NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
1. Company Overview
Blue
Star Foods Corp. (“we”, “our”, the “Company”) is an international seafood 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 was formed under the laws of the State of Delaware. The Company’s current source of revenue is 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, and steelhead
salmon produced under the brand name Little Cedar Farms for distribution in Canada.
On
November 26, 2019, Keeler & Co., a wholly-owned direct subsidiary of the Company, entered into an Agreement and Plan of Merger and
Reorganization (the “Coastal Merger Agreement”) with Coastal Pride Company, Inc., a South Carolina corporation, Coastal Pride
Seafood, LLC, a Florida limited liability company and newly-formed, wholly-owned subsidiary of the Purchaser (the “Acquisition
Subsidiary” and, upon the effective date of the Merger, the “Surviving Company” or “Coastal Pride”), and
The Walter F. Lubkin, Jr. Irrevocable Trust dated January 8, 2003 (the “Trust”), Walter F. Lubkin III (“Lubkin III”),
Tracy Lubkin Greco (“Greco”) and John C. Lubkin (“Lubkin”), constituting all of the shareholders of Coastal Pride
Company, Inc. immediately prior to the Coastal Merger (collectively, the “Sellers”). Pursuant to the terms of the Coastal
Merger Agreement, Coastal Pride Company, Inc. merged with and into the Acquisition Subsidiary, with the Acquisition Subsidiary being
the surviving company (the “Coastal Merger”).
Coastal
Pride is a seafood company, based in Beaufort, South Carolina, that imports pasteurized and fresh crabmeat sourced primarily from Mexico
and Latin America and sells premium branded label crabmeat throughout North America.
On
April 27, 2021, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with TOBC, and Steve Atkinson
and Janet Atkinson (the “Sellers”), the owners of all of the capital stock of TOBC (the “TOBC Shares”), pursuant
to which the Company acquired all of the TOBC Shares from the Sellers for an aggregate purchase price
of CAD$4,000,000 for: (i) an aggregate of CAD$1,000,000
in cash (with each Seller receiving a pro rata
amount based upon the total number of TOBC Shares held by such Seller); (ii) promissory notes in the aggregate principal amount of CAD$200,000
(the “Notes”) with the principal amount of each Seller’s Note based on such Seller’s pro rata portion of the
TOBC Shares); and (iii) 987,741 shares of the Company’s common stock (representing CAD$2,800,000 of shares based on USD$2.30 per
share) with each Seller receiving a pro rata portion of such shares based upon the total number of TOBC Shares held by such Seller.
On
June 24, 2021, the Purchase Agreement was amended (the “Amendment”), to increase the Purchase Price up to an aggregate of
CAD$5,000,000
and the acquisition closed. Pursuant to
the Amendment, on August 3, 2021, an aggregate of 344,957
shares of the Company’s common stock (representing
CAD$1,000,000
of additional shares calculated at USD$2.30
per share) was put in escrow until the 24-month
anniversary of the closing. If,
within 24 months of the closing, TOBC has cumulative revenue of at least CAD$1,300,000,
the Sellers will receive all of the escrowed shares. If, as of the 24-month anniversary of the closing, TOBC has cumulative revenue of
less than CAD$1,300,000,
the Sellers will receive a prorated number of the escrowed shares based on the actual cumulative revenue of TOBC as of such date.
On
June 24, 2021, the Company consummated the acquisition of TOBC. As a result of the acquisition, TOBC became a wholly owned
subsidiary of the Company.
TOBC
is a land-based recirculating aquaculture systems salmon farming operation, based in Nanaimo, British Columbia, Canada, which sells its
steelhead salmon to distributors in Canada.
Note
2. Basis of Presentation and 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 consolidated balance sheet as of December 31, 2020 has been derived
from the Company’s annual financial statements that were audited by an 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, 2020 filed with the SEC on April 15, 2021 for a broader discussion of our business and the risks
inherent in such business.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period presentation.
