AQUABOUNTY TECHNOLOGIES, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10K, particularly in "Risk Factors."
Overview
We believe that we are a distinctive brand in the field of land-based
aquaculture, leveraging decades of technology expertise to deliver innovative
solutions that address food insecurity and climate change issues, while
improving efficiency and sustainability. We provide fresh
COVID-19
Although the COVID-19 pandemic has diminished in
Inflation
Recently elevated global inflation rates continue to impact all areas of our
business. We are experiencing higher costs for farming supplies, transportation
costs, wage rates, and other direct operating expenses. Additionally, inflation
has impacted the cost estimates for our
Financial Overview
We expect to generate product revenue primarily through the sales of our GE
Atlantic salmon. We also sell conventional
We expect our future capital requirements will be substantial, particularly as we continue to develop our business and expand our commercial activities, as discussed in "Liquidity and Capital Resources". During the next several years, we expect that our working capital requirements and our capital expenditures will increase substantially due to our plans to construct new land-based production farms.
Product Revenue
We currently generate product revenue through the sales of our GE Atlantic
salmon, conventional
Production Costs
Production costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs; overhead; and the cost to process and ship our products to customers. A portion of production costs is absorbed into inventory as fish in process to the extent that these costs do not exceed the net realizable value of the fish biomass. The costs that are not absorbed into inventory, as
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well as any net realizable value inventory adjustments, are classified as
production costs. Our production costs also include the labor and related costs
to maintain our salmon broodstock. As of
Sales and Marketing Expenses
Our sales and marketing expenses currently include salaries and related costs
for our sales personnel and consulting fees for market-related activities.
During 2021, we also included the cost of our conventional salmon donation
program. As of
Research and Development Expenses
As of
?salaries and related overhead expenses for personnel in research and development functions;
?fees paid to contract research organizations and consultants who perform research for us;
?costs related to laboratory supplies used in our research and development efforts; and
?costs related to the operation of our field trials.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
costs for employees in executive, corporate, and finance functions. Other
significant general and administrative expenses include corporate governance and
public company costs, regulatory affairs, rent and utilities, insurance, and
legal services. We had sixteen and fourteen employees in our general and
administrative group at
Other Income (Expense), Net
Interest expense includes the interest on our outstanding loans and the amortization of debt issuance costs. Other income (expense) includes bank charges, fees, interest income, miscellaneous gains or losses on asset disposals and realized gains or losses on investments.
Critical Accounting Policies and Estimates
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies and estimates are the most critical for fully understanding and evaluating our financial condition and results of operations.
Inventories
Inventories are mainly comprised of feed, eggs, fry, fish in process and fish for sale. Fish in process inventory is a biological asset that is measured based on the estimated biomass of fish on hand. We have established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques. We measure inventory at the lower of cost or net realizable value ("NRV"), where NRV is defined as the estimated market price, less the estimated costs of processing, packaging and transportation. We consider fish that has been harvested and transported from its farm to be fish for sale.
Revenue Recognition
We generate revenue from the sale of our products. Revenue is recognized when the customer takes physical control of the goods, in an amount that reflects the transaction price consideration that we expect to receive in exchange for the goods. Revenue excludes any sales tax collected and includes any estimate of future credits.
Recent Accounting Pronouncements
We do not expect any recently issued, but not yet effective, accounting standards to have a material effect on our results of operations or financial condition.
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Table of Contents Results of Operations
Comparison of the year ended
The following table summarizes our results of operations for the years ended
Year Ended
?December, 31 Dollar %
2022 2021 Change Change
Product revenue $ 3,137 $ 1,175 1,962 167%
Operating expenses:
Product costs 13,630 10,786 2,844 26%
Sales and marketing 1,139 1,262 (123) (10)%
Research and development 904 2,146 (1,242) (58)%
General and administrative 9,787 9,103 684 8%
Operating loss (22,323) (22,122) (201) 1%
Total other (income) expense (166) 201 (367) (183)%
Net loss $ (22,157) $ (22,323) 166 (1)%
Product Revenue
Product revenue for the years ended
Year Ended
?December 31, %
2022 2021 Change Change
Harvest of GE Atlantic salmon (kg of live weight) 512,274 288,362 223,912 78% Product revenue GE Atlantic salmon revenue
$ 2,914 $ 783 $ 2,131 272% Non-GE Atlantic salmon revenue 187 391 (204) (52)% Other revenue 36 1 35 3,500% Total product revenue$ 3,137 $ 1,175 $ 1,962 167% Production Costs
Production costs for the year ended
Sales and Marketing Expenses
Sales and marketing expenses for the year ended
Research and Development Expenses
Research and development expenses for the year ended
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nutrition trials, discovery research in salmon immunology and work on a genome study to identify genes associated with economically important traits in salmon.
General and Administrative Expenses
General and administrative expenses for the year ended
Total Other (Income) Expense
Total other (income) expense for 2022 is comprised of interest income, interest on debt, bank charges, and a loss on the disposal of assets. Total other (income) expense for 2021 is comprised of interest income, interest on debt and bank charges. Interest income in 2022 was up considerably over 2021, due to our investments in marketable securities.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses from operations since our inception in 1991, and, as of
During 2021, we completed a public equity offering of 14,950,000 shares of
common stock for net proceeds of approximately
In the future, we expect to use bond issuances to fund the construction of our farms and we may use additional equity issuances to supplement these costs or to fund other growth opportunities.
As of
Our principal contractual commitments include capital expenditure obligations, repayments of debt and related interest, and payments under operating leases. Refer to the notes in our consolidated financial statements for further information about our capital expenditure commitments (Note 6), debt (Note 7), and lease payment obligations (Note 10).
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Year Ended
?December 31, Dollar %
2022 2021 Change Change
Net cash (used in) provided by:
Operating activities $ (21,007) $ (20,472) (535) 3%
Investing activities 34,350 (107,539) 141,889 (132)%
Financing activities (162) 121,179 (121,341) (100)%
Effect of exchange rate changes on cash 3 36 (33) (92)%
Net increase in cash $ 13,184 $ (6,796) 19,980 (294)%
Cash Flows from Operating Activities
Net cash used in operating activities during the year ended
Net cash used in operating activities during the year ended
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Cash Flows from Investing Activities
During 2022, we used
During 2021, we used
We expect expenditures on capital projects to increase in future periods as we
continue construction of our
Cash Flows from Financing Activities
During 2022, we received approximately
During 2021, we received approximately
Future Capital Requirements
In
In 2020, we entered into a term loan agreement with
Until such time, if ever, as we can generate positive operating cash flows, we may finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of holders of our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through government or other third-party funding; marketing and distribution arrangements; or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or to grant licenses on terms that may not be favorable to us.
If we are unable to generate additional funds in the future through financings, sales of our products, government grants, loans, or from other sources or transactions, we will exhaust our resources and will be unable to maintain our currently planned operations. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.
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