8-K/A
Blue Star Foods Corp. (BSFC)
UNITEDSTATES
SECURITIESAND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
FORM8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): November 26, 2019
BLUESTAR FOODS CORP.
(Exact name of registrant as specified in its charter)
| Delaware | 000-55903 | 82-4270040 |
|---|---|---|
| (State<br> or other jurisdiction of<br><br> <br>incorporation<br> or organization) | (Commission<br><br> <br>File<br> Number) | (IRS<br> Employer<br><br> <br>Identification<br> No.) |
3000 NW 109th Avenue
Miami, Florida 33172
(Address of principal executive offices)
(860) 633-5565
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| [ ] | Written communications<br> pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| [ ] | Soliciting material<br> pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement<br> communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title<br> of each class | Trading<br> Symbol(s) | Name<br> of each exchange on which registered |
|---|---|---|
| None | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 13(a) of the Exchange Act. [ ]
EXPLANATORYNOTE
On December 2, 2019, Blue Star Foods Corp., a Delaware corporation (the “Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Form 8-K”) to report the acquisition by the Company of Coastal Pride Company, Inc., a South Carolina corporation, and related matters. This Amendment No. 1 on Form 8-K/A is being filed by the Company to amend and restate the original Form 8-K in its entirety, and to supplement the original Form 8-K to include the financial statements and pro forma information required by Item 9.01.
Section1 – Registrant’s Business and Operations
Item1.01 Entry into a Material Definitive Agreement.
Merger
On November 26, 2019, John Keeler & Co., Inc., a Florida corporation (the “Purchaser”), and wholly-owned direct subsidiary of Blue Star Foods Corp. (the “Company”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Coastal Pride Company, Inc., a South Carolina corporation (“Coastal Pride”), 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 immediately prior to the Merger (collectively, the “Sellers”). Pursuant to the terms of the Merger Agreement, Coastal Pride merged with and into the Acquisition Subsidiary, with the Acquisition Subsidiary being the surviving company (the “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 Merger Agreement, the following consideration was paid by the Purchaser:
(i) an aggregate of $394,622 in cash (the “Cash Consideration”);
(ii) a five-year 4% promissory note in the principal amount of $500,000 (the “Lubkin Note), issued by the Purchaser 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 the Purchaser to Greco, Walter III and Lubkin, pro rata to their ownership of Coastal Pride immediately prior to the 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, Walter III and Lubkin, pro rata to their ownership of Coastal Pride immediately prior to the 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 Merger Agreement and are subordinate and subject to prior payment of all indebtedness of the Purchaser under the Loan Agreement with ACF Finco I LP (“ACF”), as described below.
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.
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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”).
The Purchaser has the right to prepay the Notes in whole or in part at any time without penalty or premium.
At the effective time of the 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 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 Merger, Lubkin III and Greco agreed to serve as president and chief financial officer, respectively, of the Surviving Company.
The foregoing descriptions of the Merger Agreement, the Lubkin Note, the form of Sellers Note, and the form of Leak-Out Agreement, are qualified in their entirety by reference to the full text of such documents, copies of which are attached hereto as Exhibits 10.29, 10.30, 10.31 and 10.32, respectively. All statements made herein concerning said Agreements and Notes are qualified by reference to said Exhibits.
LoanAgreement with ACF
ACF and the Purchaser are parties to a Loan and Security Agreement, originally dated as of August 31, 2016 (as amended, the “Loan Agreement”). The Purchaser’s obligations under the Loan Agreement are guaranteed by the Company. 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 Merger, the Acquisition Subsidiary and the Purchaser entered into the Joinder and Seventh Amendment to the Loan Agreement (the “Seventh Amendment”) which resulted, among other things, in the Surviving Company becoming an additional borrower under the Loan Agreement.
The foregoing description of the Seventh Agreement is qualified in its entirety by reference to the full text of such Agreement, a copy of which is attached hereto as Exhibit 10.33. All statements made herein concerning said Agreement are qualified by reference to said Exhibit.
The information set forth below in Items 2.01 and 3.02 is hereby incorporated by reference into this Item 1.01.
Section2 – Financial Information
Item2.01 Completion of Acquisition or Disposition of Assets.
On November 26, 2019, the Merger, and the additional transactions contemplated by the Merger Agreement, were consummated. As a result, Coastal Pride was merged with and into Acquisition Subsidiary, and Acquisition Subsidiary, as the surviving company, remained as the indirect wholly-owned subsidiary of the Company. In addition to the Cash Consideration paid by the Purchaser to the Sellers at the closing of the Merger, the Notes and Consideration Shares were issued as described above.
The information set forth above in Item 1.01 and below in Item 3.02 is hereby incorporated by reference into this Item 2.01.
Section3- Securities and Trading Markets
Item3.02 Unregistered Sale of Equity Securities.
As described in Item 1.01 above, on November 26, 2019, as partial consideration for the acquisition of Coastal Pride, the Purchaser issued the Notes, and the Company issued the Consideration Shares.
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The Notes and Consideration Shares issued pursuant to the Merger Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued and sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act.
The information set forth above in Items 1.01 is hereby incorporated by reference into this Item 3.02.
Section7 - Regulation FD
Item7.01 Regulation FD Disclosure.
On December 2, 2019, the Company issued a press release announcing the Merger. The text of the press release is furnished as Exhibit 99.1 and incorporated herein by reference.
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K/A includes information that may constitute forward-looking statements. These forward-looking statements are based on the Company’s current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to the Company. By their nature, forward-looking statements address matters that are subject to risks and uncertainties. Forward looking statements include, without limitation, statements relating to projected industry growth rates, the Company’s current growth rates and the Company’s present and future cash flow position. A variety of factors could cause actual events and results, as well as the Company’s expectations, to differ materially from those expressed in or contemplated by the forward-looking statements. Risk factors affecting the Company are discussed in detail in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable securities laws.
The information in Item 7.01 to this Current Report on Form 8-K, including Exhibit 99.1 is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, except as expressly set forth by specific reference in such filing.