Advances
to Suppliers and Related Party
In
the normal course of business, the Company may advance payments to its suppliers, inclusive 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 June 30, 2021, and December 31, 2020, the balance due from the related party for future shipments was approximately $1,300,000.
No new purchases have been made from Bacolod during the six months ended June 30, 2021. A permits renewal payment of $8,000
was made to Bacolod during the three months ended
June 30, 2021. Cost of revenue related to inventories purchased from Bacolod represented approximately $126
and $238,000
of total cost of revenue for the six months ended
June 30, 2021 and 2020, respectively.
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 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,
and steelhead salmon produced under the brand name Little Cedar Farms for distribution in Canada. 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.
Lease
Accounting
We
account for our leases under ASC 842, Leases, which requires all leases to be reported on the balance sheet as right-of-use assets
and lease obligations. We 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.
We
categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those
leases that would allow us 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. We did not have any finance
leases as of June 30, 2021. Our leases generally have terms that range from three years for equipment and five to twenty years for property.
We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account
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 sheets.
Schedule of Lease-related Assets and Liabilities
|
|
|
June
30,
2021
|
|
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
$
|
85,300
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating lease liabilities
|
|
$
|
29,960
|
|
|
Noncurrent
|
|
|
|
|
|
Operating lease liabilities
|
|
$
|
54,976
|
|
Supplemental
cash flow information related to leases were as follows:
Schedule of Supplemental Cash Flow Information Related to Leases
|
|
|
Six
Months Ended
June
30, 2021
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
|
|
|
|
Operating cash
flows from operating leases
|
|
$
|
14,245
|
|
|
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
|
|
|
June
30, 2021
|
|
|
Weighted-average remaining
lease term
|
|
|
|
|
|
Operating leases
|
|
|
2.92
years
|
|
|
Weighted-average discount
rate
|
|
|
|
|
|
Operating leases
|
|
|
4.3
|
%
|
Maturities
of lease liabilities as of June 30, 2021, were as follows:
Schedule of Maturities of Lease Liabilities
|
|
|
Operating
Leases
|
|
|
|
|
|
|
|
2021 (six months remaining)
|
|
|
16,776
|
|
|
2022
|
|
|
33,552
|
|
|
2023
|
|
|
26,474
|
|
|
2024
|
|
|
15,060
|
|
|
2025
|
|
|
-
|
|
|
Thereafter
|
|
|
-
|
|
|
Total lease payments
|
|
|
91,862
|
|
|
Less: amount of lease
payments representing interest
|
|
|
(6,926
|
)
|
|
Present value of future
minimum lease payments
|
|
$
|
84,936
|
|
|
Less: current obligations
under leases
|
|
$
|
(29,960
|
)
|
|
Non-current obligations
|
|
$
|
54,976
|
|
Intangible
Assets and Goodwill
The
Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,”
where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on
their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one
year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed, and
revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill.
The
Company reviews its indefinite lived intangibles and goodwill for impairment annually or whenever events or circumstances indicate that
the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed
an assessment of indefinite lived intangibles and goodwill and determined there was no impairment for the six months ended June 30, 2021
and 2020.
Foreign
Currency Exchange Rates Risk
We
manage our exposure to fluctuations in foreign currency exchange rates through our normal operating activities. Our primary focus is
to monitor our exposure to, and manage, the economic foreign currency exchange risks faced by our operations and realized when we exchange
one currency for another. Our operations primarily utilize the U.S. dollar and Canadian dollar as their functional currencies. Movements
in foreign currency exchange rates affect our financial statements.
