Registration No. 333-______

 

As filed with the Securities and Exchange Commission on August 2, 2021

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

BLUE STAR FOODS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware		3510		82-4270040
(State or jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
incorporation or organization)		Classification Code Number)		Identification Number)

 

3000 NW 109th Avenue

Miami, Florida 33172

(305) 836-6858

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Silvia Alana

Chief Financial Officer

Blue Star Foods Corp.

3000 NW 109th Avenue

Miami, Florida 33172

(305) 836-6858

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Mark Crone, Esq.

Eric Mendelson, Esq.

The Crone Law Group, P.C.

500 Fifth Avenue

New York, NY 10110

Suite 938

New York, New York 10110

mcrone@cronelawgroup.com

emendelson@cronelawgroup.com

Telephone: (860)- 202-6845

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement, as determined by the selling stockholders.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

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. (Check one):

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
		Emerging growth company	[X]

 

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 7(a)(2)(B) of the Securities Act [  ].

 

CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered		Amount to be Registered(1)				Proposed Maximum Aggregate Offering Price Per Share				Proposed Maximum Aggregate Offering Price				Amount of Registration Fee
Common Stock, $0.0001 per share			4,937,198			$	2.00	(2)		$	9,874,396			$	1,077.30
Common Stock, $0.0001 per share			3,120,000				2.00	(3)			6,240,000				680.78
Common Stock, $0.0001 per share			1,500,000				2.00	(4)			3,000,000				327.30
Total			9,557,198												2,085.38

 

(1)	Pursuant to Rule 416(a) under the Securities Act of 1933, as amended (the “Securities Act”) the registrant is also registering an indeterminate number of additional shares of common stock that may be issued as a result of stock splits, stock dividends or similar transactions.
(2)	Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act based upon the sale price of shares of common stock sold at a price per share of $2.00 in a private offering in June 2021.
(3)	Represents shares of common stock issuable upon the exercise of a stock option calculated pursuant to Rule 457(h).
(4)	Represents shares of common stock issuable upon the exercise of warrants and calculated pursuant to Rule 457(g) based upon the exercise price of the warrants.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

 

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED

 

PROSPECTUS

 

BLUE STAR FOODS CORP.

9,557,198 shares of Common Stock

 

This prospectus relates to the resale by the selling stockholders identified in this prospectus of up to 9,557,198 shares of our common stock, consisting of (i) 1,500,000 shares issued in a private offering from June 17, 2021 through July 14, 2021 of up to $3,000,000 shares to accredited investors at a purchase price of $2.00 per share, pursuant to the terms of a subscription agreement with each investor (the “Offering”); (ii) 1,500,000 shares issuable upon the exercise of three-year warrants with an exercise price of $2.00 per share (the “Warrants”) issued in connection with the Offering (the “Warrant Shares); (iii) 3,120,000 shares issuable upon the exercise of a stock option exercisable at $2.00 per share (the “Stock Option”) granted under the Company’s 2018 Incentive Stock Option Plan; (iv) 1,295,000 shares issued to the Sellers of Coastal Pride in connection with the Coastal Pride acquisition (v) 16,460 shares issued to the Sellers of Coastal Pride in lieu of interest payments under promissory notes (vi) 105,757 shares issued to a lender in lieu of an interest payment under a promissory note; (viii) 1,021,266 shares issued as partial consideration for the amendment of a outstanding loan, (xi) 796,650 shares issued to a designee of the Company’s Chief Executive Officer for the repayment of certain outstanding promissory notes; and (x) 202,065 shares issued to a designee of a law firm for legal services provided to the Company. See the section of this prospectus entitled “Offering” for a description of the transactions and the section entitled “Selling Stockholders” for additional information about the selling stockholders.

 

The registration of the shares of our common stock covered by this prospectus does not necessarily mean that any shares of our common stock will be sold by any of the selling stockholders, and we cannot predict when or in what amounts any of the selling stockholders may sell any of our shares of common stock offered by this prospectus.

 

There is currently a limited public trading market for our common stock. Our common stock has been quoted on the OTC pink sheets under the symbol “BSFC” since February 18, 2020.

 

Our common stock is not currently eligible for trading on any national securities exchange or over-the-counter market. We have applied to the Financial Industry Regulatory Authority (“FINRA”) to list our common stock on the Nasdaq Capital Market under the proposed symbol “BSFC.” No assurance can be given that our application will be approved or, if we receive approval, that a trading market will develop, if developed, that it will be sustained or that the trading prices of our common stock on the OTC Pink marketplace will be indicative of the prices of our common stock if our common stock were traded on the Nasdaq Capital Market. We cannot assure you that our common stock will become eligible for trading on any exchange or market.

 

Until such time as our common stock is quoted on a public trading market, the selling stockholders may only sell their shares of our common stock pursuant to this prospectus at a fixed price of $2.00 per share. At and after such time, the selling stockholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices. See “Plan of Distribution.”

 

We will pay all fees and expenses incident to the registration of the resale of shares of our common stock under this prospectus.

 

We are not selling any shares of our common stock under this prospectus and will not receive any proceeds from any sale or disposition by the selling stockholders of the shares of our common stock covered by this prospectus. However, if the selling stockholders exercise their Warrants with respect to all of the 1,500,000 shares of common stock subject to the Warrants offered hereby, and if the selling stockholder exercises the Stock Option for all of the 3,120,000 shares subject thereto, we would receive gross proceeds of $9,240,000.

 

Investing in our securities involves a high degree of risk. Before making any investment decision, you should carefully review and consider all the information in this prospectus and the documents incorporated by reference herein, including the risks and uncertainties described under “Risk Factors” beginning on page 7.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”).

 

The date of this prospectus is _________, 2021.

 

 

BLUE STAR FOODS CORP.

 

TABLE OF CONTENTS

 

	Page
Prospectus Summary	5
Risk Factors	7
Use of Proceeds	26
Determination of Offering Price	26
Selling Stockholders	26
Plan of Distribution	30
Description of Securities	33
Interests of Named Experts and Counsel	36
Description of Business	36
Description of Property	47
Legal Proceedings	47
Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters	59
Management – Directors and Executive Officers	60
Executive Compensation	64
Security Ownership of Certain Beneficial Owners and Management	70
Certain Relationships and Related Transactions, and Corporate Governance	71
Additional Information	73
Legal Matters	73
Experts	73
Financial Statements	F-1

 

You should rely only on the information contained in this prospectus or a supplement to this prospectus. We have not authorized anyone to provide you with different information. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus or any supplement to this prospectus is accurate as of any date other than the date on the front cover of those documents.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements”. Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, 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. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products and services; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize new and improved products and services; our ability to raise capital to fund continuing operations; changes in government regulation; our ability to complete customer transactions and capital raising transactions; and other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

 

PROSPECTUS SUMMARY

 

This summary only highlights the more detailed information appearing elsewhere in this prospectus. As this is a summary, it does not contain all of the information that you should consider in making an investment decision. You should read this entire prospectus carefully, including the information under “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before investing.

 

In this prospectus, “Blue Star,” the “Company,” “we,” “us,” and “our” refer to Blue Star Foods Corp.

 

Overview

 

We were incorporated on October 17, 2017 in the State of Delaware as a blank check company to be used as a vehicle to pursue a business combination. On November 8, 2018, the Company (formerly known as A.G. Acquisition Group II, Inc.) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), with Keeler & Co, a privately held Florida corporation, Blue Star Acquisition Corp., our newly formed, wholly-owned Florida subsidiary (“Acquisition Sub”), and John Keeler, John Keeler & Co’s sole stockholder (the “Sole Stockholder”). Pursuant to the terms of the Merger Agreement, Acquisition Sub merged with and into Keeler & Co, which was the surviving corporation and thus became our wholly-owned subsidiary. Following the Merger, we discontinued our prior activities of seeking a business for a merger or acquisition and acquired the business of John Keeler & Co., Inc., d/b/a Blue Star Foods, a Florida corporation formed on May 15, 1995 (“Keeler & Co”).

 

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, Philippines and China and distributing it in the United States and Canada under several premium brand names such as Blue Star, Oceanica, Pacifika, Crab & Go, First Choice, Good Stuff and Coastal Pride Fresh. The crab meat which we import is processed in 13 plants 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. See “Description of Business” below.

 

In November 2019, we acquired Coastal Pride Company, Inc., 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

 

In June 2021, we acquired Taste of BC Aquafarms, Inc. (“TOBC”), a family-owned and operated land-based recirculating aquaculture systems (“RAS”) salmon farming operation, based in Nanaimo, British Columbia, Canada which sells its steelhead salmon to distributors in Canada.

 

Our executive offices are located at 3000 NW 109th Avenue, Miami, Florida 33172 and our telephone number is (305) 836-6858.

 

The Offering

 

From June 17, 2021 through July 14, 2021, the Company entered into subscription agreements (“Subscription Agreements”) with certain “accredited investor” (as defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)) purchasers pursuant to which the Company sold in private offerings an aggregate of 1,500,000 shares of its common stock at a purchase price of $2.00 per share (the “Private Placement Shares”) for aggregate gross proceeds to the Company of $3,000,000.

 

The Company intends to utilize the net proceeds from the sales of such shares for the acquisition of a land-based salmon farm, to purchase crabmeat, to repay certain of the Company’s debt, and for working capital and general corporate purposes.

 

In connection with the purchase of the Private Placement Shares, the Company issued each purchaser warrants (“Warrants”) to purchase additional shares of the Company’s common stock (the “Warrant Shares”) equal to the number of Private Placement Shares purchased by such Purchaser, at an exercise price of $2.00 per share. As a result, the Company issued Warrants to purchase an aggregate of 1,500,000 Warrant Shares to the Purchasers. The Warrants are exercisable for cash only, for a term of three years from the date of issuance. The number of Warrant Shares to be deliverable upon exercise of the Warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events.

 

Pursuant to the Subscription Agreements, the Company granted the purchasers piggyback registration rights with respect to Private Placement Shares and Warrant Shares (the “Registrable Securities”), requiring the Company to register the Registrable Securities in any registration statement filed by the Company within two years from the date of the purchase of the shares, subject to certain limitations.

 

The issuances of the Private Placement Shares and Warrants issued in the Offering were, and, upon exercise of the Warrants, the issuances of the Warrant Shares will be, exempt from registration under Section 4(a)(2) and/or Rule 506(b) of Regulation D as promulgated by the Securities and Exchange Commission under of the Securities Act, as transactions by an issuer not involving any public offering.

 

 

SUMMARY OF THE OFFERING

 

The following is a summary of the shares being offered by the selling stockholders:

 

Common stock offered by selling stockholders		Up to 9,557,198 shares of common stock, consisting of (i) 1,500,000 shares issued in a private offering from June 17, 2021 through July 14, 2021 of up to $3,000,000 shares to accredited investors at a purchase price of $2.00 per share, pursuant to the terms of a subscription agreement with each investor (the “Offering”); (ii) 1,500,000 shares issuable upon the exercise of three-year warrants with an exercise price of $2.00 per share (the “Warrants”) issued in connection with the Offering (the “Warrant Shares); (iii) 3,120,000 shares issuable upon the exercise of a stock option exercisable at $2.00 per share (the “Stock Option”) granted under the Company’s 2018 Incentive Stock Option Plan; (iv) 1,295,000 shares issued to the Sellers of Coastal Pride in connection with the Coastal Pride acquisition (v) 16,460 shares issued to the Sellers of Coastal Pride in lieu of interest payments under promissory notes (vi) 105,757 shares issued to a lender in lieu of an interest payment under a promissory note; (viii) 1,021,266 shares issued as partial consideration for the amendment of a outstanding loan, (xi) 796,650 shares issued to a designee of the Company’s Chief Executive Officer for the repayment of certain outstanding promissory notes; and (x) 202,065 shares issued to a designee of a law firm for legal services provided to the Company.
Common stock outstanding prior to the offering		22,987,584 shares
Offering price		The selling stockholders may only sell their shares at a fixed price of $2.00 per share until such time as our common stock is quoted on the OTC Markets—OTCQB tier, or OTCQB, or another public trading market for our common stock otherwise develops. At and after such time, the selling stockholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices.

 

Use of proceeds		We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. However, if the selling stockholders exercise their Warrants with respect to all of the 1,500,000 shares of common stock subject to the Warrants offered hereby, and if the selling stockholder exercises the Stock Option for all of the 3,120,000 shares subject thereto, we would receive gross proceeds of $9,240,000. We intend to use any such proceeds received for general corporate purposes.
Risk factors		You should carefully read “Risk Factors” in this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

 

The number of shares of our common stock that will be outstanding immediately after this offering is based on 22,987,584 shares of common stock outstanding as of July 28, 2021 and excludes an aggregate of 6,062,417 shares of common stock issuable upon the exercise of stock options and warrants.

 

 

RISK FACTORS

 

You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected the value of our common stock could decline, and you may lose all or part of your investment. The risks described below are not the only risks facing the Company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and/or prospects.

 

Risks Relating to Our Company and Business

 

Future acquisitions may have an adverse effect on our ability to manage our business.

 

Selective acquisitions currently form part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional businesses, services or products that are complementary to our core business. Future acquisitions and the subsequent integration of new companies into ours would require significant attention from our management. Future acquisitions would also expose us to potential risks, including risks associated with the assimilation of new operations, services and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions and potential loss of, or harm to, relationships with employees as a result of integration of new businesses. The diversion of our management’s attention and any difficulties encountered in any integration process could have a material adverse effect on our ability to manage our business.

 

The value of crab meat is subject to fluctuation which may result in volatility of our results of operations and the value of an investment in the Company.

 

Our business is dependent upon the sale of a commodity which value is subject to fluctuation and which value greatly fluctuates. Our net sales and operating results vary significantly due to the volatility of the value of the crab meat that we sell which may result in the volatility of the market price of our common stock.

 

A material decline in the population and biomass of crab meat that we sell in the fisheries from which we obtain our crab meat would materially and adversely affect our business.

 

The population and biomass of crab meat are subject to natural fluctuations which are beyond our control and which may be exacerbated by disease, reproductive problems or other biological issues and may be affected by changes in weather and global environmental changes. The overall health of a crab or other fish is difficult to measure, and fisheries management is still a relatively inexact science. Since we are unable to predict the timing and extent of fluctuations in the population and biomass of our products, we are unable to engage in any measures that might alleviate the adverse effects of these fluctuations. Any such fluctuation which results in a material decline in the population and biomass in the fisheries from which we obtain our crab meat would materially and adversely affect our business. Our operations are also subject to the risk of variations in supply.

 

We are subject to the risk of product contamination and product liability claims.

 

The sales of our products may involve the risk of injury to consumers. Such injuries may result from tampering by unauthorized personnel, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, or residues introduced during the packing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, including internal product safety policies, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our brand image.

 

A significant portion of our revenues are derived from a single product, crab meat, and therefore we are highly susceptible to changes in market demand, which may be affected by factors over which we have limited or no control.

 

A significant portion of our revenues are derived from a single product, crab meat. We therefore are highly susceptible to changes in market demand, which may be impacted by factors over which we have limited or no control. Factors that could lead to a decline in market demand for crab meat include economic conditions and evolving consumer preferences. A substantial downturn in market demand for crab meat may have a material adverse effect on our business and on our results of operations.

 

 

Risks Related to Our Industry and TOBC’s Recirculating Aquaculture Systems Operations

 

Regulation of the fishing industry may have an adverse impact on our business.

 

The international community has been aware of and concerned with the worldwide problem of depletion of natural fish stocks. In the past, these concerns have resulted in the imposition of quotas that subject individual countries to strict limitations on the amount of seafood that is allowed to be caught or harvested. Environmental groups have been lobbying for additional limitations. If international organizations or national governments were to impose additional limitations on crab meat or the seafood products we sell, this could have a negative impact on our results of operations.

 

Segments of the seafood industry in which we operate are competitive, and our inability to compete successfully could adversely affect our business, results of operations and financial condition.

 

We compete 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. Some of our competitors have the benefit of marketing their products under brand names that have better market recognition than ours or have stronger marketing and distribution channels than we do. Increased competition as to any of our products could result in price reduction, reduced margins and loss of market share, which could negatively affect our profitability. An increase in imported products in the U.S. at low prices could also negatively affect our profitability.

 

Our insurance coverage may be inadequate to cover losses we may incur or to fully replace a significant loss of assets.

 

Our involvement in the fishing industry may result in liability for pollution, property damage, personal injury or other hazards. Although we believe we have obtained insurance in accordance with industry standards to address such risks, such insurance has limitations on liability and/or deductible amounts that may not be sufficient to cover the full extent of such liabilities or losses. In addition, such risks may not, in all circumstances, be insurable or, in certain circumstances, we may choose not to obtain insurance to protect against specific risks due to the high premiums associated with such insurance or for other reasons. The payment of such uninsured liabilities would reduce the funds available to us. If we suffer a significant event or occurrence that is not fully insured, or if the insurer of such event is not solvent, we could be required to divert funds from capital investment or other uses towards covering any liability or loss for such events.

 

Our operations, revenue and profitability could be adversely affected by changes in laws and regulations in the countries where we do business.

 

The governments of countries into which we sell our products, from time to time, consider regulatory proposals relating to raw materials, food safety and markets, and environmental regulations, which, if adopted, could lead to disruptions in distribution of our products and increase our operational costs, which, in turn, could affect our profitability. To the extent that we increase our product prices as a result of such changes, our sales volume and revenues may be adversely affected.

 

Furthermore, these governments may change import regulations or impose additional taxes or duties on certain imports from time to time. These regulations and fees or new regulatory developments may have a material adverse impact on our operations, revenue and profitability. If one or more of the countries into which we sell our products bars the import or sale of crab meat or related products, our available market would shrink significantly, adversely impacting our results of operations and growth potential.

 

 

A decline in discretionary consumer spending may adversely affect our industry, our operations and ultimately our profitability.

 

Luxury products, such as premium grade crab meat, are discretionary purchases for consumers. Any reduction in consumer discretionary spending or disposable income may affect the crab meat industry significantly. Many economic factors outside of our control could affect consumer discretionary spending, including the financial markets, consumer credit availability, prevailing interest rates, energy costs, employment levels, salary levels, and tax rates. Any reduction in discretionary consumer spending could materially adversely affect our business and financial condition.

 

Our business is affected by the quality and quantity of the salmon that is harvested by TOBC.

 

We sell our products in a highly competitive market. The ability of TOBC to successfully sell its salmon and the price therefor, is highly dependent on the quality of the salmon. A number of factors can negatively affect the quality of the salmon sold, including the quality of the broodstock, water conditions in the farm, the food and additives consumed by the fish, population levels in the tanks, and the amount of time that it takes to bring a fish to harvest, including transportation and processing. Optimal growing conditions cannot always be assured. Although fish grown in RAS production systems are not subject to the disease and parasite issues that can affect salmon grown in ocean pens, there is the potential for organisms that are ubiquitous to freshwater environments to become pathogenic if the fish are subjected to stressful conditions or there is an issue with biomass management.

 

High standards for the quality of the product are maintained and if we determine that a harvest has not met such standards, we may be required to reduce inventory and write down the value of the harvest to reflect net realizable value. Sub-optimal conditions could lead to smaller harvests and or lower quality fish. Conversely, if we experience better than expected growth rates, we may not be able to process and bring our fish to market in a timely manner, which may result in overcrowding that can cause negative health impacts and/or require culling our fish population.

 

Furthermore, if our salmon is perceived by the market to be of lower quality than other available sources of salmon or other fish, we may experience reduced demand for our product and may not be able to sell our products at the prices that we expect or at all.

 

As we continue to expand our operations and build new farms, we potentially may face additional challenges with maintaining the quality of our products. We cannot guarantee that we will not face quality issues in the future, any of which could cause damage to our reputation, and a loss of consumer confidence in our products, which could have a material adverse effect on our business results and the value of our brands.

 

A shutdown, damage to any of our farms, or lack of availability of power, fuel, oxygen, eggs, water, or other key components needed for our operations, could result in our prematurely harvesting fish, a loss of a material percentage of our fish in production, a delay in our commercialization plans, and a material adverse effect on our operations, business results, reputation, and the value of our brands.

 

An interruption in the power, fuel, oxygen supply, water quality systems, or other critical infrastructure of an aquaculture facility for more than a short period of time could lead to the loss of a large number of fish. A shutdown of or damage to our farm due to natural disaster, shortages of key components to our operations due to a pandemic, reduction in water supply, contamination of our aquifers, interruption in services, or human interference could require us to prematurely harvest some or all of the fish or could result in a loss of our fish in production.

 

We also are dependent on egg availability If we had a disruption in our ability to purchase eggs we would not be able to continue to stock our farm. We cannot guarantee that any disruptions might not occur in the future, any of which could cause loss of salmon to sell, damage to our reputation, loss of consumer confidence in our products and company, and lost revenues, all of which could have a material adverse effect on our business results.

 

The successful development of our TOBC subsidiary depends on its ability to efficiently and cost-effectively produce and sell salmon at large commercial scale.

 

Our business plans depend on our ability to increase our production capacity through the development of larger farms. We have limited experience constructing, ramping up, and managing such large, commercial-scale facilities, and we may not have anticipated all of the factors or costs that could affect our production, harvest, sale, and delivery of salmon at such a scale. Our salmon may not perform as expected when raised at very large commercial scale, we may encounter operational challenges, control deficiencies may surface, our vendors may experience capacity constraints, or our production cost and timeline projections may prove to be inaccurate. Any of these could decrease process efficiency, create delays, and increase our costs. We are also subject to volatility in market demand and prices, such as the disruption to the salmon market and the resulting reduction in market prices for salmon caused by the COVID-19 pandemic.

 

 

In addition, competitive pressures, customer volatility and the possible inability to secure established and ongoing customer partnerships and contracts, may result in a lack of buyers for our fish. Customers of our fish may not wish to follow our terms and conditions of sale, potentially resulting in a violation of labeling or disclosure laws, improper food handling, nonpayment for product, and similar issues. The competitive landscape for salmon may create challenges in securing competitive pricing for our salmon to reach our competitive goals. In addition, it is possible that we may not be able to service our customers to meet their expectations regarding fish quality, ongoing harvest supply availability, order processing fill rate, on time or correct deliveries, potential issues with third party processors, and other factors, which could impact our relationships with customers, our reputation, and our business results.

 

Risks Related to Our Reliance on Third Parties

 

We are dependent on third parties for our operations.

 

Our business is dependent upon our relationships with vendors in Southeast Asia for co-packing, processing and shipping product to us. If for any reason these companies became unable or unwilling to continue to provide services to us, this would likely lead to a temporary interruption in our ability to import our products until we found another entity that could provide these services. Failure to find a suitable replacement, even on a temporary basis, would have an adverse effect on our results of operations.

 

We do not have long-term agreements with many of our customers and suppliers.

 

Many of our customers and suppliers operate through purchase orders. Though we have long-term business relationships with many of our customers and suppliers and alternative sources of supply for key items, we do not have long-term agreements with such customers and suppliers and cannot be sure that any of these customers or suppliers will continue to do business with us on the same basis or on terms that are favorable to us. The termination or modification of any of these relationships may adversely affect our business, financial performance and results of operations.

 

Risks Related to Our Financial Condition and Capital Requirements

 

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements.

 

The report from our independent registered public accounting firm for the year ended December 31, 2020 includes an explanatory paragraph stating that the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. 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. If we are unable to do so, our financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern.

 

 

Our loan and security agreement with Lighthouse contains operating and financial covenants that may restrict business and financing activities of our subsidiaries, Keeler & Co. and Coastal Pride.

 

Borrowings under our loan and security agreement with Lighthouse are secured by substantially all of our personal property, including our intellectual property. Our loan and security agreement contains affirmative and negative covenants which restricts our wholly-owned subsidiary, Keeler & Co. and its subsidiary, Coastal Pride’s ability to, among other things

 

	●	dispose of or sell its assets;
	●	make material changes in its business;
	●	merge with or acquire other entities or assets;
	●	incur additional indebtedness;
	●	create liens on its assets;
	●	pay dividends; and
	●	make investments.

 

The operating and financial restrictions and covenants in our loan and security agreement, as well as any future financing agreements into which we may enter, may restrict the ability to finance operations and engage in, expand or otherwise pursue business activities and strategies. Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under our loan and security agreement. If not waived, future defaults could cause all of the outstanding indebtedness under our loan and security agreement to become immediately due and payable and terminate all commitments to extend further credit.

 

If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern.

 

We face risks related to the current global economic environment which could harm our business, financial condition and results of operations.

 

The state of the global economy continues to be uncertain. The current global economic conditions and uncertain credit markets, concerns regarding the availability of credit pose a risk that could impact our international relationships, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. Global trade issues and the impositions of tariffs could also have an adverse effect on our international business activities. If the current global economic environment deteriorates, our business could be negatively affected.

 

We may need to raise additional capital to fund our existing commercial operations and develop and commercialize new products and expand our operations.

 

Based on our current business plan, we believe the net proceeds from the Offering, together with our current cash and cash equivalents and cash receipts from sales will enable us to conduct our planned operations for at least the next 12 months. If our available cash balances, net proceeds from the Offering and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products or due to other risks described herein, we may seek to sell Common Stock or preferred stock or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

 

 

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:

 

	●	increase our sales and marketing efforts and address competitive developments;
	●	provide for supply and inventory costs;
	●	fund development and marketing efforts of any future products or additional features to then-current products;
	●	acquire, license or invest in new technologies;
	●	acquire or invest in complementary businesses or assets; and
	●	finance capital expenditures and general and administrative expenses.

 

Our present and future funding requirements will depend on many factors, including:

 

	●	our ability to achieve revenue growth and improve gross margins;
	●	the cost of expanding our operations and offerings, including our sales and marketing efforts;
	●	the effect of competing market developments; and
	●	costs related to international expansion.

 

The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our Common Stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our Common Stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights or grant licenses on terms that are not favorable to us.

 

We incur significant costs as a result of operating as a public company and our management devotes substantial time to public company compliance.

 

As a public company, we incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) as well as rules implemented by the SEC, and the OTC Markets. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel devote a substantial amount of time to monitoring of and compliance with, public company reporting obligations. These rules and regulations cause us to incur significant legal and financial compliance costs and make some activities more time consuming and costly.

 

To comply with the requirements of being a public company, we may need to undertake various actions, including implementing internal controls and procedures. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is accumulated and communicated to our principal executive and financial officers. Any failure to develop or maintain effective controls could harm our operating results, cause us to fail to meet our reporting obligations or result in a restatement of prior period financial statements. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our Common Stock could decline. In addition, if we are unable to continue to meet these requirements, our Common Stock may not be able to be eligible for quotation on the OTC Markets or meet the eligibility requirements for the NASDAQ Stock Market (“NASDAQ”).

 

 

Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act depending on whether we choose to rely on certain exemptions set forth in the JOBS Act. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could harm our business.

 

We face risks related to the current global economic environment which could harm our business, financial condition and results of operations.

 

The state of the global economy continues to be uncertain. The current global economic conditions and uncertain credit markets, concerns regarding the availability of credit pose a risk that could impact our international relationships, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. Global trade issues and the impositions of tariffs could also have an adverse effect on our international business activities. If the current global economic environment deteriorates, our business could be negatively affected.

 

Risks Related to Administrative, Organizational and Commercial Operations and Growth

 

We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

 

We anticipate growth in our business operations. This future growth could create a strain on our organizational, administrative and operational infrastructure, including manufacturing operations, quality control, technical support and customer service, sales force management and general and financial administration. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. If we are unable to manage our growth effectively, we may be unable to execute our business plan, which could have a material adverse effect on our business and our results of operations.

 

If we are unable to support demand for our current and our future products, including ensuring that we have adequate resources to meet increased demand our business could be harmed.

 

As our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for processing, customer service, billing and general process improvements and expand our internal quality assurance program, among other things. We may also need to purchase additional equipment and increase our manufacturing, maintenance, software and computing capacity to meet increased demand. We cannot assure you that any of these increases in scale, expansion of personnel, purchase of equipment or process enhancements will be successfully implemented.

 

The loss of our Executive Chairman, Chief Executive Officer or Chief Financial Officer or our inability to attract and retain highly skilled officers and key personnel could negatively impact our business.

 

Our success depends on the skills, experience and performance of our Executive Chairman, Chief Executive Officer and Chief Financial Officer. The individual and collective efforts of these individuals will be important as we continue to develop and expand our commercial activities. The loss or incapacity of existing members of our executive management team could negatively impact our operations if we experience difficulties in hiring qualified successors. Qualified employees periodically are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements. Expansion of our business could require us to employ additional personnel. There can be no assurance that we will be able to attract and retain sufficient numbers of skilled employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business.

 

 

If we were sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.

 

The marketing and sale of our products could lead to the filing of product liability claims alleging that our product made users ill. A product liability claim could result in substantial damages and be costly and time-consuming for us to defend.

 

We maintain product liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability claims. Any product liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could lead to regulatory investigations, product recalls or withdrawals, damage our reputation or cause current vendors, suppliers and customers to terminate existing agreements and potential customers and partners to seek other suppliers, any of which could negatively impact our results of operations.

 

We face risks associated with our international business.

 

Our international business operations are subject to a variety of risks, including:

 

	●	difficulties managing foreign and geographically dispersed operations;
	●	having to comply with various U.S. and international laws, including export control laws and the FCPA, and anti-money laundering laws;
	●	changes in uncertainties relating to foreign rules and regulations;
	●	tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to import product;
	●	limitations on our ability to enter into cost-effective arrangements with distributors, or at all;
	●	fluctuations in foreign currency exchange rates;
	●	imposition of limitations on production, sale or export in foreign countries;
	●	imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign processors or joint ventures;
	●	imposition of differing labor laws and standards;
	●	economic, political or social instability in foreign countries and regions;
	●	an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action;
	●	availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;
	●	difficulties in recruiting and retaining personnel, and managing international operations; and
	●	less developed infrastructure.

 

 

If we expand into other target markets we cannot assure you that our expansion plans will be realized, or if realized, be successful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.

 

Our results may be impacted by changes in foreign currency exchange rates.

 

Currently, the majority of our international sales contracts are denominated in U.S. dollars. We pay certain of our suppliers in a foreign currency and we may pay others in the future in foreign currency. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could require us to reduce our selling price or risk making our product less competitive in international markets or our costs could increase. Also, if our international sales increase, we may enter into a greater number of transactions denominated in non-U.S. dollars, which could expose us to foreign currency risks, including changes in currency exchange rates.

 

A larger portion of our revenues may be denominated in other foreign currencies if we expand our international operations. Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our operating results. Fluctuations in the value of the U.S. dollar relative to other currencies impact our revenues, cost of revenues and operating margins and result in foreign currency translation gains and losses.

 

We could be negatively impacted by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure ethical business practices.