Section9 – Financial Statements and Exhibits
Item9.01 Financial Statements and Exhibits.
| (a) | Financial Statements<br> of Business Acquired |
|---|---|
| In accordance with<br> Item 9.01(a), Coastal Pride Company, Inc.’s (i) audited balance sheets as of December 31, 2018 and 2017 and statement<br> of operations, statement of changes in stockholder’s equity and statement of cash flows for the year ended December<br> 31, 2018 are filed with this Report as Exhibit 99.2 and (ii) unaudited balance sheet as of September 30, 2019 and statement<br> of operations, statement of changes in stockholder’s equity and statement of cash flows for the nine months ended September<br> 30, 2019 are filed with this Report as Exhibit 99.3 | |
| (b) | Pro Forma<br> Financial Information |
| In<br>accordance with Item 9.01(b), the Company’s pro forma unaudited combined financial statements for the fiscal year ended<br>December 31, 2018 and for the nine months ended September 30, 2019 are filed with this Report as Exhibit 99.4. |
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| --- | | (d) | Exhibits | | --- | --- | | Exhibit No. | Description of Exhibit | | --- | --- | | 10.29 | 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 (1) | | 10.30 | $500,000 Promissory Note, dated November 26, 2019, issued to Walter Lubkin, Jr. by John Keeler & Co., Inc. (1) | | 10.31 | Form of Sellers Note issued by John Keeler & Co., Inc. (1) | | 10.32 | Form of Leak-Out Agreement (1) | | 10.33 | 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 (1) | | 99.1 | Press Release, dated December 2, 2019 (1) | | 99.2 | Audited balance sheets as of December 31, 2018 and 2017 and statement of operations, statement of changes in stockholder’s equity and statement of cash flows for the year ended December 31, 2018 for Coastal Pride Company, Inc. | | 99.3 | Unaudited balance sheet as of September 30, 2019 and statement of operations, statement of changes in stockholder’s equity and statement of cash flows for the nine months ended September 30, 2019 for Coastal Pride Company, Inc. | | 99.4 | Pro forma unaudited combined financial statements for the fiscal year ended December 31, 2018 and for the nine months ended September 30, 2019 | | (1) | Incorporated<br> by reference to the corresponding exhibit of the Company’s Current Report on Form 8-K filed with the SEC on December<br> 2, 2019 | | --- | --- |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
| BLUE STAR FOODS CORP. | ||
|---|---|---|
| Dated:<br> February 11, 2020 | By: | /s/John Keeler |
| John Keeler |
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Exhibit 99.2
CoastalPride Company, Inc.
Financial Statements
December 31, 2018 and 2017
Table of Contents
| Page | |
|---|---|
| Report of Independent Registered Public Accounting Firm | 1 |
| Balance Sheets | 2 |
| Statement of Operations | 3 |
| Statement of Stockholder’s Equity | 4 |
| Statement of Cash Flows | 5 |
| Notes to Financial Statements | 6<br> – 12 |
INDEPENDENTAUDITOR’S REPORT
To the Stockholders and Board of Directors of:
Coastal Pride Company, Inc.
We have audited the accompanying balance sheets of Coastal Pride Company, Inc. (the “Company”) as of December 31, 2018 and 2017, and the related statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”).
Management’sResponsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’sResponsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Coastal Pride Company, Inc. (the “Company”) as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended December 31, 2018 then ended[is highlighted needed?] in conformity with accounting principles generally accepted in the United States of America.
LIGGETT & WEBB, P.A.
CertifiedPublic Accountants
Boynton Beach, Florida
October 18, 2019
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COASTALPRIDE COMPANY, INC.
BALANCESHEETS
DECEMBER31, 2018 AND 2017
| December 31, 2017 | |||
|---|---|---|---|
| ASSETS | |||
| CURRENT ASSETS | |||
| Cash | 27,758 | $ | - |
| Accounts receivable, net | 1,450,293 | 1,251,933 | |
| Inventory, net | 2,247,065 | 1,232,501 | |
| Other current assets | 127,053 | 87,306 | |
| Total current assets | 3,852,169 | 2,571,740 | |
| Fixed Assets, net | 6,652 | 6,621 | |
| Deferred Tax Assets | 17,351 | 15,726 | |
| TOTAL ASSETS | 3,876,172 | $ | 2,594,087 |
| LIABILITIES AND STOCKHOLDER’S EQUITY | |||
| CURRENT LIABILITIES | |||
| Accounts payable and accruals | 1,151,636 | $ | 924,794 |
| Cash overdraft | 7,982 | ||
| Working capital line of credit | 1,678,169 | 793,805 | |
| Total current liabilities | 2,829,805 | 1,726,581 | |
| TOTAL LIABILITIES | 2,829,805 | 1,726,581 | |
| COMMITMENTS AND CONTINGENCIES (See Note 5) | |||
| STOCKHOLDER’S EQUITY | |||
| Common stock, 1.00 par value, 100,000 shares authorized; 1,265 shares issued and outstanding as of December 31, 2018 and December 31, 2017 | 1,265 | 1,265 | |
| Additional paid-in capital | 110,359 | 110,359 | |
| Retained earnings | 934,743 | 755,882 | |
| TOTAL STOCKHOLDER’S EQUITY | 1,046,367 | 867,506 | |
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | 3,876,172 | $ | 2,594,087 |
All values are in US Dollars.
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COASTALPRIDE COMPANY, INC.
STATEMENTOF OPERATIONS
FORTHE YEAR ENDED DECEMBER 31, 2018
| For the Year Ended | |||
|---|---|---|---|
| December 31, 2018 | |||
| REVENUE, NET | $ | 11,452,000 | |
| COST OF REVENUE | 9,891,865 | ||
| GROSS PROFIT | 1,560,135 | ||
| OPERATING EXPENSES: | |||
| COMMISSIONS | 688,265 | ||
| SALARIES & WAGES | 330,878 | ||
| OTHER OPERATING EXPENSES | 245,953 | ||
| TOTAL OPERATING EXPENSES | 1,265,096 | ||
| INCOME FROM OPERATIONS | 295,039 | ||
| OTHER EXPENSE: | |||
| INTEREST EXPENSE | (39,605 | ) | |
| TOTAL OTHER EXPENSE | (39,605 | ) | |
| INCOME FROM OPERATIONS BEFORE INCOME TAXES | 255,434 | ||
| PROVISION FOR INCOME TAXES | 76,573 | ||
| NET INCOME | $ | 178,861 |
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COASTALPRIDE COMPANY, INC.
STATEMENTOF CHANGES IN STOCKHOLDER’S EQUITY
FORYEAR ENDED DECEMBER 31, 2018
| Common Stock 1.00 par value | Additional Paid-in | Retained | Total Stockholder’s | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Capital | Earnings | Equity | |||||
| Balance, December 31, 2017 | $ | 1,265 | $ | 110,359 | $ | 755,882 | $ | 867,506 | |
| Net Income | - | 178,861 | 178,861 | ||||||
| Balance, December 31, 2018 | $ | 1,265 | $ | 110,359 | $ | 934,743 | $ | 1,046,367 |
All values are in US Dollars.
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COASTALPRIDE COMPANY, INC.
STATEMENTOF CASH FLOWS
FORTHE YEAR ENDED DECEMBER 31, 2018
| For the Year Ended | |||
|---|---|---|---|
| December 31, 2018 | |||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||
| Net Income | $ | 178,861 | |
| Adjustments to reconcile net income to net cash used in operating activities: | |||
| Depreciation of fixed assets | 4,888 | ||
| Provision for bad debt | 11,111 | ||
| Changes in operating assets and liabilities: | |||
| Accounts Receivable | (209,471 | ) | |
| Inventories | (1,014,564 | ) | |
| Other current assets | (39,747 | ) | |
| Deferred tax asset | (1,625 | ) | |
| Accounts payable and accruals | 226,842 | ||
| Net cash used in operating activities | (843,705 | ) | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
| Purchases of fixed assets | (4,919 | ) | |
| Net cash used in investing activities | (4,919 | ) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||
| Proceeds from working capital lines of credit, net of repayment | 884,364 | ||
| Cash overdraft | (7,982 | ) | |
| Net cash provided by financing activities | 876,382 | ||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 27,758 | ||
| CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD | - | ||
| CASH, AND CASH EQUIVALENTS - END OF PERIOD | $ | 35,740 | |
| Supplemental Disclosure of Cash Flow Information | |||
| Cash paid for interest expense | $ | 39,605 | |
| Cash paid for income taxes | $ | 78,588 |
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CoastalPride Company, Inc.
Notesto Financial Statements
December31, 2018 and 2017
| Note 1. | Company Overview<br><br> <br><br><br> <br>Located<br> in Beaufort, South Carolina, Coastal Pride Company, Inc. (the “Company”) has been in business since January<br> of 1992. The Company was formed under the laws of the State of South Carolina. The primary focus of the Company and current<br> source of revenue is importing blue and red swimming crab meat primarily from Indonesia, Philippines, Mexico, Venezuela<br> and China and distributing it in the United States of America under several brand names such as Lubkin’s Coastal<br> Pride, and Lubkin’s First Choice. |
|---|---|
| Note 2. | Summary of Significant Accounting Policies |
Basisof 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”).
Cash, Restricted Cash and Cash Equivalents
For financial reporting purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
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. They are stated at estimated net realizable value. As of December 31, 2018 and 2017, the Company recorded allowances for doubtful accounts of $16,357 and $5,246, respectively.
Inventories
Substantially all of the Company’s inventory consists of packaged crab meat located in 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, using the first-in, first-out method.
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CoastalPride Company, Inc.
Notesto Financial Statements
December31, 2018 and 2017
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 $739,044 and $266,334 as of December 31, 2018 and December 31, 2017, 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 net realizable value 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 did not record an inventory allowance for the years ended December 31, 2018 and December 31, 2017.
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<br> and fixtures | 7<br> to 10 years |
|---|---|
| Computer<br> equipment | 5<br> years |
| Computer<br> Software | 3 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.
Revenue Recognition
The Company recognizes revenue when the products are shipped, the risks of ownership transfer to the customer and collectability is reasonably assured. Revenue is stated net of sales returns and allowances.
Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.
For the sale of certain third-party products, the Company evaluates whether it is appropriate to recognize revenue based on the gross amount billed to the customers or the net amount earned as revenue share. Generally, when the Company records revenue on a gross basis, the Company is the primary obligor in a transaction, and has also considered other factors, including whether the Company is subject to inventory risk or has latitude in establishing prices. For the year ended December 31, 2018, the Company has recognized approximately $93,000 on a net basis as the Company acts as an agent for one of its customers.
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CoastalPride Company, Inc.
Notesto Financial Statements
December31, 2018 and 2017
Advertising
The Company expenses the costs of advertising as incurred. Advertising expenses which are included in Other Operating Expenses were approximately $2,642 for the year ended December 31, 2018.
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. Significant estimates include estimate of income taxes, useful life of fixed assets, and allowance for doubtful accounts.
Customer Concentration
No customer accounted for more than 10% of the Company’s revenues for the year ended December 31, 2018.
Supplier Concentration
The Company had four suppliers who accounted for more than 10% of the Company’s total purchases during the year ended December 31, 2018 as follows:
| Country | % of Total | ||
|---|---|---|---|
| Indonesia | 39 | % | |
| Mexico | 30 | % | |
| Venezuela | 20 | % |
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
The Company’s financial instruments include cash, accounts receivable, accounts payable, accrued expenses, and debt obligations. The Company believes the carrying values of its financial instruments approximate their fair values because they are short term in nature or payable on demand.
Income Taxes
The Company assesses its tax positions in accordance with ASC 740, Income Taxes, which provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return for open tax years (generally a period of three years from the later of each return’s due date or the date filed), that remain subject to examination by the Company’s major tax jurisdictions. The Company’s tax returns for 2014 through 2018 remain subject to examination by the Internal Revenue Service and state taxing authorities.
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CoastalPride Company, Inc.
Notesto Financial Statements
December31, 2018 and 2017
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to uncertain tax positions, if any, are classified as a component of income tax expense. The Company believes that it does not have any significant uncertain tax positions requiring recognition or measurement in the accompanying financial statements.
RecentAccounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows or financial condition.
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CoastalPride Company, Inc.
Notesto Financial Statements
December31, 2018 and 2017
| Note 3. | Fixed Assets<br><br> <br><br><br> <br>Fixed<br> assets comprised the following at December 31: | |||||
|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Computer equipment | $ | 22,514 | $ | 22,514 | ||
| Computer Software | 16,212 | 16,212 | ||||
| Leasehold improvements | 4,919 | - | ||||
| Office Furniture and Equipment | 3,477 | 3,477 | ||||
| Total | 47,122 | 42,203 | ||||
| Less: Accumulated depreciation and amortization | (40,470 | ) | (35,582 | ) | ||
| Fixed assets, net | $ | 6,652 | $ | 6,621 |
For the year ended December 31, 2018 depreciation and amortization expense of fixed assets totaled approximately $4,888.
| Note<br> 4. | Working<br> Capital Line of Credit |
|---|
The Company secured a $2,000,000 working capital line of credit from Regions Bank on June 10, 2013. The note was last renewed on July 16, 2019 extending its expiration date through July 16, 2020. The note is secured by the Company’s trade accounts receivable and inventory and has been guaranteed by certain key employees of the Company.
The maximum amount that can be drawn on the line of credit is limited to the lesser of $2,000,000 or the sum of 80% of the aggregate amount of eligible accounts receivable plus 50% of the aggregate amount of eligible inventory not to exceed $1,000,000.
Eligible accounts receivable exclude trade accounts receivable balances over 90 days, the entire account for any debtor whose balance over 90 days exceeds 25% of the debtor’s total balance and the portion of the accounts of any single debtor which exceeds 20% of the Company’s total accounts receivable balance.
Eligible inventory excludes inventory older than 12 months, inventory not owned by the Company free and clear, and inventory which is obsolete, damaged, or defective.
The eligible accounts receivable and inventory as defined above serve as the collateral for the line of credit.
Interest is charged at 2.750 percentage points plus the LIBOR index resulting in an initial rate of 5.075% per annum based on a year of 360 days, and is payable monthly. The interest rate was 5.25375% at December 31, 2018. Interest on the Regions Bank line of credit was $39,605 for 2018, all of which was expensed.
The working capital line of credit from Regions Bank is backed by personal guarantees from all five Company stockholders.
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Coastal Pride Company, Inc.
Notes to Financial Statements
December 31, 2018 and 2017
| Note<br> 5. | Commitment<br> and Contingencies |
|---|
Commitment
The Company leases its office space from a related party for $1,255 per month. The lease expires on December 31, 2024. The Company leases its additional office space from an entity controlled by officers and stockholders of the Company for $580 for the first seven months of the year and then $750 for the remaining months. The lease expires on December 31, 2023 and has a one-time renewal option for five years with an increased rent clause.
At December 31, 2018, future minimum lease payments under operating lease agreements are as follows:
| 2019 | 24,060 | |
|---|---|---|
| 2020 | 24,060 | |
| 2021 | 24,060 | |
| 2022 | 24,060 | |
| 2023 | 24,060 | |
| $ | 120,300 |
Rent expenses amounted to approximately $22,870 for the year ended December 31, 2018.
LegalContingencies
There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.
| Note 6. | Employee Benefit Plan<br><br> <br><br><br> <br>The<br> Company established a retirement plan under Internal Revenue Code Section 408(p), commonly known as a SIMPLE Retirement<br> Plan, covering substantially all of its employees. All employees with $5,000 in compensation in the prior year are eligible<br> to participate. Employees may make elective contributions to the plan up to $12,500 or $15,500 for those older than 50<br> years. The Company is required to match the employee’s contribution up to 3% of the employee’s compensation<br> for the year. Alternatively, the Company can contribute 1% of the employee’s compensation in no more than two out<br> of any five-year period if it notifies the employees in writing of the lower percentage. The Company may also elect to<br> contribute an additional contribution of 2% of compensation for each employee eligible to participate who has at least<br> $5,000 of compensation for the year. The Company contributed matching funds to the retirement plan of $19,757 for 2018<br> and had accrued liabilities for withholding and matching funds payable totaling $27,623 and $11,596 as of December 31,<br> 2018 and 2017, respectively. |
|---|
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CoastalPride Company, Inc.
Notesto Financial Statements
December31, 2018 and 2017
| Note 7. | Income Taxes<br><br> <br>****<br><br> <br>The<br> provision for income taxes for the years ended December 31, 2018 and 2017 consisted of the following: | |||||
|---|---|---|---|---|---|---|
| **** | 2018 | **** | 2017 | **** | ||
| --- | --- | --- | --- | --- | --- | --- |
| Current | ||||||
| Federal | $ | 62,839 | $ | 49,108 | ||
| State | 15,749 | 8,853 | ||||
| Deferred | ||||||
| Federal | (1,470 | ) | (11,537 | ) | ||
| State | (545 | ) | (1,878 | ) | ||
| Change in valuation allowance | - | - | ||||
| Income tax provision (benefit) | $ | 76,573 | $ | 44,546 | ||
| **** | 2018 | **** | 2017 | **** | ||
| --- | --- | --- | --- | --- | --- | --- |
| Deferred tax assets: | ||||||
| Allowance for doubtful accounts | $ | 4,253 | $ | 1,364 | ||
| Accrued Commissions/ Bonuses | 13,098 | 14,362 | ||||
| Deferred tax liabilities | ||||||
| Tax Depreciation in Excess of Book | (501 | ) | (1,106 | ) | ||
| Prepaid Insurance | (2,860 | ) | (2,647 | ) | ||
| Change in valuation allowance | - | - | ||||
| Net deferred tax assets: | $ | 13,990 | $ | 11,973 | ||
| Note8. | Related Party Transactions | |||||
| --- | --- |
The Company leases its office spaces from a related party and an entity controlled by officers and stockholders of the Company.
The working capital line of credit from Regions Bank is backed by personal guarantees from all five Company stockholders.
| Note 9. | Subsequent Events |
|---|
The Company evaluated its December 31, 2018 financial statements for subsequent events through October 18, 2019, the date the financial statements were available to be issued. The Company is not aware of any other subsequent events which would require recognition or disclosure in the financial statements.
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Exhibit 99.3
COASTALPRIDE COMPANY, INC.
CONDENSEDBALANCE SHEET
| December<br> 31, | |||
|---|---|---|---|
| 2018 | |||
| (Unaudited) | |||
| ASSETS | |||
| CURRENT ASSETS | |||
| Cash | 34,336 | $ | 27,758 |
| Accounts<br> receivable, net | 1,002,796 | 1,450,293 | |
| Inventory,<br> net | 1,389,833 | 2,247,065 | |
| Other<br> current assets and prepaid expense | 128,051 | 127,053 | |
| Total<br> current assets | 2,555,016 | 3,852,169 | |
| FIXED ASSETS, net | 10,170 | 6,652 | |
| DEFERRED<br> TAX ASSETS | 17,351 | 17,351 | |
| TOTAL<br> ASSETS | 2,582,537 | $ | 3,876,172 |
| LIABILITIES AND STOCKHOLDER'S<br> EQUITY | |||
| CURRENT LIABILITIES | |||
| Accounts<br> payable and accruals | 471,909 | $ | 1,151,636 |
| Working<br> capital line of credit | 1,091,954 | 1,678,169 | |
| Total<br> current liabilities | 1,563,863 | 2,829,805 | |
| TOTAL<br> LIABILITIES | 1,563,863 | 2,829,805 | |
| COMMITMENTS AND CONTINGENCIES<br> (See Note 4) | |||
| STOCKHOLDER'S EQUITY | |||
| Common stock, 1.00 par value, 100,000 shares<br> authorized; 1,265 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 1,265 | 1,265 | |
| Additional<br> paid-in capital | 110,359 | 110,359 | |
| Retained<br> earnings | 907,050 | 934,743 | |
| TOTAL<br> STOCKHOLDER'S EQUITY | 1,018,674 | 1,046,367 | |
| TOTAL<br> LIABILITIES AND STOCKHOLDER'S EQUITY | 2,582,537 | $ | 3,876,172 |
All values are in US Dollars.
The accompanying notes are an integral part of these unaudited condensed financial statements
COASTALPRIDE COMPANY, INC.
CONDENSEDSTATEMENT OF OPERATIONS
FORTHE NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018
(UNAUDITED)
| 2019 | 2018 | |||||
|---|---|---|---|---|---|---|
| REVENUE,<br> NET | $ | 7,454,866 | $ | 8,742,423 | ||
| COST OF REVENUE | 6,724,187 | 7,437,904 | ||||
| GROSS PROFIT | 730,678 | 1,268,519 | ||||
| OPERATING EXPENSES: | ||||||
| COMMISSIONS | 321,600 | 535,728 | ||||
| SALARIES & WAGES | 214,842 | 262,590 | ||||
| OTHER<br> OPERATING EXPENSES | 193,191 | 189,859 | ||||
| TOTAL OPERATING EXPENSES | 729,633 | 988,177 | ||||
| INCOME FROM OPERATIONS | 1,045 | 280,342 | ||||
| OTHER INCOME (EXPENSE)<br> : | ||||||
| INTEREST EXPENSE | (50,822 | ) | (28,001 | ) | ||
| OTHER<br> INCOME | 22,084 | - | ||||
| TOTAL<br> OTHER INCOME (EXPENSE) | (28,738 | ) | (28,001 | ) | ||
| INCOME (LOSS) FROM<br> OPERATIONS BEFORE INCOME TAXES | (27,693 | ) | 252,341 | |||
| PROVISION<br> FOR INCOME TAXES | - | 58,887 | ||||
| NET<br> INCOME (LOSS) | $ | (27,693 | ) | $ | 193,454 |
The accompanying notes are an integral part of these unaudited condensed financial statements
COASTALPRIDE COMPANY, INC.
CONDENSEDSTATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FORTHE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
| Common<br> Stock 1.00 par value | Additional | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Paid-in<br> Capital | Retained<br> Earnings | Stockholder's<br> Equity | |||||
| December 31, 2017 | $ | 1,265 | $ | 110,359 | $ | 755,882 | $ | 867,506 | |
| Net<br> Income | - | 193,454 | 193,454 | ||||||
| September 30, 2018 (unaudited) | $ | 1,265 | $ | 110,359 | $ | 949,336 | $ | 1,060,960 |
All values are in US Dollars.
| Common<br> Stock 1.00 par value | Additional | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Paid-in<br> Capital | Retained<br> Earnings | Stockholder's<br> Equity | |||||||
| December 31, 2018 | $ | 1,265 | $ | 110,359 | $ | 934,743 | $ | 1,046,367 | |||
| Net<br> Loss | - | (27,693 | ) | (27,693 | ) | ||||||
| September 30,2019<br> (unaudited) | $ | 1,265 | $ | 110,359 | $ | 907,050 | $ | 1,018,674 |
All values are in US Dollars.
The accompanying notes are an integral part of these unaudited condensed financial statements
COASTALPRIDE COMPANY, INC.
CONDENSEDSTATEMENT OF CASH FLOWS
FORTHE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(UNAUDITED)
| 2019 | 2018 | |||||
|---|---|---|---|---|---|---|
| CASH FLOWS FROM OPERATING<br> ACTIVITIES: | ||||||
| Net<br> Income (Loss) | $ | (27,693 | ) | $ | 193,454 | |
| Adjustments<br> to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Depreciation<br> of fixed assets | 3,636 | 6,001 | ||||
| Provision<br> for bad debt | 13,350 | 13,155 | ||||
| Changes<br> in operating assets and liabilities: | ||||||
| Receivables | 434,147 | 152,367 | ||||
| Inventories | 857,232 | (243,144 | ) | |||
| Other<br> current assets and prepaid expense | (998 | ) | 10,122 | |||
| Accounts<br> payable and accruals | (679,727 | ) | (31,856 | ) | ||
| Net<br> cash provided by operating activities | 599,947 | 100,099 | ||||
| CASH FLOWS FROM INVESTING<br> ACTIVITIES: | ||||||
| Purchases<br> of fixed assets | (7,154 | ) | (4,919 | ) | ||
| Net<br> cash used in investing activities | (7,154 | ) | (4,919 | ) | ||
| CASH FLOWS FROM FINANCING<br> ACTIVITIES: | ||||||
| Cash<br> Overdraft | - | (7,982 | ) | |||
| Repayment<br> from working capital lines of credit, net of proceeds | (586,215 | ) | (59,439 | ) | ||
| Net<br> cash used in financing activities | (586,215 | ) | (67,421 | ) | ||
| NET INCREASE IN CASH<br> AND CASH EQUIVALENTS | 6,578 | 27,759 | ||||
| CASH<br> AND CASH EQUIVALENTS BEGINNING OF PERIOD | 27,758 | - | ||||
| CASH,<br> AND CASH EQUIVALENTS - END OF PERIOD | $ | 34,336 | $ | 27,759 | ||
| Supplemental Disclosure<br> of Cash Flow Information | ||||||
| Cash<br> paid for interest expense | $ | 50,822 | $ | 28,001 | ||
| Cash<br> paid for income taxes | $ | 26,700 | $ | 81,858 |
The accompanying notes are an integral part of these unaudited condensed financial statements
NOTESTO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note1. Company Overview
Located in Beaufort, South Carolina, Coastal Pride Company., Inc. (the “Company”) has been in business since January of 1992. The Company was formed under the laws of the State of South Carolina. The primary focus of the Company and current source of revenue is importing blue and red swimming crab meat primarily from Indonesia, Philippines, Mexico, Venezuela and China and distributing it in the United States of America under several brand names such as Lubkin’s Coastal Pride, and Lubkin’s First Choice.
Note2. Basis of Presentation and Summary of Significant Accounting Policies
Basisof Presentation
The accompanying unaudited condensed financial statements have been prepared 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 generally accepted accounting principles 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 balance sheet as of December 31, 2018 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 financial statements and notes thereto which are included in this Current Report on Form 8K/A for a broader discussion of our business and the risks inherent in such business. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
Cash,Restricted Cash and Cash Equivalents
For financial reporting purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
RevenueRecognition
The Company recognizes revenue when products are shipped, the risks of ownership transfer to the customer and collectability is reasonably assured. Revenue is stated net of sales returns and allowances.
Revenue is inclusive of shipping and handling fees and all related costs of shipping and handling related to sales to customers are categorized as cost of revenue.
For the sale of certain third-party products, the Company evaluates whether it is appropriate to recognize revenue based on the gross amount billed to the customers or the net amount earned as revenue share. Generally, when the Company records revenue on a gross basis, the Company is the primary obligor in a transaction, and has also considered other factors, including whether the Company is subject to inventory risk or have latitude in establishing prices. For the nine months ended September 30, 2019 and 2018, the Company has recognized approximately $5,000 and $56,000 of revenue, respectively, on a net basis as the Company acts as an agent for one of its customers.
IncomeTaxes
The Company assesses its tax positions in accordance with ASC 740, Income Taxes, which provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return for open tax years (generally a period of three years from the later of each return's due date or the date filed), that remain subject to examination by the Company's major tax jurisdictions. The Company's tax returns for 2014 through 2018 remain subject to examination by the Internal Revenue Service and state taxing authorities.
