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 we are a leader in land-based aquaculture, leveraging decades of
technology expertise to deliver innovative solutions that address food
insecurity and climate change issues, while improving efficiency, sustainability
and profitability. We provide fresh
COVID-19
Although the COVID-19 pandemic has diminished in
Inflation
Global inflation is well above normal and historical levels, impacting 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
constructing our
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 ("NRV") of the fish biomass. The costs that are
not absorbed into inventory, as well as any net realizable inventory value
adjustments, are classified as production costs. Our production costs also
include the labor and related costs to maintain our salmon broodstock. As of
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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. 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; and
?costs related to laboratory supplies used in our research and development efforts.
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 fifteen employees in our general and administrative group
as of both
Other Income (Expense)
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.
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
September 30, Dollar %
2022 2021 Change Change
(unaudited)
Product revenue $ 653 $ 455 198 44%
Operating expenses:
Product costs 3,518 4,311 (793) (18)%
Sales and marketing 186 202 (16) (8)%
Research and development 221 580 (359) (62)%General and administrative 2,265 2,177 88 4% Operating loss
5,537 6,815 (1,278) (19)%
Total other (income) expense (97) 50 (147) (294)%
Net loss $ 5,440 $ 6,865 (1,425) (21)%
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Product Revenue
Three Months Ended
?September 30, %
2022 2021 Change Change
(unaudited)Harvest of GE Atlantic salmon (mt of live weight) 122,218 98,173 24,045 24% Product revenue GE Atlantic salmon revenue
$ 594 $ 402 $ 192 48% Non-GE Atlantic salmon revenue 48 53 (5) (9)% Other revenue 11 - 11 -% Total product revenue$ 653 $ 455 $ 198 44%
The increase in revenue is due to the increase in harvest volume and sales of our GE Atlantic salmon, along with improvements in yield and increases in market prices. We expect revenues for the remainder of 2022 to grow slowly and to be impacted by seasonal demand and fluctuating market prices.
Production Costs
Production costs for the three months ended
Since our production costs were higher than the net realizable value of the
salmon produced, the current period includes an inventory value charge of
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 (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, and
interest income for the three months ended
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Comparison of the nine months ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
?September 30, Dollar %
2022 2021 Change Change
(unaudited)
Product revenue $ 2,686 $ 757 1,929 255%
Operating expenses:
Product costs 10,044 7,713 2,331 30%
Sales and marketing 784 1,069 (285) (27)%
Research and development 596 1,512 (916) (61)%General and administrative 7,473 6,542 931 14% Operating loss
16,211 16,079 132 1%
Total other (income) expense (123) 175 (298) (170)%
Net loss $ 16,088 $ 16,254 (166) (1)%
Product Revenue
Nine Months Ended
?September 30, %
2022 2021 Change Change
(unaudited)Harvest of GE Atlantic salmon (mt of live weight) 434,377 180,312 254,065 141% Product revenue GE Atlantic salmon revenue
$ 2,535 $ 442 $ 2,093 474% Non-GE Atlantic salmon revenue 128 314 (186) (59)% Other revenue 23 1 22 2,200% Total product revenue$ 2,686 $ 757 $ 1,929 255%
The increase in revenue is due to the increase in harvest volume and sales of our GE Atlantic salmon, along with improvements in yield and increases in market prices. We expect revenues for the remainder of 2022 to grow slowly and to be impacted by seasonal demand and fluctuating market prices.
Production Costs
Production costs for the nine months ended
Since our production costs were higher than the net realizable value of the
salmon produced, the current period includes an inventory value charge of
Sales and Marketing Expenses
Sales and marketing expenses for the nine months ended
Research and Development Expenses
Research and development expenses for the nine months ended
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General and Administrative Expenses
General and administrative expenses for the nine months ended
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, and
interest income for the nine months ended
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Nine Months Ended
?September 30, Dollar %
2022 2021 Change Change
unaudited
Net cash (used in) provided by:
Operating activities $ (17,953) $ (15,111) (2,842) 19%
Investing activities 56,944 (83,819) 140,763 (168)%
Financing activities (435) 121,331 (121,766) (100)%
Effect of exchange rate changes on cash (2) 27 (29) (107)% Net increase in cash
$ 38,554 $ 22,428 16,126 72%
Cash Flows from Operating Activities
Net cash used in operating activities during the nine months ended
Spending on operations increased in the current period due to increases in
production activities at our
Cash Flows from Investing Activities
During the nine months ended
We expect expenditures on capital projects to increase in future periods as we
continue construction of our
Cash Flows from Financing Activities
During the nine months ended
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Future Capital Requirements
We had
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 nine months ended
Emerging Growth Company and Smaller Reporting Company Status
We qualify as an emerging growth company ("EGC"), as defined in the JOBS Act. As an EGC, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We may take advantage of these exemptions until
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In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an EGC. Therefore, the reported results of operations contained in our consolidated financial statements may not be directly comparable to those of other public companies.
We are also a "smaller reporting company," meaning that the market value of our
stock held by non-affiliates is less than
If we are a smaller reporting company at the time we cease to be an EGC, 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, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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