of the then outstanding principal amount of the Diagonal Note. Additionally, Diagonal will have the right to convert all or any part of the outstanding and unpaid amount of the Diagonal Note into shares of the Company’s common stock at a conversion price of 61% of the market price as described in the Diagonal Note. The Company may not, without Diagonal’s written consent, sell, lease or otherwise dispose of any significant portion of its assets except in the ordinary course of business. The Company will reserve a sufficient number of shares to provide for the issuance of shares upon the full conversion of the Diagonal Note.

 

Resignation of Chief Financial Officer and Director

 

On May 10, 2024, Silvia Alana, a director and the Company’s Chief Financial Officer, notified the Company of her resignation from the board of directors and as Chief Financial Officer, effective May 28, 2024.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

The following management’s discussion and analysis should be read in conjunction with the financial statements and the related notes thereto contained in this Quarterly Report. The management’s discussion and analysis contain forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024, as updated in subsequent filings we have made with the SEC that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

 

Basis of Presentation

 

The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.

 

Overview

 

We are an international seafood company that imports, packages and sells refrigerated pasteurized crab meat, and other premium seafood products. Our current source of revenue is from importing blue and red swimming crab meat primarily from Indonesia, the Philippines and China and distributing it in the United States and Canada under several brand names such as Blue Star, Oceanica, Pacifika, Crab & Go, First Choice, Good Stuff and Coastal Pride Fresh, purchasing raw materials for packaged seafood inventory under AFVFL, and steelhead salmon and rainbow trout fingerlings produced under the brand name Little Cedar Farms for distribution in Canada. The crab meat which we import is processed in six out of the ten plants available throughout Southeast Asia. Our suppliers are primarily via co-packing relationships, including two affiliated suppliers. We sell primarily to food service distributors. We also sell our products to wholesalers, retail establishments and seafood distributors.

 

Recent Events

 

Afritex Manufacturing Agreement

 

As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 1, 2024, on February 1, 2024, the Company entered into a ninety-day Master Services Agreement (the “Services Agreement”) with Afritex Ventures, Inc. a Texas corporation and a commercial manufacturer of food products (“Afritex”), pursuant to which the Company will be responsible for all of Afritex’s operations and finance functions. Among other things, the Company will provide Afritex with working capital in order to sustain operations and will purchase certain inventory listed in the Services Agreement. In addition, through its newly-formed subsidiary, AFVFL, the Company will be purchasing product from Afritex for sale to Afritex customers and the Company has the option to purchase assets from Afritex under an Intangibles Assets and Machinery Option To Purchase Agreement, dated February 12, 2024, with Afritex (the “Option Agreement”) pursuant to which, among other things, the Company has the option to purchase Afritex’s intangible assets, machinery and equipment set forth in the Option Agreement. In connection with the Services Agreement and Option Agreement, on April 4, 2024, the Company entered into a two-year contract manufacturing agreement with Afritex and Eagle Rising Food Solutions LLC, a Florida corporation and a national seafood distributor (the “Buyer”), effective March 21, 2024. The agreement automatically renews for successive one-year terms if not terminated by either party at least sixty days prior to the end of the then current term. Pursuant to the agreement, Afritex will manufacture certain food products and provide consulting services to Buyer based on Buyer’s purchase orders. The Buyer granted Afritex a non-exclusive, worldwide, royalty-free license to use its trademarks for such products. Under the agreement, Afritex is responsible for product production and certain storage and the Buyer is responsible for the cost of freight and delivery of the products and is required to pay invoices within 35 days of receipt of the products. Late payments are subject to interest of 1% of the outstanding amount per month. The agreement may be terminated in the event of certain defaults which are not cured as set forth in the agreement. Either party may terminate the agreement in the event of the other party’s insolvency or inability to meet obligations, (ii) filing of voluntary or involuntary petition of bankruptcy, (iii) institution of legal proceedings against the other party by creditors or stockholders, or (iv) appointment of a receiver.

 

 

NASDAQ Compliance

 

On March 26, 2024, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC indicating that as of March 25, 2024, the Company had not regained compliance with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). The Company appealed this determination to the Nasdaq Hearings Panel (the “Panel”) on April 1, 2024.

