AQUABOUNTY TECHNOLOGIES, INC. The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the unaudited
financial information and the notes thereto included in this Quarterly Report on
Form 10-Q and our Annual Report on Form 10-K for the year ended
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
Revenue
We currently generate product revenue through the sales of our GE Atlantic
salmon, conventional
Product Costs
Product 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 well as any net realizable value inventory adjustments, are classified as product costs. Our product costs also include the labor and related costs to maintain our salmon broodstock.
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. We expect our sales and marketing expenses to increase as our production output and revenues grow.
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Research and Development Expenses
We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily 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.
Other Expense
Interest expense includes the interest on our outstanding loans and the amortization of debt issuance costs. Other income includes interest income, less bank charges, fees, miscellaneous gains or losses on asset disposals and realized gains or losses on investments.
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
March 31, Dollar %
2023 2022 Change Change
(unaudited)
Product revenue $ 398 $ 963 (565) (59)%
Operating expenses:
Product costs 3,559 3,276 283 9%
Sales and marketing 198 248 (50) (20)%
Research and development 123 167 (44) (26)%
General and administrative 3,001 2,376 625 26%
Operating loss 6,483 5,104 1,379 27%
Other expense 3 8 (5) (63)%
Net loss $ 6,486 $ 5,112 1,374 27%
Product Revenue
Three Months Ended
?March 31, %
2023 2022 Change Change
(unaudited)Harvest of GE Atlantic salmon (mt) 66 133 (67) (50)% Product revenue GE Atlantic salmon revenue$ 392 $ 921 $ (529) (57)% Non-GE Atlantic salmon revenue 2 42 (40) (95)% Other revenue 4 - 4 -% Total product revenue$ 398 $ 963 $ (565) (59)%
The decrease in revenue during the current period was due primarily to a
combination of a decrease in harvest volume at our
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Product Costs
Product costs for the three months ended
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended
Research and Development Expenses
Research and development expenses for the three months ended
General and Administrative Expenses
General and administrative expenses for the three months ended
Total Other Expense
Total other expense is comprised of interest on debt and bank charges, less
interest income for the three months ended
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Three Months Ended
?March 31, Dollar %
2023 2022 Change Change
(unaudited)
Net cash (used in) provided by:
Operating activities $ (6,142) $ (5,326) (816) 15%
Investing activities (22,935) (7,468) (15,467) 207%
Financing activities 215 (159) 374 (235)%
Effect of exchange rate changes on cash - 8 (8) (100)%
Net decrease in cash $ (28,862) $ (12,945) (15,917) 123%Cash Flows from Operating Activities
Net cash used in operating activities during the three months ended
Spending on operations increased in the current period due to increases in state
excise tax liabilities, compensation costs and production activities at our
Cash Flows from Investing Activities
During the three months ended
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equipment, and
Cash Flows from Financing Activities
During the three months ended
Future Capital Requirements
We have
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.
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.
There have been no material changes to these estimates, or the policies related
to them, during the three months ended
Smaller Reporting Company Status
We are a "smaller reporting company," meaning that the market value of our stock
held by non-affiliates is less than
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As a smaller reporting company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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