10-K: Blue Star Foods Corp. Faces Deepening Losses and Going Concern Doubts Amidst Revenue Decline and Nasdaq Delisting

Blue Star Foods Corp. reported a significant increase in net loss and a sharp decline in revenue for the fiscal year ended December 31, 2024, raising substantial doubt about its ability to continue as a going concern, compounded by its recent delisting from Nasdaq.

Summary

• Blue Star Foods Corp. (BSFC) reported a net loss of $12,478,487 for the fiscal year ended December 31, 2024, a substantial increase from the $4,471,612 net loss in 2023.
• Revenue decreased by 41.3% to $3,593,881 in 2024, down from $6,124,529 in 2023, primarily due to a decrease in poundage sold.
• The company shifted from a gross profit of $158,077 in 2023 to a gross loss of $1,288,990 in 2024, with the gross loss margin widening to 35.9% from a 2.6% gross profit margin.
• Other operating expenses surged by 177% to $7,147,468 in 2024, driven by increased legal and professional fees, valuation allowances for related party advances and receivables, and a $1.5 million loss from the Afritex Texas service agreement.
• The company's independent registered public accounting firm included an explanatory paragraph in its report, citing recurring losses and a net capital deficiency that raise substantial doubt about BSFC's ability to continue as a going concern.
• BSFC was delisted from The Nasdaq Stock Market LLC on December 18, 2024, due to non-compliance with the minimum bid price requirement, and its common stock now trades on the OTCQB tier.
• The company's working capital position deteriorated significantly, moving from a surplus of $899,215 in 2023 to a deficit of $411,225 in 2024.
• Cash used in operating activities increased to $6,195,893 in 2024 from $3,530,662 in 2023, indicating a higher cash burn rate.
• Despite the operational cash burn, cash and cash equivalents increased to $326,854 in 2024 from $24,163 in 2023, primarily due to $6,417,872 in cash provided by financing activities, including proceeds from common stock offerings and short-term loans.
• The company identified material weaknesses in its internal control over financial reporting, including inadequate control over inventory, ineffective financial close and reporting processes, insufficient segregation of duties, and inadequate controls over related party transactions.

Sentiment

Score: 2

Explanation: The company exhibits severe financial distress, including significant revenue decline, a shift to gross loss, a substantial increase in net loss, and a working capital deficit. The auditor's 'going concern' warning, Nasdaq delisting, and identified material weaknesses in internal controls further underscore a highly negative outlook. While the company has managed to raise capital, the terms of these financings (high interest, convertible debt, dilution) suggest a desperate need for funds rather than a position of strength. The ongoing legal disputes and related party transaction issues add to the negative sentiment.

Positives

• Cash and cash equivalents increased significantly to $326,854 as of December 31, 2024, up from $24,163 in the prior year, primarily due to financing activities.
• The company successfully raised $6,161,626 from common stock offerings and $2,477,790 from short-term loans in 2024, demonstrating access to capital markets despite challenges.
• BSFC has a long-term strategy to create a vertically integrated seafood company, focusing on food safety, traceability, and certified resource sustainability.
• The company is refining its land-based recirculating aquaculture system (RAS) salmon farming operation (TOBC) with a goal to scale production to 1,500 tons in future facilities, subject to funding.
• BSFC utilizes proprietary GPS-based systems for crab sourcing to ensure traceability and sustainable harvesting practices, paying a premium to fishermen for compliance.
• The company holds patents for eco-friendly packaging (green pouches for Eco-Fresh crab meat), which have reportedly saved over a million metric tons of carbon dioxide emissions compared to metal can packaging.
• BSFC was upgraded to the OTCQB tier in February 2025, indicating some level of compliance and transparency for investors on that market.

Negatives

• Net sales decreased by 41.3% to $3,593,881 in 2024, indicating a significant decline in core business activity.
• The company incurred a gross loss of $1,288,990 in 2024, a sharp reversal from a gross profit of $158,077 in 2023, primarily due to higher market prices and increased inventory reserves.
• Net loss for 2024 dramatically increased to $12,478,487, up from $4,471,612 in 2023, driven by operational losses and non-operating expenses.
• Other operating expenses soared by 177% to $7,147,468, largely due to increased legal and professional fees, significant valuation allowances for related party advances and receivables, and a $1.5 million loss from the Afritex Texas service agreement.
• The company's working capital position deteriorated from a surplus of $899,215 in 2023 to a deficit of $411,225 in 2024.
• Cash used in operating activities increased by $2,665,231 to $6,195,893 in 2024, highlighting a worsening operational cash burn.
• The company was delisted from Nasdaq on December 18, 2024, due to failure to meet the minimum bid price requirement, impacting its market visibility and investor confidence.
• The independent auditor's report includes a 'going concern' explanatory paragraph, indicating substantial doubt about the company's ability to continue operations.
• Material weaknesses in internal control over financial reporting were identified, including issues with inventory monitoring, financial close processes, segregation of duties, and related party transactions.
• Significant related party transactions involve substantial uncollectible advances and receivables, with full valuation allowances recorded for $1,299,984 due from Bacolod and $435,540 from Strike the Gold Foods Limited, indicating potential financial mismanagement or poor credit control.

Risks

• The company's ability to continue as a going concern is dependent on increasing revenues, executing business plans, and raising additional capital, which is uncertain.
• Future acquisitions may divert management attention, expose the company to unforeseen liabilities, and may not generate sufficient revenue to offset costs.
• The value of crab meat, a significant portion of revenue, is subject to fluctuation, leading to volatility in operating results and stock price.
• A material decline in crab meat population and biomass in fisheries, due to natural fluctuations, disease, or environmental changes, could adversely affect the business.
• Risk of product contamination and product liability claims could lead to health-related illnesses, negative publicity, and damage to reputation, even if claims are unsuccessful.
• High susceptibility to changes in market demand for crab meat, influenced by economic conditions and evolving consumer preferences, could materially affect business and results.
• Increased regulation of the fishing industry, including quotas or environmental limitations, could negatively impact operations and increase costs.
• Intense competition in the seafood industry from larger, more recognized brands and potential increases in low-priced imported products could reduce profitability.
• Ongoing litigation regarding the Fisheries and Oceans Canada Freshwater/Land-based Aquaculture License for TOBC's operations could diminish brand value and adversely affect the ability to operate.
• Inadequate insurance coverage may not cover full losses from pollution, property damage, personal injury, or other hazards in the fishing industry.
• Changes in laws and regulations in countries where the company operates, including import regulations, taxes, or duties, could adversely affect operations, revenue, and profitability.
• A decline in discretionary consumer spending could significantly impact the demand for luxury products like premium crab meat.
• Quality and quantity of salmon harvested by TOBC are critical, and sub-optimal growing conditions, disease, or processing issues could lead to reduced demand or lower prices.
• Dependence on third-party vendors for co-packing, processing, and shipping creates risks of supply chain interruptions and delays.
• Lack of long-term agreements with many customers and suppliers means relationships could terminate or change unfavorably, impacting business.
• Need to raise additional capital in the future carries risks of dilution to stockholders if equity securities are issued, or significant restrictions if debt securities are issued.
• Inability to manage future growth effectively could strain organizational, administrative, and operational infrastructure.
• Loss of key personnel, particularly the Executive Chairman and CEO, or inability to attract and retain skilled employees, could negatively impact the business.
• Risks associated with international business operations include managing dispersed operations, compliance with foreign laws, tariffs, currency fluctuations, and political instability.
• The price of common stock may be volatile due to various factors, including financial results, competition, strategic transactions, and regulatory actions.
• Future issuance of additional shares or convertible securities may dilute ownership interests and reduce equity interest.
• Trading on the OTCQB Market is volatile and sporadic, which could depress the market price and make it difficult for holders to resell common stock.
• Management has broad discretion over the use of proceeds from securities offerings, which may not always improve financial condition or market value.
• The company's common stock may be deemed a 'penny stock,' making it more difficult for investors to dispose of shares and potentially reducing market value.
• The sales practice requirements of FINRA may limit stockholders' ability to buy and sell the common stock.
• Operating results may fluctuate significantly and fall below expectations, causing stock price volatility.
• Provisions in charter documents or Delaware law could delay or prevent an acquisition, even if beneficial to stockholders.

Future Outlook

Blue Star Foods Corp. plans to grow organically by increasing its customer base and introducing new high-value product lines, with a primary objective to optimize management and enhance marketing, sourcing, and finance departments. The company also intends to strategically acquire complementary businesses to expand into new territories, diversify species categories, and integrate sustainability models. A significant long-term goal is to scale its RAS business to reach a production of 21,000 metric tons of steelhead salmon by 2028, contingent on securing necessary equity capital and debt facilities to build new farms.

Management Comments

• "We anticipate moving away completely from Keeler & Co. in the second quarter of 2025."
• "The Company's ability to continue as a going concern is dependent on its ability to increase revenues, execute on its business plan to acquire complimentary companies, raise capital and continue to sustain adequate working capital to finance its operations."
• "Management believes that the Company can continue to operate as the licensed facility pertains to TOBC, despite the ongoing dispute over the Fisheries and Oceans Canada Freshwater / Land-based Aquaculture License."
• "We plan to create an internal control framework that will address financial close and reporting process, among other procedures."
• "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."

Industry Context

The international seafood industry is undergoing rapid change due to global population growth and evolving food consumption habits. There's a rising demand for animal-based protein in developing nations and increased awareness of sustainable sourcing and marine ecosystem protection in developed countries. Aquaculture has become a major source to meet global seafood demand, with production reaching a record 214 million tons in 2020 and projected to grow significantly, driving the need for recirculatory aquatic systems (RAS). Blue Star Foods Corp.'s strategy to vertically integrate and scale its RAS business aligns with this industry trend, aiming to capitalize on the demand for sustainably sourced seafood.

Comparison to Industry Standards

• Blue Star Foods Corp. competes with major integrated seafood companies such as Tri Union Frozen Products, Inc. (Chicken of the Sea Frozen Foods), Phillips Foods, Inc., Harbor Seafood, Inc., and Twin Tails Seafood Corp. in its traditional sustainable seafood business.
• In its RAS business, primary competitors include Atlantic Sapphire, Aquaco, Nordic Aquafarms, Whole Oceans, Kuterra, and Pure Salmon.
• The company's reported gross loss margin of -35.9% in 2024 is significantly worse than typical industry standards for seafood companies, which generally aim for positive gross margins.
• The substantial increase in net loss and the auditor's 'going concern' warning indicate a financial performance well below industry benchmarks for a healthy, publicly traded company.
• The delisting from Nasdaq to the OTCQB market suggests a failure to meet the listing standards of a major exchange, which is a negative comparison to most established public companies in the industry.

Management Changes

Corporate Governance

Legal Proceedings

• On July 16, 2024, the Company, through TOBC, filed a lawsuit in the Supreme Court of British Columbia against its landlords (Steven Atkinson, Kathryn Atkinson, and Janet Atkinson) requesting a declaration that their commercial lease is valid and remains in full force and effect.
• On January 17, 2025, the Company, through TOBC, filed a lawsuit in the Supreme Court of British Columbia against Harold Steven Atkinson, Janet Atkinson, and Ben Atkinson for breach of contract, tort of intentional interference with economic relations, breach of confidentiality and non-compete, breach of trust, breach of fiduciary duty, defamation, and breach of duty of honest performance and good faith. The lawsuit alleges Harold Steven Atkinson purposely hid the renewal process of the Fisheries and Oceans Canada Freshwater / Land-based Aquaculture License and placed it in his personal name when it should be in TOBC's name.
• On January 10, 2025, a civil claim was filed by a former employee of TOBC (Mr. Atkinson) in the British Columbia Supreme Court, relating to the termination of his employment in February 2024 and a separate claim of defamation against the Company. The discovery process has begun.

Related Party Transactions

• John Keeler, the Chief Executive Officer, Executive Chairman, and a director, had unsecured promissory notes outstanding to him, totaling $165,620 as of December 31, 2023, which were paid off during 2024.
• John Keeler owns 95% of Bacolod, an exporter of pasteurized crab meat from the Philippines, and 95% of Bicol, a Philippine company and indirect supplier via Bacolod. No transactions with Bicol were reported for 2023 or 2024.
• As of December 31, 2024, there was approximately $1,299,984 due from Bacolod for future shipments, for which the Company recorded a full valuation allowance due to uncertainty regarding collectability. No new purchases have been made from Bacolod since November 2020.
• The Company had outstanding advances of $72,300 to Sustainable Seafood Philippines, a related party, in connection with a planned acquisition of Bacolod's assets, for which a full valuation allowance was recorded due to uncertainty regarding collectability.
• John Keeler and Christopher Constable (former CFO) own 80% and 20% respectively of Strike the Gold Foods, Ltd., a UK company. The Company processed payments of $37,500 to Strike the Gold in 2024, adding to an existing long-term receivable of $435,540, for which a full valuation allowance was recorded.
• The Company sold inventory to Strike the Gold amounting to $210,354 in 2024, but revenue recognition was deferred until collection due to collectability uncertainty.
• Directors receive annual compensation in the form of stock grants: $60,000 for serving on the Board, an additional $20,000 for committee service, and additional amounts ($30,000-$50,000) for serving as committee chairs.

Stakeholder Impact

• **Shareholders:** Significant dilution from numerous common stock issuances for debt conversion, consulting fees, and director compensation. The Nasdaq delisting and 'going concern' warning severely impact share value and liquidity. Recurring losses and working capital deficit pose a high risk to investment.
• **Employees:** Salaries and wages decreased in 2024 due to a reduction in employee count. The company's financial instability and 'going concern' status create job insecurity.
• **Customers:** Potential for supply chain interruptions due to reliance on third-party vendors and financial instability could affect product availability and consistency. The shift away from Keeler & Co. to Coastal Pride and TOBC may impact existing customer relationships.
• **Suppliers:** The company's financial difficulties and significant valuation allowances on advances to related party suppliers (Bacolod, Sustainable Seafood Philippines) indicate potential payment risks for suppliers. Dependence on a few major suppliers creates concentration risk.
• **Creditors:** The company has significant outstanding debt, including high-interest convertible notes. The 'going concern' warning and security interests granted on assets indicate elevated risk for lenders, though some debt is secured.

Next Steps

• Increase customer base and introduce new high-value product lines and categories to grow organically.
• Optimize management of existing companies, with a specific focus on enhancing the performance and integration of marketing, sourcing, and finance departments.
• Seek opportunities to acquire companies to expand into new territories, diversify species product categories, and achieve operational synergies.
• Integrate a sustainability model into traditionally operated companies to enable margin growth through premium, eco-conscious products.
• Refine the TOBC RAS model farm into a 150-ton standardized module for replication in future farms.
• Build a series of 1,500 metric ton and 3,000 metric ton RAS facilities in strategic locations in British Columbia and other parts of Canada, subject to sufficient funding.
• Remediate identified material weaknesses in internal control over financial reporting by creating an internal control framework and hiring personnel with technical accounting expertise.
• Continue to address ongoing legal proceedings, including the lawsuit regarding the commercial lease and the dispute over the Fisheries and Oceans Canada Freshwater / Land-based Aquaculture License.

Key Dates

Recommendation

Keywords

Seafood, Crab meat, Aquaculture, RAS, Recirculating Aquaculture Systems, Sustainable seafood, SEC filing, 10-K, Financial reporting, Going concern, Nasdaq delisting, Convertible notes, Debt financing, Supply chain, Food service, Retail, Corporate governance, Risk factors, Blue Star Foods Corp.