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 six months ended June 30, 2021, the Company incurred a net loss of $915,231,
has an accumulated deficit of $14,454,008
and working capital deficit of $1,128,803,
with the current liabilities inclusive of $1,299,712
in stockholder loans that are subordinated to
the provider of the working capital facility, and $29,960
in the current portion of the lease liability
recognition. These circumstances 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
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. Debt
Working
Capital Line of Credit
Keeler
& Co entered into a $14,000,000 revolving line of
credit, pursuant to a loan and security agreement with ACF Finco I, LP (“ACF”) on August 31, 2016, the proceeds of which
were used to pay off the prior line of credit, pay new loan costs of approximately $309,000, and provide additional working capital to
the Company. This facility is secured by all assets of Keeler & Co. This facility was amended on November 18, 2016, June 19, 2017,
October 16, 2017, September 19, 2018, November 8, 2018, July 29, 2019, November 26, 2019 and May 7, 2020.
The
line of credit accrued interest at a rate equal to the greater of 3 Month LIBOR rate plus 9.25%, the Prime rate plus 6.0% or a fixed
rate of 6.5%.
The
ACF line of credit agreement was subject to the following terms:
|
|
●
|
Borrowing
was based on up to 85% of eligible accounts receivable plus the net orderly liquidation value of eligible inventory at the
same rate, subject to certain defined limitations.
|
|
|
●
|
The
line was collateralized by substantially all the assets and property of Keeler &
Co. and was personally guaranteed by the stockholder of the Company.
|
|
|
●
|
Keeler
& Co. was restricted to specified distribution payments, use of funds, and was required to comply with certain
other covenants including certain financial ratios.
|
|
|
●
|
All
cash received by Keeler & Co. was applied against the outstanding loan balance.
|
|
|
●
|
A
subjective acceleration clause allowed ACF to call the note upon a material adverse change.
|
On
November 26, 2019, Keeler & Co. entered into the seventh amendment to the loan and security agreement with ACF. This amendment memorialized
the acquisition of Coastal Pride and made Coastal Pride a co-borrower to the facility. Additionally, the seventh amendment waived and
reset the covenant default that occurred during 2019, extended the term of the facility to 5 years and
is subject to early termination by the lender upon defined events of default. During the nine months ended September 30, 2020, the Keeler
& Co. and Coastal Pride were in violation of its minimum EBITDA covenant as well as exceeding the covenant related to monies advanced
to Bacolod by approximately $105,000. The default interest rate increase of 3% was implemented in April 2020.
On
May 7, 2020, Keeler & Co. and Coastal Pride entered into an eighth amendment to the
loan and security agreement with ACF which acknowledged the execution of a Payroll Protection Program loan, provided a reservation of
rights related to a default of the minimum EBITDA covenant.
The
Company analyzed the line of credit modification under ASC 470-50-40-21 and determined that the modification did not trigger any additional
accounting due to the revolving line of credit remaining unchanged.
As
of December 31, 2020, the line of credit had an outstanding balance of approximately $1,805,000. As of March 31, 2021, the line of credit
had an outstanding balance of $0.
On
March 31, 2021, Keeler & Co. and Coastal Pride entered into a loan and security agreement (“Loan Agreement”) with 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%. The Borrowers will pay Lighthouse a facility fee of $50,000 in three instalments of $16,667 in March, April and May 2021
and will pay an additional facility fee of $25,000 on each anniversary of March 31, 2021.
The
line of credit is 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.
The
Borrowers utilized $784,450 borrowed from Lighthouse to repay all the outstanding indebtedness owed to the ACF as of March 31, 2021.
As a result, all obligations owed to ACF were satisfied and the loan agreement with ACF was terminated. The outstanding balance owed
to Lighthouse as of June 30, 2021 amounted to $631,958.
First
West Credit Union CEBA Loan
On
June 24, 2021, the Company assumed a commercial term loan with First West Credit Union Canada Emergency Business Account
(“CEBA”) in the principal amount of CAD$60,000
in connection with the acquisition of TOBC. The
loan initially bears no interest and is due on December 31, 2025. The borrower may prepay all or part of the loan commencing
November 1, 2022 and if, by December 31, 2022, the
Company has paid 75% of the loan amount, the remaining 25% will be forgiven as per the loan agreement. If less than 75% of the loan
amount is outstanding by December 31, 2022,
the then outstanding balance will be converted to interest only monthly payments at 5.0%.
