What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-07 · 65 added, 83 removed, 89 unchanged (62% of the section changed)

6 unchanged sentences

We provide fresh Atlantic salmon to nearby markets by raising our fish in carefully monitored land-based fish farms through a safe, secure and sustainable process.

Our land-based Recirculating Aquaculture System farms, located in Indiana in the United States and Prince Edward Island in Canada, are close to key consumption markets and are designed to prevent disease and to include multiple levels of fish containment to protect wild fish populations.

Our land-based Recirculating Aquaculture System farms, including our grow-out farm located in Indiana in the United States and our broodstock and egg production farm located on Prince Edward Island in Canada, are close to key consumption markets and are designed to prevent disease and to include multiple levels of fish containment to protect wild fish populations.

We are raising nutritious salmon that is free of antibiotics and other contaminants and provides a solution with a reduced carbon footprint without the risk of pollution to marine ecosystems as compared to traditional sea-cage farming.

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We are actively engaged in genetic, genomic, fish health and fish nutrition research, which drive continuous improvement in our operations and may lead to new, disruptive technologies and products that could further expand our competitive offerings.

Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, variants of the virus continue to spread.

Local governmental authorities in the United States and Canada have issued, and continue to update, directives aimed at minimizing the spread of the virus and we continue to monitor their status.

Due to the pandemic, we have experienced delays and cost increases in capital projects, additional challenges in our efforts to meet the capacity expectations at our existing facilities and continue to experience extended lead times on equipment purchases.

Company Update

We have been pursuing a growth strategy that includes the construction of large-scale recirculating aquaculture system farms for producing our GE Atlantic salmon.

Our farm in Pioneer, Ohio is under construction and roughly 30% complete, but construction activities have been paused.

To fund the construction cost, we were using cash on hand, which would be supplemented by a municipal bond financing.

However, during the initial two years of construction, the cost estimate for the farm increased substantially and eventually exceeded our ability to complete the proposed financing.

Consequently, we require new financing to provide liquidity for working capital and to fund the construction of our farm in Pioneer, Ohio.

To meet this need, we have engaged an investment bank to pursue a range of funding and strategic alternatives, including the recently announced sale process for our Indiana farm, potential debt financing secured by our unencumbered assets, and potential joint venture partnerships or other strategic transactions.

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 Ohio farm project, which is now expected to be in the range of $375 million to $395 million.

We are experiencing higher costs for farming supplies, transportation costs, wage rates, and other direct operating expenses, as well as for capital expenditures related to the construction of our farm in Ohio.

We expect inflation to continue to negatively impact our results of operations for the near-term.

Financial Overview

We expect to generate product revenue primarily through the sales of our GE Atlantic salmon.

We also sell conventional Atlantic salmon, salmon eggs, fry, and byproducts.

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 Atlantic salmon eggs and fry, and salmon byproducts.

We measure our harvest volume of GE Atlantic salmon in terms of metric tons (“mt”) of live weight taken out of the water.

We expect revenues to grow modestly in 2023 and in the future, we believe that our revenue will depend upon the number and capacity of grow-out farms we have in operation and the market acceptance we achieve.

Production Costs

Production costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs;

We have generated product revenue primarily through the sales of our GE Atlantic salmon, supplemented by sales of conventional Atlantic salmon, salmon eggs, fry, and byproducts.

With the expected sale of our Indiana farm, our product revenues will consist of conventional Atlantic salmon eggs and fry for the near term.

Product Costs

Product costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs;

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 production costs .

Our production costs also include the labor and related costs to maintain our salmon broodstock.

As of December 31, 2022 and 2021, we had seventy and sixty-one employees, respectively engaged in production activities.

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.

As of December 31, 2023 and 2022, we had 82 and 70 employees, respectively, engaged in production activities.

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 December 31, 2022 and 2021, we had two and one employees, respectively, dedicated to sales and marketing.

Our sales and marketing expenses currently include salaries and related costs for our sales personnel and agency fees for market-related activities.

As of December 31, 2023 and 2022, we had one and two employees, respectively, dedicated to sales and marketing.