 

We operate in a number of countries throughout the world, including in countries that do not have as strong a commitment to anti-corruption and ethical behavior that is required by U.S. laws or by corporate policies. We are subject to the risk that we, our U.S. employees or our employees located in other jurisdictions or any third parties that we engage to do work on our behalf in foreign countries may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business. Any violation of anti-corruption laws or regulations could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might harm our business, financial condition or results of operations. Further, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

 

We depend on our information technology systems, and any failure of these systems could harm our business.

 

We depend on information technology and telecommunications systems for significant elements of our operations. We have developed propriety software for the management and operation of our business. We have installed, and expect to expand a number of enterprise software systems that affect a broad range of business processes and functional areas, including for example, systems handling human resources, financial controls and reporting, contract management, regulatory compliance and other infrastructure operations.

 

Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our information technology and telecommunications systems, failures or significant downtime of our information technology or telecommunications systems or those used by our third-party service providers could prevent us from providing support services and product to our customers and managing the administrative aspects of our business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could harm our business.

 

 

Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.

 

We conduct a significant portion of our activities, including administration and data processing, at facilities located in Southern Florida that have experienced major hurricanes and floods which could affect our facilities, could significantly disrupt our operations, and delay or prevent product shipment during the time required to repair, rebuild or replace damaged processing facilities; these delays could be lengthy and costly. Our suppliers in Southeast Asia are also vulnerable to natural disasters which could disrupt their operations and their ability to supply product to us. If any of our customers’ facilities are negatively impacted by a disaster, product shipments could be delayed. Additionally, customers may delay purchases of products until operations return to normal. Even if we and/or our suppliers are able to quickly respond to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our business. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business.

 

Risks Related to Intellectual Property

 

Our intellectual property rights are valuable, and any inability to adequately protect, or uncertainty regarding validity, enforceability or scope of them could undermine our competitive position and reduce the value of our products, services and brand, and litigation to protect our intellectual property rights may be costly.

 

We attempt to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As a result, our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets to us. Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in countries in which our products are sold. Also, although we have registered our trademark in various jurisdictions, our efforts to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete and hurt our results of operation. Also, protecting our intellectual property rights is costly and time consuming. Policing unauthorized use of our proprietary technology can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights and any such litigation may be costly and may divert our management’s attention from our core business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects and reputation. Although we are not aware of any of such litigation, we have no insurance coverage against litigation costs, so we would be forced to bear all litigation costs if we cannot recover them from other parties. All foregoing factors could harm our business, financial condition, and results of operations. Any unauthorized use of our intellectual property could make it more expensive for us to do business and harm our operating results.

 

We may be exposed to infringement or misappropriation claims by third parties, which, if determined against us, could adversely affect our business and subject us to significant liability to third parties.

 

Our success mainly depends on our ability to use and develop our technology and product designs without infringing upon the intellectual property rights of third parties. We may be subject to litigation involving claims of patent infringement or violations of other intellectual property rights of third parties. Holders of patents and other intellectual property rights potentially relevant to our product offerings may be unknown to us, which may make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to us and that we rely upon that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components used in our products or by companies we work with in cooperative research and development activities. Our current or potential competitors may have obtained or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming, and may significantly divert the efforts and resources of our technical personnel and management. These factors could effectively prevent us from pursuing some or all of our business operations and result in our customers or potential customers deferring, canceling or limiting their purchase or use of our products, which may have a material adverse effect on our business, financial condition and results of operations.

 

 

Our commercial success will depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights in the United States and elsewhere. If we do not adequately protect our intellectual property, competitors may be able to use our processes and erode or negate any competitive advantage we may have, which could harm our business.

 

We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our products, any additional features we develop or any new products. Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented.

 

Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our knowledge or trade secrets by consultants, suppliers, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If any of these developments were to occur, they each could have a negative impact on our sales.

 

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.

 

We rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.

 

We may not be able to enforce our intellectual property rights throughout the world.

 

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop the infringement or the misappropriation of our intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

 

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

 

 

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

 

Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

Risks Related to Regulatory Matters

 

Our products and operations are subject to government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.

 

The FDA and other government agencies regulate, among other things, with respect to our products and operations:

 

	●	design, development and manufacturing;
	●	testing, labeling, content and language of instructions for use and storage;
	●	product safety;
	●	marketing, sales and distribution;
	●	record keeping procedures;
	●	advertising and promotion;
	●	recalls and corrective actions;
	●	product import and export.

 

The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.

 

The failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as:

 

	●	warning letters;
	●	fines;
	●	injunctions;
	●	civil penalties;
	●	termination of distribution;
	●	recalls or seizures of products;
	●	delays in the introduction of products into the market; and
	●	total or partial suspension of production.

 

We may also be required to take corrective actions, such as installing additional equipment or taking other actions, each of which could require us to make substantial capital expenditures. We could also be required to indemnify our employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against them. As a result, our future business prospects could deteriorate due to regulatory constraints, and our profitability could be impaired by our obligation to provide such indemnification to our employees.

 

 

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition and results of operations.

 

Product liability claims could divert management’s attention from our business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

 

Risks Relating to Our Common Stock

 

The price of our Common Stock may be volatile and may be influenced by numerous factors, some of which are beyond our control.

 

Factors that could cause volatility in the market price of our Common Stock include, but are not limited to:

 

●	actual or anticipated fluctuations in our financial condition and operating results;
●	actual or anticipated changes in our growth rate relative to our competitors;
●	commercial success and market acceptance of our products;
●	success of our competitors in commercializing products;
●	strategic transactions undertaken by us;

 

●	additions or departures of key personnel;
●	product liability claims;
●	prevailing economic conditions;
●	disputes concerning our intellectual property or other proprietary rights;
●	U.S. or foreign regulatory actions affecting us or our industry;
●	sales of our Common Stock by our officers, directors or significant stockholders;
●	future sales or issuances of equity or debt securities by us;
●	business disruptions caused by natural disasters; and
●	issuance of new or changed securities analysts’ reports or recommendations regarding us.

 

In addition, the stock markets in general have experienced extreme volatility that have been often unrelated to the operating performance of the issuer. These broad market fluctuations may negatively impact the price or liquidity of our Common Stock. In the past, when the price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

 

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

In addition, Section 102 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. An “emerging growth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

You may experience dilution of your ownership interests because of the future issuance of additional shares of our Common Stock or preferred stock or other securities that are convertible into or exercisable for our Common Stock or preferred stock.

 

If our existing stockholders convert our Series A Stock or exercise Warrants or sell, or indicate an intention to sell, substantial amounts of our Common Stock in the public market after the lock-up Restricted Period lapses, the price of our Common Stock could decline. The perception in the market that these sales may occur could also cause the price of our Common Stock to decline.

 

In the future, we may issue authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of the then current stockholders. We are authorized to issue an aggregate of 100,000,000 shares of common stock and 5,000,000 shares of “blank check” preferred stock. We may issue additional shares of our Common Stock or other securities that are convertible into or exercisable for our Common Stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our Common Stock may create downward pressure on the trading price of the common stock. We may need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise prices) below the price you paid for your stock.

 

There is currently a limited market for our Common Stock and an investor may be unable to resell shares of our Common Stock at times and prices believed appropriate.

 

Our Common Stock has been quoted on the OTC pink sheets under the symbol “BSFC” since February 18, 2020. Currently, there is a limited trading market for our Common Stock and a more active market for our Common Stock may never develop. Accordingly, our Common Stock is highly illiquid, and an investor may experience difficulty buying and selling shares at times and prices that they may desire. Trading in stocks quoted on the OTC pink sheet market is often thin and characterized by wide fluctuations in trading prices. Moreover, the OTC pink sheets is not a stock exchange, and trading of securities is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a national stock exchange.

 

Our Common Stock may be deemed a “penny stock” which may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. If our Common Stock is or becomes subject to the “penny stock” rules, it may be more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our Common Stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

The sales practice requirements of FINRA may limit a stockholder’s ability to buy and sell our Common Stock.

 

FINRA has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market for and price of our Common Stock.

 

Our operating results for a particular period may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause the price of our Common Stock to fluctuate or decline.

 

We expect our operating results to be subject to fluctuations. Our operating results will be affected by numerous factors, including:

 

	●	variations in the level of expenses related to future development plans;
	●	fluctuations in value of the underlying commodity;
	●	inability to procure sufficient quantities to meet demand due to the scarcity of the product available from its suppliers
	●	level of underlying demand for our products and any other products we sell;
	●	any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved;
	●	regulatory developments affecting us or our competitors; and

 

●

the continuing effects of the COVID-19 pandemic.

 

 

If our operating results for a particular period fall below the expectations of investors or securities analysts, the price of our Common Stock could decline substantially. Furthermore, any fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially. We believe that comparisons of our financial results from various reporting periods are not necessarily meaningful and should not be relied upon as an indication of our future performance.

 

Our principal stockholders and management own a significant percentage of our Common Stock and will be able to exercise significant influence over matters subject to stockholder approval.

 

As of July 28, 2021, our executive officers, directors and principal stockholders, together with their respective affiliates, owned approximately 67% of our common stock, excluding shares subject to outstanding options that are exercisable within 60 days after such date. Accordingly, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or the board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our common stock.

 

Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.

 

Because we did not become a reporting company by conducting an underwritten initial public offering of our Common Stock, and because we will not be listed on a national securities exchange, securities analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our Common Stock.

 

Because the Merger was a reverse merger, the Registration Statement we file with respect to the shares of Common Stock received by investors in the Merger might be subject to heightened scrutiny by the SEC.

 

Additional risks may exist as a result of our becoming a public reporting company through a “reverse merger.” Certain SEC rules are more restrictive when applied to reverse merger companies, such as the ability of stockholders to re-sell their shares pursuant to Rule 144.

 

Historically, the SEC has taken the position that Rule 144 under the Securities Act is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies, to their promoters or affiliates despite technical compliance with the requirements of Rule 144. The SEC has codified and expanded this position in its amendments effective on February 15, 2008, which applies to securities acquired both before and after that date by prohibiting the use of Rule 144 for resale of securities issued by shell companies (other than business transaction related shell companies) or issuers that have been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:

 

	●	the issuer of the securities that was formerly a shell company has ceased to be a shell company;
	●	the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
	●	the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
	●	at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

 

 

In addition, for proposed sales under Rule 144, there must be adequate current information about the issuing company publicly available before the sale can be made. For reporting companies, this generally means that the companies have complied with the periodic reporting requirements of the Exchange Act. As such, due to the fact that we were a shell company until the effective time of the reverse merger, holders of “restricted securities” within the meaning of Rule 144 will be subject to the above conditions.

 

The resale of shares covered by the Registration Statement could adversely affect the market price of our Common Stock in the public market, should one develop, which result would in turn negatively affect our ability to raise additional equity capital.

 

The sale, or availability for sale, of our Common Stock in the public market may adversely affect the prevailing market price of our Common Stock and may impair our ability to raise additional capital by selling equity or equity-linked securities. We have registered with the SEC for resale an aggregate of 6,209,244 shares of Common Stock issued and/or issuable in connection with the Offering and issuable under the Stock Option. The Registration Statement permits the resale of these shares at any time. The resale of a substantial number of shares of our Common Stock in the public market could adversely affect the market price for our Common Stock and make it more difficult for you to sell shares of our Common Stock at times and prices that you feel are appropriate. Furthermore, because there are a large number of shares registered pursuant to the Registration Statement, selling stockholders will continue to offer shares covered by such Registration Statement for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to the Registration Statement may continue for an extended period of time and continued negative pressure on the market price of our Common Stock could have a material adverse effect on our ability to raise additional equity capital.

 

Issuance of stock to fund our operations may dilute your investment and reduce your equity interest.

 

We may need to raise capital in the future to fund the development of our seafood business. Any equity financing may have significant dilutive effect to stockholders and a material decrease in our stockholders’ equity interest in us. Equity financing, if obtained, could result in substantial dilution to our existing stockholders. At its sole discretion, our board of directors may issue additional securities without seeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether it will be available to us.

 

Provisions of our charter documents or Delaware law could delay or prevent an acquisition of the Company, even if such an acquisition would be beneficial to our stockholders, which could make it more difficult for you to change management.

 

Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors.

 

In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns, or within the last three years has owned, 15% or more of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of the company. Furthermore, our certificate of incorporation will specify that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in such action.

 

 

We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future; therefore, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.

 

We have never declared or paid cash dividends on our Common Stock. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition, our current loan and security agreement with ACF contains, and our future loan arrangements, if any, may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.

 

We may apply the proceeds of the Offering to uses that ultimately do not improve our operating results or increase the value of our Common Stock.

 

We intend to use the net proceeds from the Offering, including proceeds received upon the exercise of any Warrants sold therein or the exercise of the Stock Option, for general working capital purposes. However, we do not have more specific plans for the net proceeds from the Offering and our management has broad discretion in how we use these proceeds. These proceeds could be applied in ways that do not improve our operating results or otherwise increase the value of our Common Stock.

 

Risks Related to the COVID-19 pandemic

 

COVID-19 has caused significant disruptions to the global financial markets which impacts our ability to raise additional capital

 

The full impact of the COVID-19 outbreak continues to evolve. Management is actively monitoring the situation but given the daily evolution of the COVID-19 outbreak, the Company is not able to estimate the effects of the COVID-19 outbreak on its operations or financial condition in the next 12 months. Additionally, the continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital.

 

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:

 

	●	increase our sales and marketing efforts and address competitive developments;
	●	provide for supply and inventory costs;
	●	fund development and marketing efforts of any future products or additional features to then-current products;
	●	acquire, license or invest in new technologies;
	●	acquire or invest in complementary businesses or assets; and
	●	finance capital expenditures and general and administrative expenses.

 

Our present and future funding requirements will depend on many factors, including:

 

	●	our ability to achieve revenue growth and improve gross margins;
	●	the cost of expanding our operations and offerings, including our sales and marketing efforts;
	●	the effect of competing market developments;
	●	costs related to international expansion; and
	●	the continuing effects of COVID-19.

 

 

If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our Common Stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our Common Stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights or grant licenses on terms that are not favorable to us.

 

We may experience disruptions of or restrictions on our operations as a result of the COVID-19 pandemic.

 

As the result of current restrictions put in place to address COVID-19, we have had limited access to our corporate offices and our corporate staff has been required to work remotely, disrupting interactions among our staff, with our customers and suppliers, and with our accountants, consultants and advisors. The extent to which our results may continue to be affected by COVID-19 will largely depend on future developments which cannot be accurately predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and the impact on the global economy, our customers’ demand for our products, and our ability to provide our products and access our offices and facilities. While these factors are uncertain, the COVID-19 pandemic or the perception of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows.

 

We may not be entitled to forgiveness of our paycheck protection program loan (“PPP Loan”), and our application for the PPP Loans could in the future be determined to have been impermissible or could result in damage to our reputation.

 

On March 2, 2021, we received proceeds of $371,944 from a loan under the Paycheck Protection Program of the CARES Act, a portion or all of which may be forgiven, which we used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures on March 1, 2026 and bears annual interest at a rate of 1.0%. Commencing on the date that is the latter of (i) the date that is the 10th month after the end of the Company’s PPP Loan covered period (as described below) and (ii) assuming the Company has applied for PPP Loan forgiveness within the period described in clause (i), the date on which SBA remits the loan forgiveness amount on the Company’s PPP Loan to the PPP lender (or notifies such lender that no loan forgiveness is allowed), we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by March 1, 2026, any principal amount outstanding on the PPP Loan as of June 2, 2022. A portion or all of the PPP Loan may be forgiven by the SBA upon our application and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the twenty-four-week period or, if elected by the Company, the eight-week period beginning on the date the loan is advanced. Not more than 40% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loan eligible to be forgiven may be limited due to declines in headcount, whether voluntary or involuntary, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25% as compared to the period of January 1, 2020 through March 31, 2020. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above. There can be no assurances that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA.

 

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act. The certification described above does not contain any objective criteria and is subject to interpretation. On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our Company’s circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety. In addition, receipt of a PPP Loan may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

 

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sales of shares of our common stock by the selling stockholders. However, we will receive proceeds from the exercise of Warrants and the Stock Option held by the selling stockholders.

 

We intend to use any such proceeds received for general corporate purposes. We have agreed to bear the expenses relating to the registration of the shares for the selling stockholders.

 

DETERMINATION OF OFFERING PRICE

 

The selling stockholders may only sell their shares of our common stock pursuant to this prospectus at a fixed price of $2.00 per share until such time as our common stock is quoted on the OTC market or another public trading market for our common stock otherwise develops. At and after such time, the selling stockholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices. The fixed price of $2.00 at which the selling stockholders may sell their shares pursuant to this prospectus was determined based upon the purchase price per share of our common stock in the Offering which was completed on July 14, 2021. This exercise price at which any holder of a Warrant may purchase shares was determined based upon the purchase price per share of our common stock in the Offering. We have included a fixed price at which selling stockholders may sell their shares pursuant to this prospectus prior to the time there is a public market for our stock in order to comply with the rules of the SEC that require that, if there is no market for the shares being registered, this registration statement must include a price at which the shares may be sold.

 

SELLING STOCKHOLDERS

 

This prospectus covers the resale by the selling stockholders of up to an aggregate of 6,209,244 shares of our common stock, which includes:

	●	1,500,000 shares issued in a private offering of up to $3,000,000 of common stock to accredited investors at a purchase price of $2.00 per share, pursuant to the terms of a subscription agreement with each investor;
	●	1,500,000 shares issuable upon exercise of the Warrants issued to investors in the Offering;

 

	●	3,120,000 shares issuable upon the exercise of the Stock Option;
	●	1,295,000 shares issued to the Sellers of Coastal Pride in connection with the Coastal Pride acquisition;
	●	16,460 shares issued to the Sellers of Coastal Pride in lieu of interest payments under promissory notes;
	●	105,757 shares issued to a lender in lieu of an interest payment under a promissory note;
	●	1,021,266 shares issued as partial consideration for the amendment of an outstanding loan;
	●	796,650 shares issued to a designee of the Company’s Chief Executive Officer for the repayment of certain outstanding promissory notes; and
	●	202,065 shares issued to a designee of a law firm for legal services provided to the Company.

 

 

The issuance of the securities in the Offering and the Stock Option were exempt under the registration provisions of the Securities Act.

 

The selling stockholders, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares referred to above. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act. We may from time to time include additional selling stockholders in supplements or amendments to this prospectus.

 

The selling stockholders may sell some, all or none of its shares. We do not know how long the selling stockholders will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the selling stockholders regarding the sale of any of the shares.

 

The following table sets forth the shares beneficially owned, as of July 28, 2021 by the selling stockholders prior to the offering contemplated by this prospectus, the number of shares that the selling stockholders may offer and sell from time to time under this prospectus and the number of shares which the selling stockholders would own beneficially if all such offered shares are sold.

 

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act. The percentage of shares beneficially owned prior to the offering is based on 22,987,584 shares of our common stock outstanding as of July 28, 2021.

 

None of the selling stockholders are a registered broker-dealer or an affiliate of a registered broker-dealer. None of the selling stockholders or any of their respective affiliates have held a position or office or had any other material relationship with us or any of our predecessors or affiliates within the past three years except (i) Christopher Constable was the chief financial officer of the Company until February 7, 2020; (ii) Leone Group, LLC (“Leone”) was a 50% stockholder of the Company prior to the Merger. Laura Anthony was the Chief Financial Officer, Secretary and a director of the Company prior to the Merger and is the sole owner of Leone; (iii) American Capital Ventures, Inc. (“ACV”) was a 50% stockholder of the Company prior to the Merger. Howard Gostfrand was the chief executive officer and a director of the Company prior to the Merger and is the sole owner of ACV; (iv) Marcos Herian is the brother of Nubar Herian, a director of the Company since the Merger; (v) Nubar Herian Osorio is the son of Nubar Herian, a director of the Company; (vi) MO7 Boats LLC, Promarine Boats LLC and R &N Ocean Partners are owned by Marcos Herian, the brother of Nubar Herian, a director of the Company; (vii) Intelligent Investment I LLC is owned by Mark Crone, the owner of The Crone Law Group, P.C., the Company’s legal counsel; (viii) Jeffrey Guzy is a director of the Company; (ix) Caitlin Guzy is the daughter of Jeffrey Guzy; (x) Armando Quintana was an employee of the Company until October 2020; (xi) William Atkinson and Hayley Atkinson are the son and daughter-in-law of the owners of TOBC prior to the TOBC acquisition by the Company; (xii) Maria Angarita is the mother of John Keeler, the Chief Executive Officer of the Company; and (xiii) Tracy Greco, Walter F. Lubkin Jr., John C. Lubkin and Walter F. Lubkin III were the owners of Coastal Pride Company, Inc. until the acquisition of Coastal Pride in November 2019.

 

 

Name of Selling Stockholders		Beneficial Ownership Before the Offering				Shares of Common Stock Included in Prospectus				Beneficial Ownership After the Offering				Percentage of Ownership After the Offering
Christopher Constable			3,145,000	(1)			3,145,000	(1)			-				-
Intelligent Investment I LLC (2)			202,065				202,065				-				*
Pedro Aguero			2,500	(3)			2,500	(3)			-				-
American Capital Ventures, Inc. (4)			400,000	(5)			25,000	(5)			375,000				1.6%
Thomas Anderson			5,000	(6)			5,000	(6)			-				-
Charles Arizmendi			2,500	(3)			2,500	(3)			-				-
Hayley Atkinson			15,000	(7)			15,000	(7)			-				-
William Atkinson			2,500	(3)			2,500	(3)			-				-
Oleg Balushka			20,000	(8)			20,000	(8)			-				-
Alejandro Betancourt			30,000	(9)			30,000	(9)			-				-
BIA Investment Ventures, LLC (10)			200,000	(11)			200,000	(11)			-				-
Igor Blatnik			10,000	(12)			10,000	(12)			-				-
Robert Brewer			10,000	(12)			10,000	(12)			-				-
Jose R. Cedeno			20,000	(8)			20,000	(8)			-				-
Coconut Lane Group Ltd. (13)			105,000	(5)			25,000	(5)			80,000				*
Pablo Corral			40,000	(14)			40,000	(14)			-				-
Alfredo Cortes			5,000	(6)			5,000	(6)			-				-
Gustavo Delfino			5,000	(6)			5,000	(6)			-				-
Steven De Longa			100,000	(15)			100,000	(15)			-				-
FirstFire Global Opportunities Fund LLC (16)			250,000	(17)			250,000	(17)			-				-
German Garcia			5,000	(6)			5,000	(6)			-				-
Marco Gasperini			15,000	(7)			15,000	(7)			-				-
Leonardo Grimaldi			10,000	(12)			10,000	(12)			-				-
Raul Grimaldi			10,000	(12)			10,000	(12)			-				-
Sabrina Grimaldi			10,000	(12)			10,000	(12)			-				-
Grove Financial Investment Inc. (18)			10,000	(12)			10,000	(12)			-				-
Caitlin Guzy			2,500	(3)			2,500	(3)			-				-
Jeffrey J. Guzy			25,000	(5)			25,000	(5)			-				-
Marcos Herian			45,000	(19)			45,000	(19)			-				-
Francisco Ibarra			10,000	(12)			10,000	(12)			-				-
Mathew Javitch			2,500	(3)			2,500	(3)			-				-
Kenacomb Ltd.			30,000	(9)			30,000	(9)			-				-
Carlos Lahrssen			50,000	(20)			50,000	(20)			-				-
Felipe J. Lahrssen			50,000	(20)			50,000	(20)			-				-
Eduardo Leanez			10,000	(12)			10,000	(12)			-				-
Leone Group, LLC (21)			25,000	(5)			25,000	(5)			-				-
Juan Londono			25,000	(5)			25,000	(5)			-				-
Andreina Lopez			25,000	(5)			25,000	(5)			-				-
Michael Mason			2,500	(3)			2,500	(3)			-				-
Fabio Massetta and Ross Mary Andrea Massetta			2,500	(3)			2,500	(3)			-				-
Elsa Mezerhane			5,000	(6)			5,000	(6)			-				-
Gabriela Mezerhane			5,000	(6)			5,000	(6)			-				-
Rodrigo Mezerhane			36,000	(22)			31,000	(22)			5,000				*
MO7 Boats LLC (23)			275,000	(24)			275,000	(24)			-				-
Robert Munchick			10,000	(12)			10,000	(12)			-				-
New Grove Ventures International, Inc. (25)			10,000	(12)			10,000	(12)			-				-
Bradley Newell			65,000	(26)			65,000	(26)			-				-
Nubar Herian Osorio			10,000	(12)			10,000	(12)			-				-
Luis Fernando de Oteyza			10,000	(12)			10,000	(12)			-				-
Gonzalo Parodi			25,000	(5)			25,000	(5)			-				-
Roberto Pederzoli			10,000	(12)			10,000	(12)			-				-
Manuel Peinado			3,000	(27)			3,000	(27)			-				-
Petroleum Partners Intl LLC (28)			25,000	(5)			25,000	(5)			-				-
Diana Pinedo			20,000	(8)			20,000	(8)			-				-
Gregory Todd Post			20,000	(8)			20,000	(8)			-				-
Promarine Boats LLC (29)			250,000	(17)			250,000	(17)			-				-
R&N Ocean Partners (30)			250,000	(17)			250,000	(17)			-				-
Carmen Romero			5,000	(6)			5,000	(6)			-				-
Edgar Romero			38,460	(36)			25,000	(5)			13,460				*
Ignacio Romero			29,500	(31)			29,500	(31)			-				-

 

 

Carlos Segrera			4,000	(32)			4,000	(32)			-				-
Howard Srebnick			15,000	(7)			15,000	(7)			-				-
Allan Stewart			103,000	(15)			100,000	(15)			3,000				*
Hugo Straziota			5,000	(6)			5,000	(6)			-				-
Valeria Straziota			5,000	(6)			5,000	(6)			-				-
Tysadco Partners LLC (33)			500,000	(34)			500,000	(34)			-				-
Franklin Ma Chun Wai			100,000	(15)			100,000	(15)			-				-
Wm. Barrett Wellman			2,500	(3)			2,500	(3)			-				-
Randy and Jeanne Wunderlick			7,500	(35)			7,500	(35)			-				-
Fernando Enrique Zuzunaga Del Pino			10,000	(12)			10,000	(12)			-				-
Tomasa Zwicke			2,500	(3)			2,500	(3)			-				-
Kenar Overseas Corp.			1,127,023				1,127.023				-				-
Maria Angarita			796,650				796,650				-				-
Tracy Greco			272,257				272,257				-				-
Walter F. Lubkin Jr.			511,598				511,598				-				-
John C. Lubkin			181,579				181,579				-				-
Walter F. Lubkin III			346,026				346,026				-				-

 

* less than 1%

 

(1)	Includes (i) 3,120,00 shares issuable upon the exercise of a currently exercisable stock option and (ii) 12,500 shares issuable upon the exercise of a Warrant at $2.00 per share.
(2)	Mark Crone, managing member of Intelligent Investment I LLC (“Intelligent Investment”), has sole voting and investment power over the shares held by Intelligent Investment.
(3)	Includes 1,250 shares issuable upon the exercise of a Warrant at $2.00 per share.
(4)	Howard Gostfrand, the sole owner of American Capital Ventures, Inc. (“ACV”), has sole voting and investment power over the shares held by ACV.
(5)	Includes 12,500 shares issuable upon the exercise of a Warrant at $2.00 per share.
(6)	Includes 2,500 shares issuable upon the exercise of a Warrant at $2.00 per share.
(7)	Includes 7,500 shares issuable upon the exercise of a Warrant at $2.00 per share.
(8)	Includes 10,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(9)	Includes 15,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(10)	Fernando J. Bianco, the managing member of BIA Investment Ventures, LLC (“BIA”) has sole voting and investment power over the shares held by BIA.
(11)	Includes 100,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(12)	Includes 5,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(13)	Luis Garcia, a director of Coconut Lane Group Ltd. (“Coconut Lane”) has sole voting and investment power over the shares held by Coconut Lane.
(14)	Includes 20,000 shares issuable upon the exercise of a Warrant at $2.00 per share
(15)	Includes 50,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(16)	Eli Fireman, the managing member of FirstFire Global Opportunities Fund LLC (“FirstFire”) has sole voting and investment power over the shares held by FirstFire.
(17)	Includes 125,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(18)	Carlos Manuel Edery, sole shareholder of Grove Financial Investment Inc. (“Grove”) has sole voting and investment power over the shares held by Grove.
(19)	Includes 22,500 shares issuable upon the exercise of a Warrant at $2.00 per share.
(20)	Includes 25,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(21)	Laura Anthony, the sole member of Leone Group, LLC (“Leone”) has sole voting and investment power over the shares held by Leone.
(22)	Includes 15,500 shares issuable upon the exercise of a Warrants at $2.00 per share.
(23)	Marcos Herian, a managing member of MO7 Boats LLC (“MO7 Boats”) has sole voting and investment power over the shares held by MO7 Boats.
(24)	Includes 137,500 shares issuable upon the exercise of a Warrant at $2.00 per share.
(25)	Carlos Manuel Edery, a director of New Grove Ventures Intl. Inc. (“New Grove”) has sole voting and investment power over the shares held by New Grove.

 

 

(26)	Includes 32,500 shares of common stock issuable upon the exercise of a Warrant at $2.00 per share.
(27)	Includes 1,500 shares of common stock issuable upon the exercise of a Warrant at $2.00 per share.
(28)	Saul Escobar Ledezma, manager of Petroleum Partners Intl. LLC (“Petroleum”) has sole voting and investment power over the securities held by Petroleum.
(29)	Marcos Herian, a managing member of Promarine Boats LLC (“Promarine”) has sole voting and investment power over the shares held by Promarine.
(30)	Marcos Herian, a director and vice president of R&N Ocean Partners Inc. (“R&N”) has sole voting and investment power over the shares held by R&N.
(31)	Includes 14,750 shares issuable upon the exercise of a Warrant at $2.00 per share.
(32)	Includes 2,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(33)	Howard Davner, the managing member of Tysadco Partners LLC (“Tysadco”) has sole voting and investment power over the shares held by Tysadco.
(34)	Includes 250,000 shares issuable upon the exercise of a Warrant at $2.00 per share.
(35)	Includes 3,750 shares issuable upon the exercise of a Warrant at $2.00 per share.
(36)	Includes (i) 12,500 shares issuable upon the exercise of a Warrant at $2.00 per share and (ii) 4,000 shares issuable upon the exercise of a Warrant at $2.40 per share.

 

We may require the selling stockholders to suspend the sales of the securities offered by this prospectus upon the occurrence of any event that makes any statement in this prospectus, or the related registration statement, untrue in any material respect, or that requires the changing of statements in these documents in order to make statements in those documents not misleading. We will file a post-effective amendment to this registration statement to reflect any material changes to this prospectus.