John
Keeler Promissory Notes – Subordinated
The
Company had unsecured promissory notes outstanding to its stockholder of approximately $1,299,000 of principal and interest expense of
$39,100 and $174,000 as of June 30, 2021 and December 31, 2020, respectively. These notes are payable on demand, bear an annual interest
rate of 6% and were subordinated to the ACF working capital line of credit until March 31, 2021. Since March 31, 2021, these notes are
subordinated to the Lighthouse note. No principal payments were made by the Company during the six months ended June 30, 2021.
Kenar
Note
On
March 26, 2019, the Company issued a four-month unsecured promissory note in the principal amount of $1,000,000 (the “Kenar Note”)
to a company controlled by a shareholder, Kenar Overseas Corp., a company registered in Panama (the “Lender”) the term of
which was previously extended to March 31, 2020 after which time, on May 21, 2020, the Kenar Note was amended to (i) set the maturity
date at March 31, 2021 (unless extended to September 30, 2021 at the Lender’s sole option), (ii) provide that the Company use one-third
of any capital raise from the sale of its equity to reduce the outstanding principal under the Kenar Note, (iii) set the interest rate
at 18% per annum, payable monthly commencing October 1, 2020, and (iv) to reduce the number of pledged shares by Mr. Keeler to 4,000,000.
As consideration for Kenar’s agreement to amend the note, on May 27, 2020, the Company issued 1,021,266 shares of common stock
to Kenar. As of the amendment date, the common stock had a value of $2,655,292.
The
amendment to the Kenar Note was analyzed under ASC 470-50 and was determined that it will be accounted for as an extinguishment of the
old debt and the new debt recorded at fair value with the new effective interest rate of 18%. Additionally, this treatment resulted in
the cost of the modification paid in common stock with a value of $2,655,292 charged to other expense as of the date of the amendment.
On
April 28, 2021, the Kenar Note was amended to extend the maturity date to May 31, 2021.
The
principal amount of the Kenar Note as of June 30, 2021 was $872,500. Interest expense was approximately $77,800 during the six months
ended June 30, 2021.
On
July 6, 2021, the Company entered into a note payoff indemnity agreement with Kenar pursuant to which the Company paid Kenar $918,539
of principal and accrued interest in full satisfaction of the amounts due to Kenar under a Second Loan Amendment, dated April 26, 2021,
between the Company and Kenar, and the Kenar Note was extinguished and the shares pledged by Mr. Keeler were released.
Lobo
Note
On
April 2, 2019, the Company issued a four-month unsecured promissory note in the principal amount of $100,000 (the “Lobo Note”)
to Lobo Holdings, LLLP, a stockholder in the Company (“Lobo”). The Lobo Note bears interest at the rate of 18% per annum.
The Lobo Note may be prepaid in whole or in part without penalty. John Keeler, the Company’s Executive Chairman and Chief Executive
Officer, pledged 1,000,000 shares of common stock of the Company to secure the Company’s obligations under the Lobo Note. The Lobo
Note matured on August 2, 2019 and was extended through December 2, 2019 on the same terms and conditions. On November 15, 2019, the
Company paid off the Lobo Note with the issuance to Lobo of an unsecured promissory note in the principal amount of $100,000 which bears
interest at the rate of 15% and matured on March 31, 2020. On April 1, 2020, the Company paid off the November 15, 2019 note with the
issuance of a six-month unsecured promissory note in the principal amount of $100,000 which accrued interest at the rate of 10% and matured
on October 1, 2020. On October 1, 2020, the Company paid off the April 1, 2020 note with the issuance of a three-month unsecured promissory
note in the principal amount of $100,000, which accrued interest at the rate of 10% and matured on December 31, 2020. On January 1, 2021,
the Company paid off the October 1, 2020 note with the issuance of a six-month unsecured promissory note in the principal amount of $100,000,
which bears interest at the rate of 10% per annum and matures on June 30, 2021. Interest expense was approximately $2,400 during the
six months ended June 30, 2021. On July 1, 2021, the Company paid off the January 1, 2021 note with the issuance of a three-month unsecured
promissory note in the principal amount of $100,000 which accrues interest at the rate of 10% per annum and matures on September 30,
2021.