Note3. Debt
WorkingCapital Line of Credit
The Company secured a $2,000,000 working capital line of credit from Regions Bank on June 10, 2013 which is secured by the Company’s trade accounts receivable and inventory and personally guaranteed by the Company’s stockholders. The note was last amended on July 16, 2019 to extend its expiration date through July 16, 2020.
The maximum amount that can be drawn on the line of credit is equal to the lesser of $2,000,000 or the sum of 80% of the aggregate amount of eligible accounts receivable plus 50% of the aggregate amount of eligible inventory not to exceed $1,000,000.
Eligible accounts receivable exclude trade accounts receivable with balances over 90 days, the entire account for any debtor whose balance over 90 days exceeds 25% of the debtor’s total balance and the portion of the accounts of any single debtor which exceeds 20% of the Company’s total accounts receivable balance.
Eligible inventory excludes inventory older than 12 months, inventory not owned by the Company free and clear, and inventory which is obsolete, damaged, or defective.
Eligible accounts receivable and inventory serve as the collateral for the line of credit.
The interest rate is 2.750 percentage points plus the LIBOR index resulting in an initial rate of 5.075% per annum based on a year of 360 days, and is payable monthly. The interest rate was 4.77% at September 30, 2019. Interest was approximately $51,000 and $28,000 for the nine months ending September 30, 2019 and 2018, respectively, all of which was expensed.
Note4. Commitment and Contingencies
Officelease
The Company leases office space from Janet S. Lubkin for $1,255 per month and from 307, LLC for $580 for seven months and then $750 for five months, both related parties through common family beneficial ownership. The lease with Janet S. Lubkin expires on December 31, 2024. The lease with 307, LLC expires on December 31, 2023and may be renewal for five years with an increased rent clause.
Rental expenses amounted to approximately $18,045 and 16,855 for the nine months ended September 30, 2019 and 2018, respectively.
LegalContingencies
There are no pending legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.
Note5. Related Party Transactions
The Company leases its office spaces from a related party and an entity controlled by officers and stockholders of the Company.
The Working Capital Line of Credit from Regions Bank is backed by personal guarantees from all five Company stockholders.
Note6. Subsequent Events
On November 26, 2019, the shareholders of Coastal Pride Company, Inc. executed an Agreement and Plan of Merger and Reorganization (“Merger Agreement”) with John Keeler & Co., Inc. (“Purchaser”) and 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”). Pursuant to the terms of the Merger Agreement, the Company merged with and into the Acquisition Subsidiary, with the Acquisition Subsidiary being the surviving company (the “Merger”).
Pursuant to the terms of the Merger Agreement, the following consideration was paid by the Purchaser:
(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 the Purchaser 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 the Purchaser to Tracy Lubkin Greco (“Greco”), Walter F. Lubkin III (“Walter III”) and John C. Lubkin (“Lubkin”), pro rata to their ownership of the Company immediately prior to the Merger;
(iii) 500,000 shares of common stock ofBlue Star Foods Corp. issued to Walter Jr.; and
(iii) an aggregate of 795,000 shares of common stock of Blue Star Foods Corp., issued to Greco, Walter III and Lubkin, pro rata to their ownership of the Company immediately prior to the Merger. .
The Notes are subject to a right of offset against the Sellers’ indemnification obligations as described in the Merger Agreement and are subordinate and subject to prior payment of all indebtedness of the Purchaser under the Loan Agreement with ACF Finco I LP, as described below.
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 Purchaser has the right to prepay the Notes in whole or in part at any time without penalty or premium.
The Merger was accounted for as a “forward merger” and recapitalization since, immediately following the completion of the transaction, the holders of John Keeler & Co., Inc.’s stock will have effective control of Coastal Pride Seafood, LLC.
On November 26, 2019 the Regions line of credit was paid in full, the guarantors were released from their obligation as part of the Merger transaction as described above.
Exhibit99.4
UNAUDITEDPRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information and related notes give effect to the Merger present the historical condensed combined financial information of Blue Star Foods Corp. (herein referred to as the “Company”, “we”, “our”, “us” and similar terms unless the context indicates otherwise) and Coastal Pride Company, Inc. (“Coastal”), after giving effect to the Agreement and Plan of Merger and Reorganization with John Keeler & Co., Inc. (“Purchaser”) and 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) that was completed on November 26, 2019, (the “Merger”). The Merger was accounted for as a “forward merger” and recapitalization since, immediately following the completion of the transaction, the holders of John Keeler & Co., Inc.’s stock will have effective control of Coastal Pride Seafood, LLC.
The unaudited pro forma condensed combined financial information gives effect to the merger of Coastal based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
Pursuant to the terms of the Merger Agreement, the following consideration was paid by the Purchaser:
(i) an aggregate of $394,622 in cash (the “Cash Consideration”);
(ii) a five-year 4% promissory note in the principal amount of $500,000 (the “Lubkin Note), issued by the Purchaser 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 the Purchaser to Tracy Lubkin Greco (“Greco”), Walter F. Lubkin III (“Walter III”) and John C. Lubkin (“Lubkin”), pro rata to their ownership of Coastal Pride immediately prior to the Merger;
(iii) 500,000 shares of common stock of Blue Star Foods Corp., issued to Walter Lubkin, Jr. (; and
(iii) an aggregate of 795,000 shares of common stock of Blue Star Foods Corp., issued to Greco, Walter III and Lubkin, pro rata to their ownership of Coastal Pride immediately prior to the Merger .
The Notes are subject to a right of offset against the Sellers’ indemnification obligations as described in the Merger Agreement and are subordinate and subject to prior payment of all indebtedness of the Purchaser under the Loan Agreement with ACF Finco I LP, as described below.
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 Purchaser has the right to prepay the Notes in whole or in part at any time without penalty or premium
The unaudited pro forma condensed combined balance sheet as of September 30, 2019 is presented as if the Merger had occurred on September 30, 2019. The unaudited condensed combined statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 are presented as if the Merger had occurred on January 1, 2018.
The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of the Securities and Exchange Commission’s Regulation S-X. The unaudited pro forma adjustments reflecting the transaction have been prepared in accordance with the guidance for business combinations presented in ASC 805, and reflect the allocation of our preliminary purchase price to the assets acquired and liabilities assumed in the Merger based on their estimated fair values. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the Merger; (ii) factually supportable; and (iii) with respect to the condensed combined statements of operations, expected to have a continuing impact on our combined results of operations.
