1. Basis of Presentation and Significant Accounting Policies

Overview

The accompanying unaudited condensed consolidated financial statements of Borealis Foods Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “Borealis,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included.

The condensed consolidated balance sheet as of December 31, 2025 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission.

The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full year ending December 31, 2026.

The financial data presented herein for three months ended March 31, 2026 and 2025 reflects the consolidated operations of Palmetto Gourmet Foods, Inc. (“PGF”) and its real estate subsidiaries (“PGF RE I” and “PGF RE II”), which constitute substantially all of the Company’s operating activities. 

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred recurring operating losses since inception and has a working capital deficit and accumulated deficit that raise substantial doubt about its ability to continue as a going concern within one year after the date these financial statements are issued.

As of March 31, 2026, the Company had cash of approximately $0.5 million and a net working capital deficit of approximately $(65.0) million. The Company’s total liabilities exceed total assets and the Company has experienced recurring losses from operations and negative cash flows from operating activities. On November 13, 2025, the Company received a notice from FrontWell Capital Partners Inc. (“FrontWell”) asserting the occurrence of a Default under the FrontWell Credit Agreement. On March 27, 2026, the Company and its subsidiaries entered into a Forbearance and Amendment Agreement with FrontWell (the “Forbearance Agreement”), pursuant to which FrontWell agreed to forbear from exercising its rights and remedies with respect to specified defaults through April 27, 2026, subject to compliance with certain conditions including the retention of a Chief Restructuring Officer. On April 27, 2026, the Company repaid and satisfied in full all obligations outstanding under the FrontWell Credit Agreement using proceeds from a new $17.0 million term loan entered into with Oxus Capital PTE Ltd. (“Oxus Capital”), a major related-party shareholder, as described further in Note 4 and Note 11. The FrontWell Credit Agreement has been fully discharged and the August 2026 balloon maturity risk has been eliminated.

Subsequent to March 31, 2026, the Company completed the Oxus Credit Agreement on April 27, 2026, which extended the maturity of the Company's primary secured debt facility from August 2026 to April 2031, issued a separate $3.0 million unsecured convertible promissory note to Oxus Capital on May 29, 2026. Management’s remaining plans to address the conditions giving rise to substantial doubt include: (i) consummation of equity financings of at least $70.0 million at $9.00 per share on or before July 1, 2026; (ii) absent such financings, the conversion of approximately $29.1 million of related-party indebtedness (plus approximately $4.3 million of accrued interest as of June 30, 2026) into Common Shares under the Conversion Agreement, subject to receipt of shareholder approvals required under Nasdaq Listing Rules 5635(b) and 5635(d); (iii) continued financial support from related parties with respect to demand and past-due obligations; (iv) continued growth in institutional food service volumes; and (v) ongoing SG&A discipline.

Notwithstanding the foregoing, management has concluded under ASC 205-40 that substantial doubt about the Company's ability to continue as a going concern has not been alleviated, because management's plans cannot be assessed as probable of being effectively implemented. As of the date of issuance of these financial statements, the Company has no commitments for the equity financing contemplated by the Subscription Agreement, the $9.00 per share threshold is substantially above recent trading prices of the Common Shares, the shareholder approvals required for the contemplated conversion have not been obtained, the Company’s total liabilities continue to exceed total assets, and the Company continues to rely on related-party support to meet near-term obligations.

Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Cash Equivalents

The Company classifies all highly liquid securities with stated maturities of three months or less from the date of purchase as cash equivalents. The Company has no cash equivalents as of March 31, 2026 and December 31, 2025.

Inventories, net

Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined using the first-in, first-out method. The cost of finished goods is determined by using the weighted average cost method.

A reserve is recorded for any food inventory that is expired (or expected to expire before sale) and any raw materials for projects that have been discontinued.

Prepaid Expenses

Prepaid expenses were approximately $1,070,000 and $761,000, composed primarily of prepaid insurance, deposits on inventory purchases and property, plant and equipment purchases, as of March 31, 2026, and December 31, 2025, respectively.

Property, Plant and Equipment, net

Property, plant, and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets or, where applicable, based on actual machine hours utilized.

Straight-line assets:    

Machine hours assets:    

Construction in progress includes the cost of property, plant and equipment being constructed or otherwise not yet in service. Costs include materials, labor, capitalized interest, engineering and testing costs, and other costs necessary to get the assets ready for their intended use.

Intangible Assets

Patents are recorded at cost and are amortized on a straight-line basis over their estimated useful lives. The carrying value of patents is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Amounts Due to Related Parties

Amounts due to related parties (Company shareholders and entities controlled by Company shareholders) totaled $28,717,709 as of March 31, 2026 and $27,295,885 as of December 31, 2025.

This related party liability is comprised of multiple notes payable to Barthelemy Helg, Non-Executive Chairman of the Board of Directors, in the amount of $14,425,792 and $13,285,792 as of March 31, 2026 and December 31, 2025, respectively, and is due on demand and bears interest at 10% annually.

An additional note payable to a shareholder in the amount of $500,000 as of March 31, 2026 and December 31, 2025, bears interest at 10% annually and is due June 30, 2026.

Additional notes payable to Reza Soltanzadeh, the Company’s CEO, in the amount of $2,690,256 and $2,408,432 as of March 31, 2026 and December 31, 2025, respectively, and bears interest at 10% annually and are due on demand.

The remaining $11,101,661 is comprised of two shareholder notes payable to Oxus Capital PTE Ltd. (“Oxus”). The first note for $7,601,661 was a result of expenses recognized by Oxus and resulted in reduction of contributed equity at the Reverse Recapitalization. This note matures on June 30, 2026 after extension and is non-interest bearing. An additional note payable to this shareholder in the amount of $3,500,000 is due on June 30, 2026 and bears interest at 10% annually.

Related parties debt balances outstanding as of March 31, 2026 are due as follows: $28,717,709 in 2026.

The salary of the Company’s CEO was accrued and not paid during the three months ended March 31, 2026.  The Company recorded $125,000 in accrued payroll expense to reflect compensation for services performed during the three months ended March 31, 2026. The total accrued payroll expense of the Company’s CEO is $583,328 and $458,328 as of March 31, 2026 and December 31, 2025 respectively.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment losses were recorded for three months ended March 31, 2026 and 2025.

Revenue and Cost Recognition and Accounts Receivable

The Company’s revenue is primarily generated from the sale of food products. The Company recognizes revenue upon shipment of goods when ownership, risk, and rewards transfer to the customer. Certain of the Company’s contracts with customers include variable consideration consisting of payment discounts and promotions.  These programs include rebates, temporary on-shelf price reductions, off-invoice discounts, retailer advertisements, product coupons, slotting fees and other trade activities. Provision for discounts and incentives are recorded as a reduction in revenue in the same period in which the related revenues are recognized. 

Total payment discounts and promotions were approximately $414,000 and $379,000 for the three months ended March 31, 2026 and 2025, respectively, resulting in net revenues of approximately $7,368,000 and $6,846,000, respectively.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. The incremental cost to obtain contracts was not material.

Accounts receivable related to product sales typically have payment terms of 30 days. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The allowance for credit losses reflects the Company’s estimate of probable losses related to its accounts receivable. Collections from customers are continuously monitored and an allowance for credit losses is maintained based on historical experience adjusted for current conditions and reasonable forecasts taking into account geographical and industry-specific economic factors. The Company also considers specific customer collection issues. Since the Company’s accounts receivable are largely similar, the Company evaluates its allowance for credit losses as one portfolio segment. At origination, the Company evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit ratings, probabilities of default, industry trends and other internal metrics. On a continuing basis, data for each major customer is regularly reviewed based on past-due status to evaluate the adequacy of the allowance for credit losses; actual write-offs are charged against the allowance. 

The Company incurred production training expenses for the three months ended March 31, 2026 and 2025, totaling approximately $133,000 and $201,000, respectively. Such amounts are recorded in sales, general and administrative costs in the accompanying unaudited condensed consolidated statement of operations as these costs are not directly attributable to finished goods production.

The Company’s cost of goods sold represent materials, direct labor costs, and allocated overheads associated with the sale of finished goods to customers.

Advertising

Costs associated with advertising are expensed as incurred and are included in sales, general and administrative expenses. Advertising costs expensed for the three months ended March 31, 2026 and 2025 were approximately $463,000 and $566,000, respectively.

Research and Development Costs

Research and development costs have been expensed in the period incurred. Research and development costs consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, share-based compensation, scale-up expenses, depreciation and amortization expenses on research and development assets, and facility lease costs. Scale-up expenses include material waste costs, production personnel costs, and related expenses. Research and development efforts are focused on enhancements to our existing product formulations and production processes in addition to the development of new products. The Company expects to continue investing in research and development over time, as research and development and innovation are core elements of our business strategy, and the Company believes they represent a critical competitive advantage. The Company believes continued innovation will capture a larger share of consumers through additional revenue streams. Research and development expenses for the three months ended March 31, 2026 and 2025 were approximately $50,000 and $52,000, respectively, and are included in sales, general, and administrative expenses in the accompanying condensed consolidated statements of operations.

Business Development Costs

Business development expenses include all costs associated with directly growing and expanding a business segment, such as advertising, market research and training. These costs include staff salaries, travel expenses, and consulting expenses that the Company incurs while searching for new opportunities and maintaining current relationships. Business development expenses for the three months ended March 31, 2026 and 2025 were approximately $446,000 and $607,000, respectively, and are included in sales, general, and administrative expenses in the accompanying condensed consolidated statements of operations.

Concentration of Risk

At times the Company maintains cash balances at financial institutions in excess of federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. The Company holds cash at well-known banks and does not believe that it is exposed to any significant credit risks on its cash.

The Company extends unsecured credit to its customers in the ordinary course of business. Payment terms are generally net 30 days with discounts amounting up to 2% for early payments. Accounts receivables are written off when they are determined to be uncollectible based on the financial stability of its customers and existing economic conditions.

Sales to three customers accounted for approximately 58% and sales to four customers accounted for approximately 60% of net revenues for the three months period ended March 31, 2026 and 2025, respectively. Accounts receivable from two customers amounted to approximately 31% and accounts receivable from three customers amount to approximately 51% of total accounts receivable as of March 31, 2026 and December 31, 2025, respectively. The Company’s sales for the three months ended March 31, 2026 and 2025 were generated primarily in the United States across the Southeast, Midwest, Southwest, Northeast, Mountain, and Pacific regions, with the balance generated in international markets, including Canada, Central America, South America, and Europe. See Note 10 for revenue disaggregated by geographic region.

Purchases from 10 vendors accounted for approximately 46% and 46% of purchases during the three months ended March 31, 2026 and 2025, respectively. Accounts payable to these vendors totaled approximately $1,501,000 and $2,678,000 as of March 31, 2026 and 2025, respectively.

Fair Value Measurements

In accordance with US GAAP, the Company defines fair value as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available.

The hierarchy is condensed into three levels based on the reliability of inputs as follows:

The Company does not have assets measured at fair value on a recurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

The carrying amounts reported in the unaudited condensed consolidated balance sheets for accounts receivable and accounts payable approximate their fair values due to the short-term nature of these instruments.

There is no material difference between the carrying amounts and fair values of the Company’s debt obligations, notes payable, line of credit and convertible notes payable, as interest rates approximate current market rates for similar types of debt instruments (Level 2).

Disclosures about the fair value of financial instruments are based on pertinent information available to management as of March 31, 2026 and December 31, 2025. Although management is not aware of any factors that would significantly affect the reasonableness of the fair value amounts, such amounts were not comprehensively revalued for purposes of these unaudited condensed consolidated financial statements and current estimates of fair value may differ significantly from the amounts presented herein.

Stock Based Compensation

The Company accounts for its stock compensation arrangements at fair value in accordance with Accounting Standards Codification (“ASC”) 718 - Compensation - Stock Compensation. Compensation cost relating to share-based payment transactions is recognized in the Company’s unaudited condensed consolidated financial statements based on the estimated fair value of the instruments issued. The Company measures the cost of employees’ and/or directors’ services in exchange for stock awards based on the grant-date fair value of the award using the Black Scholes model and recognizes the cost over the period the employee is required to provide services for the award, which is the vesting period. The Company accounts for forfeitures as they occur. 

Warrants

Outstanding warrants were assumed at the Reverse Recapitalization. The fair value of the warrants was determined using the Monte Carlo analysis at the date of the transaction. The Company accounts for its Public and Private warrants as equity-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent year end date while the warrants are outstanding. It was determined at the date of completion of the Reverse Capitalization that there were no changes to the classes or language that would impact the original assessment that the warrants should be classified as equity.

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and are included in sales, general and administrative expense in the unaudited condensed consolidated statements of operations.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“ASU 2024-03”) which requires entities to (i) disclose amounts of (a) purchase of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and, (e) depreciation, depletion, and amortization recognized as part of oil-and gas-producing activities, (ii) include certain amounts that are already required to be disclosed under current U.S. GAAP in the same disclosures as other disaggregation requirements, (iii) disclose a qualitative description of the amounts remaining in relevant expense captions that are not necessarily disaggregated quantitatively, and (iv) disclose the total amount of selling expenses, in annual reporting periods, an entity’s definition of selling expense. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating ASU 2024-03 to determine the impact it may have on its consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270), which is intended to improve the navigability of the guidance in ASC 270, Interim Reporting, and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. ASU No. 2025-11 also addresses the form and content of such financial statements, interim disclosures requirements, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU No. 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating ASU No. 2025-11 to determine the impact it may have on its consolidated financial statements.