Walter
Lubkin Jr. Note – Subordinated
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 and 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.
To date, no payments have been made under the note since the EBITDA generated by Coastal Pride has not required such payment. This note
is subordinate to the working capital line of credit. Principal payments are permitted so long as the borrower is not in default of its
working capital line of credit. No principal payments were made by the Company during the six months ended June 30, 2021. Interest expense
was approximately $9,900 during the six months ended June 30, 2021.
Walter
Lubkin III Convertible Note – Subordinated
On
November 26, 2019, the Company issued a thirty-nine-month unsecured promissory note in the principal amount of $87,842 to Walter Lubkin
III as part the purchase price for the Coastal Pride acquisition. The note bears interest at the rate of 4% per annum. The note is payable
in equal quarterly payments over six quarters beginning August 26, 2021. At the election of the holder, at any time after the first anniversary
of the issuance of the note, the then outstanding principal and accrued interest may be converted into the Company’s common stock
at a rate of $2.00 per share. This note is subordinated to the working capital line of credit. Principal payments are permitted so long
as the borrower is not in default of its working capital line of credit. No principal payments were made by the Company during the six
months ended June 30, 2021. Interest expense was approximately $1,700 during the six months ended June 30, 2021.
Tracy
Greco Convertible Note – Subordinated
On
November 26, 2019, the Company issued a thirty-nine-month unsecured promissory note in the principal amount of $71,372 to Tracy Greco
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
in equal quarterly payments over six quarters beginning August 26, 2021. At the election of the holder, at any time after the first anniversary
of the issuance of the note, the then outstanding principal and accrued interest may be converted into the Company’s common stock
at a rate of $2.00 per share. This note is subordinated to the working capital line of credit. Principal payments are permitted so long
as the borrower is not in default of its working capital line of credit. No principal payments were made by the Company during the six
months ended June 30, 2021. Interest expense was approximately $1,400 during the six months ended June 30, 2021.
John
Lubkin Convertible Note – Subordinated
On
November 26, 2019, the Company issued a thirty-nine-month unsecured promissory note in the principal amount of $50,786 to John Lubkin
as part the Coastal Pride acquisition. The note bears interest at the rate of 4% per annum. The note is payable in equal quarterly payments
over six quarters beginning August 26, 2021. At the election of the holder, at any time after the first anniversary of the issuance of
the note, the then outstanding principal and accrued interest may be converted into the Company’s common stock at a rate of $2.00
per share. This note is subordinated to the working capital line of credit. Principal payments are permitted so long as the borrower
is not in default of its working capital line of credit. No principal payments were made by the Company during the six months ended June
30, 2021. Interest expense was approximately $1,000 during the six months ended June 30, 2021.
Steven
Atkinson and Janet Atkinson Promissory Notes – Subordinated
On
June 24, 2021, the Company issued a promissory note in the principal amount of CAD$102,000 (USD$82,824) to Janet Atkinson
as part of the TOBC acquisition. The note bears no interest and is due on November 30, 2021.
On
June 24, 2021, the Company issued a promissory note in the principal amount of CAD$98,000 (USD$79,576) to Steven Atkinson
as part of the TOBC acquisition. The note bears no interest and is due on November 30, 2021.