The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been affected on the dates previously set forth, nor is it indicative of the future operating results or financial position in combination. Our preliminary purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses that are not yet final. As a result, the unaudited pro forma purchase price adjustments related to the Merger are preliminary and subject to further adjustments as additional information becomes available and as additional analyses are performed during the applicable measurement period under ASC 805 (up to one year from the Merger date). There can be no assurances that any final valuations will not result in material adjustments to our preliminary estimated purchase price allocation. Further, the unaudited pro forma condensed combined financial information does not give effect to the potential impact of anticipated synergies, operating efficiencies, cost savings or transaction and integration costs that may result from the Merger.
The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and their accompanying notes presented in our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Report on Form 10-Q for the nine months ended September 30, 2019, as well as the historical financial statements of Coastal for the year ended December 31, 2018 and unaudited financial statements for the nine month period ended September 30, 2019.
BLUESTAR FOODS CORP AND COASTAL PRIDE COMPANY, INC.
PROFORMACONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
| Coastal Pride Company, Inc <br> Sep. 30, 2019 | Adjustments | Adjustments Reference | Pro Forma <br> Combined and Consolidated | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash (including VIE 1,336) | 35,008 | $ | 34,336 | $ | 69,344 | ||||||
| Restricted Cash | 199,010 | 199,010 | |||||||||
| Accounts receivable, net (including VIE 56,761) | 1,701,568 | 1,002,796 | 2,704,364 | ||||||||
| Inventory, net (including VIE 42,784) | 6,997,675 | 1,389,833 | 102,027 | J | 8,489,535 | ||||||
| Advances to related party | 1,178,842 | 1,178,842 | |||||||||
| Other current assets (including VIE 8,310) | 85,881 | 128,051 | 213,932 | ||||||||
| Total current assets | 10,197,984 | 2,555,016 | 102,027 | 12,855,027 | |||||||
| FIXED ASSETS, net | 67,014 | 10,170 | 77,184 | ||||||||
| RIGHT OF USE ASSET | 1,145,348 | 1,145,348 | |||||||||
| INTANGIBLE ASSET | 1,269,058 | E,K | 2,017,475 | ||||||||
| GOODWILL | 1,207,716 | D,E,J | 459,299 | ||||||||
| OTHER ASSETS | 124,297 | 17,351 | 141,648 | ||||||||
| TOTAL ASSETS | 11,534,643 | $ | 2,582,537 | $ | 2,578,801 | $ | 16,695,981 | ||||
| LIABILITIES AND STOCKHOLDER'S DEFICIT | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable and accruals | 2,589,450 | $ | 471,909 | $ | 51,678 | B,H,I | $ | 3,113,037 | |||
| Working capital line of credit | 6,116,265 | 1,091,954 | 394,622 | I | 7,602,841 | ||||||
| Related Party Notes Payable | 1,100,000 | 1,100,000 | |||||||||
| Current maturities of long-term debt | 6,639 | 100,000 | B | 106,639 | |||||||
| Stockholder notes payable - Subordinated | 2,910,136 | 2,910,136 | |||||||||
| Total current liabilities | 12,722,490 | 1,563,863 | 546,300 | 14,832,653 | |||||||
| LONG -TERM RIGHT OF USE LIABILITY | 1,035,661 | 1,035,661 | |||||||||
| LONG -TERM DEBT | - | - | 610,000 | B | 610,000 | ||||||
| TOTAL LIABILITIES | 13,758,151 | 1,563,863 | 1,156,300 | 16,478,314 | |||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||
| STOCKHOLDER'S DEFICIT | |||||||||||
| Series A 8% cumulative convertible preferred stock, 0.0001 par value; 10,000 shares authorized, 1,413 shares issued and outstanding | - | ||||||||||
| Common stock, 0.0001 par value, 100,000,000 shares authorized; 16,015,000 shares issued and outstanding | 1,612 | 1,265 | (1,124 | ) | A,C,F | 1,753 | |||||
| Additional paid-in capital | 5,612,245 | 110,359 | 2,710,754 | A,C,F,G | 8,433,358 | ||||||
| Accumulated income (deficit) | (7,418,898 | ) | 907,050 | (1,287,129 | ) | C,G,K | (7,798,977 | ) | |||
| Total Stockholders Equity (Deficit) | (1,805,041 | ) | 1,018,674 | 1,422,501 | 636,134 | ||||||
| Non-controlling interest | (440,185 | ) | - | - | (440,185 | ) | |||||
| Accumulated other comprehensive income (VIE) | 21,718 | - | - | 21,718 | |||||||
| Total VIE's deficit | (418,467 | ) | - | - | (418,467 | ) | |||||
| - | |||||||||||
| TOTAL STOCKHOLDER'S EQUITY (DEFICIT) | (2,223,508 | ) | 1,018,674 | 1,422,501 | 217,667 | ||||||
| - | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT | 11,534,643 | $ | 2,582,537 | $ | 2,578,801 | $ | 16,695,981 |
All values are in US Dollars.
See Notes to Unaudited Pro Forma Combined Financial Statements.
BLUESTAR FOODS CORP AND COASTAL PRIDE COMPANY, INC.
PROFORMACONDENSED COMBINED INCOME STATEMENT
9MONTHS ENDED
(UNAUDITED)
| Coastal Pride Company, Inc<br><br> Sep. 30, 2019 | Adjustments | Adjustments Reference | Pro Forma Combined and Consolidated Sep. 30, 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| REVENUE, NET | 19,124,412 | $ | 7,454,866 | $ | - | $ | 26,579,278 | |||||
| COST OF REVENUE (including approximately 17,230,000 and 5,850,000 respectively, purchased from related party) | 16,431,715 | 6,724,187 | - | 23,155,902 | ||||||||
| GROSS PROFIT | 2,692,697 | 730,679 | - | 3,423,376 | ||||||||
| COMMISSIONS | 54,657 | 321,600 | 376,257 | |||||||||
| SALARIES & WAGES | 3,252,735 | 214,842 | 3,467,577 | |||||||||
| OTHER OPERATING EXPENSES | 2,117,516 | 193,191 | 358,779 | C,H,K | 2,669,486 | |||||||
| INCOME (LOSS) FROM OPERATIONS | (2,732,211 | ) | 1,046 | (358,779 | ) | (3,089,944 | ) | |||||
| OTHER INCOME | 22,084 | - | 22,084 | |||||||||
| OTHER EXPENSE | - | - | - | |||||||||
| INTEREST EXPENSE | (748,120 | ) | (50,822 | ) | (21,300 | ) | B | (820,242 | ) | |||
| NET INCOME (LOSS) | (3,480,331 | ) | (27,692 | ) | (380,079 | ) | (3,888,102 | ) | ||||
| Dividend on Preferred Stock | 84,780 | - | 84,780 | |||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | (3,565,111 | ) | $ | (27,692 | ) | $ | (380,079 | ) | $ | (3,972,882 | ) | |
| Income(Loss) per basic and diluted common share | $ | (0.23 | ) | |||||||||
| Basic and fully diluted average common shares outstanding | 17,340,616 |
All values are in US Dollars.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
BLUESTAR FOODS CORP AND COASTAL PRIDE COMPANY, INC.