 

On April 10, 2024, the Company received a letter from the Panel indicating that the Company’s request for continued on Nasdaq was granted subject to the following: (i) on or before April 1, 2024, the Company file its Form 10-K for the period ended December 31, 2023 demonstrating compliance with Listing Rule 5550(b)(1); (ii) on or before May 15, 2024, the Company file its Form 10-Q for the quarter ended March 31, 2024 demonstrating continued compliance with Listing Rule 5550(b)(1), and (iii) on or before May 30, 2024, the Company shall have demonstrated compliance with Listing Rule 5550(a)(2) by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions, and evidence compliance with all applicable criteria for continued listing.

 

Note Issuances

 

On April 16, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Hart Associates, LLC, a Delaware limited liability company (the “Hart”), pursuant to which the Company issued a promissory note in the principal amount of $300,000 and will issue 500,000 shares of its common stock to Hart (the “Hart Note”). The Hart Note has a one-time interest payment of $50,000 payable on the maturity date of May 15, 2024, which can be extended up to 90 days. The proceeds from the sale of the Hart Note are for general working capital. The Company may prepay the Hart Note at any time without penalty. The Company’s failure to comply with the material terms of the Hart Note will be considered an event of default and the principal sum of the Hart Note will increase by 20% of the outstanding balance for each subsequent 30 days it remains in default.

 

On April 16, 2024, the Company issued to 1800 Diagonal Lending LLC, a Virginia limited liability company (“Diagonal”), a convertible promissory note in the principal amount of $138,000 with an original issue discount of $23,000 (the “Diagonal Note”). The Diagonal Note has a one-time interest payment of $26,220 paid upon issuance and a maturity date of January 15, 2025. The proceeds from the sale of the Diagonal Note are for general working capital.

 

Upon the occurrence of an event of default as described in the Diagonal Note, the Diagonal Note will become immediately due and payable at a default interest rate of 150% of the then outstanding principal amount of the Diagonal Note. Additionally, Diagonal will have the right to convert all or any part of the outstanding and unpaid amount of the Diagonal Note into shares of the Company’s common stock at a conversion price of 61% of the market price as described in the Diagonal Note. The Company may not, without Diagonal’s written consent, sell, lease, or otherwise dispose of any significant portion of its assets except in the ordinary course of business. The Company will reserve a sufficient number of shares to provide for the issuance of shares upon the full conversion of the Diagonal Note.

 

Reverse Stock Split

 

The Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of its common stock, by a ratio of no less than 1-for-2 and no more than 1-for-50, with the exact ratio to be determined by the Company’s board of directors, at a Special Meeting of Stockholders held on April 30, 2024.

 

ATM Agreement

 

On May 3, 2024, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (“Wainwright”), pursuant to which the Company may offer and sell, from time to time through Wainwright, shares of common stock for aggregate gross proceeds of up to $2,199,769. pursuant to a shelf registration statement on Form S-3 (File No. 333-268564) and the related prospectus, as supplemented by a prospectus supplement, dated May 3, 2024 (the “Registration Statement”) and filed with the SEC on such date. The Company intends to use the net proceeds from the offering, if any, for working capital and general corporate purposes and to repay certain indebtedness.

 

Pursuant to the ATM Agreement, Wainwright may sell shares in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act, including sales made directly on or through the Nasdaq Capital Market. If agreed to in a separate terms’ agreement, the Company may sell shares to Wainwright as principal, at a purchase price agreed upon by Wainwright and the Company. Wainwright may also sell shares in negotiated transactions with the Company’s prior approval. The offer and sale of the shares pursuant to the ATM Agreement will terminate upon the earlier of (a) the issuance and sale of all of the shares subject to the ATM Agreement or (b) the termination of the ATM Agreement by Wainwright or the Company pursuant to the terms thereof. The Company has no obligation to sell any of the shares, and may at any time suspend offers under the Agreement or terminate the Agreement. The Company will pay Wainwright a commission of 3.0% of the aggregate gross proceeds from any shares sold by Wainwright and will reimburse Wainwright for certain specified expenses in connection with entering into the ATM Agreement.