 

Effect of Sales on Our Stockholders

 

All shares of common stock that are covered by this prospectus are expected to be freely tradable. The sale by the selling stockholders of a significant amount of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile. The selling stockholders may ultimately acquire all, some or none of the shares of common stock underlying the Warrants and the Stock Option. After they have acquired such shares, they may sell all, some or none of such shares.

 

Issuances of our common stock to the selling stockholders upon exercise of their Warrants or the Stock Option will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of our existing stockholders will be diluted as a result of any such issuances. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuances.

 

PLAN OF DISTRIBUTION

 

There is a limited market for our common stock. Our common stock has been quoted on the OTC pink sheets under the symbol “BSFC” since February 18, 2020. Our common stock is not currently eligible for trading on any national securities exchange or over-the-counter market. We have applied to the Financial Industry Regulatory Authority (“FINRA”) to list our common stock on the Nasdaq Capital Market under the proposed symbol “BSFC.” No assurance can be given that our application will be approved or, if we receive approval, that a trading market will develop, if developed, that it will be sustained or that the trading prices of our common stock on the OTC Pink marketplace will be indicative of the prices of our common stock if our common stock were traded on the Nasdaq Capital Market. We cannot assure you that our common stock will become eligible for trading on any exchange or market.

 

The selling stockholders will be offering the shares of common stock being covered by this prospectus at a fixed price of $2.00 per share until a trading market develops, if at all, and thereafter at prevailing market prices or privately negotiated prices.

 

 

Once a market has developed for our common stock the selling stockholders may, from time to time, sell, transfer, or otherwise dispose of any or all of their shares on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. The selling stockholders may use any one or more of the following methods when disposing of shares:

 

	●	on any national securities exchange or quotation service on which shares of the Company’s common stock may be listed or quoted at the time of sale;
	●	in the over-the-counter market;

 

	●	in the transactions otherwise than on these exchanges or systems or in the over-the-counter market;
	●	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
	●	block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
	●	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
	●	an exchange distribution in accordance with the rules of the applicable exchange;
	●	privately negotiated transactions;
	●	short sales;
	●	through the listing or settlement of options or other hedging transactions, whether such options are listed on an options exchange or otherwise;
	●	broker-dealers may agree with the selling stockholders to sell a specified number of such Shares at a stipulated price;
	●	a combination of any such methods of sale; and
	●	any other method permitted pursuant to applicable law.

 

Brokers, dealers, underwriters, or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling shareholders and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions.

 

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

 

In connection with the sale of our common stock, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver shares to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell such shares.

 

Neither we nor the selling stockholders can presently estimate the amount of compensation that any agent will receive. We know of no existing arrangements between the selling stockholders, any other shareholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters, or dealers and any compensation from the selling shareholder, and any other required information.

 

 

We will pay all of the expenses incident to the registration, offering, and sale of the shares to the public other than commissions or discounts of underwriters, broker-dealers, or agents. Any commissions, discounts or other fees payable to brokers-dealers in connection with any sale of the shares of common stock will be borne by the selling stockholders, the purchasers participating in such transaction, or both.

 

We have agreed to indemnify those selling stockholders that purchased shares in the Offering against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable.

 

We will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

 

We and the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations under it, including, without limitation, Rule 10b-5.

 

This offering will terminate on the date that all shares offered by this prospectus have been sold by the selling stockholders.

 

Under the securities laws of some states, the shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

 

Our common stock is not quoted on any exchange and currently there is a limited market for our common stock.

 

Penny Stock Rules

 

Our shares of common stock are subject to the “penny stock” rules of the Exchange Act. In general terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, authorized for quotation from the NASDAQ stock market, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues. In the last case, the issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years, or the issuer’s average revenues for each of the past three years must exceed $6,000,000.

 

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of stockholders to sell their shares.

 

  

DESCRIPTION OF SECURITIES

 

The following description of our capital stock is only a summary and is qualified in its entirety by the provisions of our certificate of incorporation and bylaws, each as amended and restated, which have been filed as exhibits to the registration statement of which this prospectus forms a part.

 

We have authorized capital stock consisting of 100,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share. As of July 28, 2021, we had 22,987,584 shares of common stock and no shares of preferred stock issued and outstanding.

 

Common Stock

 

The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.

 

Preferred Stock

 

Our Board of Directors may issue preferred stock in one or more series without stockholder approval. Our Board of Directors may determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

 

Our Board of Directors has designated 10,000 shares of preferred stock as “8% Series A Convertible Preferred Stock”.

 

The Series A Stock has no maturity and is not subject to any sinking fund or redemption and will remain outstanding indefinitely unless and until converted by the holder or the Company redeems or otherwise repurchases the Series A Stock.

 

Ranking. The Series A Stock ranks, with respect to the payment of dividends and/or the distribution of assets in the event of any liquidation, dissolution or winding up of the Company, (i) senior to all classes or series of Common Stock, and to all other equity securities issued by the Company; (ii) on parity with all equity securities issued by the Company with terms specifically providing that those equity securities rank on parity with the Series A Stock; (iii) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series A Stock; and (iv) effectively junior to all existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock) of the Company.

 

Dividends. Cumulative dividends shall accrue on each share of Series A Stock at the rate of 8% (the “Dividend Rate”) of the purchase price of $1,000.00 per share, commencing on the date of issuance. Dividends are payable quarterly, when and if declared by the Board, beginning on September 30, 2018 (each a “Dividend Payment Date”) and are payable in shares of common stock (a “PIK Dividend”) with such shares being valued at the daily volume weighted average price (“VWAP”) of the common stock for the thirty trading days immediately prior to each Dividend Payment Date or if not traded or quoted as determined by an independent appraiser selected in good faith by the Company. Any fractional shares of a PIK Dividend will be rounded to the nearest one-hundredth of a share. All shares of common stock issued in payment of a PIK Dividend will be duly authorized, validly issued, fully paid and non-assessable. Dividends will accumulate whether or not the Company has earnings, there are funds legally available for the payment of those dividends and whether or not those dividends are declared by the Board. No dividends on shares of Series A Stock shall be authorized, paid or set apart for payment at any time when the terms and provisions of any agreement of the Company prohibit the authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment is restricted or prohibited by law. No dividends will be declared or paid or set aside for payment and no other distribution will be declared or made upon shares of common stock or preferred stock that rank junior to the Series A Stock as to the payment of dividends, or upon liquidation, dissolution, or winding up of the Company, and (iii) any shares of common stock and preferred stock that the Company may issue ranking junior to the Series A Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up, shall not be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for other capital stock of the Company that it may issue ranking junior to the Series A Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up).

 

 

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Stock will be entitled to be paid out of the assets the Company has legally available for distribution to its shareholders, subject to the preferential rights of the holders of any class or series of capital stock of the Company it may issue ranking senior to the Series A Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of the Purchase Price, before any distribution of assets is made to holders of common stock or any other class or series of capital stock of the Company that it may issue that ranks junior to the Series A Stock as to liquidation rights. The liquidation preference shall be proportionately adjusted in the event of a stock split, stock combination or similar event so that the aggregate liquidation preference allocable to all outstanding shares of Series A Stock immediately prior to such event is the same immediately after giving effect to such event.

 

Liquidation Preference. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Company are insufficient to pay the amount of the liquidating distributions on all outstanding shares of the Series A Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Company that it may issue ranking on a parity with the Series A Stock in the distribution of assets, then the holders of the Series A Stock and all other such classes or series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. The consolidation or merger of the Company with or into any other entity or the sale, lease, transfer or conveyance of all or substantially all of the property or business the Company, will not be deemed a liquidation, dissolution or winding up of the Company.

 

Conversion. Each share of Series A Stock is convertible at any time and in the sole discretion of the holder thereof, into shares of common stock at a conversion rate of 500 shares of common stock per each share of Series A Stock (the “Conversion Rate”), subject to adjustment from time to time as follows: if the Company declares or pays any dividend or makes any distribution on common stock payable in shares of common stock, or effects a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of common stock then in each such case the Conversion Ratio will be adjusted, so that the holder of any shares of Series A Stock will be entitled to receive upon conversion thereof the number of shares of common stock or other securities or property that such holder would have owned or have been entitled to receive upon the happening of such event had such Series A Stock been converted immediately prior to the relevant record date or the effective date of such event.

 

Upon a merger, share exchange or consolidation of the Company, the sale, lease, exchange, mortgage, pledge, transfer or other disposition or encumbrance, of all or substantially all of the Company’s assets, or any agreement providing for any of the foregoing, each share of Series A Stock will remain outstanding and will thereafter be convertible into, or will be converted into a security which shall be convertible into, the kind and amount of securities or other property to which a holder of the number of shares of common stock of the Company deliverable upon conversion of such share of Series A Stock immediately prior to such business combination would have been entitled upon such business combination.

 

Share Reservation. The Company is obligated to at all times reserve and keep available out of its authorized but unissued shares of common stock, a sufficient number of its shares of common stock as shall from time to time be to effect the conversion of all outstanding shares of the Series A Stock.

 

 

Voting. Holders of Series A Stock have no voting rights, except (i) the affirmative vote of at least two-thirds of the Series A Stock outstanding will be required to authorize or create, or increase the authorized or issued amount of capital stock ranking senior to the Series A Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any of the authorized capital stock of the Company into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares, or amend the Certificate of Incorporation which would have a material adverse effect on the rights, preferences, privileges or voting powers of the Series A Stock or (ii) as otherwise required by law. On each matter on which holders of Series A Stock are entitled to vote, each share of Series A Stock will be entitled to one vote.

 

While we do not currently have any plans for the issuance of additional preferred stock, the issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include:

 

●	Restricting dividends on the common stock;
●	Diluting the voting power of the common stock;
●	Impairing the liquidation rights of the common stock; or
●	Delaying or preventing a change in control of the Company without further action by the stockholders.

 

On June 30, 2021, all of the 1,413 shares of Series A Stock then issued and outstanding were converted into an aggregate of 706,500 shares of common stock of the Company.

 

Warrants

 

We issued Warrants to purchase an aggregate of 1,500,000 shares of common stock to investors in the Offering Each Warrant entitles the holder to purchase shares of common stock at an exercise price of $2.00 per share and will expire three years from the date of issuance. Prior to exercise, the Warrants do not confer upon holders any voting or any other rights as a stockholder.

 

The Warrants contain provisions that protect the holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and other similar events.

 

Also outstanding are three-year warrants to purchase an aggregate of 353,250 shares of common stock at an exercise price of $2.40 per share which expire November 8, 2021.

 

Options

 

There is an outstanding ten-year option to purchase an aggregate of 3,120,000 shares of common stock with an exercise price of $2.00 per share granted under the 2018 Plan to a former officer of the Company in connection with the Merger. On April 12, 2021, each of the Company’s directors was granted, pursuant to a director service agreement, a four-year option to purchase 100,000 shares of the Company’s common stock at an exercise price of $2.00 per share which vests as to 1/12 of the shares subject to the option on a monthly basis during the first year from the date of grant.

 

Other Convertible Securities

 

As of July 28, 2021, other than the securities described above, the Company does not have any outstanding convertible securities.

 

 

Transfer Agent

 

The transfer agent and registrar for our common stock is VStock Transfer, LLC, with an address of 18 Lafayette Place, Woodmere, New York 11598 and its telephone number is (212) 828-8436.

 

Delaware Anti-Takeover Statute

 

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a person deemed an “interested stockholder” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date such person becomes an interested stockholder unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover attempts that might result in a premium over the price of our common stock.

 

Undesignated Preferred Stock

 

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of the company. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the company.

 

Special Stockholder Meetings

 

Our certificate of incorporation bylaws provide that a special meeting of stockholders may be called only by a majority of our board of directors.

 

Requirements for Advance Notification of Stockholder Nominations and Proposals

 

Our certificate of incorporation and bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

 

The provisions of the Delaware General Corporation Law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

 

INTEREST OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis or had, or is to receive, in connection with the offering, a substantial interest, directly or indirectly, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its affiliates as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.

 

DESCRIPTION OF BUSINESS

 

History

 

We were incorporated on October 17, 2017 in the State of Delaware as a blank check company to be used as a vehicle to pursue a business combination with an unidentified target. In connection with the Merger, we changed our name from “AG Acquisition Group II, Inc.” to “Blue Star Foods Corp.” and succeeded to the business of Keeler & Co.

 

 

Merger

 

Upon the closing of the Merger, the 500 shares of common stock of Keeler & Co issued and outstanding immediately prior to the closing of the Merger were converted into 30,000 shares of our common stock. As a result, an aggregate of 15,000,000 shares of our common stock were issued to the Sole Stockholder.

 

At the effective time of the Merger, the Company redeemed an aggregate of 9,250,000 shares of common stock from the pre-Merger stockholders of the Company (the “Pre-Merger Holders”) for cancellation by the Company (the “Share Redemption”) and, as a result, the Pre-Merger Holders retained an aggregate of 750,000 shares of common stock after the Merger, representing a value of $1.5 million. The shares were redeemed in consideration for the direct benefit the Pre-Merger Holders will receive in connection with the consummation of the Merger.

 

Concurrently with the closing of the Merger, we closed a private placement offering (the “Offering”) in which we sold an aggregate of 725 units of our securities (the “Units”) at a purchase price of $1,000 per Unit, for aggregate gross proceeds of $725,000. Each Unit consisted of one share of the Company’s 8% Series A convertible preferred stock, par value $0.0001 per share (the “Series A Stock”) and a three-year warrant (the “Warrant”) to purchase one-half of one share of common stock for every share of common stock that would be received upon conversion of a share of Series A Stock (the “Warrant Shares”), at an exercise price of $2.40. The Series A Stock is convertible into shares (the “Conversion Shares”) of the Company’s common stock, at a conversion rate of $2.00 per share (the “Conversion Rate”). We issued 353,250 Warrant Shares in the Offering, which Warrant Shares are exercisable independently of any conversion of Series A Stock. The net proceeds of the Offering were used by the Company for general corporate purposes. As of June 30, 2021, all of the Series A Stock has been converted to shares of the Company’s common stock.

 

Also, effective upon the closing of the Merger, we issued an aggregate of 688 Units to eleven “accredited investors” (the “Settlement Parties”) for each such individual or entity entering into a settlement and mutual general release agreement (the “Settlement Agreement”) with the Company in full and complete settlement and satisfaction and release of claims such Settlement Parties may have against the Company (the “Company Settlement”).

 

Upon the closing of the Merger, options to purchase an aggregate of 104 shares of Keeler & Co’s common stock at an exercise price of $10,000 per share, which were outstanding immediately prior to the closing of the Merger, were converted into (i) a ten-year immediately exercisable option to purchase 3,120,000 shares of common stock of the Company at an exercise price of $0.333 (which option was subsequently terminated unexercised), and (ii) a ten-year option to purchase 3,120,000 shares of common stock at an exercise price of $2.00, which vested one-year from the date of grant.

 

In connection with the Merger, each of our executive officers and directors after giving effect to the Merger (the “Restricted Holders”) and each of the Pre-Merger Holders, holding at the closing date of the Merger an aggregate of 750,000 shares of our common stock, entered into lock-up agreements (the “Lock-Up Agreements”), whereby the Restricted Holders are restricted for a period of 18 months and the Pre-Merger Holders are restricted for 12 months, after the Merger (the “Restricted Period”), from sales or dispositions (including pledges) in excess of 50% of all of the Common Stock held by (or issuable to) them and at a price below $2.20 per share (such restrictions together the “Lock-Up”). Notwithstanding such restrictions, during the Restricted Period (i) the Restricted Holders may transfer up to 10% of their shares to a charitable organization which agrees to be bound by such Lock-Up restrictions and (ii) the Pre-Merger Holders may transfer up to 10% of their shares to a third party which agrees to be bound by such Lock-Up restrictions. From and after the Restricted Period, neither the Restricted Holders nor the Pre-Merger Holders may sell, dispose or otherwise transfer more than one-third of the common stock held by such Holder in any two-month period.

 

Our authorized capital stock currently consists of 100,000,000 shares of Common Stock, and 5,000,000 shares of the preferred stock, of which 10,000 shares have been designated as Series A Stock. Our Common Stock is not traded on any exchange. Our Common Stock has been quoted on the OTC pink sheets under the symbol “BSFC” since February 18, 2020. Currently, there is a limited trading market for our Common Stock.

 

 

Coastal Pride Acquisition

 

On November 26, 2019, Keeler & Co., Inc. (the “Purchaser”) 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 (“Coastal Pride”), a Florida limited liability company and newly-formed, wholly-owned subsidiary of Keeler & Co. (the “Acquisition Subsidiary” and, upon the effective date of the Coastal Merger, the “Surviving Company), and The Walter F. Lubkin, Jr. Irrevocable Trust dated 1/8/03 (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.

 

Pursuant to the terms of the Coastal Merger Agreement, the following consideration was paid by Keeler & Co.: (i) an aggregate of $394,622 in cash; (ii) a five-year 4% promissory note in the principal amount of $500,000 (the “Lubkin Note), issued by Keeler & Co. to Walter Lubkin Jr. (“Walter Jr.”); (iii) three-year 4% convertible promissory notes in the aggregate principal amount of $210,000 (collectively, the “Sellers Notes” and together with the Lubkin Note, the “Notes”), issued by Keeler & Co. to Greco, Lubkin III and Lubkin, pro rata to their ownership of Coastal Pride Company, Inc. immediately prior to the Coastal Merger; (iii) 500,000 shares of common stock of the Company, issued to Walter Lubkin, Jr. (the “Walter Jr. Shares”); and (iii) an aggregate of 795,000 shares of common stock of the Company, issued to Greco, Lubkin III and Lubkin, pro rata to their ownership of Coastal Pride Company, Inc. immediately prior to the Coastal Merger (together with the Walter Jr. Shares, the “Consideration Shares”).

 

The Notes are subject to a right of offset against the Sellers’ indemnification obligations as described in the Coastal Merger Agreement and are subordinate and subject to prior payment of all indebtedness of John Keeler under the Loan Agreement with Lighthouse Financial Corp., a North Carolina corporation (“Lighthouse”).

 

Principal and interest under the Lubkin Note are payable quarterly, commencing February 26, 2020, in an amount equal to the lesser of (i) $25,000 and (i) 25% of the Surviving Company’s quarterly earnings before interest, tax, depreciation and amortization.

 

One-sixth of the principal and interest under the Sellers Notes are payable quarterly commencing on August 26, 2021. The Sellers Notes are convertible into shares of common stock of the Company at the Seller’s option, at any time after the first anniversary of the date of the Note, at the rate of one share for each $2.00 of principal and/or interest so converted (the “Conversion Shares”).

 

Keeler & Co. has the right to prepay the Notes in whole or in part at any time without penalty or premium.

 

On April 15, 2021, the Company issued an aggregate of 16,460 shares of its common stock to the Seller’s in lieu of payment in cash of accrued interest in the aggregate amount of $39,504 under the Sellers’ Notes.

 

At the effective time of the Coastal Merger, the Sellers entered into leak-out agreements (each, a “Leak-Out Agreement”) pursuant to which the Sellers and Walter Jr. may not directly or indirectly pledge, sell, or transfer any of the Consideration Shares or Conversion Shares, or enter into any swap or other arrangement that transfers any of the economic consequences of ownership of any such shares for one year from the date of the Coastal Merger. Thereafter, each Seller and Walter Jr. may transfer up to 25% of the aggregate of the Consideration Shares and the Conversion Shares held by such person, in each successive six-month period.

 

In connection with the Coastal Merger, Lubkin III and Greco agreed to serve as president and chief financial officer, respectively, of the Surviving Company.

 

 

ACF Finco I, LP (“ACF”) and Keeler & Co. were parties to a loan and security agreement, originally dated as of August 31, 2016. As a condition to ACF’s waiver of certain events of default under the Loan Agreement, and consent to the formation of the Acquisition Subsidiary and the Coastal Merger, the Acquisition Subsidiary and Keeler & Co. entered into the Joinder and Seventh Amendment to the Loan Agreement which resulted, among other things, in Coastal Pride becoming an additional borrower under the Loan Agreement. On March 31, 2021, Keeler & Co. and Coastal Pride entered into a loan and security agreement (the “Loan Agreement”) with Lighthouse Financial Corp., a North Carolina corporation (“Lighthouse”), and the loan with ACF was extinguished.

 

Taste of BC Aquafarms Acquisition

 

On April 27, 2021, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Taste of BC Aquafarms Inc., a corporation formed under the laws of the Province of British Columbia, Canada (“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 (the “Acquisition”) 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, shares of the Company’s common stock (representing CAD$1,000,000 of additional shares calculated at USD$2.30 per share) will be 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.

 

The Purchase Price is subject to adjustment based upon the amount of TOBC’s working capital on the Closing Date, as determined in accordance with the Purchase Agreement within 60 days after the closing.

 

In addition to the foregoing consideration, at the time of the Closing, the Company provided CAD$488,334 to TOBC for the extinguishment of certain of TOBC’s existing debt.

 

All of the shares received by the Sellers will be subject to a leak-out restriction commencing on the date of issuance, as follows: (i) up to 25% may be sold after 12 months; (ii) up to 50% may be sold after 18 months; (iii) up to 75% may be sold after 24 months; and (iv) up to 100% may be sold after 30 months.

 

The Notes bear no interest and have a maturity date of November 30, 2021. The Company has the right to prepay amounts due under the Notes in whole or in part at any time without penalty or premium. Repayment of the amounts due under the Notes is secured by a guarantee and a general security agreement creating a security interest over the assets of TOBC.

 

In connection with the Acquisition, the Sellers entered into four-year confidentiality, non-competition and non-solicitation agreements with the Company.

 

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. The crab meat which we import is processed in 13 plants 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.

 

 

Our premium proprietary brands are differentiated in terms of quality and price point.

 

We believe that we utilize best-in-class technology, in both resource sustainability management and ecological packaging.

 

TOBC operates a land-based salmon recirculating aquaculture farm located in Nanaimo, British Columbia, Canada with an annual production capacity of approximately 100 Tonnes. TOBC grows fish from egg to harvest in approximately 12 months. The lifetime conversion ratios are ~1.2/1. This is the calculation of how much feed that is required to gain weight. 1.2 / 1 means 1.2 lb. of feed will produce 1 lb. of growth/ weight gain of the fish. TOBC’s feed is largely terrestrial based from grains and other non-marine ingredients, making TOBC a net producer of fish protein. Eggs are purchased from two primary suppliers and are hatched approximately every eight weeks. TOBC’s hatchery is composed of a recirculating system that utilizes an upwelling “heath stack” incubator and five tanks with moving bed biofiltration. The fish are then transferred to the main RAS system approximately 12 weeks post hatch.

 

The faster life cycle from birth to harvesting of our salmon, as compared to conventional salmon, allows it to be produced more economically in contained, land-based RAS farms. Although RAS farms require greater capital investment than the sea cage approach, we believe that the higher costs are offset by more efficient growth and a shorter transportation distance to market.

 

The main RAS facility is in an insulated, bio-secure structure where all culture conditions are controlled. The primary RAS system is composed of 13 culture tanks, a drum filter, fluidized sand bed biofilter and low head oxygenator and employs an efficient gravity fed low head arrangement which reduces energy use as compared to other RAS designs. Additionally, there are two independent partial reuse finishing tank systems.

 

The initial facility has been operated as a model farm in which the development of salmon RAS technology has been developed and proven. We intend to refine this model farm into a 150 Tonnes standardized module that will be replicated in the development of further farms.

 

Weekly harvests of approximately two Tonnes of salmon are stunned and bled at the farm and then processed as fresh iced HOG (head on gutted) fish at a Canadian Food Inspection Agency approved processing facility. Currently, TOBC sells its salmon to primary to two wholesale seafood distributors in Canada.

 

The Company’s executive offices are based in Miami, Florida. The offices of Coastal Pride Seafood LLC are located in Beaufort, South Carolina and the offices of TOBC are located in Nanaimo, British Columbia, Canada. Additionally, the Company utilizes third party warehouses located in Miami, Baltimore, Philadelphia and Los Angeles.

 

Strategy

 

Our strategy is to create a vertically integrated seafood company that offers customers high quality products while maintaining a focus on our core values of delivering food safety, traceability and certified sustainability.

 

We plan to grow the Company organically by continuing to grow our customer base, offering additional species to our customers, introducing new value-added product lines and strategically acquiring companies that we believe we can integrate into a larger, vertically integrated company.

 

Competitive Strengths - Sustainable and Traceable Product Sourcing

 

We believe that our greatest point of differentiation from other seafood companies are our efforts to ensure that our seafood products are ethically sourced in a method that is consistent with our core values and those of our customers.

 

We purchase the majority of our crab product from processors which source the crab meat from local fishermen in Indonesia, the Philippines, Thailand, Vietnam, Sri Lanka and India, to whom we pay a premium in order to outfit their boats with a proprietary GPS-based system. This system allows us to trace where the crab product originates and ensure that only mature crabs are being harvested by the use of collapsible traps and not gill nets.

 

 

We have created a technology platform that tracks the product through its entire chain of custody and collects and transmits various data to the Company in real-time, from the loading site, to the packing plant, through the sorting and pasteurization process and the exporting process to the end customer. Our technology allows our customers access to their “Scan on Demand” QR code-enabled traceability application.

 

The crab meat is purchased directly from processors with whom we have long-standing relationships, that have agreed to source their product in a sustainable manner. All crab meat is sourced under the Company’s FDA approved Hazard Analysis Critical Control Point (“HACCP”) Plan. Additionally, all suppliers are certified by the British Retail Consortium (the “BRC”) and are audited annually to ensure safety and quality of our product.

 

Our warehouse facility in Miami, Florida is the only crab meat facility audited by the BRC (graded A++) in the U.S.

 

Proprietary Brands. We have created several brands of crab meat that are well regarded amongst our customers and are differentiated by product quality and price point.

 

●	Blue Star is packed with only high quality Portunus Pelagicus species crab and is produced under exacting specifications and quality control requirements.
●	Pacifika is a quality brand for the price conscious end-user. The Portunus Haanii crab meat is packed in China and is ideal for upscale plate presentations.
●	Oceanica is made from the Portunus Haanii crab, which is caught and processed in Vietnam. It is an affordable choice to help reduce food cost without sacrificing the look and taste of dishes.
●	Crab + Go Premium Seafood is geared towards millennials as part of the trend toward prepackaged grab and go items. The product is packaged in flexible foil pouches.
●	Lubkin Brand is packed with good quality Portunus Pelagicus specie crab in the Philippines and Indonesia.
●	First Choice is a quality brand packed with Portunus Haanii crab from Malaysia.
●	Good Stuff is a premium brand packed with the high quality Callinectes specie crab from Mexico.
●	Fresh Brand is packed with Callinectes Sapidus crab from Venezuela and the United States.

 

Eco-Friendly Packaging. Another major point of differentiation from our competitors is our use of sustainable and ethical packaging. Our green pouches for Eco-Fresh crab meat are patented in the United States, Europe, Thailand, the Philippines and Indonesia under patent Nos.1526091 B1 and US Patents 8,337,922 and 8,445,046. Since their introduction in 2003, these pouches have saved in excess of 800 metric tons of carbon dioxide emissions versus metal can packaging material.

 

Competition

 

In general, the international seafood industry is intensely competitive and highly fragmented. We compete with local and overseas manufacturers and importers engaged in similar products.

 

The Company’s primary competitors are Tri Union Frozen Products, Inc. (Chicken of the Sea Frozen Foods), Phillips Foods, Inc., Harbor Seafood, Inc., Newport International and Twin Tails Seafood Corp.

 

 

 

Industry Overview

 

The international seafood industry is going through a period of rapid change as it strives to meet the needs of a growing population around the world, where food consumption habits are evolving. We believe there are powerful trends emerging in the developing world (including a growing demand for animal-based protein) as well as and in the developed world (where there is an increased awareness and focus on sustainable sourcing and protecting marine ecosystems).

 

Population Growth and Global Seafood Consumption

 

	●	The United Nations estimates that there will be close to 9.7 billion people on our planet by the year 2050(1), a significant increase from the existing population estimates of 7.7 billion (1)
	(1)	United Nations – Department of Economic and Social Affairs (2019)
	●	As the population has grown, so has per capita consumption. Per capita food fish consumption grew from 9.0 kg (live weight equivalent) in 1961 to 20.5 kg in 2018, by about 1.5% per year. (2)
	(2)	Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2020.

 

Sources of Seafood

 

	●	Global total capture fishery production in 2018 reached 96.4 million tons, an increase of 5.4 percent from the average of the previous three years, of which 84.4 million tons from marine waters and 12.0 million tons from inland waters. (3)
	(3)	Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2020”.
	●	Global aquaculture production in 2018 reached 114.5 million tons in live weight, of which 51.3 million tons came from inland aquaculture. (4)
	(4)	Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2020”.

 

Seafood Industry Participants

 

	●	The mix of parties involved in seafood varies from the local village fisherman, to large, international, vertically-integrated seafood companies.
	●	The total number of fishing vessels in the world in 2018 is estimated at about 4.6 million, with the fleet in Asia being the largest, consisting of 3.1 million vessels and accounting for 68 percent of the global fleet, followed by the Americas (14%), Europe (10%), Africa (7%), and Oceania (1%)(5)
	(5)	Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2020”.

 

Growth Strategy

 

We intend to grow the business organically and through strategic acquisitions.

 

Organic growth – We believe that allocating additional capital to our existing business plan will allow us to continue to meet growing demand from end-customers for seafood products. The Company also currently entered the recirculation aquaculture systems (“RAS”) space with its acquisition of TOBC and high value seafood species such as steel head salmon and soft-shell blue crab.

 

Acquisitions – We also currently intend to evaluate strategic acquisitions in the fragmented seafood industry. We believe that such potential acquisitions may add value in several ways, including geographical diversification and new specifies offerings, as well as operational and price synergies.

 

 

Products

 

We currently have the following products: Blue Star, Pacifika, Oceanica, Crab & Go Premium Seafood, Lubkin, First Choice, Good Stuff, Coastal Pride Fresh and Little Cedar Falls.

 

Blue Star is packed with only high quality Portunus Pelagicus species crab and is produced under exacting specifications and quality control requirements.

 

Pacifika is a quality brand for the price conscious end-user. The Portunus Haanii crab meat is packed in China and is ideal for upscale plate presentations.

 

Oceanica is made from the Portunus Haanii crab, which is caught and processed in Vietnam. It is an affordable choice to help reduce food cost without sacrificing the look / taste of dishes.

 

Lubkin Brand is packed with quality Portunus Pelagicus specie crab in the Philippines and Indonesia.

 

First Choice is a quality brand packed with Portunus Haanii crab meat from Malaysia.

 

Good Stuff is a premium brand packed with high quality Callinectes specie crab from Mexico.

 

Coastal Pride Fresh Brand is packed with Callinectes Sapidus from Venezuela and the United States.

 

Grab + Go Premium Seafood is geared towards millennials as part of the trend toward pre-packaged, grab-and-go items. The product is packaged in flexible foil pouches.

 

Steelhead salmon produced by TOBC under the “Little Cedar Falls” brand. The fish are sashimi grade and only sold as a fresh item, usually reaching end users within days of harvest.

 

Suppliers

 

We purchase crab meat directly from 13 processors with which we have long-standing relationships, that have agreed to source their product in a sustainable manner. All crab meat is sourced under the Company’s FDA approved HACCP Plan. Additionally, all suppliers are certified grade A by the BRC and are audited annually to ensure safety and quality.

 

The Company had five suppliers which accounted for approximately 65% of the Company’s total purchases during the year ended December 31, 2020. These five suppliers are located in the United States, Indonesia, Sri Lanka, Mexico and the Philippines, which accounted for approximately 93% of the Company’s total purchases during the year. During 2020, the Company purchased inventory from two non-affiliated Indonesian suppliers that made up the balance of 25% of the supply concentration.

 

TOBC has two primary egg suppliers based in Washington State.

 

Sales, Marketing and Distribution

 

The Company’s products are sold in the United States and Canada. Its primary current source of revenue is importing blue and red swimming crab meat primarily from Indonesia, Mexico, Malaysia, Sri-Lanka, China, the Philippines and Vietnam and distributing it in the United States and Canada under several brand names such as Blue Star, Oceanica, Pacifika, and Lubkin’s Coastal Pride, First Choice, Good Stuff, Coastal Pride Fresh

 

 

The Company has a sales team based throughout the United States who sell directly to customers most of whom are in the food service and retail industry and also manage a network of regional and national brokers, that cover both the retail and wholesale segments. The sales team and brokers help to pull the products through the system by creating demand at the end user level and pulling the demand through our distributor customers. The Company sells to retail customers either directly or via distributors that specialize in the retail segment.

 

The Company does not own its own fleet of trucks and utilizes less than truckload freight shipping (“LTL”) national freight carriers to deliver its products to its customers. LTL is used for the transportation of small freight or when freight does not require the use of an entire trailer. When shipping LTL, the Company pays for a portion of a standard truck trailer, and other shippers and their shipments fill the unoccupied space.

 

TOBC steelhead salmon is sold in Canada under the brand name, Little Cedar Falls primarily to two distributor/brokers.

 

Our Technology

 

We have created a technology platform that tracks the product through its entire chain of custody and collects and transmits various data to the Company in real-time, from the loading site, to the packing plant, through the sorting and pasteurization process and the exporting process to the end customer. Our technology allows our customers access to their “Scan on Demand” QR code-enabled traceability application.

 

Customers

 

Our customer base is comprised of some of the largest companies in the food service and retail industry throughout the United States. We sell our crab meat to our customers through purchase orders. For the year ended December 31, 2020, sales to food distributors and retail and wholesale clubs accounted for 63% of our revenue. The balance of our revenue derived from smaller seafood distributors and value-added processors.

 

The Company had three customers which accounted for approximately 26% of revenue during the year ended December 31, 2020. Outstanding receivables from these customers accounted for approximately 19% of the total accounts receivable as of December 31, 2020. The loss of any major customer could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Intellectual Property

 

Our intellectual property is an essential element of our business. We use a combination of patent, trademark, copyright, trade secret and other intellectual property laws and confidentiality agreements to protect our intellectual property. Our policy is to seek patent protection in the United States and in certain foreign jurisdictions for our products, processes and other technology where available and when appropriate. We also in-license technology, inventions and improvements we consider important to the development of our business.

 

In addition to our patents, we also rely upon trade secrets, know-how, trademarks, copyright protection and continuing technological and licensing opportunities to develop and maintain our competitive position. We monitor the activities of our competitors and other third parties with respect to their use of intellectual property. We require our employees to execute confidentiality and non-competition agreements upon commencing employment with us. Despite these safeguards, any of our know-how or trade secrets not protected by a patent could be disclosed to, or independently developed by, a competitor.

 

It is our standard practice to require our employees to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

 

 

Borrowings under our loan and security agreement with Lighthouse are secured by substantially all of our personal property, including our intellectual property.

 

The following is a list of our patents:

 

Title		Country		Patent No. OR Publication No		Issue Date		Application No.		Application Date
POUCH-PACKAGED CRABMEAT PRODUCT AND METHOD		US		2015/0257426 A1				14/205,742		3/12/2014
METHOD FOR PACKAGING CRABMEAT		US		8445046 B2		5/21/2013		13/681,027		11/19/2012
METHOD FOR PACKAGING CRABMEAT		US		8337922 B2		12/25/2012		10/691,480		10/21/2003
METHOD FOR PACKAGING CRABMEAT		EPC		1526091 B1						10/21/2004
		TH		28,256
		PH		1-2005-000216
		ID		21261

 

Our patents expire 20 years from the date of issuance which range from year 2007 to 2015.

 

The following is a list of our registered trademarks and trademarks for which we have filed applications.

 

Mark		Registration No		Registration Date		Application No.		Application Date
AMERICA’S FAVORITE CRABMEAT		2961590		6/7/05		78344059		12/22/03
ECO-FRESH		4525998		5/6/14		77922376		1/28/10
		3858522		10/5/10		77885209		12/3/09
		3818057		7/13/10		77885203		12/3/09
OCEANICA		3711200		11/17/09		77595180		10/17/08
		2419060		1/9/01		75855876		11/19/19
Lubkin’s Coastal Pride		2879531		8/31/04		78289067		8/19/03
Lubkin’s Good Stuff		N/A		N/A		87919629		5/14/18
Lubkin’s First Choice		H/A		N/A		88645685		10/8/19

 

Canadian Intellectual Property Office registered trademarks:

Little Cedar Falls – Registration #1766337- Expiration: June 20, 2032

Taste of BC – Registration #1561871 - Expiration: January 31, 2034

 

Government Regulation

 

Our third-party distribution facilities and our international suppliers are certified in accordance with the HACCP, standards for exporting aquatic products to the United States. The HACCP standards are developed by the U.S. Food and Drug Administration (the “FDA”), pursuant to the FDA’s HACCP regulation, Title 21, Code of Federal Regulations, part 123, and are used by the FDA to help ensure food safety and control sanitary standards.

 

Food Safety and Labeling

 

We are subject to extensive regulation, including, among other things, the Food, Drug and Cosmetic Act, as amended by the Food Safety Modernization Act (“FSMA”), the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, and the rules and regulations promulgated thereunder by the FDA. The FSMA was enacted in order to aid the effective prevention of food safety issues in the food supply. This comprehensive and evolving regulatory program impacts how food is grown, packed, processed, shipped and imported into the United States and it governs compliance with Good Manufacturing Practices regulations (“GMPs”). The FDA has finalized seven major rules to implement FSMA, recognizing that ensuring the safety of the food supply is a shared responsibility among many different points in the global supply chain. The FSMA rules are designed to make clear specific actions that must be taken at each of these points to prevent contamination. Some aspects of these laws use a strict liability standard for imposing sanctions on corporate behavior. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls, or seizures, and criminal sanctions, any of which could impact our results of operations.

 

 

In addition, the Nutrition Labeling and Education Act of 1990 prescribes the format and content of certain information required to appear on the labels of food products.

 

Our operations and products are also subject to state and local regulation, including the registration and licensing of plants, enforcement by state health agencies of various state standards, and the registration and inspection of facilities. Compliance with federal, state and local regulation is costly and time-consuming. Enforcement actions for violations of federal, state, and local regulations may include seizure and condemnation of products, cease and desist orders, injunctions or monetary penalties. We believe that our practices are sufficient to maintain compliance with applicable government regulations.

 

Trade

 

For the purchase of products harvested or manufactured outside of the United States, and for the shipment of products to customers located outside of the United States, we are subject to customs laws regarding the import and export of shipments. Our activities, including working with customs brokers and freight forwarders, are subject to regulation by U.S. Customs and Border Protection, part of the Department of Homeland Security.

 

TOBC

 

TOBC’s aquafarms facility in Nanaimo, British Columbia, Canada with an annual production capacity of approximately 100 Tonnes is licensed under the Canadian Department of Fisheries and Oceans. Harvests of steelhead salmon are processed as iced HOG fish at locally at a Canadian Food Inspection Agency approved processing facility.

 

Federal Trade Commission

 

We are subject to certain regulations by the U.S. Federal Trade Commission. Advertising of our products is subject to such regulation pursuant to the Federal Trade Commission Act and the regulations promulgated thereunder.

 

Employee Safety Regulations

 

We are subject to certain health and safety regulations, including regulations issued pursuant to the Occupational Safety and Health Act. These regulations require us to comply with certain manufacturing, health, and safety standards to protect our employees from accidents.

 

Anticorruption

 

Because we are organized under the laws of a state and our principal place of business is in the United States, we are considered a “domestic concern” under the Foreign Corrupt Practices Act (“FCPA”) and are covered by the anti-bribery provisions of the FCPA. The provisions prohibit any domestic concern and any officer, director, employee, or agent, acting on behalf of the domestic concern from paying or authorizing payment of anything of value to (i) influence any act or decision by a foreign official; (ii) induce a foreign official to do or omit to do any act in violation of his/her lawful duty; (iii) secure any improper advantage; or (iv) induce a foreign official to use his/her influence to assist the payor in obtaining or retaining business, or directing business to another person.

 

 

Environmental Regulation

 

We are subject to a number of federal, state, and local laws and other requirements relating to the protection of the environment and the safety and health of personnel and the public. These requirements relate to a broad range of our activities, including the discharge of pollutants into the air and water; the identification, generation, storage, handling, transportation, disposal, recordkeeping, labeling, and reporting of, and emergency response in connection with, hazardous materials (including asbestos) associated with our operations; noise emissions from our facilities; and safety and health standards, practices, and procedures that apply to the workplace and the operation of our facilities.

 

Research and Development

 

We did not incur any research and development costs during 2020 and 2019.

 

Employees

 

As of July 28, 2021, we had eighteen full time employees and no part-time employees. We believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel.

 

DESCRIPTION OF PROPERTY

 

We leased approximately 16,800 square feet of office/warehouse space for our executive offices and distribution facility for $16,916 per month from John Keeler Real Estate Holding, Inc. (“Keeler Real Estate”), a corporation owned by a trust for each of John Keeler III, Andrea Keeler and Sarah Keeler, each of whom is a child of our Executive Chairman, John Keeler. On December 31, 2020, this facility was sold to an unrelated third-party purchaser and the lease was terminated. In connection with the sale, the Company retained approximately 4,756 square feet of such space, rent-free for the next 12 months. We believe this space will be adequate for our immediate and near-term needs. Coastal Pride leases 1,600 square feet of office space in Beaufort, South Carolina under a lease that expires in 2024. TOBC’s facilities are on land leased to TOBC for approximately $3,100 per month plus taxes from Steve and Janet Atkinson, the former TOBC owners that expires December 2021.

 

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.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The various sections of this discussion contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this prospectus as well as other matters over which we have no control. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.

 

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. The crab meat which we import is processed in 13 plants 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.

 

 

COVID-19

 

The current COVID-19 pandemic has adversely affected our business operations, including disruptions and restrictions on our ability to travel or to distribute our seafood products, as well as temporary closures of our facilities. Any such disruption or delay may impact our sales and operating results. In addition, COVID-19 has resulted in a widespread health crisis that adversely affected the economies and financial markets of many other countries. As a result of COVID-19, the Company has experienced a significant decrease in revenue for the year ended December 31, 2020 and continues to have losses in the three months ended March 31, 2021 although such losses have decreased in comparison to the three months ended March 31, 2020.

 

As a result of the business interruption experienced to date, management has taken steps to reduce expenses across all areas of its operations, including payroll, marketing, sales and warehousing expenses. The extent to which we are affected by COVID-19 will largely depend on future developments and restrictions which may disrupt interactions with customers, suppliers, staff and advisors which cannot be accurately predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and the impact on the global economy, our customers’ demand for our products, and our ability to provide our products. We continue to monitor the effects of the pandemic on our business.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

-	have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
-	comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
-	submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
-	disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our shares of common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

 

Recent Developments

 

Board of Directors

 

On March 29, 2021, the board of directors increased the size of the Company’s Board from two to five members and appointed Jeffrey J. Guzy, Timothy McLellan and Trond Ringstad as directors, effective April 12, 2021, to fill the vacancies created by such increase.

 

Taste of BC Aquafarms

 

On June 24, 2021, the Company consummated the Acquisition of TOBC, a land-based recirculating aquaculture systems (RAS) salmon farming operation, based in Nanaimo, British Columbia, Canada. As a result of the Acquisition, Taste of BC became a wholly owned subsidiary of the Company.

 

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 audited financial statements and related notes elsewhere in prospectus.

 

Results of Operations

 

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

 

The selected historical financial information presented below is derived from our audited consolidated financial statements for the years ended December 31, 2020 and 2019.

 

Net Sales. Revenue for the twelve months ended December 31, 2020 decreased 40.8% to $14,111,368 as compared to $23,829,463 for the twelve months ended December 31, 2019 as a result of a decrease in poundage sold due to the impact of the COVID-19 pandemic during the twelve months ended December 31, 2020, primarily affecting the first half of 2020.

 

Cost of Goods Sold. Cost of goods sold for the twelve months ended December 31, 2020 decreased to $12,623,576 as compared to $20,610,000 for the twelve months ended December 31, 2019. The decrease is primarily attributable to the revenue decline.

 

Gross Profit. Gross profit for the twelve months ended December 31, 2020 decreased to $1,487,792 as compared to gross profit of $3,219,463 for the twelve months ended December 31, 2019. This decrease is attributable to a reduction in poundage sold due to the COVID-19 pandemic, the reduction in the average selling price of the Company’s product, while the Company’s inventory cost of product sold during the period did not fully reflect the drop in value of the commodity.

 

Gross Profit Margin. Gross profit margin for the twelve months ended December 31, 2020 decreased to 10.5% as compared to 13.5% for the twelve months ended December 31, 2019. This reduction is attributable to revenue and the gross profit decline.

 

Commissions Expenses. Commissions expenses decreased from $106,671 for the twelve months ended December 31, 2019 to $96,594 for the twelve months ended December 31, 2020. The decrease is attributable to lower commissionable revenues.

 

Salaries and Wages Expense. Salaries and wages decreased to $1,286,879 for the twelve months ended December 31, 2020 as compared to $3,897,541 for the twelve months ended December 31, 2019. This decrease is primarily attributable to the strategic reduction in salaries and stock-based compensation for the twelve months ended December 31, 2020.

 

Depreciation and Amortization. Depreciation and amortization expense increased to $268,341 for the twelve months ended December 31, 2020 as compared to $215,089 for the twelve months ended December 31, 2019. The increase is attributable to purchases of fixed assets and corresponding depreciation recognized during the twelve months ended December 31, 2020.

 

 

Other Operating Expense. Other operating expenses decreased 44.5% to $1,639,484 for the twelve months ended December 31, 2020 as compared to $2,953,069 for the twelve months ended December 31, 2019. The decrease is attributable the Company’s overhead reduction efforts in all fixed expenses related to its operations.

 

Other Income. Other income increased to $891,667 for the twelve months ended December 31, 2020 from $0 for the twelve months ended December 31, 2019. This increase is primarily attributable to the payroll protection program loan forgiveness obtained from US Century Bank, sale of equipment and tariff and prepaid tax reimbursements.

 

Forbearance Fee Expense (Non-Cash). Forbearance fee expense increased to $2,655,292 for the twelve months ended December 31, 2020 from $0 for the twelve months ended December 31, 2019, which represents a one-time, non-cash expense related to the issuance of common stock as a forbearance fee.

 

Interest Expense. Interest expense decreased to $870,303 for the twelve months ended December 31, 2020 as compared to $1,068,796 for the twelve months ended December 31, 2019. This decrease is attributable to a decrease in the aggregate principal amount of loans outstanding to $8,158,106 as of December 31, 2020 from $11,510,968 as of December 31, 2019.

 

Net Loss. The Company had a net loss of $4,437,434 for the twelve months ended December 31, 2020 as compared to the net loss of $5,021,703 for the twelve months ended December 31, 2019. The decrease in net loss is primarily attributable to reduction in salaries and wages, interest and other operating expenses. Net loss as of December 31, 2020 includes a non-cash expense related to a forbearance fee of $2,655,292 and not considering this expense, net loss would have decreased to $1,782,142 for the twelve months ended December 31, 2020.

 

Cash Provided by Operating Activities. Cash provided by operating activities during the twelve months ended December 31, 2020 was $4,575,575 as compared to cash provided of $1,577,164 for the twelve months ended December 31, 2019, representing an increase of $2,998,411. The increase is primarily attributable to a decrease in the net loss of $584,269 for the twelve months ended December 31, 2020. Cash generated from Accounts Receivable for the twelve months ended December 31, 2020 decreased $1,574,929 as compared to the twelve months ended December 31, 2019, while cash generated from Inventory increased $4,219,232 for the twelve months ended December 31, 2020 as compared to the twelve months ended December 31, 2019. Cash used in Accounts Payable activities increased $1,415,648 for the twelve months ended December 31, 2020 as compared to the twelve months ended December 31, 2019. The Company used $14,049 for the twelve months ended December 31, 2020 in advances from Bacolod as compared to usage of $146,316 for the twelve months ended December 31, 2019.

 

Cash Provided by (Used in) Investing Activities. Cash provided by investing activities for the twelve months ended December 31, 2020 was $343,237 as compared to $269,705 cash used in investing activities for the twelve months ended December 31, 2019. The Company received $407,198 in cash proceeds from the sale of equipment for the twelve months ended December 31, 2020.

 

Cash Used in Financing Activities. Cash used in financing activities for the twelve months ended December 31, 2020 was $4,800,635 as compared to cash used in financing activities of $1,509,014 for the twelve months ended December 31, 2019. The primary use of cash was a reduction in the outstanding line of credit with ACF of $5,112,061 for the twelve months ended December 31, 2020, as compared to a decrease of $1,347,648 for the twelve months ended December 31, 2019.

 

Three Months ended March 31, 2021 Compared to Three Months Ended March 31, 2020

 

The selected historical financial information presented below is derived from our unaudited consolidated financial statements for the three months ended March 31, 2021 and 2020.

 

Net Revenue. Revenue for the three months ended March 31, 2021 decreased 45.6% to $2,485,891 as compared to $4,571,614 for the three months ended March 31, 2020 as a result of a decrease in poundage sold due to the impact of the COVID-19 pandemic.

 

 

Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2021 decreased to $2,183,112 as compared to $4,148,398 for the three months ended March 31, 2020. The decrease is attributable to the revenue decline.

 

Gross Profit. Gross profit margin for the three months ended March 31, 2021 decreased to $302,779 as compared to $423,216 for the three months ended March 31, 2020. This decrease is directly attributable to a reduction in overall revenue due to the COVID-19 pandemic.

 

Commissions Expense. Commissions expense decreased to $4,794 for the three months ended March 31, 2021 from $66,829 for the three months ended March 31, 2020. This decrease is due to the lower commissionable revenues.

 

Salaries and Wages Expense. Salaries and wages expense decreased to $380,596 for the three months ended March 31, 2021 as compared to $409,181 for the three months ended March 31, 2020. This decrease is mainly attributable to the strategic reduction in salaries and stock-based compensation for the three months ended March 31, 2021.

 

Depreciation and Amortization. Depreciation and amortization expense decreased to $44,079 for the three months ended March 31, 2021 as compared to $77,765 for the three months ended March 31, 2020. The decrease is attributable to lower fixed assets and lower corresponding depreciation recognized during the three months ended March 31, 2021.

 

Other Operating Expense. Other operating expense decreased by 28.9% to $317,398 for the three months ended March 31, 2021 from $446,433 for the three months ended March 31, 2020. The decrease is attributable the Company’s overhead reduction efforts in all fixed expenses related to its operations to adjust for the reduction in sales due to COVID.

 

Other Income. Other income increased for the three months ended March 31, 2021 to $76,518 from $0 for the three months ended March 31, 2020. This increase is mainly attributable to the working capital line of credit loan commitment settlement with ACF.

 

Interest Expense. Interest expense decreased to $110,534 for the three months ended March 31, 2021 from $276,655 for the three months ended March 31, 2020. The decrease is attributable to a decrease in loans outstanding to $4,134,444 for the three months ended March 31, 2021 from $9,582,010 for the three months ended March 31, 2020.

 

Net Loss. The Company had net loss of $478,104 for the three months ended March 31, 2021 as compared to $853,647 for the three months ended March 31, 2020. The decrease in net loss is primarily attributable to reductions of salaries and wages, interest and other expenses.

 

Liquidity and Capital Resources

 

The Company had cash of $146,636 as of March 31, 2021, of which $42,003 was restricted cash. At March 31, 2021, the Company had a working capital deficit of $2,581,653 including $1,299,712 in stockholder loans that are subordinated to its working capital line of credit, and the Company’s primary sources of liquidity consisted of inventory of $605,649 and accounts receivable of $718,163.

 

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.

 

The COVID-19 pandemic has caused significant disruptions to the global financial markets. The full impact of the COVID-19 outbreak continues to evolve, is highly uncertain and subject to change. The Company is not able to estimate the possible continuing effects of the COVID-19 outbreak on its operations or financial condition for the next 12 months.

 

Cash Provided by Operating Activities. Cash provided by operating activities during the three months ended March 31, 2021 was $462,624 as compared to cash provided by operating activities of $1,857,853 for the three months ended March 31, 2020. The decrease is primarily attributable to reductions in inventory of $1,869,218, other current assets of $68,930 and payables of $42,830 for the three months ended March 31, 2021.

 

 

 

Cash Utilized in Investing Activities. Cash used for investing activities for the three months ended March 31, 2021 was $0 as compared to $13,230 used for investing activities for the three months ended March 31, 2020. The decrease was attributable to no purchase of fixed assets in the three months ended March 31, 2021.

 

Cash Utilized in Financing Activities. Cash utilized in financing activities for the three months ended March 31, 2021 was $653,675 as compared to cash utilized in financing activities of $1,998,594 for the three months ended March 31, 2020. Reduction of the Company’s revolving working capital line of credit of $1,025,619 was partially offset by the proceeds from the PPP loan of $371,944 for the three months ended March 31, 2021, compared to loan payment and loan costs paid on the working capital line of credit of $1,998,594 for the three months ended March 31, 2020.

 

Working Capital Line of Credit

 

Keeler & Co. entered into a $14,000,000 revolving line of credit with 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 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 and was secured by all of the assets of Keeler & Co. and Coastal Pride. The interest rate under the line of credit was equal to the greater of (i) the 3-month LIBOR rate plus 9.25%, (ii) the prime rate plus 6.0%, and (iii) a fixed rate of 6.5%. As of December 31, 2020, the interest rate was 12.48%.

 

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 of the Lighthouse revolving line of credit 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 March 31, 2021 amounted to $780,288.

 

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, 2021 and December 31, 2020, approximately $1,299,000 of principal remains outstanding and approximately $19,600 and $174,000 of interest was paid under the notes, respectively. These notes are subordinated to the Lighthouse note. 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 10 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.

 

 

Kenar Note

 

On March 26, 2019, the Company issued a four-month promissory note in the principal amount of $1,000,000 (the “Kenar Note”) to Kenar Overseas Corp., a company registered in Panama (“Kenar”). The note bears interest at the rate of 18% per annum during the initial four months which rate will increase to 24% during any extension thereof. The note may be prepaid in whole or in part without penalty. John Keeler, the Company’s Chief Executive Officer and Executive Chairman pledged 5,000,000 shares of common stock to secure the Company’s obligations under the note. The Kenar Note matured on July 26, 2019 and was extended on a month-to-month basis and on November 19, 2019, the Kenar Note was extended to March 31, 2020 on the same terms and conditions.

 

On May 21, 2020, the Kenar Note was amended to (i) extend the maturity date to March 31, 2021, (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) reduce the number of pledged shares by Mr. Keeler to 4,000,000. As consideration therefor, the Company issued 1,021,266 shares of Common Stock to Kenar on May 27, 2020. The outstanding principal amount of the Kenar Note at March 31, 2021 and December 31, 2020 was $872,500. On April 28, 2021, the Kenar Note was further amended to extend the maturity date to May 31, 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 the 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 of 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 accrued interest at the rate of 15% per annum and matured on March 31, 2020. On April 1, 2020, the Company paid off the November 15, 2019 Lobo Note with the issuance to Lobo of a six-month unsecured promissory note in the principal amount of $100,000, which accrued interest at the rate of 10% per annum 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 bears interest at the rate of 10% per annum 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 matured on June 30, 2021. On July 1, 2021, the Company issued to Lobo an unsecured promissory note in the principal amount of $100,000 which accrued interest at the rate of 10% per annum and matures on September 30, 2021.

 

Paycheck 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.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Valuation of Goodwill and Other Intangible Assets

 

 

Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with an acquisition. Other intangible assets include customer relationships, non-compete agreements, and trademarks. For goodwill, our policy is to assess for impairment at year-end. For other intangible assets with definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable.

 

Annually, we assess the recoverability of goodwill and indefinite-lived intangibles by determining whether the fair values exceed the carrying values of these assets. Our testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed.

 

When using a quantitative test, we arrive at our estimates of fair value using a discounted cash flow analysis. Our assessment for impairment of goodwill and definitive-lived intangible assets compared the fair value of the reporting unit to the corresponding carrying value. If the carrying value of the asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Based on our year-end 2020 annual impairment analysis for goodwill and intangibles assets, we concluded that it is more likely than not that the fair value of goodwill and intangible assets exceeded its carrying value. No impairment was recorded for goodwill and intangible assets.

 

The fair value conclusions as of December 31, 2020 are highly sensitive to changes in the assumptions used in the income approach, which include forecasted revenues, perpetual growth rates, among others, all of which require significant judgments by management.

 

Fair value of the reporting unit is therefore determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The Company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the forecasted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives. The impact of the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in goodwill impairments going forward.

 

Variable Interest Entity

 

Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation, when a reporting entity is the primary beneficiary of an entity that is a variable interest entity (“VIE”), as defined in ASC 810, the VIE must be consolidated into the financial statements of the reporting entity. The determination of which owner is the primary beneficiary of a VIE requires management to make significant estimates and judgments about the rights, obligations, and economic interests of each interest holder in the VIE.

 

The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike the Gold Foods, Ltd. (“Strike”), a related party entity which holds the Company’s inventory on consignment in United Kingdom (see Note 3). The Company evaluated its interest in Strike and determined that Strike is a VIE due to the Company’s implicit interest in Strike and the fact that Strike and the Company were under common control after the transfer of the controlling interest. Moreover, the Company determined that it is the primary beneficiary of Strike due to the fact that the Company had both the power to direct the activities that most significantly impact Strike and the obligation to absorb losses or the right to receive benefits from Strike. Therefore, the Company consolidated Strike in its financial statements as of April 1, 2014, the effective date of the controlling interest transfer.

 

 

During the third quarter of 2020, the Company determined that Strike was no longer a VIE because there was a verbal agreement with Strike that terminated the original agreement to hold the inventory on consignment and Strike has not engaged in transactions with the Company or its subsidiaries in 2020.

 

The Company also evaluated its interest in three related party entities that are under common control with the Company, Bacolod, Bicol Blue Star Export Co. (“Bicol”) and John Keeler Real Estate Holding (“JK Real Estate”), in light of ASC 810. The Company purchased inventory from Bacolod, an exporter of pasteurized crab meat out of the Philippines. The Company purchased inventory, via Bacolod, from Bicol. The Company leased its office and warehouse facility from JK Real Estate, a landlord that is a related party through common family beneficial ownership until December 31, 2020.

 

The Company determined that Bacolod and Bicol are not VIE’s as they do not meet the criteria to be considered a VIE per ASC 810. The Company does not directly or indirectly absorb any variability of Bacolod or Bicol. The relationship between the Company and Bacolod and Bicol is strictly a supplier/customer relationship. Moreover, Bacolod and Bicol have other customers besides the Company which will allow them to sustain their operations from selling their inventory to their other customers. As the Company concluded that Bacolod and Bicol are not VIE’s and the Company is not deemed their primary beneficiary, Bacolod or Bicol is not consolidated with the Company’s financial statements.

 

The Company no longer leases its office and warehouse facility from JK Real Estate and no longer guarantees the mortgage on the facility. On December 31, 2020, this facility was sold to an unrelated third-party purchaser and the lease was terminated.

 

Inventories

 

Substantially all of the Company’s inventory consists of packaged crab meat located at the Company’s warehouse facility as well as public cold storage facilities and merchandise in transit from suppliers. The cost of inventory is primarily determined using the specific identification method. Inventory is valued at the lower of cost or net realizable value, cost being determined using the first-in, first-out method.

 

Merchandise is purchased cost and freight shipping point and becomes the Company’s asset and liability upon leaving the suppliers’ warehouse. The Company had in-transit inventory of approximately $522,000 and $1,958,000 as of December 31, 2020 and December 31, 2019, respectively.

 

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 market based on its assessment of market conditions, inventory turnover and current stock levels. Inventory write-downs are charged to cost of goods sold. The Company recorded an inventory allowance of approximately $71,400 for the year ended December 31, 2020 as compared to $40,800 for the year ended December 31, 2019.

 

Advances to Suppliers and Related Party

 

In the normal course of business, the Company may advance payments to its suppliers, including Bacolod, a related party. 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 December 31, 2020, and December 31, 2019, the balance due from Bacolod for future shipments was approximately $1,300,000 and $1,286,000, respectively. No new purchases have been made from Bacolod since November 2020. Cost of revenue related to inventories purchased from Bacolod represented approximately $1,280,000 and $9,531,000 of total cost of revenue for the twelve months ended December 31, 2020 and 2019, respectively.

 

 

As of March 31, 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 three months ended March 31, 2021. Cost of revenue related to inventories purchased from Bacolod represented approximately $170 and $291,000 of total cost of revenue for the three months ended March 31, 2021 and 2020, respectively.

 

Revenue Recognition

 

Effective with the January 1, 2018 adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” and the associated ASUs (collectively, “Topic 606”), the Company recognizes revenue when its customer obtains control of 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. We sell primarily to food service distributors. We also sell our 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.

 

Leases

 

On January 1, 2019, we adopted Accounting Standards Codification 842 and all the related amendments using the modified retrospective method. We recognized the cumulative effect of initially applying the new lease standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the lease accounting standard in effect for those periods.

 

The new lease standard 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 of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. We did not reassess whether any contracts entered into prior to adoption are leases or contain leases.

 

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 December 31, 2020. Our leases generally have terms that range from three years for equipment and six to seven 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 leases. 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.