PROFORMACONDENSED COMBINED INCOME STATEMENT
12MONTHS ENDED
(UNAUDITED)
| Coastal Pride Company, Inc<br><br> Dec. 31, 2018 | Adjustments | Adjustments Reference | Pro Forma Combined and Consolidated<br><br> Dec. 30, 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| REVENUE, NET | 32,165,933 | $ | 11,452,000 | $ | - | $ | 43,617,933 | |||||
| COST OF REVENUE (including approximately 17,230,000 and 5,850,000 respectively, purchased from related party) | 27,227,664 | 9,891,865 | - | 37,119,529 | ||||||||
| GROSS PROFIT | 4,938,269 | 1,560,135 | - | 6,498,404 | ||||||||
| COMMISSIONS | 133,240 | 688,265 | 821,505 | |||||||||
| SALARIES & WAGES | 2,594,677 | 330,878 | 2,925,555 | |||||||||
| SETTLEMENT & WARRANT EXPENSE | 769,353 | 769,353 | ||||||||||
| OTHER OPERATING EXPENSES | 2,709,009 | 245,953 | 392,954 | C,H,K | 3,347,916 | |||||||
| INCOME (LOSS) FROM OPERATIONS | (1,268,010 | ) | 295,039 | (392,954 | ) | (1,365,925 | ) | |||||
| OTHER INCOME | - | - | ||||||||||
| OTHER EXPENSE | - | - | - | |||||||||
| INTEREST EXPENSE | (1,009,106 | ) | (39,605 | ) | (28,400 | ) | B | (1,077,111 | ) | |||
| NET INCOME (LOSS) | (2,277,116 | ) | 255,434 | (421,354 | ) | (2,443,036 | ) | |||||
| Dividend on Preferred Stock | 16,328 | - | 16,328 | |||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | (2,293,444 | ) | $ | 255,434 | $ | (421,354 | ) | $ | (2,459,364 | ) | ||
| Income(Loss) per basic and diluted common share | $ | (0.14 | ) | |||||||||
| Basic and fully diluted average common shares outstanding | 17,340,616 |
All values are in US Dollars.
NOTESAND ASSUMPTIONS TO PROFORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
(A) To Book Issuance of shares of Common Stock as part of the purchase Price to the Shareholders of Coastal Pride Company Inc.
(B) To Book the issuance of Notes payable to shareholders of Coastal Pride Company, Inc.
(C) To Book Common Shares for service providers
(D) To Book Goodwill related to the acquisition price of Coastal Pride Co., Inc.
(E) To Book allocation of purchase price to an intangible asset of Coastal Price Co., Inc.
(F) To Convert Coastal Pride Company, Inc.'s common stock to additional paid-in-capital
(G) To Convert Coastal Pride Company, Inc.'s retained earnings to Additional paid in Capital
(H) To Book Cash Expense for Service provider
(I) To Book advance to the Line of Credit for Cash remuneration paid to the shareholders of Coast Pride Company, Inc.
(J) To Book Inventory valuation step up related to the acquisition of Coast Pride Company, Inc.
(K) To Book Amortization of the Intangible Asset related to the acquisition of Coastal Pride Company, Inc.
| 1. | Basis<br> of Pro Forma Presentation |
|---|
On November 26, 2019, we entered into an Agreement and Plan of Merger and Reorganization with Coastal Pride Company, Inc. John Keeler & Co., Inc. (“Purchaser”) and 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) which merger was consummated on November 26, 2019, (the “Merger”) The unaudited pro forma condensed combined balance sheet at September 30, 2019 combines our historical condensed consolidated balance sheet with the historical condensed balance sheet of Coastal as if the Merger had occurred on that date. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 combine our historical condensed consolidated statements of operations with the condensed consolidated statements of operations of Coastal as if the Merger had occurred on January 1, 2018. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the Acquisition; (ii) factually supportable; and (iii) with respect to the condensed combined statements of operations, expected to have a continuing impact on our combined results.
| 2. | Preliminary<br> Consideration Transferred |
|---|
Pursuant to the terms of the Merger Agreement, which was effective November 26, 2019, we paid $3,694,621 in consideration including $394,622 in cash, $500,000 in a five year 4% unsecured promissory note, $210,000 in a three-year convertible 4% promissory note, and the issuance of 1,295,000 shares of our common stock with a fair value on the date of issuance of $2,590,000.
| 3. | Preliminary<br> Purchase Price Allocation |
|---|
Under the acquisition method of accounting outlined in ASC 805, the identifiable assets acquired and liabilities assumed in the Acquisition are recorded at their Acquisition-date fair values and are included in the Company’s consolidated financial position. Our unaudited pro forma adjustments are preliminary in nature and based on the estimates of fair value for all assets acquired and liabilities assumed to illustrate the estimated effect of the Merger on our condensed consolidated balance sheet at September 30, 2019. Accordingly, the unaudited pro forma purchase price allocation is subject to further adjustments as additional information becomes available and as additional analyses are performed. The primary areas that are not yet finalized relate to our estimated fair values for inventory and identifiable intangible assets. There can be no assurances that any final valuations will not result in material adjustments to our preliminary estimated purchase price allocation.
The following table summarizes the preliminary purchase price allocation for the assets acquired and liabilities assumed in connection with the Merger:
| Amount | Weighted Average<br> Life (Years) | |||
|---|---|---|---|---|
| Tangible Assets Acquired | $ | 2,983,205 | ||
| Liabilities Assumed | (1,978,327 | ) | ||
| Inventory Step Up | 102,027 | |||
| Trademarks | 1,120,000 | 20 | ||
| Non-compete agreements | 50,000 | 4 | ||
| Customer Relationships | 210,000 | 12.5 | ||
| Goodwill | 1,207,716 | |||
| 3,694,621 |
Our unaudited pro forma purchase price allocation includes certain identifiable intangible assets with an estimated fair value of approximately $2,120,000. The fair value of the identifiable intangible assets acquired was estimated using a combination of asset-based and income-based valuation methodologies. The asset-based valuation methodology established a fair value estimate based on the cost of replacing the asset, less amortization from functional use and economic obsolescence, if present and measureable. The income-based valuation methodology utilizes a discounted cash flow technique where the expected future economic benefits of ownership of an asset are discounted back to present value. This valuation technique requires us to make certain assumptions about, including, but not limited to, future operating performance and cash flow, and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired, and the experience of the acquired business. Such estimates are subject to change, possibly materially, as additional information becomes available and as additional analyses are performed.