We expect our sales and marketing expenses to increase as our production output and revenues grow.

Research and Development Expenses

As of December 31, 2022 and 2021, we employed twelve and nineteen scientists and technicians, respectively, at our facilities on Prince Edward Island to oversee the lines of fish we maintain for research and development purposes.

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;

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;

 costs related to the operation of our field trials.

and costs related to laboratory supplies used in our research and development efforts.

As of December 31, 2023 and 2022, we employed six and 12 scientists and technicians, respectively, at our farms to oversee the lines of fish we maintain for research and development purposes.

General and Administrative Expenses

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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 December 31, 2022 and 2021, respectively.

We had 15 and 16 employees in our general and administrative group at December 31, 2023 and 2022, respectively.

Other Income (Expense), Net

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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.

The estimate of fish biomass contains uncertainty, as we cannot weigh each individual fish until harvest.

We have therefore established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques.

Historically, our estimate of fish biomass has had a variability of approximately 4%.

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.

We consider fish that have been harvested and transported from its farm to be fish for sale.

Revenue Recognition

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Operating loss

Total other (income) expense

Total other (expense) income

Product Revenue

Product revenue for the years ended December 31, 2022 and 2021 consisted of sales of our GE Atlantic salmon and conventional Atlantic salmon eggs, fry and byproducts.

During the current year, we increased the volume of harvests of GE Atlantic salmon from our Indiana farm and completed the final harvests of GE Atlantic salmon from our Rollo Bay farm, as it began its transition into a broodstock facility.

Our Indiana farm required extensive repairs to one of its buildings during Q4 of the current year, which impacted the number of fish that could be harvested and sold during the final two months of the year.

Repairs commenced immediately on the building and no fish were impacted by the situation.

However, we expect the repairs to continue into Q2 of 2023, which will continue to impact the number of fish harvested.

Product revenue for the year ended December 31, 2023 consisted of sales of our GE Atlantic salmon and conventional Atlantic salmon eggs, fry and byproducts.

During the current year, we increased the volume of harvests of GE Atlantic salmon from our Indiana farm and completed the transition of our Rollo Bay farm to a broodstock and egg production facility.

Our Indiana farm required extensive repairs to one of its buildings during the fourth quarter of 2022, which impacted the number of fish that could be harvested and sold during the final two months of 2022 and the first two months of 2023.

The decrease in revenue during the year ended December 31, 2023 was primarily due to changes in product mix during the first half of 2023 and decreases in market prices for Atlantic salmon in the second half of 2023.

‎ December 31,

Harvest of GE Atlantic salmon (kg of live weight)

Harvest of GE Atlantic salmon (mt)

Product revenue

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Total product revenue

Production Costs

Production costs for the year ended December 31, 2022, were up from the corresponding period in 2021, due to production cost increases for labor and other direct costs related to increased production output.

Increases included headcount additions, feed costs and other direct supplies, as well as the costs for processing and transportation to bring our product to market.

These cost increases were partly offset by an increase in the NRV of the fish in process inventory, which allowed more production cost to be absorbed into inventory.

The improvement in NRV was due to higher market pricing and lower costs per pound for transportation and processing.

Product Costs

Product costs for the year ended December 31, 2023 were up from the year ended December 31, 2022, due to production cost increases for labor and other direct costs related to increased production output and inflation.

Increases included headcount additions, feed costs and other direct supplies, maintenance and repairs, as well as the costs for processing and transportation to bring our product to market.

Sales and Marketing Expenses

Sales and marketing expenses for the year ended December 31, 2022, were down from the corresponding period in 2021 primarily due to the non-recurrence of an expense incurred during 2021 related to the donation of conventional Atlantic salmon to local food charities.

Net of this charge, sales and marketing expenses increased in the current period, due to an increase in headcount and marketing program costs.

Sales and marketing expenses for the year ended December 31, 2023 were down from the year ended December 31, 2022, primarily due to a decrease in marketing program costs.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2022 , were down from the corresponding period in 2021 due to the transition of broodstock husbandry costs to production operations.

Net of this change, research and development expenses for the current period remained relatively unchanged as compared with the prior period.