 

		December 31, 2020
Assets
Operating lease assets		$	99,472
Liabilities
Current		$	29,337
Operating lease liabilities
Noncurrent
Operating lease liabilities		$	69,844

 

Supplemental cash flow information related to leases were as follows:

 

		Twelve Months Ended December 31, 2020
Cash used in operating activities:
Operating leases		$	156,582
ROU assets recognized in exchange for lease obligations:
Operating leases		$	28,137

 

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

 

		December 31, 2020
Weighted-average remaining lease term
Operating leases			3.39 years
Weighted-average discount rate
Operating leases			4.3	%

 

Maturities of lease liabilities as of December 31, 2020, were as follows:

 

		Operating Leases
2021			33,552
2022			33,552
2023			26,474
2024			15,060
2025			-
Thereafter			-
Total lease payments			108,638
Less: amount of lease payments representing interest			(9,457	)
Present value of future minimum lease payments		$	99,181
Less: current obligations under leases		$	(29,337	)
Non-current obligations		$	69,844

 

 

The table below presents the lease-related assets and liabilities recorded on the balance sheets.

 

		March 31, 2021
Assets
Operating lease assets		$	92,386
Liabilities
Current		$	29,649
Operating lease liabilities
Noncurrent
Operating lease liabilities		$	62,409

 

Supplemental cash flow information related to leases were as follows:

 

		Three Months Ended March 31, 2021
Cash used in operating activities:
Operating leases		$	7,123
ROU assets recognized in exchange for lease obligations:
Operating leases		$	-

 

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

 

		March 31, 2021
Weighted-average remaining lease term
Operating leases			3.15 years
Weighted-average discount rate
Operating leases			4.3	%

 

Maturities of lease liabilities as of March 31, 2021, were as follows:

 

		Operating Leases
2021 (nine months remaining)			25,164
2022			33,552
2023			26,474
2024			15,060
2025			-
Thereafter			-
Total lease payments			100,250
Less: amount of lease payments representing interest			(8,192	)
Present value of future minimum lease payments		$	92,058
Less: current obligations under leases		$	(29,649	)
Non-current obligations		$	62,409

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation.

 

 

Recently Adopted Accounting Pronouncements

 

ASU 2019-12 Income Taxes (Topic 740)

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosure.

 

ASU 2016-13 Financial Instruments – Credit Losses (Topic 326)

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to use a forward-looking, expected loss model to estimate credit losses. It also requires entities to consider additional disclosures related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. ASU 2016-13 was further amended in November 2018 by ASU 2018-19, Codification Improvements to Topic 236, Financial Instrument-Credit Losses. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers excluding smaller reporting companies, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. On October 16, 2019, FASB voted to delay implementation of ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” For all other entities, the amendments are now effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of these amendments to the Company’s financial position and results of operations and currently expect no material impact of the adoption of the amendments on the Company’s consolidated financial statements.

 

MARKET PRICE FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock has been quoted on the OTC pink sheets under the symbol “BSFC” since February 18, 2020. There has been limited trading in our common stock and there can be no assurances that an active trading market will ever develop.

 

Stockholders

 

As of July 28, 2021, there were 121 stockholders of record of our common stock.

 

Dividend Policy

 

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.

 

Lock-up Agreements

 

In connection with the Merger, holders of 15,750,000 shares of common stock were prohibited, subject to certain exceptions, from disposing of or hedging any shares of common stock or securities convertible or exercisable for shares of common stock during an 18 month period for Restricted Holders and 12 month period for Pre-Merger Holders, after the Merger in excess of 50% of all of the common stock held by (or issuable to) them and at a price below $2.20 per share. Thereafter, such Holders may not sell, dispose or otherwise transfer more than one-third of the common stock held by such Holder in any two-month period.

 

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

The following table provides information regarding our equity compensation plans as of December 31, 2020:

 

Equity Compensation Plan Information

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders			3,810,000	(1)		$	2.00				3,660,000
Equity compensation plans not approved by security holders			0				0				0

 

(1)

Represents (i) a 10-year option to purchase 3,120,000 shares of common stock at an exercise price of $2.00 per share granted to Christopher Constable, our former chief financial officer and director (ii) 10-year options to purchase an aggregate of 665,000 shares of common stock at an exercise price of $2.00 per share to certain employees, and (iii) 10-year options to purchase an aggregate of 25,000 shares of common stock at an exercise price of $2.00 per share to certain contractors under the 2018 Plan.

 

MANAGEMENT - DIRECTORS AND EXECUTIVE OFFICERS

 

Executive officers and directors

 

Below are the names of and certain information regarding the Company’s current executive officers and directors:

 

Name		Age		Position		Date Appointed
John Keeler		50		Executive Chairman and Chief Executive Officer		November 8, 2018
Nubar Herian		51		Director		November 8, 2018
Jeffrey J. Guzy		69		Director		April 12, 2021
Timothy McLellan		64		Director		April 12, 2021
Trond Ringstad		53		Director		April 12, 2021
Silvia Alana		37		Chief Financial Officer		May 5, 2021

 

Our directors hold office for three-year terms and until their successors have been elected and qualified. Our officers are elected by the board of directors and serve at the discretion of the board of directors.

 

 

The principal occupation and business experience during the past five years for our executive officers and directors is as follows:

 

Biographies

 

John Keeler has been Executive Chairman of the Board since the effectiveness of the Merger. Mr. Keeler founded John Keeler & Co., d/b/a Blue Star Foods in May 1995 and served as its Executive Chairman of the Board since inception during which time he grew the company to become one of the leading marketers of imported blue swimming crab meat in the United States. Mr. Keeler built sales over the past 20 years to $35+ million annually through 2017. Mr. Keeler oversees procurement as well as operating facilities in the Philippines and Indonesia. Mr. Keeler is an executive committee member of the National Fisheries Institute-Crab Council and a founding member of the Indonesia and Philippines crab meat processors associations. Mr. Keeler received his BS in Economics from Rutgers University in 1995 and attended Harvard Business School executive programs in supply chain management, negotiations and marketing in 2005. Mr. Keeler’s extensive experience in the industry led to the decision to appoint him to the board of directors.

 

Nubar Herian has been a director since the effectiveness of the Merger. Since 2014, Mr. Herian has been the chief executive officer of Monaco Group Holdings, a privately-held company headquartered in Miami, Florida, which owns and operates Monaco Foods, Inc., an importer, exporter and distributor of premium gourmet foods from around the world. Since 1995, Mr. Herian has been the commercial director of Casa de Fruta Caracas, a privately-held company based in Caracas, Venezuela, that focuses on importing foods. Mr. Herian is also the president of Lunar Enterprises, Corp. (“Lunar”), a holding company for his family’s public and private equity investments and real estate holdings. Mr. Herian received his BS in Mechanical Engineering from Florida Atlantic University in 1994 and an Executive M.B.A. from the University of Miami in 2014. Mr. Herian’s experience in the food import industry led to the decision to appoint him to the board of directors.

 

Jeffrey J. Guzy has served as a director of Leatt Corp. (OTC: LEAT), since April 2007 and from October 2007 to August 2010, as its President. Mr. Guzy has served as an independent director and chairman of the audit committee of Capstone Companies, Inc. (OTC: CAPC), a public holding company, since April 2007, as an independent director and chairman of the audit committee of Purebase Corporation (OTC: PUBC), a diversified resource company, since April 2020 and as Chairman of CoJax Oil and Gas Corporation, an early stage oil and gas exploration and production company, since May 2018, and was appointed as its chief executive officer in January 2020. Mr. Guzy has served as an executive manager or consultant for business development, sales, customer service, and management in the telecommunications industry, specifically, with IBM Corp., Sprint International, Bell Atlantic Video Services, Loral CyberStar, and FaciliCom International. Mr. Guzy has also started his own telecommunications company providing Internet services in Western Africa. Mr. Guzy has an MBA in Strategic Planning and Management from The Wharton School of the University of Pennsylvania, an M.S. in Systems Engineering from the University of Pennsylvania, a B.S. in Electrical Engineering from Penn State University, and a Certificate in Theology from Georgetown University. Mr. Guzy’s extensive public company board experience led to the decision to appoint him to the board of directors.

 

Timothy McLellan has more than 35 years of operating experience and has served as a seafood executive in both the U.S. and Asia. Mr. McLellan is currently managing director of Maijialin Consulting Company Ltd. which provides international business development consulting services specific to import/export cold chain supply logistics and foodservice distribution. Prior thereto from April 2009 until February 2019, Mr. McLellan was managing director, business development for Preferred Freezer Services (Shanghai) Co. Ltd, which is owned by the GLP Group, a Singapore-based logistics and industrial infrastructure provider. Between 2019 and 2020, Mr. McLellan served as a private equity operating partner for CITIC Capital Partners (Shanghai) Ltd. Prior to that, from 2009 through 2019, Mr. McLellan served in various executive capacities, including Chairman for SinotransPFS Cold Chain Logistics Company, Ltd., a logistics company. Between 2004 and 2009, Mr. McLellan served as President of Empress International, a division of Thai Union Group). Between 2003 and 2004, he served in a senior manager position with the seafood division of ConAgra Foods. Mr. McLellan’s knowledge and background with regard to seafood operations management led to the decision to appoint him to the board of directors.

 

Trond Ringstad has more than 20 years of operating experience as a seafood executive in both the U.S. and Europe. Since April 2017, Mr. Ringstad has been managing partner of American Sea, LLC, a seafood processing and sales company, and since October 2013, Mr. Ringstad has been an independent consultant for AGR Partners. Between 2003 and 2007, Mr. Ringstad served as president of Pacific Supreme Seafoods, a global importing and wholesaling seafood company. Between 2001 and 2003, he served as vice president of sales and marketing for Royal Supreme Seafoods, a Norwegian / Chinese seafood importer and sales company. Mr. Ringstad graduated from the BI Norwegian Business School with a Degree in International Marketing and has a BA in Business Management from Washington State University. Mr. Ringstad’s knowledge and background with regard to seafood operations management led to the decision to appoint him to the board of directors.

 

 

Silvia Alana has been corporate controller of the Company since August 2020. Prior thereto, Ms. Alana was Global Technical Accounting Manager at Brightstar Corporation from April 2018 to July 2020 and Audit Manager at Crowe Horwath, LLP from July 2016 to April 2018. Ms. Alana was a Senior Accountant in Global Accounting and Reporting Services at Carnival Corporation & Plc., from May 2013 to February 2015, and an Auditor in Assurance at Pricewaterhouse Coopers, LLP, from January 2010 to May 2013. Ms. Alana graduated from Florida International University with a Bachelor degree in Accounting in 2008 and a Master of Accounting in 2009. Ms. Alana is a Certified Public Accountant.

 

Committees

 

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

 

Audit Committee. Our audit committee consists of Jeffrey Guzy, Trond Ringstad and Timothy McLellan. Mr. Guzy is the chairman of the audit committee. We have determined that Messrs. Guzy, Ringstad and McLellan each satisfy the “independence” requirements of Nasdaq Listing Rule 5605(a)(2) and meets the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Mr. Guzy qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: (a) representing and assisting the Board in its oversight responsibilities regarding the Company’s accounting and financial reporting processes, the audits of the Company’s financial statements, including the integrity of the financial statements, and the independent auditors’ qualifications and independence; (b) overseeing the preparation of the report required by SEC rules for inclusion in the Company’s annual proxy statement; (c) retaining and terminating the Company’s independent auditors; (d) approving in advance all audit and permissible non-audit services to be performed by the independent auditors; and (e) approving related person transactions.

 

Compensation Committee. Our compensation committee consists of Jeffrey Guzy, Trond Ringstad and Timothy McLellan. Mr. Guzy is the chairman of our compensation committee. We have determined that Messrs. Guzy, Ringstad and McLellan each are “independent,” as such term is defined for directors and compensation committee members in the listing standards of the NASDAQ Stock Market LLC. Additionally, each qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code. The Committee has been established to: (a) assist the Board in seeing that a proper system of long-term and short-term compensation is in place to provide performance oriented incentives to attract and retain management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the Company; (b) assist the Board in discharging its responsibilities relating to compensation of the Company’s executive officers; (c) evaluate the Company’s Chief Executive Officer and set his or her remuneration package; and (d) make recommendations to the Board with respect to incentive compensation plans and equity-based plans.

 

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Jeffrey Guzy, Trond Ringstad and Timothy McLellan. Mr. Guzy is the chairman of our nominating and corporate governance. We have determined that each of Messrs. Guzy, Ringstad and McLellan qualify as “independent” as that term is defined by Nasdaq Listing Rule 5605(a)(2). The Committee is responsible for: (a) assisting the Board in determining the desired experience, mix of skills and other qualities to provide for appropriate Board composition, taking into account the current Board members and the specific needs of the Company and the Board; (b) identifying qualified individuals meeting those criteria to serve on the Board; (c) proposing to the Board the Company’s slate of director nominees for election by the shareholders at the Annual Meeting of Shareholders and nominees to fill vacancies and newly created directorships; (d) reviewing candidates recommended by shareholders for election to the Board and shareholder proposals submitted for inclusion in the Company’s proxy materials; (e) advising the Board regarding the size and composition of the Board and its committees; (f) proposing to the Board directors to serve as chairpersons and members on committees of the Board; (g) coordinating matters among committees of the Board; (h) proposing to the Board the slate of corporate officers of the Company and reviewing the succession plans for the executive officers; (i) recommending to the Board and monitoring matters with respect to governance of the Company; and (j) overseeing the Company’s compliance program.

 

 

Role of Board in Risk Oversight Process

 

Risk assessment and oversight are an integral part of our governance and management processes. Our Board of Directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts strategic planning and review sessions during the year that include a discussion and analysis of the risks facing us.

 

Director Independence

 

Our board of directors currently consists of five members. We are not currently subject to listing requirements of any national securities exchange that has requirements that a majority of the board of directors be “independent.”

 

Board Diversity

 

The board of directors’ reviews, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:

 

	●	personal and professional integrity;
	●	ethics and values;
	●	experience in the industries in which we compete;
	●	experience as a director or executive officer of another publicly held company;
	●	diversity of expertise and experience in substantive matters pertaining to our business relative to other board members;
	●	conflicts of interest; and
	●	practical business judgment.

 

The board of directors reviews on an annual basis the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:

 

	●	personal and professional integrity;
	●	ethics and values;
	●	experience in the industries in which we compete;
	●	experience as a director or executive officer of another publicly held company;
	●	diversity of expertise and experience in substantive matters pertaining to our business relative to other board members;
	●	conflicts of interest; and
	●	practical business judgment.

 

 

The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the size of the Company and its stage of development, the entire Board is involved in such decision-making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.

 

Family relationships

 

There are no family relationships among any of our officers or directors.

 

Involvement in legal proceedings

 

There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.

 

EXECUTIVE COMPENSATION

 

The table below sets forth certain information about the compensation awarded to, earned by or paid to our Chief Executive Officer (the “Named Executive Officer”). No other executive officer received annual remuneration in excess of $100,000 during 2020.

 

Summary Compensation Table

 

Name and Principal Position		Fiscal Year				Salary ($)				Bonus ($)				Other Annual Compensation ($)				Total ($)
John Keeler			2020				82,805				-				20,169	(1)			104,974
Executive Chairman and Chief Executive Officer			2019				104,595				-				48,266	(1)			152,861

 

(1)

Represents health insurance premiums paid on behalf of the executive officer by the Company.

 

Our executive officer has basic health benefits that are generally available to all of our employees.

 

We offer a 401(k) plan to eligible employees, including our executive officers. In accordance with this plan, all eligible employees may contribute a percentage of compensation up to a maximum of the statutory limits per year. We intend for the 401(k) plan to qualify, depending on the employee’s election, under Section 401(a) of the Code, so that contributions by employees, and income earned on those contributions, are not taxable to employees until withdrawn from the 401(k) plan.

 

Outstanding Equity Awards

 

There were no equity awards made to the Named Executive Officer outstanding as of December 31, 2020.

 

2018 Equity Incentive Plan

 

We have adopted the 2018 Plan that provides for the grant of up to 7,500,000 shares of common stock. Under the 2018 Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Code and non-qualified stock options. The 2018 Plan is administered by our board of directors. In connection with the Merger, we issued options to purchase an aggregate of 6,240,000 million shares of common stock to certain executive officers and directors.

 

 

Share Reserve. 7,500,000 shares of common stock are reserved for issuance under the 2018 Plan pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights(“SARs”), restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalent awards, stock payment awards, performance awards and other stock-based awards.

 

● to the extent that an award terminates, expires or lapses for any reason or an award is settled in cash without the delivery of shares, any shares subject to the award at such time will be available for future grants under the 2018 Plan;

 

● to the extent shares are tendered or withheld to satisfy the grant, exercise price or tax withholding obligation with respect to any award under the 2018 Plan, such tendered or withheld shares will be available for future grants under the 2018 Plan;

 

● to the extent that shares of common stock are repurchased by us prior to vesting so that shares are returned to us, such shares will be available for future grants under the 2018 Plan;

 

● the payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2018 Plan; and

 

● to the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries will not be counted against the shares available for issuance under the 2018 Plan.

 

Administration. The compensation committee is expected to administer the 2018 Plan unless our board of directors assumes authority for administration. The compensation committee must consist of at least three members of our board of directors, each of whom is intended to qualify as an “outside director,” within the meaning of Section 162(m) of the Code, a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act and an “independent director” within the meaning of the NASDAQ rules. The 2018 Plan provides that the board of directors or compensation committee may delegate its authority to grant awards to employees other than executive officers to a committee consisting of one or more members of our board of directors or one or more of our officers, other than awards made to our non-employee directors, which must be approved by our full board of directors.

 

Subject to the terms and conditions of the 2018 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2018 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2018 Plan. Our board of directors may at any time remove the compensation committee as the administrator and revest in itself the authority to administer the 2018 Plan. The full board of directors will administer the 2018 Plan with respect to awards to non-employee directors.

 

Eligibility. Options, SARs, restricted stock and all other stock-based and cash-based awards under the 2018 Plan may be granted to individuals who are then our officers, employees or consultants or are the officers, employees or consultants of subsidiaries. Such awards also may be granted to our directors. Only employees of the Company or certain subsidiaries may be granted ISOs.

 

Awards. The 2018 Plan provides that the administrator may grant or issue stock options, SARs, restricted stock awards, restricted stock unit awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, performance awards, stock payment awards and other stock-based and cash-based awards, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.

 

 

Nonstatutory Stock Options (“NSOs”) will provide for the right to purchase shares of common stock at a specified price that may not be less than the fair market value of a share of common stock on the date of grant, and usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed 10 years.

 

Incentive Stock Options (“ISOs”) will be designed in a manner intended to comply with the provisions of Section 422 of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of our Common Stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of 10 years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of our capital stock, the 2018 Plan provides that the exercise price must be at least 110% of the fair market value of a share of our Common Stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant.

 

Restricted Stock Awards may be granted to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by us at the original purchase price if the conditions or restrictions on vesting are not met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options, will have voting rights and will have the right to receive dividends, if any, prior to the time when the restrictions lapse; however, extraordinary dividends will generally be placed in escrow, and will not be released until restrictions are removed or expire.

 

Restricted Stock Unit Awards may be awarded to any eligible individual, typically without payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Like restricted stock, restricted stock units may not be sold, or otherwise transferred or hypothecated, until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied.

 

Deferred Stock Awards represent the right to receive shares of common stock on a future date. Deferred stock may not be sold or otherwise hypothecated or transferred until issued. Deferred stock will not be issued until the deferred stock award has vested, and recipients of deferred stock generally will have no voting or dividend rights prior to the time when the vesting conditions are satisfied and the shares are issued. Deferred stock awards generally will be forfeited, and the underlying shares of deferred stock will not be issued, if the applicable vesting conditions and other restrictions are not met.

 

Deferred Stock Units are denominated in unit equivalent of shares of common stock and vest pursuant to a vesting schedule or performance criteria set by the administrator. The common stock underlying deferred stock units will not be issued until the deferred stock units have vested, and recipients of deferred stock units generally will have no voting rights prior to the time when vesting conditions are satisfied.

 

Stock Appreciation Rights (“SARS”), may be granted in connection with stock options or other awards, or separately. SARs granted in connection with stock options or other awards typically will provide for payments to the holder based upon increases in the price of our Common Stock over a set exercise price. The exercise price of any SAR granted under the 2018 Plan must be at least 100% of the fair market value of a share of our Common Stock on the date of grant. Except as required by Section 162(m) of the Code with respect to a SAR intended to qualify as performance-based compensation as described in Section 162(m) of the Code, there are no restrictions specified in the 2018 Plan on the exercise of SARs or the amount of gain realizable therefrom, although restrictions may be imposed by the administrator in the SAR agreements. SARs under the 2018 Plan will be settled in cash or shares of common stock, or in a combination of both, at the election of the administrator.

 

Dividend Equivalent Awards represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the award. Dividend equivalents may be settled in cash or shares and at such times as determined by our compensation committee or board of directors, as applicable.

 

 

Performance Awards may be granted by the administrator on an individual or group basis. Generally, these awards will be based upon specific performance targets and may be paid in cash or in common stock or in a combination of both. Performance awards may include “phantom” stock awards that provide for payments based upon the value of our Common Stock. Performance awards may also include bonuses that may be granted by the administrator on an individual or group basis and that may be payable in cash or in common stock or in a combination of both.

 

Stock Payment Awards may be authorized by the administrator in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation or other arrangement in lieu of all or any part of compensation, including bonuses, that would otherwise be payable in cash to the employee, consultant or non-employee director.

 

Change in Control. In the event of a change in control where the acquirer does not assume or replace awards granted prior to the consummation of such transaction, awards issued under the 2018 Plan will be subject to accelerated vesting such that 100% of such awards will become vested and exercisable or payable, as applicable. Performance awards will vest in accordance with the terms and conditions of the applicable award agreement. In the event that, within the 12 month period immediately following a change in control, a participant’s services with us are terminated by us other than for cause (as defined in the 2018 Plan) or by such participant for good reason (as defined in the 2018 Plan), then the vesting and, if applicable, exercisability of 100% of the then-unvested shares subject to the outstanding equity awards held by such participant under the 2018 Plan will accelerate effective as of the date of such termination. The administrator may also make appropriate adjustments to awards under the 2018 Plan and is authorized to provide for the acceleration, cash-out, termination, assumption, substitution or conversion of such awards in the event of a change in control or certain other unusual or nonrecurring events or transactions. Under the 2018 Plan, a change in control is generally defined as:

 

● the transfer or exchange in a single transaction or series of related transactions by our stockholders of more than 50% of our voting stock to a person or group;

 

● a change in the composition of our board of directors over a two-year period such that the members of the board of directors who were approved by at least two-thirds of the directors who were directors at the beginning of the two-year period or whose election or nomination was so approved cease to constitute a majority of the board of directors;

 

● a merger, consolidation, reorganization or business combination in which we are involved, directly or indirectly, other than a merger, consolidation, reorganization or business combination that results in our outstanding voting securities immediately before the transaction continuing to represent a majority of the voting power of the acquiring company’s outstanding voting securities and after which no person or group beneficially owns 50% or more of the outstanding voting securities of the surviving entity immediately after the transaction; or

 

● stockholder approval of our liquidation or dissolution.

 

Adjustments of Awards. In the event of any stock dividend, stock split, spin-off, recapitalization, distribution of our assets to stockholders (other than normal cash dividends) or any other corporate event affecting the number of outstanding shares of our Common Stock or the share price of our Common Stock other than an “equity restructuring” (as defined below), the administrator may make appropriate, proportionate adjustments to reflect the event giving rise to the need for such adjustments, with respect to:

 

● the aggregate number and type of shares subject to the 2018 Plan;

 

● the number and kind of shares subject to outstanding awards and terms and conditions of outstanding awards (including, without limitation, any applicable performance targets or criteria with respect to such awards); and

 

● the grant or exercise price per share of any outstanding awards under the 2018 Plan.

 

 

In the event of one of the adjustments described above or other corporate transactions, in order to prevent dilution or enlargement of the potential benefits intended to be made available under the 2018 Plan, the administrator has the discretion to make such equitable adjustments and may also:

 

● provide for the termination or replacement of an award in exchange for cash or other property;

 

● provide that any outstanding award cannot vest, be exercised or become payable after such event;

 

● provide that awards may be exercisable, payable or fully vested as to shares of common stock covered thereby; or

 

● provide that an award under the 2018 Plan cannot vest, be exercised or become payable after such event.

 

In the event of an equity restructuring, the administrator will make appropriate, proportionate adjustments to the number and type of securities subject to each outstanding award and the exercise price or grant price thereof, if applicable. In addition, the administrator will make equitable adjustments, as the administrator in its discretion may deem appropriate to reflect such equity restructuring, with respect to the aggregate number and type of shares subject to the 2018 Plan. The adjustments upon an equity restructuring are nondiscretionary and will be final and binding on the affected holders and the Company.

 

For purposes of the 2018 Plan, “equity restructuring” means a nonreciprocal transaction between us and our stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares (or other securities) or the share price of our Common Stock (or other securities) and causes a change in the per share value of the common stock underlying outstanding stock-based awards granted under the 2018 Plan. In the event of a stock split in connection with an offering, the administrator will proportionately adjust (i) the number of shares subject to any outstanding award under the 2018 Plan, (ii) the exercise or grant price of any such awards, if applicable, and (iii) the aggregate number of shares subject to the 2018 Plan.

 

Amendment and Termination. Our board of directors or the compensation committee (with board approval) may terminate, amend or modify the 2018 Plan at any time and from time to time. However, we must generally obtain stockholder approval:

 

● to increase the number of shares available under the 2018 Plan (other than in connection with certain corporate events, as described above);

 

● reduce the price per share of any outstanding option or SAR granted under the 2018 Plan;

 

● cancel any option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares; or

 

● to the extent required by applicable law, rule or regulation (including any NASDAQ rule).

 

Termination. Our board of directors may terminate the 2018 Plan at any time. No ISOs may be granted pursuant to the 2018 Plan after the 10th anniversary of the effective date of the 2018 Plan, and no additional annual share increases to the 2018 Plan’s aggregate share limit will occur from and after such anniversary. Any award that is outstanding on the termination date of the 2018 Plan will remain in force according to the terms of the 2018 Plan and the applicable award agreement.

 

Employment Agreements

 

We do not currently have employment agreements with our officers, other than with Silvia Alana. Ms. Alana is party to a three-year employment agreement, dated August 3, 2020, with the Company for an annual base salary of $127,500, which increased to $140,250 in February 2021. The agreement also provides for the grant on the first anniversary of the agreement of a three-year option to purchase that number of shares equal to 30% of Ms. Alana’s then current salary at the market price of the Company’s common stock. The agreement also includes a non-competition provision for 12 months following employment with the Company.

 

 

Director Compensation

 

As of December 31, 2020, none of the Company’s directors have been compensated for their services as directors of the Company. We reimburse our directors for reasonable expenses incurred in connection with their service as directors.

 

On March 29, 2021, in connection with the appointment of Jeffrey J. Guzy, Timothy McLellan and Trond Ringstad as directors, effective April 12, 2021, the Company entered into one-year director service agreements (each, a “Director Service Agreement”) with each of Messrs. Guzy, McLellan and Ringstad and with each of its two current Board members, Nubar Herian and John Keeler which automatically renew for successive one-year terms.

 

In consideration for their services, each director will be issued $25,000 of shares of the Company’s common stock for each year’s service. The number of shares to be issued will be based on the closing sale price of the Company’s common stock, on the principal market on which it is then traded, on the final trading day of the applicable year. On April 12, 2021, the Company granted each director a four-year option to purchase 100,000 shares of common stock at an exercise price of $2.00 per share, which option vests in twelve equal monthly installments over the course of the first year from the date of grant. Each Director may also receive additional issuances of common stock, on an annual basis, for his services on any committees of the Board. In addition, each director will be reimbursed for all pre-approved out-of-pocket expenses. In the event the director ceases to be a member of the Board prior to the end of any year of service, all unvested stock options will be forfeited. The stock options granted to the directors will be exercisable only on a cash basis.

 

Limitation on Liability and Indemnification Matters

 

Our certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

	●	any breach of the director’s duty of loyalty to us or our stockholders;
	●	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	●	unlawful payments of dividends in violation of the Delaware General Corporation Law; or

 

Our certificate of incorporation and bylaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law and provide for the advancement of expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any director or officer for any liability arising out of his, her or its actions in that capacity.

 

We believe that these provisions in our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers.

 

The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

 

There is no pending litigation or proceeding naming any of our directors, officers or employees as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director, officer or employee.

 

We have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.

 

Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system that has requirements that a majority of the board of directors be “independent.” Our board of directors currently has five members, Jeffrey J. Guzy, Timothy McLellan, Trond Ringstad, John Keeler and Nubar Herian. We believe that all of our directors except Mr. Keeler, who serves as our Executive Chairman, are “independent” within the definition of independence provided in the Marketplace Rules of the NASDAQ Stock Market and the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information relating to the beneficial ownership of our common stock as of July 28, 2021, by:

 

●	each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of Common Stock;
●	each of our directors;
●	our Named Executive Officer; and
●	all current directors and executive officers as a group.

 

The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days through the exercise of any stock option, warrants or other rights. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by such person.

 

The percentage of shares beneficially owned is computed on the basis of 22,987,584 shares of common stock outstanding as of July 28, 2021. Shares of common stock that a person has the right to acquire within 60 days are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address for each beneficial owner listed in the table is c/o Blue Star Foods Corp., 3000 NW 109th Avenue, Miami, Florida 33172.

 

Name and Address of Beneficial Owner		Number of Shares Beneficially Owned				Percentage of Beneficial Ownership
5% or Greater Stockholders
Christopher Constable			3,145,000	(1)			12.0	%
Named Executive Officer and Directors
John Keeler			15,014,907	(2)			65.3	%
Nubar Herian			519,662	(3)			2.2	%
Jeffrey J. Guzy			14,907	(4)			*
Timothy McLellan			14,907	(4)			*
Trond Ringstad			14,907	(4)			*
All current directors and executive officers as a group (6 persons)			15,579,290				67.1	%

 

(1)	Includes (i) 12,500 shares issuable under a Warrant at $2.00 per share and (ii)3,120,000 shares issuable under a stock option.
(2)	15,000,000 of such shares are held with Mr. Keeler’s wife as tenants in the entirety and are subject to the terms of a Lock-Up Agreement, pursuant to which Mr. Keeler may not sell more than one-third of the common stock held by him in any two-month period. Includes 14,907 shares underlying a stock option which are exercisable within 60 days.
(3)	Includes (i) 354,755 shares and 150,000 Warrant Shares held by Lunar, of which Mr. Herian has sole voting and dispositive power, and (ii) 14,907 shares underlying a stock option which is exercisable within 60 days.
(4)	Represent shares underlying a stock option which is exercisable within 60 days.

 

 

Change-in-Control Agreements

 

The Company does not have any change-in-control agreements with any of its executive officers.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND CORPORATE GOVERNANCE

 

Certain Relationships and Related Transactions

 

The following is a description of transactions since January 1, 2019 to which we have been a party, in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest.

 

From January 2006 through May 2017, Keeler & Co issued an aggregate of $2,910,000, 6% demand promissory notes to John Keeler, our Chief Executive Officer, Executive Chairman and a director. We 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 10 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 received. On December 30, 2020, we entered into a debt repayment agreement with Mr. Keeler pursuant to which we issued 796,650 shares of common stock to Maria Angarita, Mr. Keeler’s mother, as designated by Mr. Keeler, as repayment for an aggregate principal amount of $1,593,300 due under four such notes. All interest due on the notes had previously been paid on a monthly basis. The Company remains indebted to Mr. Keeler under the remaining promissory notes in the aggregate principal amount of $1,299,712.

 

John Keeler, our Chief Executive Officer, Executive Chairman and director owns 95% of Bacolod, an exporter of pasteurized crab meat from the Philippines.

 

John Keeler, our Chief Executive Officer, Executive Chairman and director, owns 95% of Bicol, a Philippine company, and an indirect supplier of crab meat via Bacolod to the Company.

 

The Company’s transactions with Bacolod were $1,280,000 and $9,531,000 for the years ended December 31, 2020 and 2019, respectively. There were no transactions between the Company and Bicol for the years ended December 31, 2020 and 2019.

 

John Keeler, our Chief Executive Officer, Executive Chairman and a director owns 80% of Strike the Gold Foods, Ltd., a UK company, which sold the Company’s packaged crab meat in the United Kingdom in 2019.

 

 

Keeler & Co leased approximately 16,800 square feet of office/warehouse space for our executive offices and distribution facility for $16,916 per month from John Keeler Real Estate Inc., a Florida corporation, 33% owned by a trust for each of John Keeler III, Andrea Keeler and Sarah Keeler, each of whom is a child of John Keeler, our Chief Executive Officer. On December 31, 2020, this facility was sold to an unrelated third-party purchaser and the lease was terminated. In connection with the sale, the Company retained approximately 4,756 square feet of such space, rent-free, for the next 12 months.

 

From time to time, the Company may prepay Bacolod for future shipments of product which may represent five to six months of purchases. There was $1,299,984 due as of December 31, 2020 and March 31, 2021 for future shipments from Bacolod.

 

On March 31, 2021, John Keeler, provided a personal guaranty of up to $1,000,000 to Lighthouse in connection with its revolving credit facility.

 

John Keeler pledged 5,000,000 shares of common stock to secure the Company’s obligations under the $1,000,000 Kenar Note issued on March 26, 2019. On May 21, 2020, the Kenar Note was amended to, among other things, reduce the number of pledged shares by Mr. Keeler to 4,000,000. The Kenar Note was paid off and the pledged shares released as of July 6, 2021. Marcos Herian, President of Kenar, is the brother of Nubar Herian, a director of our Company.

 

On March 29, 2019, March 31, 2019, September 24, 2019, January 23, 2020, May 27, 2020, September 29, 2020 and December 31, 2020, we issued 92 shares, 160 shares, 160 shares, 160 shares, 160 shares, 448 shares and 144 shares, respectively, of common stock to a company owned by the stepmother of John Keeler, our Executive Chairman, as a quarterly dividend which accrued on the Series A Stock acquired by such company in connection with the Company Settlement. On June 30, 2021, 16 shares of such Series A Stock were converted into 8,000 shares of common stock.

 

On March 29, 2019, March 31, 2019, September 24, 2019, January 23, 2020, May 27, 2020, September 29, 2020, December 31, 2020 and March 31, 2021, we issued 3,467 shares, 6,000 shares, 6,000 shares, 6,000 shares, 6,000 shares, 16,798 shares, 5,405 shares and 5,085 shares of common stock, respectively to Lunar, as a quarterly dividend which accrues on the Series A Stock acquired in the Offering. Nubar Herian, a director, is the President of and controls Lunar. On June 30, 2021, 600 shares of such Series A Stock were converted into 300,000 shares of common stock.

 

On February 25, 2020, Christopher Constable, the Company’s former Chief Financial Officer and a 5% shareholder, entered into a Separation and Mutual Release Agreement pursuant to which Mr. Constable resigned as Chief Financial Officer, Secretary, Treasurer and a director of the Company. The Agreement contained mutual general releases, a two-year confidentiality provision and provides for Mr. Constable’s outstanding stock options to remain in effect until November 8, 2028.

 

On March 25, 2021, the Company entered into a Director Service Agreement with each of its directors.

 

On June 30, 2021, MO7 Boats LLC, invested $275,000 in the Offering and was issued 137,500 shares of common stock and a Warrant to purchase 137,500 shares of common stock in the Offering. Marcos Herian, managing member of President of MO7 Boats LLC, is the brother of Nubar Herian, a director of our Company.

 

 

On June 30, 2021, Promarine Boats LLC, invested $250,000 in the Offering and was issued 125,000 shares of common stock and a Warrant to purchase 137,500 shares of common stock in the Offering. Marcos Herian, managing member of Promarine Boats LLC, is the brother of Nubar Herian, a director of our Company.

 

On June 30, 2021, R&N Ocean Inc., invested $250,000 in the Offering and was issued 125,000 shares of common stock and a Warrant to purchase 137,500 shares of common stock in the Offering. Marcos Herian, President of Kenar, is the brother of Nubar Herian, a director of our Company.

 

EXPENSES OF ISSUANCE AND DISTRIBUTION

 

The following table sets forth the costs and expenses payable by us in connection with the sale of common stock being registered. All amounts are estimates except for the SEC filing fee.

 

SEC filing fee		$	2,085.38
Legal fees and expenses		$	35,000.00
Accounting fees and expenses		$	3,500.00
Total		$	40,585.38

 

ADDITIONAL INFORMATION

 

We have filed with the SEC this registration statement on Form S-1 under the Securities Act with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes a part of this registration statement, does not contain all of the information in this registration statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, you should refer to this registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to this registration statement. Each of these statements is qualified in all respects by this reference.

 

We are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including this registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing or telephoning us at: Blue Star Foods Corp., 3000 NW 109th Avenue, Miami, Florida 33172 or (305) 836-6858.

 

LEGAL MATTERS

 

The Crone Law Group, P.C. has opined on the validity of the shares being offered hereby.

 

EXPERTS

 

The consolidated financial statements included in this prospectus and in the registration statement for the fiscal years ended December 31, 2020 and December 31, 2019 have been audited by MaloneBailey, LLP, an independent registered public accounting firm and are included in reliance upon their report given upon the authority of said firm as experts in auditing and accounting.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Blue Star Foods Corp

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Blue Star Foods Corp and its subsidiaries (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP
www.malonebailey.com

We have served as the Company’s auditor since 2014.

Houston, Texas

April 15, 2021

 

 

Blue Star Foods Corp.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

 

		2020				2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including VIE $8,725 for 2019)		$	55,644			$	153,904
Restricted cash			282,043				41,906
Accounts receivable, net (including VIE $20,321 for 2019)			1,082,468				2,071,363
Inventory, net (including VIE $95,441 for 2019)			1,832,661				7,984,492
Advances to related party			1,299,984				1,285,935
Other current assets (including VIE $3,679 for 2019)			176,925				242,700
Total Current Assets			4,729,725				11,780,300
RELATED PARTY LONG-TERM RECEIVABLE			455,545				-
FIXED ASSETS, net			20,064				61,908
RIGHT OF USE ASSET			99,472				1,206,931
INTANGIBLE ASSETS, net
Trademarks			788,614				845,278
Customer relationships			1,145,831				1,241,667
Non-compete agreements			29,171				39,167
Total Intangible Assets			1,963,616				2,126,112
GOODWILL			445,395				445,395
OTHER ASSETS			108,088				125,418
TOTAL ASSETS		$	7,821,905			$	15,746,064
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accruals (including VIE $30,649 for 2019)		$	1,607,490			$	3,528,466
Working capital line of credit			1,805,907				6,917,968
Current maturities of lease liabilities			29,337				136,952
Current maturities of related party long-term notes			195,000				100,364
Related party notes payable			972,500				972,500
Related party notes payable - Subordinated			1,299,712				2,910,136
Other current liabilities			1,346,838				-
Total Current Liabilities			7,256,784				14,566,386
LONG -TERM LIABILITY
Long-term lease liability			69,844				1,089,390
Related party long-term notes			515,000				610,000
TOTAL LIABILITIES			7,841,628				16,265,776
STOCKHOLDERS’ DEFICIT
Series A 8% cumulative convertible preferred stock, $0.0001 par value; 10,000 shares authorized, 1,413 shares issued and outstanding as of December 31, 2020 and December 31, 2019			-				-
Common stock, $0.0001 par value, 100,000,000 shares authorized; 19,580,721 shares issued and outstanding as of December 31, 2020, and 17,589,705 shares issued and outstanding as of December 31, 2019			1,958				1,761
Additional paid-in capital			13,488,836				8,789,021
Accumulated deficit			(13,510,517	)			(8,952,466	)
Total Blue Star Foods Corp. Stockholders’ Deficit			(19,723	)			(161,684	)
Non-controlling interest			-				(476,250	)
Accumulated other comprehensive income (VIE)			-				118,222
Total VIE’s Deficit			-				(358,028	)
TOTAL STOCKHOLDERS’ DEFICIT			(19,723	)			(519,712	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	7,821,905			$	15,746,064

 

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

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31,

 

		2020				2019
REVENUE, NET		$	14,111,368			$	23,829,463
COST OF REVENUE			12,623,576				20,610,000
GROSS PROFIT			1,487,792				3,219,463
COMMISSIONS			96,594				106,671
SALARIES AND WAGES			1,286,879				3,897,541
DEPRECIATION AND AMORTIZATION			268,341				215,089
OTHER OPERATING EXPENSES			1,639,484				2,953,069
LOSS FROM OPERATIONS			(1,803,506	)			(3,952,907	)
OTHER INCOME			891,667				-
FORBEARANCE FEE EXPENSE (NON-CASH)			(2,655,292	)			-
INTEREST EXPENSE			(870,303	)			(1,068,796	)
NET LOSS			(4,437,434	)			(5,021,703	)
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST			7,577				(35,417	)
NET LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP.		$	(4,445,011	)		$	(4,986,286	)
DIVIDEND ON PREFERRED STOCK			113,040				113,041
NET LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP COMMON STOCKHOLDERS		$	(4,558,051	)		$	(5,099,327	)
COMPREHENSIVE LOSS:
TRANSLATION ADJUSTMENT ATTRIBUTABLE TO NON-CONTROLLING INTEREST			23,700				50,141
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST		$	31,277			$	14,724
COMPREHENSIVE LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP.		$	(4,445,011	)		$	(4,986,286	)
INCOME TAX EXPENSE			(1,122	)			(4,413	)
NET LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP		$	(4,443,889	)		$	(4,990,699	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP		$	(4,443,889	)		$	(4,990,699	)
Loss per basic and diluted common share:
Basic net loss per common share		$	(0.25	)		$	(0.31	)
Basic weighted average common shares outstanding			18,257,491				16,201,766
Fully diluted net loss per common share		$	(0.25	)		$	(0.31	)
Fully diluted weighted average common shares outstanding			18,257,491				16,201,766

 

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

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

YEARS ENDED DECEMBER 31, 2020

 

		Series A Pref Stock $.0001 par value								Common Stock $.0001 par value								Additional Paid-in				Accumulated				Total Blue Star Foods Corp. Stockholders’				Non- Controlling				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
December 31, 2018			1,413				-				16,023,164				1,603				3,404,774				(3,853,139	)			(446,762	)			(372,752	)			(819,514	)
Common stock issued for cash			-				-				16,000				2				31,998				-				32,000				-				32,000
Cancellation of issued shares for cash			-				-				(5,000	)			(1	)			(9,999	)			-				(10,000	)			-				(10,000	)
Common stock issued for service			-				-				198,521				20				397,022				-				397,042				-				397,042
Common stock incentive issued to employees			-				-				5,500				1				10,999				-				11,000				-				11,000
Common stock issued for Coastal Pride Acquisition			-				-				1,295,000				130				2,589,870				-				2,590,000				-				2,590,000
Stock based compensation			-				-				-				-				2,251,322				-				2,251,322				-				2,251,322
Series A preferred 8% dividend issued in common stock			-				-				56,520				6				113,035				(113,041	)			-				-				-
Net Loss			-				-				-				-				-				(4,986,286	)			(4,986,286	)			(35,417	)			(5,021,703	)
Comprehensive loss			-				-				-				-				-				-				-				50,141				50,141
December 31, 2019			1,413				-				17,589,705				1,761				8,789,021				(8,952,466	)			(161,684	)			(358,028	)			(519,712	)
Stock based compensation			-				-				-				-				139,380				-				139,380				-				139,380
Common stock issued for cash			-				-				5,000				-				10,000				-				10,000				-				10,000
Common stock issued for service			-				-				115,814				12				188,988				-				189,000				-				189,000
Common stock issued to related party lender for forbearance			-				-				1,021,266				100				2,655,192				-				2,655,292				-				2,655,292
Common stock issued to settle related party notes			-				-				796,650				80				1,593,220				-				1,593,300				-				1,593,300
Series A preferred 8% dividend issued in common stock			-				-				52,286				5				113,035				(113,040	)			-				-				-
Net Loss			-				-				-				-				-				(4,445,011	)			(4,445,011	)			7,577				(4,437,434	)
Deconsolidation of Strike the Gold Foods, Ltd.			-				-				-				-				-				-				-				326,751				326,751
Comprehensive loss			-				-				-				-				-				-				-				23,700				23,700
December 31, 2020			1,413				-				19,580,721				1,958				13,488,836				(13,510,517	)			(19,723	)			-				(19,723	)

 

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

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

 

		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(4,437,434	)		$	(5,021,703	)
Adjustments to reconcile net loss to net cash provided in operating activities:
Stock based compensation			139,380				2,262,322
Common stock issued for service			69,000				397,042
Common stock issued for forbearance fee			2,655,292				-
Depreciation of fixed assets			33,367				66,012
Amortization of intangible assets			162,496				20,380
Amortization of loan costs			72,478				128,696
Lease expense			175,699				149,861
Bad debt expense			13,293				-
Allowance for inventory obsolescence			71,487				-
Gain on PPP loan forgiveness			(344,762	)			-
Gain on termination of lease			(38,819	)			-
Gain on sale of equipment			(343,181	)			-
Changes in operating assets and liabilities:
Receivables			942,656				2,517,585
Inventories			6,023,473				1,804,241
Advances to affiliated supplier			(14,049	)			(146,316	)
Other current assets			63,315				(12,930	)
Right of use liability			(156,582	)			(130,450	)
Other assets			14,852				-
Accounts payable and accruals			(1,873,224	)			(457,576	)
Other current liabilities			1,346,838				-
Net Cash Provided by Operating Activities			4,575,575				1,577,164
CASH FLOWS FROM INVESTING ACTIVITIES:
Deconsolidation of variable interest entity			(8,421	)			-
Net cash paid for acquisition			-				(260,667	)
Proceeds from sale of fixed assets			407,198				-
Purchases of fixed assets			(55,540	)			(9,038	)
Net Cash Provided by (Used in) Investing Activities			343,237				(269,705	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock offering			10,000				22,000
Proceeds from working capital line of credit			6,775,660				21,545,968
Proceeds from related party notes payable			-				1,100,000
Proceeds from HSBC loan			43,788				-
Proceeds from PPP loan			344,762				-
Repayments of working capital line of credit			(11,887,721	)			(23,993,616	)
Repayments of related party notes payable			(17,124	)			(127,500	)
Principal payments of long-term debt			-				(30,866	)
Payments of loan costs			(70,000	)			(25,000	)
Net Cash Used in Financing Activities			(4,800,635	)			(1,509,014	)
Effect of Exchange Rate Changes on Cash			23,700				50,141
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			141,877				(151,414	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD			195,810				347,226
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD		$	337,687			$	195,810
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Series A preferred 8% dividend issued in common stock			113,040				113,041
Operating lease assets recognized in exchange for operating lease liabilities			28,137				1,257,751
Shares issued for partial payment of accounts payable			120,000				-
Shares issued for partial payment of notes payable - related party			1,593,300				-
Shares issued for acquisition			-				2,590,000
Related party notes recognized from business acquisition			-				710,000
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	725,693			$	1,068,796

 

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

 

 

Blue Star Foods Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 and 2019

 

Note 1. Company Overview

 

Located in Miami, Florida, Blue Star Foods Corp. (“we”, “our”, the “Company”) is a sustainable seafood company. The Company’s main operating business, John Keeler & Co., Inc. has been in business for approximately twenty-five years. The Company was formed under the laws of the State of Delaware. The current source of revenue is importing blue and red swimming crab meat primarily from Indonesia, the Philippines and China and distributing it in the United States, Canada and Europe under several brand names such as Blue Star, Oceanica, Pacifika, Crab & Go, First Choice, Good Stuff and Coastal Pride Fresh.

 

On November 8, 2018, the sole shareholder of John Keeler & Co., Inc., John Keeler, executed an Agreement and Plan of Merger and Reorganization with Blue Star Foods Corp. (formerly A.G. Acquisition Group II, Inc.) and Blue Star Acquisition Corp. pursuant to which he exchanged his 500 shares, par value $1.00 per share in John Keeler & Co., Inc. for 15,000,000 shares, par value $0.0001 per share of the then outstanding 16,015,000 outstanding shares. As part of the merger, the net liabilities existing in the company as of the date of the merger totaling approximately $2,400 were converted to equity. The prior owners of Blue Star Foods Corp. received 750,000 shares of common stock as part of this transaction, and various service providers received 265,000 shares as compensation for their work on the transaction resulting in an expense and additional paid in capital of $530,001. Additionally, there were 725 Series A Preferred shares and 181,250 warrants issued to private placement offering investors for a total capital contribution of $725,000, 688 Series A Preferred shares and 172,000 warrants issued for settlement with prior investors which had a fair value of $688,000 and $81,353 respectively. Upon the close of the merger, there were 3,120,000 options to purchase common stock issued to Christopher Constable, the Company’s then Chief Financial Officer. Additionally, Carlos Faria, the Company’s then Chief Executive Officer, held options to purchase 104 shares of John Keeler & Co., Inc. prior to the merger. These options were immediately converted at closing to an option to purchase 3,120,000 shares of common stock in the Company.

 

The Merger was accounted for as a “reverse merger” and recapitalization since, immediately following the completion of the transaction, the holders of John Keeler & Co., Inc.’s stock had effective control of Blue Star Foods Corp. In addition, John Keeler & Co., Inc. had control of the combined entity through control of the Board by designating all four of the board seats. Additionally, all of John Keeler & Co., Inc.’s officers and senior executive positions continued as management of the combined entity after consummation of the Merger. For accounting purposes, John Keeler & Co., Inc. was deemed to be the accounting acquirer in the transaction and, consequently, the transaction has been treated as a recapitalization of Blue Star Foods Corp. Accordingly, John Keeler & Co., Inc.’s assets, liabilities and results of operations are the historical financial statements of the registrant, and the John Keeler & Co., Inc.’s assets, liabilities and results of operations have been consolidated with Blue Star Foods Corp effective as of the date of the closing of the Merger. No step-up in basis or intangible assets or goodwill was recorded in this transaction.

 

On November 26, 2019, John Keeler & Co., Inc., a Florida corporation (the “Purchaser”), and 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), and The Walter F. Lubkin, Jr. Irrevocable Trust dated 1/8/03 (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 Pride 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.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, John Keeler & Co, Inc. a wholly owned subsidiary, and Coastal Pride Seafood, LLC (“Coastal Pride”), a wholly owned subsidiary of John Keeler & Co., Inc. All intercompany balances and transactions have been eliminated in consolidation.

 

Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with an acquisition. Other intangible assets include customer relationships, non-compete agreements, and trademarks. The Company reviews its finite-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.

 

Impairments are recorded as impairment charges in the Company’s Consolidated Statements of Operations and Comprehensive Loss, and a reduction of the asset’s carrying value in the Company’s Consolidated Balance Sheets when they occur. In accordance with its policies, the Company performed an assessment of its finite-lived intangibles and goodwill and determined there was no impairment for the years ended December 31, 2020 and 2019.

 

Variable Interest Entity

 

Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation, when a reporting entity is the primary beneficiary of an entity that is a variable interest entity (“VIE”), as defined in ASC 810, the VIE must be consolidated into the financial statements of the reporting entity. The determination of which owner is the primary beneficiary of a VIE requires management to make significant estimates and judgments about the rights, obligations, and economic interests of each interest holder in the VIE.

 

The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike the Gold Foods, Ltd. (“Strike”), a related party entity which holds the Company’s inventory on consignment in United Kingdom (see Note 3). The Company evaluated its interest in Strike and determined that Strike is a VIE due to the Company’s implicit interest in Strike and the fact that Strike and the Company were under common control after the transfer of the controlling interest. Moreover, the Company determined that it is the primary beneficiary of Strike due to the fact that the Company had both the power to direct the activities that most significantly impact Strike and the obligation to absorb losses or the right to receive benefits from Strike. Therefore, the Company consolidated Strike in its financial statements starting as of April 1, 2014, the effective date of the controlling interest transfer.

 

During the third quarter of 2020, the Company determined that Strike was no longer a VIE because there was a verbal agreement with Strike that terminated the original agreement to hold the inventory on consignment and Strike has not engaged in transactions with the Company or its subsidiaries in 2020.

 

 

The Company also evaluated its interest in three related party entities that are under common control with the Company, Bacolod Blue Star Export Corp. (“Bacolod”), Bicol Blue Star Export Co. (“Bicol”) and John Keeler Real Estate Holding (“JK Real Estate”), in light of ASC 810. The Company purchases inventory from Bacolod, an exporter of pasteurized crab meat out of the Philippines. The Company purchased inventory, via Bacolod, from Bicol. The Company leased its office and warehouse facility from JK Real Estate, a landlord that is a related party through common family beneficial ownership until December 31, 2020. (see Note 7)

 

The Company determined that Bacolod and Bicol are not VIE’s as they do not meet the criteria to be considered a VIE per ASC 810. The Company does not directly or indirectly absorb any variability of Bacolod or Bicol. The relationship between the Company and Bacolod and Bicol is strictly a supplier/customer relationship (see Advances to Suppliers and Related Party accounting policy). Moreover, Bacolod and Bicol have other customers besides the Company which will allow them to sustain their operations from selling their inventory to their other customers. As the Company concluded that Bacolod and Bicol are not VIE’s and the Company is not deemed their primary beneficiary, Bacolod or Bicol is not consolidated with the Company’s financial statements.

 

The Company no longer leases its office and warehouse facility from JK Real Estate and no longer guarantees the mortgage on the facility and therefore is no longer considered a VIE. On December 31, 2020, this facility was sold to an unrelated third-party purchaser and the lease was terminated.

 

Cash, Restricted Cash and Cash Equivalents

 

The Company maintains cash balances with financial institutions in excess of Federal Deposit Insurance Company (“FDIC”) insured limits. The Company has not experienced any losses on such accounts and believes it does not have a significant exposure.

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

The Company considers any cash balance in the lender designated cash collateral account as restricted cash. All cash proceeds must be deposited into cash collateral account, and will be cleared and applied to the line of credit. The Company has no access to this account, and the purpose of the funds is restricted to repayment of the line of credit. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statements of cash flows:

 

		December 31, 2020				December 31, 2019
Cash and cash equivalents		$	55,644			$	153,904
Restricted cash			282,043				41,906
Total cash, cash equivalents, and restricted cash shown in the cash flow statement		$	337,687			$	195,810

 

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 doubtful accounts 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 provision for doubtful accounts expense. The Company generally does not charge interest on receivables.

 

 

Receivables are net of estimated allowances for doubtful accounts and sales return and allowances. They are stated at estimated net realizable value. As of December 31, 2020, and 2019, the Company recorded sales return and allowances and refund liability of approximately $62,800 and $59,100, respectively. There was no allowance for bad debt recorded during the years ended December 31, 2020 and 2019.

 

Inventories

 

Substantially all of the Company’s inventory consists of packaged crab meat located at the Company’s warehouse facility as well as public cold storage facilities and merchandise in transit from suppliers. The cost of inventory is primarily determined using the specific identification method. Inventory is valued at the lower of cost or net realizable value, cost being determined using the first-in, first-out method.

 

Merchandise is purchased cost and freight shipping point and becomes the Company’s asset and liability upon leaving the suppliers’ warehouse. The Company had in-transit inventory of approximately $522,000 and $1,958,000 as of December 31, 2020 and December 31, 2019, respectively.

 

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 market based on its assessment of market conditions, inventory turnover and current stock levels. Inventory write-downs are charged to cost of goods sold. The Company recorded an inventory allowance of approximately $71,400 and $40,800 for the years ended December 31, 2020 and December 31, 2019.

 

Advances to Suppliers and Related Party

 

In the normal course of business, the Company may advance payments to its suppliers, inclusive of Bacolod, a related party. 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 December 31, 2020, and 2019, the balance due from the related party for future shipments was approximately $1,300,000 and $1,286,000, respectively. No new purchases have been made from Bacolod since November 2020. Cost of revenue related to inventories purchased from Bacolod represented approximately $1,280,000 and $9,531,000 of total cost of revenue for the twelve months ended December 31, 2020 and 2019, respectively.

 

Fixed Assets

 

Fixed assets are stated at cost less accumulated depreciation and are being depreciated using the straight-line method over the estimated useful life of the asset as follows:

 

Furniture and fixtures		7 to 10 years
Computer equipment		5 years
Warehouse and refrigeration equipment		10 years
Leasehold improvements		7 years
Automobile		5 years
Trade show booth		7 years

 

Leasehold improvements are amortized using the straight-line method over the shorter of the expected life of the improvement or the remaining lease term.

 

The Company capitalizes expenditures for major improvements and additions and expenses those items which do not improve or extend the useful life of the fixed assets.

 

 

The Company reviews fixed assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At December 31, 2020 and 2019, the Company believes the carrying values of its long-lived assets are recoverable and as such, the Company did not record any impairment.

 

Other Comprehensive (loss) Income

 

The Company reports its comprehensive (loss) income in accordance with ASC 220, Comprehensive Income, which establishes standards for reporting and presenting comprehensive (loss) income and its components in a full set of financial statements. Other comprehensive (loss) income consists of net income (loss) and cumulative foreign currency translation adjustments.

 

Foreign Currency Translation

 

The Company’s functional and reporting currency is the U.S. Dollars. The assets and liabilities held by the Company’s previous VIE had a functional currency other than the U.S. Dollar. In the third quarter of 2020, the VIE was assessed as no longer being a VIE. The VIE results were translated into U.S. Dollars at exchange rates in effect at the end of each reporting period. The VIE’s revenue and expenses were translated into U.S. Dollars at the average rates that prevailed during the period. The rates used in the financial statements as presented for December 31, 2020 and 2019 were 1.260 and 1.337 US dollar to UK pound sterling, respectively. The resulting net translation gains and losses are reported as foreign currency translation adjustments in stockholders’ equity as a component of comprehensive (loss) income. The Company recorded foreign currency translation adjustment of approximately $23,700 and $50,100 for the years ended December 31, 2020 and December 31, 2019, respectively.

 

Revenue Recognition

 

Effective with the January 1, 2018 adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” and the associated ASUs (collectively, “Topic 606”), the Company recognizes revenue when its customer obtains control of 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. We sell primarily to food service distributors. We also sell our 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.

 

 

Leases

 

On January 1, 2019, we adopted Accounting Standards Codification 842 and all the related amendments using the modified retrospective method. We recognized the cumulative effect of initially applying the new lease standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the lease accounting standard in effect for those periods.

 

The new lease standard 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 of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. We did not reassess whether any contracts entered into prior to adoption are leases or contain leases.

 

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 December 31, 2020. Our leases generally have terms that range from three years for equipment and six to seven 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 leases. 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.

 

		December 31, 2020
Assets
Operating lease assets		$	99,472
Liabilities
Current		$	29,337
Operating lease liabilities
Noncurrent
Operating lease liabilities		$	69,844

 

Supplemental cash flow information related to leases were as follows:

 

		Twelve Months Ended December 31, 2020
Cash used in operating activities:
Operating leases		$	156,582
ROU assets recognized in exchange for lease obligations:
Operating leases		$	28,137

 

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

 

		December 31, 2020
Weighted-average remaining lease term
Operating leases			3.39 years
Weighted-average discount rate
Operating leases			4.3	%

 

Maturities of lease liabilities as of December 31, 2020, were as follows:

 

		Operating Leases
2021			33,552
2022			33,552
2023			26,474
2024			15,060
2025			-
Thereafter			-
Total lease payments			108,638
Less: amount of lease payments representing interest			(9,457	)
Present value of future minimum lease payments		$	99,181
Less: current obligations under leases		$	(29,337	)
Non-current obligations		$	69,844

 

Advertising

 

The Company expenses the costs of advertising as incurred. Advertising expenses which are included in Other Operating Expenses were approximately $7,200 and $81,700, for the years ended December 31, 2020 and 2019, respectively.

 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Customer Concentration

 

The Company had three customers which accounted for approximately 26% of revenue in the year ended December 31, 2020. The Company had three customers which accounted for 46% of revenue during the years ended December 31, 2019. Outstanding receivables from these customers accounted for approximately 19% of the total accounts receivable as of December 31, 2020 and 2019. The loss of any major customer could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Supplier Concentration

 

The Company had five suppliers which accounted for approximately 65% of the Company’s total purchases during the year ended December 31, 2020. These five suppliers are located in the United States, Indonesia, Sri Lanka, Mexico and the Philippines, which accounted for approximately 93% of the Company’s total purchases during the year. During 2020, the Company purchased inventory from two non-affiliated Indonesian suppliers that made up the balance of 25% of the supply concentration.

 

The Company had two suppliers which accounted for approximately 42% of the Company’s total purchases during the year ended December 31, 2019, and a one-time purchase from a United States based supplier that accounted for approximately 21% of purchases. The two suppliers are located in two countries, Indonesia, and the Philippines, which accounted for approximately 65% of the Company’s total purchases during the year ended December 31, 2019. These suppliers included Bacolod, a related party, which accounted for approximately 27% of the Company’s total purchases during the year ended December 31, 2019.

 

The loss of any major supplier could have a material adverse impact on the Company’s results of operations, cash flows and financial position.

 

Fair Value of Financial Instruments

 

Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, and debt obligations. We believe the carrying values of our financial instruments approximate their fair values because they are short term in nature or payable on demand.

 

Earnings or Loss per Share

 

The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of “basic” and “diluted” earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. As further described in Footnote 6 - Series A Convertible Preferred Stock, as of December 31, 2020 and 2019, 1,413 shares of Preferred Stock could be converted into 706,500 shares of common stock. As further described in Footnote 7 – Options & Warrants, as of December 31, 2020 and 2019, 3,120,000 and 3,280,000 options may be exercised, respectively, and 353,250 warrants are exercisable.

 

As there was a net loss for the years ended December 31, 2020 and December 31, 2019, basic and diluted losses per share each year are the same.

 

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. The Company has elected to adopt ASU 2016-09 and has a policy to account for forfeitures as they occur.

 

The Company accounts for stock-based compensation awards to non-employees in accordance with ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions.

 

Related Parties

 

The Company accounts for related party transactions in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

As of December 31, 2020, and 2019, there was approximately $392,000 and $350,900 in interest paid to related parties notes payable. See Note 6 Debt and Note 4 Consolidation of Variable Interest Entity for further information.

 

Reclassifications

 

Certain amounts in prior year have been reclassified to conform to the current year presentation.

 

Income Taxes

 

Prior to November 8, 2018, the Company was taxed under the provisions of subchapter S of the Internal Revenue Code. Under these provisions, the Company did not pay corporate federal income taxes on its taxable income but was liable for Florida corporate income taxes and Texas Franchise Tax. The shareholder was liable for individual income taxes on the Company’s taxable income. Post-merger, the Company files consolidated federal and state income tax returns.

 

 

Income tax expense is the total of the current year income tax due and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

 

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

 

The Company’s policy is to recognize interest and penalties on uncertain tax positions in “Income tax expense” in the Consolidated Statements of Operations. There were no amounts related to interest and penalties recognized for the years ended December 31, 2020 or 2019.

 

Recently Adopted Accounting Pronouncements

 

ASU 2019-12 Income Taxes (Topic 740)

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosure.

 

 

ASU 2016-13 Financial Instruments – Credit Losses (Topic 326)

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to use a forward-looking, expected loss model to estimate credit losses. It also requires entities to consider additional disclosures related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. ASU 2016-13 was further amended in November 2018 by ASU 2018-19, Codification Improvements to Topic 236, Financial Instrument-Credit Losses. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers excluding smaller reporting companies, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. On October 16, 2019, FASB voted to delay implementation of ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” For all other entities, the amendments are now effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of these amendments to the Company’s financial position and results of operations and currently expect no material impact of the adoption of the amendments on the Company’s consolidated 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. Although the company has positive cash flow from operations for the year ended December 31, 2020, the Company incurred a net loss of $4,437,434, has an accumulated deficit of $13,510,517 and working capital deficit of $2,257,059, inclusive of $1,299,712 in subordinated stockholder debt. 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 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. Consolidation of Variable Interest Entities

 

Effective April 1, 2014, the Company’s stockholder was transferred the controlling interest of Strike the Gold Foods Ltd. (“Strike”), a related party entity based in the United Kingdom. The Company concluded that Strike was a variable interest entity (“VIE”) and the Company was the primary beneficiary of Strike, in accordance with ASC 810, Consolidation. Therefore, the Company consolidated Strike in its financial statements. Strike’s activities were reflected in the Company’s financial statements starting on April 1, 2014, the effective date of the controlling interest transfer. The equity of Strike was classified as non-controlling interest in the Company’s financial statements since the Company is not a shareholder of Strike.

 

In the third quarter of 2020, the Company determined that Strike was no longer a VIE because there was a verbal agreement with Strike that terminated the original agreement to hold Company inventory on consignment and Strike has not engaged in transactions with the Company or its subsidiaries in 2020. In addition, as of July 1, 2020, the Company neither directly or indirectly absorbs any variability of Strike nor holds the power to direct the activities of Strike that most significantly impact its economic performance and Strike was also able to finance its activities without financial support from the Company. The Company deconsolidated Strike on July 1, 2020 and the income and loss for the VIE is recognized in the Company’s income statement through the deconsolidation date. As a result of such deconsolidation, the Company no longer recognizes the carrying value of the noncontrolling interest as a component of total shareholder’s equity resulting in a reduction of $468,673 of noncontrolling interest and $141,922 from accumulated other comprehensive income on its consolidated balance sheet. Further, the Company derecognized approximately $8,421 of effect of exchange rate changes on cash of Strike as of July 1, 2020 which is reflected in its consolidated statement of cash flows for the twelve months ended December 31, 2020. There is no other material impact on the Company’s consolidated balance sheet, consolidated cash flows or consolidated statement of operations resulting from deconsolidation of Strike.

 

 

Pro-forma financials have not been presented because the effects were not material to the Company’s consolidated financial position and results of operations for all periods presented. Strike remains a related party to the Company after deconsolidation and there is a long-term receivable from Strike to the Company for $455,545 as of December 31, 2020. There were no transactions between the Company and Strike since November 2020.

 

The information below represents the assets, liabilities and non-controlling interest related to Strike as of July 1, 2020, the deconsolidation date, and December 31, 2019.

 

		July 1, 2020
Assets		$	100,698
Liabilities			(427,449	)
Non-controlling interest			(468,673	)
Accumulated other comprehensive income			141,922

 

		December 31, 2019
Assets		$	128,166
Liabilities			30,649
Non-controlling interest			(476,250	)

 

Note 5. Fixed Assets, Net

 

Fixed assets comprised the following at December 31:

 

		2020				2019
Computer equipment		$	90,707			$	82,240
Warehouse and refrigeration equipment			-				157,839
Leasehold improvements			4,919				4,919
Total			95,626				244,998
Less: Accumulated depreciation			(75,562	)			(183,090	)
Fixed assets, net		$	20,064			$	61,908

 

For the years ended December 31, 2020 and 2019, depreciation expense totaled approximately $33,200 and $66,000, respectively. On December 2020, our warehouse and refrigeration equipment was sold to an unrelated party for $407,198 and the Company recorded gain on the sale of the equipment of $343,181.

 

Note 6. Debt

 

Working Capital Line of Credit

 

On August 31, 2016, the Company entered into a $14,000,000 revolving line of credit pursuant to a loan and security agreement with ACF Finco I, LP (“ACF”), 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 was secured by all assets of John Keeler & Co., Inc. and 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.

 

Interest on the line of credit was 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 is 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 is collateralized by substantially all the assets and property of the Company and is personally guaranteed by the stockholder of the Company.
	●	The Company is restricted to specified distribution payments, use of funds, and is required to comply with certain other covenants including certain financial ratios.
	●	All cash received by the Company is applied against the outstanding loan balance.
	●	A subjective acceleration clause allows ACF to call the note upon a material adverse change.

 

 

On November 26, 2019, Inc. the Company 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 and 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 year ended December 31, 2020, the Company was 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, the Company entered into an eighth amendment to the loan and security agreement with ACF which acknowledged the execution of a Payroll Protection Program loan and 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 remain unchanged.

 

As of December 31, 2020, the line of credit bears interest rate of 12.48%.

 

As of December 31, 2020, and 2019, the line of credit had an outstanding balance of approximately $1,805,000 and $6,918,000, respectively.

 

The Company amortizes loan costs on a straight-line basis, which approximates the interest method, over the term of the credit facility. The Company added loan costs associated with the working capital lines of credit of approximately $70,000 and $25,000 for the twelve months ended December 31, 2020 and 2019, leaving balances in the asset of $2,992 and $5,470, respectively, net of approximately $585,000 and $513,000 of accumulated amortization as of December 31, 2020 and 2019, respectively. The Company recorded amortization expense of approximately $72,000 and $129,000 during the years ended December 31, 2020 and 2019, respectively.

 

On March 31, 2021, Keeler & Co. and Coastal Pride entered into a loan and security agreement (the “Loan Agreement”) with Lighthouse Financial Corp., a North Carolina corporation (“Lighthouse”) and the loan with ACF was extinguished.

 

John Keeler Promissory Notes - Subordinated

 

The Company had unsecured promissory notes outstanding to its stockholder of approximately $1,299,700 and $2,910,000 as of December 31, 2020 and 2019, respectively. These notes are payable on demand, bear an annual interest rate of 6% and are subordinated to the working capital line of credit. Principal payments were not permitted under the subordination agreement with ACF, that was effective August 31, 2016. During 2020, a principal payment of approximately $17,000 was made. An additional principal settlement of $1,593,300 was made in December 2020 by the issuance of 796,650 shares of common stock to the noteholder. No principal payments were made by the Company during 2019.

 

Kenar Note

 

On March 26, 2019, the Company issued a four-month promissory note in the principal amount of $1,000,000 (the “Kenar Note”) to Kenar Overseas Corp., a company registered in Panama (“Kenar”), 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 , (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) 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. The outstanding principal amount of the note at December 31, 2020 was $872,500.

 

 

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 as a non-cash forbearance fee.

 

Interest expense for the Kenar Note totaled approximately $177,700 during the year ended December 31, 2020.

 

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 bears 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 bears 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 for the Lobo Note totaled approximately $11,200 during the year ended December 31, 2020.

 

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 acquisition of Coastal Pride Company, Inc. The note bears and interest rate of 4% per annum. The note is payable quarterly based on 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. The first payment was scheduled for February 26, 2020, however, the EBITDA generated for Coastal during the 3 months did not warrant a principal payment. 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 2020.

 

Interest expense for the Walter Lubkin Jr. note totaled approximately $20,100 during the year ended December 31, 2020.

 

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 2020.

 

Interest expense for the Walter Lubkin III note totaled approximately $3,500 during the year ended December 31, 2020.

 

 

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 2020.

 

Interest expense for the Tracy Greco note totaled approximately $2,800 during the year ended December 31, 2020.

 

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 2020.

 

Interest expense for the John Lubkin note totaled approximately $2,000 during the year ended December 31, 2020.

 

Payroll Protection Program Loan

 

On April 17, 2020, the Company issued an unsecured promissory note to US Century Bank in the principal amount of $344,762 related to the CARES Act Payroll Protection Program (“PPP Loan”). This note is fully guaranteed by the Small Business Administration (“SBA”) and may be forgivable provided that certain criteria are met. The note has a two-year maturity and accrues interest at 1% per annum. The Company is required to make payments on the remaining principal of the note net of any loan forgiveness beginning November 17, 2020. In September 2020, the Company applied for the loan forgiveness by SBA through US Century Bank for the full amount which was granted in November 2020 and was recognized as other income in the consolidated statement of operations for the twelve months ended December 31, 2020.

 

HSBC Loan

 

On May 13, 2020, the Company through Strike, its former variable interest entity, issued a six-year unsecured promissory note to HSBC Bank plc in the principal amount of $43,788 related to the Bounce Back Loan Scheme, managed by the British Business Bank. This note is fully guaranteed by the UK Secretary of State for Business, Energy and Industrial Strategy and accrues interest at 2.5% per annum. As a result of the deconsolidation of Strike as a VIE during the third quarter of 2020, the note is no longer debt of the Company.

 

Note 7. Business Combination

 

Merger with Coastal Pride Seafood, LLC

 

On November 26, 2019, the Company completed its merger with Coastal Pride Company, Inc. Under the terms of the Agreement and Plan of Merger and Reorganization, the Company paid $3.7 million in consideration including approximately $394,600 in cash, the issuance of $2.59 million of its common stock, the issuance of a $500,000 4% unsecured promissory note and $210,000 4% unsecured convertible promissory notes in exchange for all of the equity of Coastal Pride Company, Inc. The 1,295,000 shares of the Company’s common stock issued are subject to leak out agreements whereby the shareholders are unable to sell or transfer the stock for a period of one year and are permitted to transfer or sell up to 25% in each successive six-month period thereafter.

 

 

The transaction costs associated with this merger were $175,400 in investment banking fees paid via 87,700 shares of the common stock, $110,176 in legal fees paid in $49,535 in cash and 30,321 shares of common stock. The common stock for these transaction costs were issued subsequent to December 31, 2019.

 

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 including an amount for goodwill:

 

Consideration Paid:
Cash and cash equivalents		$	394,622
Common stock, 1,295,000 shares of BSFC common stock			2,590,000
4% Unsecured promissory note			500,000
4% Unsecured, Convertible promissory note payable to seller			210,000
Fair value of total consideration		$	3,694,622
Recognized amount of identifiable assets acquired and liabilities assumed:
Financial assets:
Cash and cash equivalents		$	133,956
Accounts receivables			1,141,658
Inventory			1,562,973
Inventory Step Up			105,000
Prepaid and other assets			134,254
Right of Use Assets			100,640
Property and equipment			9,713
Identifiable intangible assets:
Trademarks			850,000
Customer Relationships			1,250,000
Non-Compete Agreements			40,000
Financial liabilities:
Accounts payable and accrued liabilities			(816,435	)
Right of Use Liability			(100,640	)
Working Capital Line of Credit			(1,161,892	)
Total identifiable net assets			3,249,227
Goodwill			445,395
Total net value of assets assumed		$	3,694,622

 

In determining the fair value of the common stock issued, the Company considered the value of the stock as estimated at the time of closing. Given that the stock was not trading at the time of closing, the Company utilized its sale of common stock from November 2018 to November, 2019 of approximately $1,000,000 in the aggregate with a valuation of $2.00 shares of common stock.

 

Inventory was assessed at the time of closing as to its fair value and it was determined that a step-up analysis was necessary in order to evaluate the fair value of the inventory at the time of closing. The step up represents the net profit that would be attained when the inventory is sold. The key assumptions used in this analysis is a gross margin of 11.6% and selling costs of 4.4%, The analysis resulted in a necessary step up of $105,000 at the time of closing.

 

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers. The goodwill is not expected to be deductible for tax purposes.

 

 

Pro Forma Information

 

The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2019. 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.

 

		For the year ended December 31, 2019
Revenue		$	33,057,338
Net Loss		$	(5,048,290	)
Basic and Diluted Loss per Share		$	(0.31	)
Basic and Diluted Weighted Average Common Shares Outstanding			16,201,766

 

The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of Coastal Pride.

 

Note 8. Goodwill and Intangible Assets, Net

 

The following table sets for the changes in the carrying amount of the Company’s goodwill for the years ended December 31, 2020 and 2019.

 

		2020				2019
Balance, January 1		$	445,395			$	-
Acquisitions of Coastal Pride Company, Inc.			-				445,395
Balance, December 31		$	445,395			$	445,395

 

The following table sets for the components of the Company’s intangible assets at December 31, 2020:

 

		Amortization Period (Years)		Cost				Accumulated Amortization				Net Book Value
Intangible Assets Subject to amortization
Trademarks		14		$	850,000			$	(61,386	)		$	788,614
Customer Relationships		12			1,250,000				(104,169	)			1,145,831
Non-Compete Agreements		3			40,000				(10,829	)			29,171
Total				$	2,140,000			$	(176,384	)		$	1,963,616

 

The aggregate amortization remaining on the intangible assets as of December 31, 2020 is as follows:

 

		Intangible Amortization
2021		$	162,816
2022		$	162,816
2023		$	161,999
2024		$	152,820
2025		$	152,820
Thereafter		$	1,170,345

 

 

Note 9. Stockholders Equity

 

Preferred Stock

 

Our Board of Directors has designated 10,000 shares of preferred stock as “8% Series A Convertible Preferred Stock”.

 

The Series A Convertible Preferred Stock (“Series A Stock”) has no maturity and is not subject to any sinking fund or redemption and will remain outstanding indefinitely unless and until converted by the holder or the Company redeems or otherwise repurchases the Series A Stock.

 

Dividends. Cumulative dividends accrue on each share of Series A Stock at the rate of 8% (the “Dividend Rate”) of the purchase price of $1,000.00 per share, commencing on the date of issuance. Dividends are payable quarterly, when and if declared by the Board, beginning on September 30, 2018 (each a “Dividend Payment Date”) and are payable in shares of Common Stock (a “PIK Dividend”) with such shares being valued at the daily volume weighted average price (“VWAP”) of the Common Stock for the thirty trading days immediately prior to each Dividend Payment Date or if not traded or quoted as determined by an independent appraiser selected in good faith by the Company. Any fractional shares of a PIK Dividend will be rounded to the nearest one-hundredth of a share. All shares of Common Stock issued in payment of a PIK Dividend will be duly authorized, validly issued, fully paid and non-assessable. Dividends will accumulate whether or not the Company has earnings, there are funds legally available for the payment of those dividends and whether or not those dividends are declared by the Board.

 

 

Dividends of common stock were authorized for issuance to the stockholders in accordance with the terms of the Certificate of Designation for the Series A Stock on March 31, 2020, June 30, 2020, September 29, 2020, and December 31, 2020. The dividends resulted in the issuance of an aggregate of 52,286 shares of common stock with a value of $113,040. On March 31, 2021, the Company issued 11,975 shares of common stock to Series A preferred stockholders as a common stock dividend for the quarter ended March 31, 2021.

 

Conversion. Each share of Series A Stock is convertible at any time and in the sole discretion of the holder, into shares of common stock at a conversion rate of 500 shares of common stock for each share of Series A Stock (the “Conversion Rate”) The Company analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.

 

Common Stock

 

The Company is authorized to issue 100,000,000 shares of common stock at a par value of $.0001 and had 19,580,721 and 17,589,705 shares of common stock issued and outstanding as of December 31, 2020 and 2019, respectively.

 

On January 29, 2019, the Company’s board of directors approved a private placement memorandum offering up to $300,000 or 150,000 shares of common stock at $2.00 per share.

 

On May 16, 2019, the Company issued 5,500 shares valued at $2.00 per share for a total value of $11,000 to certain employees as an incentive bonus.

 

On November 26, 2019, the Company issued 1,295,000 shares, valued at $2.00 per share for a total value of $2,590,000 in connection with the acquisition of Coastal Pride.

 

Dividends of common stock were authorized for issuance to the Series A preferred stockholders in accordance with the terms of the Certificate of Designation for the Series A Stock on March 31, 2019, June 30, 2019, September 20, 2019 and December 31, 2019. The dividends resulted in the issuances of an aggregate of 56,520 shares of common stock with a value of $113,041 during 2019.

 

During the year ended December 31, 2019, the Company issued 11,000 shares of common stock at $2.00 per share in a private placement offering.

 

During the year ended December 31, 2019, the Company issued 22,500 shares of common stock valued at $45,000 for legal and consulting fees. Additionally, the Company authorized an aggregate of 176,021 shares with a value of $352,042 for legal and consulting fees that were issued subsequent to December 31, 2019.

 

On May 27, 2020, the Company issued 5,000 shares of common stock at $2.00 per share in a private placement offering.

 

On May 27, 2020, the Company issued 1,021,266 shares of common stock to Kenar at $2.60 per share as a forbearance fee.in connection with Kenar’s agreement to amend its outstanding promissory note.

 

On December 30, 2020, the Company issued 796,650 shares of common stock to John Keeler’s designee as partial payment of outstanding notes payable totaling to $1,593,300.

 

Dividends of common stock were issued to the Series A preferred stockholders in accordance with the terms of the Certificate of Designation for the Series A Stock on March 31, 2020, June 30, 2020, September 29, 2020 and December 31, 2020. The dividends resulted in the issuances of an aggregate of 52,286 shares of common stock with a value of $113,040 during 2020.

 

During the year ended December 31, 2020, the Company issued 115,814 shares of common stock valued at $189,000 for legal and consulting fees.

 

 

Note 10. Options

 

During the twelve months ended December 31, 2020 and December 31, 2019, approximately $139,380 and $2,251,300, respectively, in compensation expense was recognized on the following:

 

1.	Ten-year options to purchase 3,120,000 shares of common stock at an exercise price of $2.00, which vest one year from the date of grant, were issued to Christopher Constable, the Company’s former Chief Financial Officer, under the 2018 Plan during the twelve months ended December 31, 2018 and have vested during the twelve months ended December 31, 2019.
2.	Ten-year options to purchase 430,000 shares of common stock at an exercise price of $2.00, which vest as to 25% of the shares subject to the option each year from the date of grant, were issued to various long-term employees under the 2018 Plan during the twelve months ended December 31, 2019.
3.	Ten-year options to purchase 250,000 shares of common stock at an exercise price of $2.00, which vest as to 20% of the shares subject to the option each year from the date of grant, were issued to Zoty Ponce under the 2018 Plan during the twelve months ended December 31, 2019.
4.	Ten-year options to purchase 25,000 shares of common stock at an exercise price of $2.00, which vest as to 25% of the shares subject to the option each year from the date of grant, were issued to various contractors during the twelve months ended December 31, 2019.

 

The following table summarizes the assumptions used to estimate the fair value of the stock options granted for the twelve months ended December 31, 2019 since no options were granted for the twelve months ended December 31, 2020:

 

		2019
Expected Volatility			39% – 48	%
Risk Free Interest Rate			2.62% – 2.71	%
Expected life of options			6.25 – 10.0

 

Under the Black-Scholes option pricing model, the fair value of the 705,000 options granted during the twelve months ended December 31, 2019 was estimated at $613,586 on the date of grant. For the twelve months ended December 31, 2020 and 2019, the unrecognized portion of the expense remaining outstanding was $327,852 and $467,232, respectively. The weighted average period of unrecognized stock options compensation that is expected to be recognized as expense is approximately 7 years. During the twelve months ended December 31, 2019, an aggregate of 15,000 shares subject to options were forfeited, none of which shares were vested, which resulted in a reversal of the expense of $2,263.

 

 

The following table represents option activity for the years ended December 31, 2020 and 2019:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value
Outstanding - December 31, 2018			6,240,000			$	1.17				9.86
Exercisable - December 31, 2018			3,120,000			$	0.33				9.86			$	5,210,400
Granted			705,000			$	2.00
Forfeited			(3,135,000	)		$	0.00
Vested			3,120,000
Outstanding - December 31, 2019			3,810,000			$	2.00				8.86
Exercisable - December 31, 2019			3,120,000			$	2.00				8.86			$	984,000
Granted			-			$	-
Forfeited			-			$	-
Vested			3,280,000				-
Outstanding - December 31, 2020			3,810,000			$	2.00				7.87
Exercisable - December 31, 2020			3,280,000			$	2.00				7.87			$	721,600

 

The non-vested options outstanding are 530,000 and 690,000 for the twelve months ended December 31, 2020 and 2019, respectively.

 

Note 11. Warrants

 

During the twelve months ended December 31, 2020 and 2019, the Company did not have any warrant activity.

 

 

Note 12. Income taxes 

 

Allocation of federal and state income taxes between current and deferred portions is as follows:

 

Components of Tax Expense		December 31, 2020				December 31, 2019
Current - Federal		$	-				-
Current - State			1,122				4,413
Deferred - Federal			-				-
Deferred - State			-				-
Income Tax Provision/(Benefit)		$	1,122			$	4,413

 

Federal income tax expense differs from the statutory federal rates of 21% for the years ended December 31, 2020 and 2019 due to the following:

 

Rate Reconciliation		December 31, 2020								December 31, 2019
Provision/(Benefit) at Statutory Rate		$	(931,861	)			21.00	%		$	(1,054,558	)			21.00	%
State Tax Provision/(Benefit) net of federal benefit			(169,277	)			3.85	%			(179,449	)			4.03	%
Permanent Book/Tax Differences			1,283				(0.03	)%			14,603				(0.29	)%
Change in valuation allowance			992,311				(22.36	)%			1,222,042				(24.34	)%
Other			108,667				(2.45	)%			1,775				(0.04	)%
Income Tax Provision/(Benefit)		$	1,122				0.01	%		$	4,413				0.37	%

 

The components of the net deferred tax asset at December 31, 2020 and 2019, are as follows:

 

		December 31, 2020				December 31, 2019
Deferred Tax Assets
263A Unicap		$	26,923			$	90,539
Fixed Assets			31,830				27,754
Charitable Contribution Carryforward			269				121
Intangibles			70,173				18,287
Inventory Reserve			17,761				(362	)
Business Interest Limitation			637,897				417,904
Stock based compensation			684,800				661,359
Federal Net Operating loss			879,150				254,079
State Net Operating Loss			156,004				42,814
Total Deferred Tax Assets			2,504,807				1,512,495
Net Deferred Tax Asset/(Liability)			2,504,807				1,512,495
Valuation Allowance			(2,504,807	)			(1,512,495	)
Net Deferred Tax Asset/(Liability)		$	-			$	-

 

 

Tax periods for all fiscal years after 2017 remain open to examination by the federal and state taxing jurisdictions to which the Company is subject. As of December 31, 2020, the Company has federal net operating loss of $4,186,428 to carry forward indefinitely.

 

ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be recognized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2020.

 

As of December 31, 2020, and 2019, the Company has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s policy is to classify assessments, if any, for tax related interest as income tax expenses. No interest or penalties were recorded during the years ended December 31, 2020, and 2019.

 

Note 13. Commitment and Contingencies

 

Office lease

 

The Company leased its Miami office and warehouse facility from JK Real Estate, a related party through common family beneficial ownership (see Note 2). The lease which had a 20-year term, expiring in July 2021 was terminated on December 31, 2020, upon the sale of the facility. The Company was a guarantor of the mortgage on the facility which had a zero balance at December 31, 2020. Therefore, the Company did not record any liability related to the mortgage in the consolidated financial statements as the Company will not be called upon to perform under any guarantee, in accordance with ASC 460, Guarantees.

 

The Company leases approximately 3,000 square feet in Beaufort South Carolina for the offices of Coastal Pride. This office space consists of two leases with related parties with approximately four years remaining on the leases.

 

See Recently Adopted Accounting Pronouncements under ASC 842 Leases regarding the disclosure of the future period amortizations of the Right of Use assets.

 

Rental and equipment lease expenses were approximately $239,600 and $237,400 for the years ended December 31, 2020 and 2019, respectively.

 

Legal

 

The Company has reached a settlement agreement with a former employee. Although the agreement is not finalized the Company has reserved for the entire amount of the settlement.

 

Note 14. COVID-19 Pandemic

 

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, 2020, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of the geographical areas in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to amongst other provisions, provide emergency assistance for individuals, families and businesses affected by the novel coronavirus pandemic for 2020 and into 2021. The Company’s business not being deemed essential resulted in decreased financial performance that may not be indicative of future financial results. Government-mandated closures of businesses and shipping delays have affected our sales and inventory purchases. The Company continues to face uncertainty and increased risks concerning its employees, customers, supply chain and government regulation. In April 2021, the U.S. government has made available the COVID-19 vaccine to most of its population to aid with the pandemic but the long-term effects of this development are yet to be seen. The Company’s sales and supply may continue to be adversely affected due to COVID-19 and plans continue to be developed to ensure a prompt response is given to address the effects of the pandemic.

 

 

Note 15. Employee Benefit Plan

 

The Company provides and sponsors a 401(k) plan for its employees. For the years ended December 31, 2020 and 2019, no contributions were made to the plan by the Company.

 

Note 16. Subsequent Events

 

Common Stock

 

The Company authorized the issuance of an aggregate of 83,721 shares for quarterly legal and consulting fees to be issued subsequently to December 31, 2020.

 

On February 8, 2021, the Company issued 25,000 shares to an investment relations firm as compensation under an investor relations consulting agreement.

 

On March 30, 2021, the Company issued 10,465 shares of common stock to the designee of a law firm for services provided to the Company.

 

On March 31, 2021, the Company issued 5,000 shares to an investor relations firm for services provided to the Company under an investor relations consulting agreement.

 

Paycheck 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.

 

Board of Directors

 

On March 29, 2021, the board of directors increased the size of the Company’s Board from two to five members and appointed Jeffrey J. Guzy, Timothy McLellan and Trond Ringstad as directors, effective April 12, 2021, to fill the vacancies created by such increase.

 

In connection with such appointments, the Company entered into one-year director service agreements with each of Messrs. Guzy, McLellan and Ringstad and with each of the two current Board members, Nubar Herian and John Keeler which automatically renew for successive one-year terms.

 

In consideration for their services, each director will be issued $25,000 of shares of the Company’s common stock for each year’s service and on April 12, 2021, the Company granted each director an option to purchase 100,000 shares of common stock at an exercise price of $2.00 per share, which option vests in equal monthly installments over the course of the applicable year and will expire three years from the date they are fully vested.