 

Resignation of Chief Financial Officer and Director

 

On May 10, 2024, Silvia Alana, a director and the Company’s Chief Financial Officer, notified the Company of her resignation from the board of directors and as Chief Financial Officer, effective May 28, 2024.

 

 

Results of Operations

 

The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, the financial statements and accompanying notes elsewhere in this Quarterly Report.

 

Three months ended March 31, 2024 and 2023

 

Net Revenue. Revenue for the three months ended March 31, 2024 increased 19.1% to $2,260,329 as compared to $1,898,439 for the three months ended March 31, 2023 as a result of an increase in poundage and new packaged seafood inventory sold during the three months ended March 31, 2024.

 

Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2024 increased to $2,089,567 as compared to $1,614,077 for the three months ended March 31, 2023. This increase is attributable to the increase in poundage and new packaged seafood inventory sold in the cost of goods and increases in inventory reserves.

 

Gross Profit. Gross profit for the three months ended March 31, 2024 decreased to $170,762 as compared to gross profit of $284,362 in the three months March 31, 2023. This decrease is attributable to the increase in inventory reserves for the three months ended March 31, 2024.

 

Commissions Expense. Commissions expense increased to $4,221 for the three months ended March 31, 2024 from $973 for the three months ended March 31, 2023. This increase was due to higher commissionable revenues for the three months ended March 31, 2024.

 

Salaries and Wages Expense. Salaries and wages expense decreased to $301,790 for the three months ended March 31, 2024 as compared to $530,838 for the three months ended March 31, 2023. This decrease is mainly attributable to a strategic reduction in salaries for the three months ended March 31, 2024.

 

Depreciation and Amortization. Depreciation and amortization expense decreased to $1,299 for the three months ended March 31, 2024 as compared to $2,669 for the three months ended March 31, 2023. This decrease is attributable to lower depreciation due to the impairment of fixed assets and intangible assets in the year ended December 31, 2022.

 

Other Operating Expense. Other operating expense increased to $705,651 for the three months ended March 31, 2024 from $700,090 for the three months ended March 31, 2023. This increase is mainly attributable to legal and professional fees related to our business operations.

 

Other Income. Other income decreased for the three months ended March 31, 2024 to $1,535 from $1,902 for the three months ended March 31, 2023. This decrease is mainly attributable to the collections by Coastal Pride of receivables existing prior to the acquisition of Coastal Pride by the Company during the three months ended March 31, 2023 and no such collection in the three months ended March 31, 2024.

 

Change in Fair Value of Derivatives and Warrants Liabilities. Change in fair value of derivatives and warrants liabilities increased to $82,636 for the three months ended March 31, 2024 from $0 for the three months ended March 31, 2023. This increase is attributable to the 2023 Lind notes embedded conversion feature due to the variable conversion price on the promissory notes.

 

Loss on Settlement of Debt. Loss on settlement of debt decreased to $0 for the three months ended March 31, 2024 from $648,430 for the three months ended March 31, 2023.

 

Interest Expense. Interest expense decreased to $335,067 for the three months ended March 31, 2024 from $354,666 for the three months ended March 31, 2023. The decrease is attributable to the lower amortization of the Lind convertible debt discounts.

 

Net Loss. Net loss was $1,093,095 for the three months ended March 31, 2024 as compared to $1,951,402 for the three months ended March 31, 2023. The decrease in net loss is primarily attributable to the decrease of salaries and wages, interest expense and loss on settlement of debt.

 

 

Liquidity and Capital Resources

 

The Company had cash of $22,298 as of March 31, 2024. At March 31, 2024, the Company had a working capital surplus of $869,797, including $86,038 in stockholder loans, and the Company’s primary sources of liquidity consisted of inventory of $2,280,480 and accounts receivable of $910,815.

 

The Company has historically financed its operations through the cash flow generated from operations, capital investment, notes payable and a working capital line of credit.

 

Cash (Used in) Operating Activities. Cash used in operating activities during the three months ended March 31, 2024 was $679,928 as compared to cash used in operating activities of $1,406,778 for the three months ended March 31, 2023. The decrease is primarily attributable to decrease in inventory of $1,126,542 and decrease in payables of $1,623,191, offset by the increase in other current assets of $148,813 for the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

 

Cash (Used in) Investing Activities. Cash used in investing activities for the three months ended March 31, 2024 was $23,146 as compared to cash used in investing activities of $15,351 for the three months ended March 31, 2023. The increase was mainly attributable to an increase in the purchase of fixed assets for the three months ended March 31, 2024 compared to the purchases of fixed assets for the three months ended March 31, 2023.

 

Cash Provided by Financing Activities. Cash provided by financing activities for the three months ended March 31, 2024 was $622,626 as compared to cash provided by financing activities of $1,515,941 for the three months ended March 31, 2023. The decrease is mainly attributable due to the increased repayments of short-term loans and less proceeds from common stock offering during the three months ended March 31, 2024.

 

Working Capital Line of Credit

 

On March 31, 2021, Keeler & Co. and Coastal Pride entered into a loan and security agreement (“Loan Agreement”) with Lighthouse Financial Corp., a North Carolina corporation (“Lighthouse”). Pursuant to the terms of the Loan Agreement, Lighthouse made available to Keeler & Co. and Coastal Pride (together, the “Borrowers”) a $5,000,000 revolving line of credit for a term of thirty-six months, renewable annually for one-year periods thereafter. Amounts due under the line of credit were represented by a revolving credit note issued to Lighthouse by the Borrowers.

 

The advance rate of the revolving line of credit was 85% with respect to eligible accounts receivable and the lower of 60% of the Borrowers’ eligible inventory, or 80% of the net orderly liquidation value, subject to an inventory sublimit of $2,500,000. Interest on the line of credit was the prime rate (with a floor of 3.25%), plus 3.75%. The Borrowers paid Lighthouse a facility fee of $50,000 in three instalments of $16,667 in March, April and May 2021 and paid an additional facility fee of $25,000 on each anniversary of March 31, 2021. On January 14, 2022, the maximum inventory advance under the line of credit was adjusted from 50% to 70% until June 30, 2022, 65% to July 31, 2022, 60% to August 31, 2022 and 55% to September 30, 2022 at a monthly fee of 0.25% on the portion of the loan in excess of the 50% advance in order to increase imports to meet customer demand. On July 29, 2022, the Loan Agreement was further amended to set the annual interest rate on the outstanding principal amount at 4.75% above the prime rate and to reduce the monthly required cash flow requirements beginning July 31, 2022. The amendment also updated the maximum inventory advance under the line of credit to 60% from August 31, 2022 through September 29, 2022 and 50% from September 30, 2022 and thereafter.

 

The line of credit was secured by a first priority security interest on all the assets of each Borrower. Pursuant to the terms of a guaranty agreement, the Company guaranteed the obligations of the Borrowers under the note and John Keeler, Executive Chairman and Chief Executive Officer of the Company, provided a personal guaranty of up to $1,000,000 to Lighthouse.

 

On June 16, 2023, the Company terminated the Loan Agreement and paid a total of approximately $108,400 to Lighthouse which included, as of June 16, 2023, an outstanding principal balance of approximately $93,400, accrued interest of approximately $9,900, and other fees incurred in connection with the line of credit of approximately $4,991. Upon the repayment of the total outstanding indebtedness owing to Lighthouse, the Loan Agreement and all other related financing agreements and documents entered into in connection with the Loan Agreement were deemed terminated.

 

 

John Keeler Promissory Notes

 

From January 2006 through May 2017, Keeler & Co issued 6% demand promissory notes in the aggregate principal amount of $2,910,000 to John Keeler, our Chief Executive Officer and Executive Chairman. As of March 31, 2024, approximately $86,038 of principal remains outstanding and approximately $2,400 of interest was paid under the notes during the three months ended March 31, 2024. After satisfaction of the terms of the subordination, the Company may prepay the notes at any time first against interest due thereunder. If an event of default occurs under the notes, interest will accrue at 18% per annum and if not paid within ten days of payment becoming due, the holder of the note is entitled to a late fee of 5% of the amount of payment not timely made. The Company made principal payments of $79,582 during the three months ended March 31, 2024. The Company made no principal payments during the three months ended March 31, 2023.

 

Lind Global Fund II LP notes

 

On January 24, 2022, the Company entered into a securities purchase agreement with Lind pursuant to which the Company issued Lind a secured, two-year, interest free convertible promissory note in the principal amount of $5,750,000 and a five-year warrant to purchase 1,000,000 shares of common stock at an exercise price of $4.50 per share, subject to customary adjustments (50,000 shares of common stock at an exercise price of $90 per share after taking into account the Company’s Reverse Stock Split). The warrant provides for cashless exercise and for full ratchet anti-dilution if the Company issues securities at less than $4.50 per share. In connection with the issuance of the note and the warrant, the Company paid a $150,000 commitment fee to Lind and approximately $87,000 of debt issuance costs.

 

The outstanding principal under the note was payable commencing July 24, 2022, in 18 consecutive monthly installments of $333,333, at the Company’s option, in cash or shares of common stock at a price (the “Repayment Share Price”) based on 90% of the five lowest volume weighted average prices (“VWAP”) during the 20-days prior to the payment date with a floor price of $1.50 per share (the “Floor Price”), floor price of $30 per share after taking into account the Company’s Reverse Stock Split, or a combination of cash and stock provided that if at any time the Repayment Share Price is deemed to be the Floor Price, then in addition to shares, the Company will pay Lind an additional amount in cash as determined pursuant to a formula contained in the note.

 

In connection with the issuance of the note, the Company granted Lind a first priority security interest and lien on all of its assets, including a pledge on its shares in John Keeler & Co. Inc., its wholly-owned subsidiary, pursuant to a security agreement and a stock pledge agreement with Lind, dated January 24, 2022. Each subsidiary of the Company also granted a second priority security interest in all of its respective assets.

 

The note was mandatorily payable prior to maturity if the Company issued any preferred stock (with certain exceptions described in the note) or, if the Company or its subsidiaries issued any indebtedness. The Company also agreed not to issue or sell any securities with a conversion, exercise or other price based on a discount to the trading prices of the Company’s stock or to grant the right to receive additional securities based on future transactions of the Company on terms more favorable than those granted to Lind, with certain exceptions.

 

If the Company failed to maintain the listing and trading of its common stock, the note would become due and payable and Lind may convert all or a portion of the outstanding principal at the lower of the then current conversion price and 80% of the average of the 3-day VWAP during the 20 days prior to delivery of the conversion notice.

 

If the Company engages in capital raising transactions, Lind has the right to purchase up to 10% of the new securities.

 

The note was convertible into common stock at $5.00 per share ($100 per share after taking into account the Company’s Reverse Stock Split), subject to certain adjustments, at any time after the earlier of six months from issuance or the date the registration statement is effective; provided that no such conversion may be made that would result in beneficial ownership by Lind and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. If shares were issued by the Company at less than the conversion price, the conversion price will be reduced to such price.

 

 

On September 15, 2023, the Company paid $2,573,142 to Lind and the note was extinguished.

 

On May 30, 2023, the Company entered into a securities purchase agreement with Lind pursuant to which the Company issued to Lind a secured, two-year, interest free convertible promissory note in the principal amount of $1,200,000 (the “Lind Note”) and a warrant (the “Lind Warrant”) to purchase 435,035 shares of common stock of the Company commencing six months after issuance and exercisable for five years at an exercise price of $2.45 per share, for the aggregate funding amount of $1,000,000. The Lind Warrant includes cashless exercise and full ratchet anti-dilution provisions. In connection with the issuance of the Lind Note and the Lind Warrant, the Company paid Lind a $50,000 commitment fee. The proceeds from the sale of the Note and Warrant are for general working capital purposes.

 

On July 27, 2023, the Company, entered into a First Amendment to the securities purchase agreement (the “Purchase Agreement Amendment”) with Lind, pursuant to which the Company amended the securities purchase agreement, entered into with Lind as of May 30, 2023 in order to permit the issuance of further senior convertible promissory notes in the aggregate principal amount of up to $1,800,000 and warrants in such aggregate amount as the Company and Lind shall mutually agree.

 

Pursuant to the Purchase Agreement Amendment, the Company issued to Lind a two-year, interest free convertible promissory note in the principal amount of $300,000 and a warrant to purchase 175,234 shares of common stock of the Company, for the aggregate amount of $250,000. In connection with the issuance of the note and the warrant, the Company paid a $12,500 commitment fee. The proceeds from the sale of the note and warrant are for general working capital purposes.

 

Agile Lending, LLC Loans

 

In order to refinance interest due on the June 14, 2023 note issued to Agile, on January 2, 2024, the Company and Keeler & Co. entered into a subordinated business loan and security agreement with Agile and Agile Capital as collateral agent, which provides for a term loan to the Company in the amount of $122,491 which principal and interest (of $48,996) is due on May 31, 2024. Commencing January 5, 2024, the Company is required to make weekly payments of $7,795 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $5,833 was paid on the loan. A default interest rate of 5% will become effective upon the occurrence of an event of default. In connection with the loan, Agile was issued a subordinated secured promissory note, dated January 2, 2024, in the principal amount of $122,491 which note is secured by all of the Company’s and Keeler & Co.’s assets, including receivables.

 

On March 1, 2024, the Borrowers entered into a subordinated business loan and security agreement with Agile and Agile Capital as collateral agent, which provides for a term loan to the Company in the amount of $210,000 which principal and interest (of $79,800) is due on August 29, 2024. Commencing March 7, 2024, the Company is required to make weekly payments of $11,146 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $10,000 was paid on the loan which was recognized as a debt discount and amortized over the term of the loan. In connection with the loan, Agile was issued a subordinated secured promissory note, dated March 1, 2024, in the principal amount of $210,000 which note is secured by all of the Borrowers’ assets, including receivables.

 

ClearThink Term Loan

 

On January 18, 2024, the Company entered into the Revenue-Based Factoring MCA Plus Agreement with ClearThink Capital LLC (“ClearThink”) which provides, among other things, for a 33-week term loan in the principal amount of $200,000 (with an additional one-time commitment fee of $50,000). Interest accrues at the rate of 25% per annum with an additional 5% default interest rate or $50,000 will be added to the principal amount and accrue after principal is paid. The Company is required to make biweekly payments of $14,706, commencing February 1, 2024 for the term of the Agreement. On January 25, 2024, the Company issued 354,610 shares of common stock to ClearThink as a commitment fee.

 

 

Underwritten Offering

 

On September 11, 2023, the Company offered and sold in a “best efforts” public offering pursuant to a registration statement on Form S-1, which was declared effective by the SEC on September 7, 2023, an aggregate of 690,000 shares of common stock, together with Series A-1 warrants to purchase up to 10,741,139 shares of common stock and Series A-2 warrants to purchase up to 10,741,139 shares of common stock (collectively, the “Common Warrants”) and 10,051,130 pre-funded warrants (the “Pre-Funded Warrants”).

 

Each share of common stock and Pre-Funded Warrants were sold together with a Series A-1 common stock purchase warrant to purchase one share of common stock and a Series A-2 common stock purchase warrant to purchase one share of common stock. The shares of common stock or Pre-Funded Warrant and accompanying Common Warrants are immediately separable and were issued separately. The public offering price for each share of common stock and accompanying Common Warrants was $0.4655. Each Common Warrant has an exercise price per share of $0.4655 and will be exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the Common Warrants (“Warrant Stockholder Approval”). The Series A-1 common stock purchase warrants will expire on the five-year anniversary of the effective date of the Warrant Stockholder Approval. The Series A-2 common stock purchase warrants will expire on the eighteen-month anniversary of the effective date of the Warrant Stockholder Approval. The Pre-Funded Warrants are exercisable immediately, may be exercised at any time until all of the Pre-Funded Warrants are exercised in full, and have an exercise price of $0.01. The Warrant Stockholder Approval has not yet been obtained.

 

The shares of common stock, Common Warrants and Pre-Funded Warrants were sold pursuant to a securities purchase agreement. H.C. Wainwright & Co., LLC acted as placement agent for the offering and received a fee of 7% of the gross proceeds, reimbursement of $35,000 in non-accountable expenses and $100,000 for legal fees and out-of-pocket expenses.

 

2021 Underwritten Offering

 

On November 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Newbridge Securities Corporation (“Newbridge”), as representative of the underwriters listed therein (the “Underwriters”), pursuant to which the Company agreed to sell to the Underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 800,000 shares of the Company’s common stock, at a public offering price of $5.00 per share. In addition, the Underwriters were granted an over-allotment option (the “Over-allotment Option”) for a period of 45 days to purchase up to an additional 120,000 shares of common stock. The Offering closed on November 5, 2021 and the common stock began trading on the NASDAQ Capital Market under the symbol “BSFC” on November 3, 2021. The Over-allotment Option was not exercised by the Underwriters.

 

The net proceeds to the Company from the Offering, after deducting the underwriting discount, the underwriters’ fees and expenses and the Company’s estimated Offering expenses, were approximately $3,600,000. The Company used the net proceeds from the Offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. The Company may also use a portion of the net proceeds to acquire or make investments in businesses, products, and offerings, although the Company does not have agreements or commitments for any material acquisitions or investments at this time.

 

In addition, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, each director, executive officer, and beneficial owners of over 10% of the Company’s common stock (for a period of 180 days after the date of the final prospectus relating to the Offering), have agreed, subject to customary exceptions, not to sell, transfer or otherwise dispose of securities of the Company, without the prior written consent of Newbridge.

 

On November 5, 2021, in connection with the November 2, 2021 Offering, the Company issued a warrant to purchase an aggregate of 2,800 shares of common stock at an exercise price of $100.00 per share to Newbridge. Such warrant expires on November 11, 2024.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of March 31, 2024, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation our principal executive officer and principal financial officer have concluded that based on the material weaknesses discussed below our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:

 

● inadequate control over the monitoring of inventory maintained in the Company’s third-party warehouse;

 

● ineffective controls over the Company’s financial close and reporting process; and

 

● inadequate segregation of duties consistent with control objectives, including lack of personnel resources and technical accounting expertise within the accounting function of the Company.

 

Management believes that the material weaknesses that were identified did not have an effect on our financial results. However, management believes that these weaknesses, if not properly remediated, could result in a material misstatement in our financial statements in future periods.

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to further initiate, the following measures, subject to the availability of required resources:

 

● We plan to create a position to segregate duties consistent with control objectives and hire personnel resources with technical accounting expertise within the accounting function; and

 

● We plan to create an internal control framework that will address financial close and reporting process, among other procedures.

 

Changes in Internal Control over Financial Reporting

 

During the period covered by this Quarterly Report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are no material pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Except as set forth below, there were no sales of equity securities sold during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.

 

On April 8, 2024, the Company issued 119,565 shares of common stock to the designee of ClearThink for consulting services provided to the Company.

 

The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

During the three months ended March 31, 2024, none of the Company’s directors or officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of the Company’s securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any non-Rule 10b5-1 trading arrangements as defined in Item 408(a) of Regulation S-K.

 

On May 10, 2024, Silvia Alana, a director and the Company’s Chief Financial Officer, notified the Company of her resignation from the board of directors and as Chief Financial Officer, effective May 28, 2024. Ms. Alana’s resignation was not the result of any disagreement with the Company or any matter relating to the Company’s operations, policies or practices.

 

ITEM 6. EXHIBITS

 

Exhibit No.		Description
31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	BLUE STAR FOODS CORP.
Dated: May 15, 2024	By:	/s/ John Keeler
	Name:	John Keeler
	Title:	Executive Chairman and Chief Executive Officer (Principal Executive Officer)
Dated: May 15, 2024	By:	/s/ Silvia Alana
	Name:	Silvia Alana
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)