Payroll
Protection Program Loan
On
March 2, 2021, the Company received proceeds of $371,944 and issued an unsecured promissory note to US Century in the principal amount
of $371,944 in connection with a PPP Loan. The note accrues interest at 1.0% per annum, matures five years from the date of issuance
and is fully guaranteed by the SBA and may be forgiven provided certain criteria are met. The Company may apply for forgiveness after
August 17, 2021 and may be required to make monthly payments of approximately $8,500 beginning June 2, 2022. As of June 30, 2021, the
Company recorded interest expense of approximately $1,200.
Note
5. Business Combination
Acquisition
of Taste of BC Aquafarms
On
June 24, 2021, the Company consummated the acquisition of TOBC and TOBC became a wholly owned
subsidiary of the Company. The acquisition was accounted for as a business combination under the provisions of ASC 805. The aggregate
purchase price of CAD$5,000,000
was paid as follows: (i) an aggregate of CAD$1,000,000
in cash to the Sellers; (ii) promissory notes
in the aggregate principal amount of CAD$200,000
to the Sellers; (iii) 987,741
shares of the Company’s common stock (representing
CAD$2,800,000 of
shares based on USD$2.30 per
share) with each Seller receiving their pro rata portion based on their ownership; and an aggregate of 344,957
shares of the Company’s common stock (representing
CAD$1,000,000
additional shares calculated at USD$2.30
per share) were issued on August 3, 2021 and
put in escrow until June 24, 2023. If, within 24 months of the closing, TOBC has cumulative revenue of at least CAD$1,300,000,
the Sellers will receive all of the escrowed shares. If, as of the 24-month anniversary of the closing, TOBC has cumulative revenue of
less than CAD$1,300,000,
the Sellers will receive a prorated number of the escrowed shares based on the actual cumulative revenue of TOBC as of such date.
The
transaction costs incurred in connection with the acquisition of TOBC
amounted to $31,000.
Fair
Value of Consideration Transferred and Recording of Assets Acquired
The
following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed.
The business combination accounting is not yet complete and the amounts assigned to assets acquired and liabilities assumed are provisional.
Therefore, this may result in future adjustments to the provisional amounts as information is obtained about facts and circumstances
that existed at the acquisition date.
Schedule of Fair Value of Assets Acquired and Liabilities Assumed
|
Consideration Paid:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
814,000
|
|
|
Common stock, 987,741 shares of BSFC common
stock
|
|
|
2,271,804
|
|
|
Promissory notes to Sellers
|
|
|
162,400
|
|
|
Contingent consideration
- Common stock, 344,957
shares of BSFC common stock in escrow
|
|
|
793,400
|
|
|
Fair value of total consideration
|
|
$
|
4,041,604
|
|
|
|
|
|
|
|
|
Purchase Price Allocation:
|
|
|
|
|
|
Tangible assets acquired
|
|
$
|
2,157,506
|
|
|
Trademarks
|
|
|
406,150
|
|
|
Customer relationships
|
|
|
1,454,017
|
|
|
Non-compete agreements
|
|
|
97,476
|
|
|
Goodwill
|
|
|
479,277
|
|
|
Liabilities assumed
|
|
|
(552,822
|
)
|
|
Fair market value of
net assets acquired
|
|
$
|
4,041,604
|
|
In
determining the fair value of the common stock issued, the Company considered the value of the stock as estimated by the Company at the
time of closing. The value of USD$2.30
per share of common stock, as provided in the
Purchase Agreement, was calculated based on the volume weighted average price of a share of the Company’s common stock on the OTC
Markets for the period commencing on April 28, 2020, the date the Company’s common stock started trading on the OTC Markets, through
the closing of the acquisition on June 24, 2021.
Liabilities
assumed included three mortgage loans of approximately CAD$490,000 which were paid off by the Company on July 9, 2021. The Company has
one commercial loan outstanding for CAD$60,000 which is due on December 31, 2025.
Unaudited
Pro Forma Information
The
following unaudited pro forma information assumes the business acquisition occurred on January 1, 2020. For all of the business
acquisitions, depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual
acquisition costs.