 

Lighthouse Credit Facility

 

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 paid Lighthouse a facility fee of $50,000 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 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, as updated in subsequent filings we have made with the SEC. 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

 

		MARCH 31, 2021				DECEMBER 31, 2020
		Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	104,633			$	55,644
Restricted Cash			42,003				282,043
Accounts Receivable, net			718,163				1,082,468
Inventory, net			605,649				1,832,661
Advances to related party			1,299,984				1,299,984
Other current assets			222,446				176,925
Total Current Assets			2,992,878				4,729,725
RELATED PARTY LONG-TERM RECEIVABLE			455,545				455,545
FIXED ASSETS, net			18,979				20,064
RIGHT OF USE ASSET			92,386				99,472
INTANGIBLE ASSETS, net
Trademarks			774,448				788,614
Customer relationships			1,121,792				1,145,831
Non-compete agreements			26,672				29,171
Total Intangible Assets			1,922,912				1,963,616
GOODWILL			445,395				445,395
OTHER ASSETS			120,139				108,088
TOTAL ASSETS		$	6,048,234			$	7,821,905
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accruals		$	881,424			$	1,607,490
Working capital line of credit			780,288				1,805,907
Current maturities of long-term debt			74,389				-
Current maturities of lease liabilities			29,649				29,337
Current maturities of related party long-term notes			225,000				195,000
Related party notes payable			972,500				972,500
Related party notes payable - Subordinated			1,299,712				1,299,712
Other current liabilities			1,311,569				1,346,838
Total Current Liabilities			5,574,531				7,256,784
LONG -TERM LIABILITIES
Long-term lease liability			62,409				69,844
Payroll protection program loan			297,555				-
Related party long-term notes			485,000				515,000
TOTAL LIABILITIES			6,419,495				7,841,628
STOCKHOLDERS’ DEFICIT
Series A 8% cumulative convertible preferred stock, $0.0001 par value; 10,000 shares authorized, 1,413 shares issued and outstanding as of March 31, 2021, and December 31, 2020			-				-
Common stock, $0.0001 par value, 100,000,000 shares authorized; 19,633,161 shares issued and outstanding as of March 31, 2021, and 19,580,721 shares issued and outstanding as of December 31, 2020			1,964				1,958
Additional paid-in capital			13,643,656				13,488,836
Accumulated deficit			(14,016,881	)			(13,510,517	)
TOTAL STOCKHOLDERS’ DEFICIT			(371,261	)			(19,723	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	6,048,234			$	7,821,905

 

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

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

THREE MONTHS ENDED MARCH 31,

 

		Unaudited
		2021				2020
REVENUE, NET		$	2,485,891			$	4,571,614
COST OF REVENUE			2,183,112				4,148,398
GROSS PROFIT			302,779				423,216
COMMISSIONS			4,794				66,829
SALARIES AND WAGES			380,596				409,181
DEPRECIATION AND AMORTIZATION			44,079				77,765
OTHER OPERATING EXPENSES			317,398				446,433
LOSS FROM OPERATIONS			(444,088	)			(576,992	)
OTHER INCOME			76,518				-
INTEREST EXPENSE			(110,534	)			(276,655	)
NET LOSS			(478,104	)			(853,647	)
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST			-				(3,240	)
NET LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP.		$	(478,104	)		$	(850,407	)
DIVIDEND ON PREFERRED STOCK			28,260				28,259
NET LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP COMMON STOCKHOLDERS		$	(506,364	)		$	(878,666	)
COMPREHENSIVE LOSS:
TRANSLATION ADJUSTMENT ATTRIBUTABLE TO NON-CONTROLLING INTEREST			-				14,606
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST			-				11,366
COMPREHENSIVE LOSS ATTRIBUTABLE TO BLUE STAR FOODS CORP.		$	(478,104	)		$	(850,407	)
Loss per basic and diluted common share:
Basic net loss per common share		$	(0.03	)		$	(0.05	)
Basic weighted average common shares outstanding			19,594,888				17,589,705
Fully diluted net loss per common share		$	(0.03	)		$	(0.05	)
Fully diluted weighted average common shares outstanding			19,594,888				17,589,705

 

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

         

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

 

		Series A Preferred Stock $.0001 par value								Common Stock $.0001 par value								Additional Paid-in				Accumulated				Total Blue Star Foods Corp. Stockholders’				Non- Controlling				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
December 31, 2020			1,413			$	-				19,580,721			$	1,958			$	13,488,836			$	(13,510,517	)		$	(19,723	)		$	-			$	(19,723	)
Stock based compensation			-				-				-				-				30,319				-				30,319				-				30,319
Series A preferred 8% dividend issued in common stock			-				-				11,975				1				28,259				(28,260	)			-				-				-
Common stock issued for service			-				-				40,465				5				96,242				-				96,247				-				96,247
Net Loss			-				-				-				-				-				(478,104	)			(478,104	)			-				(478,104	)
Comprehensive Income			-				-				-				-				-				-				-				-				-
March 31, 2021			1,413			$	-				19,633,161			$	1,964			$	13,643,656			$	(14,016,881	)		$	(371,261	)		$	-			$	(371,261	)

 

		Series A Preferred Stock $.0001 par value								Common Stock $.0001 par value								Additional Paid-in				Accumulated				Total Blue Star Foods Corp. Stockholders’				Non- Controlling				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
December 31, 2019			1,413			$	-				17,589,705			$	1,761			$	8,789,021			$	(8,952,466	)		$	(161,684	)		$	(358,028	)		$	(519,712	)
Stock based compensation			-				-				-				-				34,846				-				34,846				-				34,846
Series A preferred 8% dividend issued in common stock			-				-				14,130				1				28,258				(28,259	)			-				-				-
Net Loss			-				-				-				-				-				(850,407	)			(850,407	)			(3,240	)			(853,647	)
Comprehensive Income			-				-				-				-				-				-				-				14,606				14,606
March 31, 2020			1,413			$	-				17,603,835			$	1,762			$	8,852,125			$	(9,831,132	)		$	(977,245	)		$	(346,662	)		$	(1,323,907	)

 

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

 

 

Blue Star Foods Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31,

 

		Unaudited
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(478,104	)		$	(853,647	)
Adjustments to reconcile net loss to net cash provided in operating activities:
Stock based compensation			30,319				34,846
Common stock issued for service			96,247				-
Depreciation of fixed assets			1,085				9,145
Amortization of right of use asset			-				43,730
Amortization of intangible assets			42,327				40,384
Amortization of loan costs			667				25,988
Deferred taxes			-				8,362
Lease expense			7,086				-
Bad debt expense			90				-
Allowance for inventory obsolescence			43,090				146,853
Changes in operating assets and liabilities:
Accounts receivables			364,215				149,602
Inventories			1,183,922				3,053,140
Advances to affiliated supplier			-				(15,999	)
Other current assets			(45,521	)			23,409
Right of use liability			(7,123	)			(39,064	)
Other assets			(14,341	)			-
Accounts payable and accruals			(726,066	)			(768,896	)
Other current liabilities			(35,269	)			-
Net Cash Provided by Operating Activities			462,624				1,857,853
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets			-				(13,230	)
Net Cash Used in Investing Activities			-				(13,230	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital line of credit			2,508,585				2,407,538
Proceeds from PPP loan			371,944				-
Repayments of working capital line of credit			(3,534,204	)			(4,336,132	)
Payments of loan costs			-				(70,000	)
Net Cash Used in Financing Activities			(653,675	)			(1,998,594	)
Effect of Exchange Rate Changes on Cash			-				14,606
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(191,051	)			(139,365	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD			337,687				195,810
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD		$	146,636			$	56,445
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Series A preferred 8% dividend issued in common stock			28,260				28,259
Operating lease assets recognized in exchange for operating lease liabilities			-				28,137
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	291,038			$	276,655

 

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. (“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.

 

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.

 

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 March 31, 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 three months ended March 31, 2021. Cost of revenue related to inventories purchased from Bacolod represented approximately $170 and $291,000 of total cost of revenue for the three months ended March 31, 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. 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 March 31, 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.

 

		March 31, 2021
Assets
Operating lease assets		$	92,386
Liabilities
Current
Operating lease liabilities		$	29,649
Noncurrent
Operating lease liabilities		$	62,409

 

Supplemental cash flow information related to leases were as follows:

 

		Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	7,123
ROU assets recognized in exchange for lease obligations:
Operating leases		$	-

 

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

 

		March 31, 2021
Weighted-average remaining lease term
Operating leases			3.15 years
Weighted-average discount rate
Operating leases			4.3	%

 

 

Maturities of lease liabilities as of March 31, 2021, were as follows:

 

		Operating Leases
2021 (nine months remaining)			25,164
2022			33,552
2023			26,474
2024			15,060
2025			-
Thereafter			-
Total lease payments			100,250
Less: amount of lease payments representing interest			(8,192	)
Present value of future minimum lease payments		$	92,058
Less: current obligations under leases		$	(29,649	)
Non-current obligations		$	62,409

 

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, 2021, the Company incurred a net loss of $478,104, has an accumulated deficit of $14,016,881 and working capital deficit of $2,581,653, with the current liabilities inclusive of $1,299,712 in stockholder loans that are subordinated to the provider of the working capital facility, and $29,649 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 bears an interest 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 is subject to the following terms:

 

	●	Borrowing is 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 is collateralized by substantially all the assets and property of Keeler & Co. and is personally guaranteed by the stockholder of the Company.
	●	The Keeler & Co, is restricted to specified distribution payments, use of funds, and is required to comply with certain other covenants including certain financial ratios.
	●	All cash received by Keeler & Co. is applied against the outstanding loan balance.
	●	A subjective acceleration clause allows 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 March 31, 2021 amounted to $780,288.

 

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 $19,600 and $174,000 as of March 31, 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 three months ended March 31, 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.

 

The principal amount of the Kenar Note at March 31, 2021 was $872,500. Interest expense was approximately $38,700 during the three months ended March 31, 2021.

 

On April 28, 2021, the Kenar Note was amended to extend the maturity date to May 31, 2021.

 

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.This note may be prepaid in whole or in part without penalty. Interest expense was approximately $2,400 during the three months ended March 31, 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 three months ended March 31, 2021. Interest expense was approximately $4,900 during the three months ended March 31, 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 three months ended March 31, 2021. Interest expense was approximately $800 during the three months ended March 31, 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 three months ended March 31, 2021. Interest expense was approximately $700 during the three months ended March 31, 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 three months ended March 31, 2021. Interest expense was approximately $500 during the three months ended March 31, 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 March 31, 2021, the Company recorded interest expense of approximately $315.

 

 

Note 5. 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 $34,500 for the three months ended March 31, 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.

 

Note 6. Options

 

The following table represents option activity for the three months ended March 31, 2021:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value
Outstanding – December 31, 2020			3,810,000			$	2.00				7.87
Exercisable – December 31, 2020			3,280,000			$	2.00				7.87			$	721,600
Granted			-			$	-
Forfeited			(63,750	)		$	2.00
Vested			3,431,250
Outstanding – March 31, 2021			3,746,250			$	2.00				7.55
Exercisable – March 31, 2021			3,431,250			$	2.00				7.55			$	1,235,250

 

On March 31, 2021, the Company recognized $30,319 of compensation expense for vested stock options issued to contractors and employees during 2019.

 

Note 7. Warrants

 

There was no warrant activity for the three months ended March 31, 2021. As of March 31, 2021, the Company had warrants to purchase an aggregate of 353,250 shares outstanding with a weighted average exercise price of $2.40, a weighted average remaining term of 0.61 years and an intrinsic value of $0.

 

Note 8. Commitment and Contingencies

 

Office lease

 

The Company leased its Miami office and warehouse facility from JK Real Estate, a related party through common family beneficial ownership. The lease which had a 20-year term, expiring in July 2021, was terminated on December 31, 2020, upon the sale of the facility. In connection with the sale, the Company retained approximately 4,756 square feet of such space, rent-free for the next 12 months.

 

 

The Company leases approximately 1,600 square feet in Beaufort, South Carolina for the offices of Coastal Pride. This office space consists of two leases with related parties that expire in 2024.

 

Rental and equipment lease expenses amounted to approximately $20,000 and $63,500 for the three months ended March 31, 2021 and 2020, respectively.

 

Legal

 

The Company has reached a settlement agreement with a former employee. Although the agreement is not finalized the Company has reserved for the entire amount of the settlement.

 

Note 9. COVID-19 Pandemic

 

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, 2020, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of the geographical areas in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to amongst other provisions, provide emergency assistance for individuals, families and businesses affected by the novel coronavirus pandemic for 2020 and into 2021. The Company’s business not being deemed essential resulted in decreased financial performance that may not be indicative of future financial results. Government-mandated closures of businesses and shipping delays have affected our sales and inventory purchases. The Company continues to face uncertainty and increased risks concerning its employees, customers, supply chain and government regulation. In April 2021, the U.S. government has made available the COVID-19 vaccine to most of its population to aid with the pandemic but the long-term effects of this development are yet to be seen. The Company’s sales and supply may continue to be adversely affected due to COVID-19 and plans continue to be developed to ensure a prompt response is given to address the effects of the pandemic.

 

Note 10. Subsequent Events

 

On April 12, 2021, the Company granted each director an option to purchase 100,000 shares of common stock at an exercise price of $2.00 per share, which option vests in equal monthly installments over the course of the applicable year and will expire three years from the date they are fully vested. In the event the Director ceases to be a member of the Board prior to the end of any year of service, all unvested stock options will be forfeited. The stock options granted to the Directors shall be exercisable only on a cash basis and will expire three years from the date they are fully vested.

 

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 in lieu of $39,504 of outstanding interest under promissory notes issued by the Company to the sellers of Coastal Pride 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.

 

 

On April 27, 2021, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Taste of BC Aquafarms Inc., a corporation formed under the laws of the Province of British Columbia, Canada (“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 (the “Acquisition”) 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 with TOBC was amended, to increase the purchase price up to an aggregate of CAD$5,000,000 and the Acquisition closed. Pursuant to the amendment, shares of the Company’s common stock (representing CAD$1,000,000 of additional shares calculated at USD$2.30 per share) will be 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. The purchase price is subject to adjustment based upon the amount of TOBC’s working capital on the closing date, as determined in accordance with the Purchase Agreement within 60 days after the closing. In addition to the foregoing consideration, at the time of the closing, the Company provided CAD$488,334 to TOBC for the extinguishment of certain of TOBC’s existing debt.

 

All of the shares received by the Sellers are subject to a leak-out restriction commencing on the date of issuance, as follows: (i) up to 25% may be sold after 12 months; (ii) up to 50% may be sold after 18 months; (iii) up to 75% may be sold after 24 months; and (iv) up to 100% may be sold after 30 months.

 

The Notes bear no interest and have a maturity date of November 30, 2021. The Company has the right to prepay amounts due under the Notes in whole or in part at any time without penalty or premium. Repayment of the amounts due under the Notes is secured by a guarantee and a general security agreement creating a security interest over the assets of TOBC. The acquisition of TOBC closed on June 24, 2021.

 

On April 28, 2021, the Company entered into a second loan amendment (the “Second Loan Amendment”) with Kenar to extend the maturity date of the Kenar Note to May 31, 2021.

 

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 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 the 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.

 

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.

 

 

From June 17, 2021 through July 14, 2021, the Company entered into subscription agreements with certain “accredited investors” (as defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)) pursuant to which the Company sold in private offerings an aggregate of 1,500,000 shares of common stock at a purchase price of $2.00 per share for aggregate gross proceeds of $3,000,000. In connection therewith, the Company issued each purchaser three-year warrants to purchase additional shares of common stock equal to the number of shares purchased by such purchaser, at an exercise price of $2.00 per share. The warrants are exercisable for cash only for a term of three years from the date of issuance. The number of warrant shares to be deliverable upon exercise of the warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events.

 

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, 2020, the Company issued an aggregate of 706,500 shares of common stock to Series A Stockholders upon conversion of an aggregate 1,413 shares of Series A Stock. No common stock dividends will be issued starting in the three months ended June 30, 2021.

 

On July 1, 2021, the Company issued to Lobo an 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.

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table sets forth the costs and expenses payable by us in connection with the sale of common stock being registered. All amounts are estimates except for the SEC filing fee.

 

SEC filing fee		$	2,085.38
Legal fees and expenses		$	35,000.00
Accounting fees and expenses		$	3,500.00
Total		$	40,585.38

 

Item 14. Indemnification of Directors and Officers

 

We currently maintain and intend to maintain for the foreseeable future director and officer liability insurance on behalf of our directors and officers.

 

We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were, are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) actually and reasonably incurred.

 

Our amended and restated certificate of incorporation and amended and restated bylaws provide for the indemnification of its directors and officers to the fullest extent permitted under the Delaware General Corporation Law.

 

Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

 

	●	transaction from which the director derives an improper personal benefit;
	●	act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	●	unlawful payment of dividends; or
	●	breach of a director’s duty of loyalty to the corporation or its stockholders.

 

Our amended and restated certificate of incorporation includes such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us.

 

 

Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

 

As permitted by the Delaware General Corporation Law, we intend to enter into indemnity agreements with each of our directors and executive officers.

 

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

 

We have an insurance policy in place that covers our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act, or otherwise.

 

Item 15. Recent Sales of Unregistered Securities

 

During the past three years, we sold the following securities which were not registered under the Securities Act.

 

Securities Issued by the Company in Connection with the Merger

 

On November 8, 2018, pursuant to the terms of the Merger Agreement, all of the shares of common stock of Keeler & Co were exchanged for 15,000,000 restricted shares of common stock.

 

On November 8, 2018, Christopher Constable was issued a ten-year option to purchase 3,120,000 shares of common stock, which became exercisable one year from the date of grant.

 

On November 8, 2018, upon the closing of the Merger, 80,000 shares of common stock were issued to The Crone Law Group, P.C. for legal services, 129,500 shares of common stock were issued to Sandstone Group Corp. and 55,500 shares were issued to Newbridge Securities Corporation for financial advisory services provided in connection with the Merger.

 

These transactions were exempt from registration under Section 4(a)(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.

 

Sales of Units in the Company Settlement

 

Concurrently with the closing of the Merger on November 8, 2018, we issued an aggregate of 688 Units to the Settlement Parties in connection with the Company Settlement. The sale of these securities was exempt from registrations pursuant to Section 4(a)(2) of the Securities Act as not involving any public offering.

 

Recent Sales

 

On February 1, 2019, we issued 5,000 shares of common stock to an investor in a private offering for $10,000, which were subsequently cancelled.

 

On March 29, 2019, we issued an aggregate of 8,164 shares of common stock as a dividend to the holders of our Series A Stock.

 

On March 31, 2019, we issued an aggregate of 14,130 shares of common stock as a dividend to the holders of our Series A Stock.

 

On April 2, 2019, we issued 5,000 shares of common stock to an accredited investor in a private offering for $10,000.

 

 

On April 12, 2019, we issued 1,000 shares of common stock to an accredited investor in a private offering for $2,000.

 

On April 23, 2019, we issued 2,500 shares of common stock to MEC Consulting Inc., for legal services provided to the Company.

 

On May 2, 2019, we issued 500 shares of common stock to an accredited investor in a private offering for $1,000.

 

On May 6, 2019, we issued 500 shares of common stock to an accredited investor in a private offering for $1,000.

 

On May 7, 2019, we issued 3,000 shares of common stock to an accredited investor in a private offering for $6,000.

 

On May 9, 2019, we issued 1,000 shares of common stock to an accredited investor in a private offering for $2,000.

 

On May 20, 2019, we issued an aggregate of 5,500 shares of common stock to eleven employees of the Company as bonus compensation.

 

On May 20, 2019, we issued an aggregate of 20,000 shares of common stock to Newbridge Securities Corporation and two of its employees for investment banking services provided to the Company.

 

On September 24, 2019, an aggregate of 14,130 shares of common stock were issued to the Company’s Series A convertible preferred stockholders as a quarterly dividend.

 

On November 26, 2019, in connection with the Coastal Pride acquisition, we issued 500,000 shares of common stock to Walter Lubkin, Jr. and an aggregate of 795,000 shares of common stock to the sellers of Coastal Pride pro rata to their ownership of Coastal Pride immediately prior to the Merger.

 

On January 23, 2020, we issued (i) 127,700 shares of common stock for professional fees provided in connection with the Coastal Pride Merger ; and (ii) 30,321 shares of common stock to MEC Consulting, Inc. for legal fees.

 

On March 31, 2020, an aggregate of 14,130 shares of common stock were issued to the Company’s Series A convertible preferred stockholders as quarterly dividends for the quarter ending September 30, 2019.

 

On May 27, 2020, as consideration for Kenar agreement to amend the Kenar Note, the Company issued 1,021,266 shares of common stock to Kenar.

 

On May 27, 2020, an aggregate of 28,260 shares of common stock were issued to Series A Preferred stockholders as a common stock dividend for the quarters ending September 30, 2019 and December 31, 2019.

 

On May 27, 2020, the Company issued 5,000 shares of common stock to an accredited investor in a private offering for $10,000.

 

On May 27, 2020, the Company issued 18,000 shares of common stock to Luis Matos Arreaza for professional services provided to the Company.

 

`On September 22, 2020, the Company issued an aggregate of 60,000 shares to Newbridge Securities Corporation and its affiliates as compensation under an investment banking and corporate advisory agreement.

 

On September 29, 2020, the Company issued an aggregate of 39,560 shares of common stock to Series A preferred stockholders as a common stock dividend for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020.

 

 

On December 24, 2020, we issued 55,814 shares of common stock to MEC Consulting, Inc. for legal services provided to the Company.

 

On December 30, 2020, we issued 796,650 shares of common stock to an unaffiliated party and designee of John Keeler pursuant to a debt repayment agreement with Mr. Keeler as full and complete payment of the aggregate principal amount of $1,593,300 due under four promissory notes held by Mr. Keeler.

 

On February 8, 2021, the Company issued 25,000 shares of common stock 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 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 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 for the three months ended March 31, 2021.

 

On April 12, 2021, we granted each director a four-year option to purchase 100,000 shares of common stock at an exercise price of $2.00 per share which vests in twelve equal monthly installments over the first year of the date of grant.

 

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.

 

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 to an investor relations firm for services provided to the Company under an investor relations consulting agreement.

 

On June 17, 2021, we sold pursuant to subscription agreements an aggregate of 475,000 shares of common stock at a purchase price of $2.00 per share and issued warrants to purchase an aggregate of 475,000 shares at an exercise price of $2.00 per share in a private offering to four accredited investors for gross proceeds of $950,000.

 

On June 23, 2021, we sold pursuant to subscription agreements an aggregate of 212,750 shares of common stock at a purchase price of $2.00 per share and issued warrants to purchase an aggregate of 212,750 shares at an exercise price of $2.00 per share in a private offering to twenty-seven accredited investors for gross proceeds of $425,000.

 

On June 24, 2021, we issued an aggregate of 987,741 shares of common stock 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 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 to the designee of a law firm for services provided to the Company.

 

 

On June 30, 2021, we sold pursuant to subscription agreements an aggregate of 598,750 shares of common stock at a purchase price of $2.00 per share and issued warrants to purchase an aggregate of 598,750 shares at an exercise price of $2.00 per share in a private offering to twenty-six accredited investors for gross proceeds of $1,197,500.

 

On June 30, 2021, we issued an aggregate of 706,500 shares of common stock to Series A Stockholders upon the conversion of an aggregate of 1,413 shares of Series A Stock.

 

On July 8, 2021, we sold pursuant to subscription agreements an aggregate of 83,750 shares of common stock at a purchase price of $2.00 per share and issued warrants to purchase an aggregate of 83,750 shares at an exercise price of $2.00 per share in a private offering to sixteen accredited investors for gross proceeds of $167,500.

 

On July 14, 2021, we sold pursuant to subscription agreements an aggregate of 129,750 shares of common stock at a purchase price of $2.00 per share and issued warrants to purchase an aggregate of 129,750 shares at an exercise price of $2.00 per share in a private offering to four accredited investors for gross proceeds of $259,500.

 

These transactions were exempt from registration under Section 4(a)(2) and/or Rule 506(b) of Regulation D as promulgated by the Securities and Exchange Commission under of the Securities Act, as transactions by an issuer not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.

 

Item 16. Exhibits

 

2.1		Agreement and Plan of Merger, dated as of November 8, 2018, by and among the Company, Blue Star, Acquisition Sub and John Keeler (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2018)
2.2		Articles of Merger between Blue Star and Acquisition Sub (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2018)
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company’s Form 10/A filed with the SEC on May 17, 2018)
3.2		Amended and Restated By-Laws (incorporated by reference to Exhibit 3.4 to the Company’s Form 10/A filed with the SEC on May 17, 2018)
3.3		Certificate of Amendment, dated November 5, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2018)
3.4		Certificate of Designation of 8% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2018)
4.1		Form of Common Stock Purchase Warrant ((incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2021)
5.1*		Opinion of The Crone Law Group, P.C.
10.1		Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.2		Form of Amendment to Subscription Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)

 

 

10.3		Form of Warrant (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.4		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.5		Form of Settlement Agreement and Mutual General Release (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.6		Forms of Lockup Agreement for Pre-Merger Stockholders and Officers and Directors (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.7		Form of Redemption Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.8		2018 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.9		Form of Stock Option Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K, dated November 8, 2018)
10.10		Loan and Security Agreement filed with the SEC on August 31, 2016 between the Company and ACF (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K, dated November 8, 2018)
10.11		First Amendment to Loan and Security Agreement and Reservation of Rights, dated November 18, 2016, between the Company and ACF (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.12		Second Amendment to Loan and Security Agreement, dated June 19, 2017, between the Company and ACF (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.13		Third Amendment to Loan and Security Agreement, dated October 16, 2017, between the Company and ACF (incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.14		Fourth Amendment to Loan and Security Agreement, dated September 19, 2018, between the Company and ACF (incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.15		Fifth Amendment to Loan and Security Agreement, dated November 8, 2018, between the Company and ACF (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.16		$14,000,000 Revolving Credit Note, dated August 31, 2016 between the Company and ACF (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.17		Patent Security Agreement, dated August 31, 2016, between Blue Star and ACF FINCO LP (incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)

 

 

 

10.18		Lease Agreement, dated May 1, 2001, between Keeler & Co. and John Keeler Real Estate Holdings, Inc. (incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.19		Master Software Development Agreement, dated February 6, 2017 between the Company and Claritus Management Pvt. Ltd. (incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.20		$500,000 Demand Note, dated January 4, 2006 from Keeler & Co. in favor of John Keeler and Maria Keeler (incorporated by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.21		$200,000 Demand Note, dated March 31, 2006 from Keeler & Co. in favor of John Keeler and Maria Keeler (incorporated by reference to Exhibit 10.22 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.22		$100,000 Demand Note, dated November 21, 2007, from Keeler & Co. in favor of John Keeler (incorporated by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.23		$516,833.83 Demand Note, dated July 31, 2013 from Keeler & Co. in favor of John Keeler (incorporated by reference to Exhibit 10.24 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
10.24		Form of Subscription Agreement for February 1, 2019 offering (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2019)
10.25		$1,000,000 Promissory Note, dated March 26, 2019, issued to Kenar Overseas Corp. (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2019)
10.26		$100,000 Promissory Note, dated January 1, 2021, issued to Lobo Holdings, LLLP (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021)
10.27		Agreement and Plan of Merger and Reorganization, dated as of November 26, 2019, by and among John Keeler & Co., Inc., Coastal Pride Seafood, LLC, Coastal Pride Company, Inc., The Walter F. Lubkin, Jr. Irrevocable Trust dated 1/8/03, Walter F. Lubkin III, Tracy Lubkin Greco and John C. Lubkin (incorporated by reference to Exhibit 10.29 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2019)
10.28		4% Promissory Note in the principal amount of $500,000, dated November 26, 2019, issued by John Keeler & Co., Inc. to Walter Lubkin, Jr. (incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2019)
10.29		Form of 4% Convertible Promissory Note, dated November 26, 2019, issued by John Keeler & Co., Inc. (incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2019)
10.30		Form of Leak-Out Agreement, dated November 26, 2019 (incorporated by reference to Exhibit 10.32 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2019)
10.31		Joinder and Seventh Amendment to Loan and Security Agreement, dated November 26, 2019, by and among ACF Finco I LP, John Keeler & Co., Inc. and Coastal Pride Seafood, LLC (incorporated by reference to Exhibit 10.33 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2019)

 

 

10.32		Form of Lock-Up and Resale Restriction Agreement, dated December 26, 2019 (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed with the SEC on May 29, 2020)
10.33		Loan Amendment, dated May 21, 2020 to Promissory Note issued to Kenar Overseas Corp. (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed with the SEC on May 29, 2020)
10.34		Eight Amendment to Loan and Security Agreement, dated May 7, 2020, between the Company and ACF Separation and Mutual Release Agreement, dated February 25, 2020, between the Company and Christopher Constable(incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed with the SEC on May 29, 2020)
10.35		Separation and Mutual Release Agreement, dated February 25, 2020, between the Company and Christopher Constable (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed with the SEC on May 29, 2020)
10.36		Mutual Lease Termination Agreement, dated December 31, 2020, between Keeler & Co. and John Keeler Real Estate Holdings, Inc. (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021)
10.37		Debt Repayment Agreement, dated December 30, 2020, between the Company and John Keeler (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-K filed with the SEC on February 9, 2021)
10.38		Investment Banking Agreement, dated July 1, 2020, between the Company and Newbridge Securities Corporation (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021)
10.39		Amendment No. 1 to Investment Banking Agreement, dated October 30, 2020, between the Company and Newbridge Securities Corporation (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021)

 

 

10.40		Loan and Security Agreement dated March 31, 2021, by and among John Keeler & Co. Inc. and Coastal Pride Seafood, LLC and Lighthouse Financial Corp. (incorporated by reference to Exhibit 10.40 to the Company’s Current Report on Form 10-K filed with the SEC on April 6, 2021)
10.41		Revolving Credit Note dated March 31, 2021 in the amount of up to $5,000,000 issued by John Keeler & Co. Inc. and Coastal Pride Seafood, LLC to Lighthouse Financial Corp. (incorporated by reference to Exhibit 10.41 to the Company’s Current Report on Form 10-K filed with the SEC on April 6, 2021)
10.42		Guarantee Agreement dated March 31, 2021 executed by Blue Star Foods Corp. in favor of Lighthouse Financial Corp. (incorporated by reference to Exhibit 10.42 to the Company’s Current Report on Form 10-K filed with the SEC on April 6, 2021)
10.43		Form of Director Services Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-K filed with the SEC on March 31, 2021)
10.44		Stock Purchase Agreement, dated April 27, 2021, by and among the Company, Taste of BC Aquafarms, Inc, Steven Atkinson and Janet Atkinson (incorporated by reference to Exhibit 10.44 to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2021)
10.45		Second Loan Amendment, dated April 28, 2021, between the Company and Kenar Overseas Corp. (incorporated by reference to Exhibit 10.45 to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2021)

 

 

10.46		Form of Subscription Agreement for common stock offering (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2021)
10.47		Form of Common Stock Purchase Warrant at $2.00 per share (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2021)
10.48		Form of Promissory Note with Taste of BC Aquafarms, Inc. Sellers (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2021)
10.49		First Amendment to Stock Purchase Agreement, dated June 24, 2021, by and among, the Company, Taste of BC Aquafarms, Inc, Steven Atkinson and Janet Atkinson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2021)
10.50		Form of Confidentiality, Non-Competition and Non-Solicitation Agreement, dated June 24, 2021(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2021)
10.51		$100,000 Promissory Note, dated July 1, 2021, issued to Lobo Holdings, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2021)
10.52		Note Payoff Indemnity Agreement, dated July 6, 2021 between the Company and Kenar Overseas Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2021)
10.53*		Employment At Will Agreement, dated August 3, 2020, between the Company and Silvia Alana
10.54*		Investment Banking Engagement Agreement, dated July 8, 2021, between the Company and Newbridge Securities Corporation
10.55*		Consulting Agreement, dated July 8, 2021, between the Company and MEC Consulting, Inc.
21*		List of Subsidiaries
23.1*		Consent of MaloneBailey LLP
23.2		Consent of The Crone Law Group, P.C. (included in Exhibit 5.1)

 

* filed herewith

 

 

Item 17. Undertakings

 

The Company hereby undertakes:

 

(a)(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

	i.	To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
	ii.	To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
	iii.	To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2)	That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)	To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)	That, for the purpose of determining liability of the Company under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Company undertakes that in a primary offering of securities of the undersigned Company pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Company will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

	(i)	Any preliminary prospectus or prospectus of the undersigned Company relating to the offering required to be filed pursuant to Rule 424;
	(ii)	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Company or used or referred to by the undersigned Company;
	(iii)	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Company or its securities provided by or on behalf of the undersigned Company; and
	(iv)	Any other communication that is an offer in the offering made by the undersigned Company to the purchaser.

 

(5)

That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Company is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida on August 2, 2021.

 

	BLUE STAR FOODS CORP.
	By:	/s/ John Keeler
		John Keeler Chief Executive Officer and Executive Chairman (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

August 2, 2021	By:	/s/ John Keeler
		John Keeler Chief Executive Officer and Executive Chairman and director
		(Principal Executive Officer)
August 2, 2021	By:	/s/ Silvia Alana
		Silvia Alana Chief Financial Officer (Principal Financial and Accounting Officer)
August 2, 2021	By:	/s/ Jeffrey J. Guzy
		Jeffrey J. Guzy Director
August 2, 2021	By:	/s/ Nubar Herian
		Nubar Herian Director

 

August 2, 2021	By:	/s/ Timothy McLellan
		Timothy McLellan
		Director
August 2, 2021	By:	/s/ Trond Ringstad
		Trond Ringstad
		Director