Cost increases for headcount and lab supplies were offset by decreases in field trials and outside contract service fees.

During the current period, research activities included feed

nutrition trials, discovery research in salmon immunology and work on a genome study to identify genes associated with economically important traits in salmon.

Research and development expenses for the year ended December 31, 2023 were down from the year ended December 31, 2022, due to the receipt of provincial government grant funds in support of local hiring and a reduction in outside research costs.

Gross research and development expenses for the year ended December 31, 2023, excluding the grant funds, were $816 thousand versus $935 thousand in 2022.

During the current period, research activities continued in key strategic areas of genomics and breeding, gene editing, fish health and operational optimization.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2022, were up from the corresponding period in 2021 due to increases in personnel, auditing and legal fees, insurance costs, taxes and stock compensation charges, partly offset by decreases in consulting and outside advisory fees.

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.

General and administrative expenses for the year ended December 31, 2023 were up from the year ended December 31, 2022, due to increases in legal fees, state excise taxes, personnel, audit fees, consulting fees and share-based compensation charges.

Total Other (Expense) Income

Total other (expense) income for 2023 and 2022 is comprised of interest income, interest on debt, bank charges, and miscellaneous gains and losses on the disposal of assets.

The change in total other (expense) income in the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due to interest income, which was down considerably in 2023 compared to 2022, due to a reduction in marketable securities.

Liquidity and Capital Resources

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Liquidity has primarily come from equity financings, supplemented by debt transactions.

During 2021, we completed a public equity offering of 14,950,000 shares of common stock for net proceeds of approximately $119.1 million and we issued 530,414 shares of common stock through the conversion of outstanding warrants for total proceeds of $1.7 million.

During 2022, we received $476 thousand in debt proceeds from the draw-down on an existing loan facility.

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 December 31, 2022, we had $102.6 million in cash and cash equivalents, and restricted cash.

During 2023 and 2022, we received $418 thousand and $476 thousand, respectively, in debt proceeds on an existing loan facility.

In the future, we expect to use both debt and equity issuances to fund our continued operations and growth opportunities.

As of December 31, 2023, we had $9.2 million in cash, cash equivalents, and restricted cash.

Our principal contractual commitments include capital expenditure obligations, repayments of debt and related interest, and payments under operating leases.

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Effect of exchange rate changes on cash

Net increase in cash

Net change in cash

Cash Flows from Operating Activities

Net cash used in operating activities during the year ended December 31, 2022, was primarily comprised of our $22.2 million net loss, offset by non-cash depreciation and stock compensation charges of $2.6 million and increased by working capital uses of $1.4 million.

Net cash used in operating activities during the year ended December 31, 2023, was primarily due to our $27.6 million net loss, partially offset by non-cash depreciation and share-based compensation charges of $2.7 million and decreased by working capital sources of $0.6 million.

Spending on operations increased in 2023 due to increases in production activities at our Rollo Bay and Indiana farm sites, increases in headcount and increases in costs for excise taxes, legal fees and professional fees.

The decrease in cash provided by working capital was due primarily to a decrease in inventory and prepaid expenses, partially offset by an increase in accrued expenses.

We expect cash flows from operating activities to remain negative and roughly flat in the near term.

Net cash used in operating activities during the year ended December 31, 2022, was primarily comprised of our $22.2 million net loss, partially offset by non-cash depreciation and share-based compensation charges of $2.6 million and increased by working capital uses of $1.4 million.

Spending on operations increased in 2022 due to increases in production activities at our Rollo Bay and Indiana farm sites, increases in headcount and increases in costs for insurance, taxes, and professional fees.

Cash used for working capital was due primarily to increases in inventory and prepaid expenses, partially offset by an increase in accrued expenses.

We expect cash flows from operating activities to remain negative and roughly consistent until our Ohio farm is in operation.

Net cash used in operating activities during the year ended December 31, 2021, was primarily comprised of our $22.3 million net loss, offset by non-cash depreciation and stock compensation charges of $2.2 million and increased by working capital uses of $349 thousand.