Schedule of Proforma Information
|
|
|
Six
Months Ended
June 30, 2021
|
|
|
Six Months
Ended
June 30, 2020
|
|
|
Revenue
|
|
$
|
4,936,796
|
|
|
$
|
7,535,578
|
|
|
Net loss attributable
to common shareholders
|
|
$
|
(767,791
|
)
|
|
$
|
(4,368,367
|
)
|
|
Basic and diluted loss
per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.25
|
)
|
The
information included in the pro forma amounts is derived from historical information obtained from the Sellers of the business.
Note
6. Common Stock
On
July 1, 2020, the Company entered into an investment banking engagement agreement, as amended on October 30, 2020, with Newbridge Securities
Corporation. In consideration for advisory services, the Company agreed to issue Newbridge a total of 60,000 shares of common stock with
a fair value of $138,000 which is amortized to expense over the term of the agreement. The Company recognized stock compensation expense
of $69,000 for the six months ended June 30, 2021 in connection with these shares.
On
February 8, 2021, the Company issued 25,000 shares of common stock with a fair value of $25,250 to an investor relations firm for services
provided to the Company under an investor relations consulting agreement.
On
March 30, 2021, the Company issued 10,465 shares of common stock with a fair value of $24,697 to the designee of a law firm for services
provided to the Company.
On
March 31, 2021, the Company issued 5,000 shares of common stock with a fair value of $11,800 to an investor relations firm for services
provided to the Company under an investor relations consulting agreement.
On
March 31, 2021, the Company issued 11,975 shares of common stock to Series A preferred stockholders as a common stock dividend with an
aggregate fair value of $28,260 for the three months ended March 31, 2021.
On
April 15, 2021, the Company issued an aggregate of 16,460 shares of common stock to Walter Lubkin Jr., Walter Lubkin III, Tracy Greco
and John Lubkin (collectively, the “Coastal Sellers”) in lieu of $39,504 of outstanding interest under promissory notes issued
by the Company to the Coastal Sellers in connection with the Coastal Pride acquisition.
On
April 19, 2021, the Company issued 12,500 shares of common stock with a fair value of $25,000 to the designee of a law firm for services
provided to the Company.
On
April 29, 2021, the Company issued 105,757 shares of common stock to Kenar Overseas Corp. in lieu of $227,378 of outstanding interest
under the Kenar Note.
On
April 30, 2021, the Company issued 5,000 shares of common stock with a fair value of $28,500 to an investor relations firm for services
provided to the Company under an investor relations consulting agreement.
On
May 31, 2021, the Company issued 5,000 shares of common stock with a fair value of $31,500 to an investor relations firm for services
provided to the Company under an investor relations consulting agreement.
On
June 17, 2021, the Company sold pursuant to subscription agreements an aggregate of 475,000
shares of common stock at $2.00
per share to four
accredited investors in a private offering for
gross proceeds of $950,000.
On
June 23, 2021, the Company sold pursuant to subscription agreements an aggregate 212,750
shares of common stock at $2.00
per share to twenty-seven
accredited investors in a private offering for
gross proceeds of $425,000.
On
June 24, 2021, the Company issued 987,741 shares to the sellers of TOBC as partial consideration for the sale of TOBC to the Company.
On
June 30, 2021, the Company issued 5,000 shares of common stock with a fair value of $36,250 to an investor relations firm for services
provided to the Company under an investor relations consulting agreement.
On
June 30, 2021, the Company issued 10,465 shares of common stock with a fair value of $75,871 to the designee of a law firm for services
provided to the Company.
On
June 30, 2021, the Company issued an aggregate of 706,500
shares of common stock to Series A preferred
stockholders upon conversion of an aggregate 1,413
shares of Series A preferred stock.
On
June 30, 2021, the Company sold pursuant to subscription agreements an aggregate of 598,750
shares of common stock at $2.00
per share to twenty-six
accredited investors in a private offering for
gross proceeds of $1,198,000.