Spending on operations increased in 2021 due to increases in production activities at our Rollo Bay and Indiana farm sites and outside consulting and advisory fees.

Cash used for working capital was due primarily to increases in receivables and prepaid expenses, partially offset by increases in accounts payable and accrued expenses and a decrease in inventory.

The increase in cash used for working capital was due primarily to increases in inventory and prepaid expenses, partially offset by an increase in accrued expenses.

Cash Flows from Investing Activities

During 2022, we used $65.1 million for construction charges and equipment deposits for our Ohio farm, $1.4 million and $1.0 million for equipment purchases and deposits for our Indiana and Rollo Bay farms, respectively, and we received $101.8 million on the net sales of marketable securities.

During 2021, we used $5.7 million for renovations to our Indiana farm and Fortune Bay hatchery sites and for construction charges at our Rollo Bay farm, $45 thousand for deposits on equipment purchases and $101.8 million on the net purchase of marketable securities.

We expect expenditures on capital projects to increase in future periods as we continue construction of our Ohio farm.

For more information, see “ Our business plans include the need for substantial additional capital and without it we may not be able to implement our strategy as planned or at all .”

During 2023, we used $65.1 million for construction charges and equipment deposits for our Ohio farm, and $2.2 million and $1.6 million for equipment purchases and deposits for our Indiana and Rollo Bay farms, respectively.

During 2022, we used $65.1 million for construction charges and equipment deposits for our Ohio farm, and $1.4 million and $1.0 million for equipment purchases and deposits for our Indiana and Rollo Bay farms, respectively, and we received $101.8 million on the net sales of marketable securities.

We have paused construction at our Ohio farm, but we expect expenditures on capital projects to increase in future periods once we secure additional funding and resume construction at the site.

For more information, see “ Our current business plans include the need for substantial additional capital, and without it, we may not be able to implement our strategy as planned or at all .”

Cash Flows from Financing Activities

During 2023, we received approximately $418 thousand in proceeds from new debt, and we repaid $726 thousand of outstanding debt.

During 2021, we received approximately $119.1 million in net proceeds from the issuance of shares of common stock in a public equity offering, $1.7 million from the exercise of warrants, and $606 thousand from new debt.

This was offset by $272 thousand in debt repayment.

During 2022, we received approximately $476 thousand in proceeds from new debt, and we repaid $640 thousand of outstanding debt.

Future Capital Requirements

In February 2021, we completed an equity raise with net proceeds of $119.1 million and we had $102.6 million of cash, cash equivalents, and restricted cash as of December 31, 2022.

Our plans include the continued construction of a 10,000 metric ton salmon farm in Ohio at a total project cost that is estimated to range from $375 million to $395 million.

We plan to use cash-on-hand and debt financing to fund the construction.

While we have committed a significant amount of our current cash to fund a portion of the project, if necessary, we can utilize that cash for working capital purposes, and therefore we believe we have sufficient cash to meet our requirements for at least the next twelve months from the filing date of these consolidated financial statements.

In 2020, we entered into a term loan agreement with First Farmers Bank and Trust in the amount of $4 million, which is secured by the assets of our Indiana subsidiary and a corporate guarantee.

The agreement contains certain financial and non-financial covenants, which if not met, could result in an event of default pursuant to the terms of the loan.

At December 31, 2022, the Indiana subsidiary was in compliance with its loan covenants.

The ability of the Indiana subsidiary to meet its debt covenants over the next twelve months is dependent upon its operating performance.

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.

Since inception, we have incurred cumulative net losses and negative cash flows from operating activities and we expect this to continue for the foreseeable future.

As of December 31, 2023, we had $9.2 million of cash, cash equivalents, and restricted cash, a significant portion of which is required to fund our current liabilities and other contractual obligations.

Our ability to continue as a going concern is dependent upon our ability to raise additional capital, and there can be no assurance that such capital will be available in sufficient amounts, on a timely basis, on terms acceptable to us, or at all.

This raises substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued.

Until such time, if ever, as we can generate positive cash flows from operating activities, 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, as well as our announced plan to sell our Indiana farm.

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 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 a timely manner, 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis