Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 10‑K. 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 10‑K, particularly in “Risk Factors.”
Company Update
AquaBounty has historically pursued a growth strategy that included the construction of large-scale RAS farms for producing our GE Atlantic salmon. We had commenced construction of our 10,000 metric ton Ohio Farm Project, but paused the construction in June 2023, as the cost estimate to complete the farm continued to substantially increase due to inflation and other factors. Further, these cost increases impaired our ability to pursue municipal bond financing, which was a necessary component of our funding strategy. We subsequently engaged an investment bank to pursue a range of funding and strategic alternatives and to assist management in the prioritization of our core assets. These efforts resulted in the sale of our Indiana Farm in July 2024, recurring sales throughout the year of selected Ohio Equipment Assets originally intended for the Ohio Farm Project, and the sale of our Canadian Farms, and our Corporate IP in March 2025. During 2024, we also focused on cost containment to preserve and extend our available cash. After completion of these transactions, our primary remaining asset is our investment in the Ohio Farm Project, consisting of the remaining Ohio Equipment Assets and the Ohio Farm Site. We continue to work with our investment bank to identify the optimal path forward for realizing the potential of this asset, either through new investment, partnership or other strategic options.
Discontinued Operations
As noted above, we sold our Indiana Farm in July 2024 and our Canadian Farms in March 2025. These farms have been designated as discontinued operations in our consolidated financial statements for the years ended December 31, 2024 and 2023 in this Form 10-K (see Note 4 to our consolidated financial statements for additional information).
Impairment Charges
During the second quarter of 2024, we began to market our Indiana Farm for sale. The sale was completed in July and included certain Ohio Equipment Assets that had been purchased for the Ohio Farm Project. Based on the net sale price, we recorded an impairment charge against the Indiana Farm of $22.5 million. We then conducted an impairment analysis of the remaining Ohio Equipment Assets, resulting in an impairment charge of $26.3 million. At that time, we made the decision to continue to sell certain of our Ohio Equipment Assets in order to generate cash for liquidity, and therefore we reclassed our Ohio Equipment Assets as Assets Held for Sale on our consolidated balance sheet.
We continued to sell Ohio Equipment Assets during the remainder of the year, and based on these additional transactions, we conducted an impairment analysis at year-end on the remaining Ohio Equipment Assets that were held for sale, along with the Ohio Farm Site. As a result of this analysis, we recorded impairment charges of $18.2 million and $57.3 million against the Ohio Equipment Assets and the Ohio Farm Site, respectively.
In December of 2024, we entered into a Letter of Intent with a buyer to purchase the Canadian Farms. The transaction closed in March 2025 and included all of our Corporate IP. Based on the net sale price, we recorded impairment charges of $5.4 million and $0.2 million against the Canadian Farms and Corporate IP, respectively. The table below depicts the impairments charges recorded during 2024 by asset group totaling $129.8 million.
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Financial Overview
With the winding down of our fish rearing operations, we have significantly reduced our headcount and on-going operating costs. We maintain a small core group of corporate individuals to oversee our strategic options, our asset sale transactions and our books and records. As of December 31, 2024, we had an accumulated deficit of $370 million and $230 thousand in cash and cash equivalents on our consolidated balance sheet. With the sale of our Canadian Farms and additional sales of our Ohio Equipment Assets, we have $557 thousand in cash as of March 24, 2025. We require new funding to provide liquidity for working capital and to fund the completion of our Ohio Farm Project. Consequently, 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 acceptable terms, or at all.
Sales and Marketing Expenses
Our sales and marketing expenses include salaries and related costs for our sales personnel and agency fees for market-related activities and communications. As of December 31, 2024 and 2023, we had zero and one employee, respectively, dedicated to sales and marketing. We do not expect sales and marketing expenses in the near term.
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; and costs related to laboratory supplies used in our research and development efforts. As of December 31, 2024 and 2023, we employed four and six scientists and technicians, respectively, at our farms to oversee the lines of fish we maintain for research and development purposes. With the sale of our Canadian Farms in March 2025, we no longer have research and development operations.
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 five and 15 employees in our general and administrative group at December 31, 2024 and 2023, respectively. We expect our general and administrative expenses to decrease substantially as a result of the winding down of our fish rearing activities and the sales of our Indiana Farm and Canadian Farms.
Long-lived Asset Impairment
During the second quarter of 2024, we began to market our Indiana Farm for sale. The sale was completed in July and included certain Ohio Equipment Assets that had been purchased for the Ohio Farm Project. Based on this transaction, we then conducted an impairment analysis of the remaining Ohio Equipment Assets, resulting in an impairment charge of $26.3 million. At that time, we made the decision to continue to sell certain of our Ohio Equipment Assets in order to generate cash for liquidity, and therefore we reclassed our Ohio Equipment Assets as Assets Held for Sale on our consolidated balance sheet.
We continued to sell Ohio Equipment Assets during the remainder of the year, and based on these additional transactions, we conducted an impairment analysis at year-end on the remaining Ohio Equipment Assets that were held for sale, along with the Ohio Farm Site. As a result of this analysis, we recorded impairment charges of $18.2 million and $57.3 million against the Ohio Equipment Assets and the Ohio Farm Site, respectively. We also recorded an impairment charge of $0.2 million against Corporate IP in conjunction with the sale of our Canadian Farms.
Other Income (Expense), Net
Interest expense includes the interest on our loans and accounts payable for our continuing operations. Other income (expense) includes bank charges, fees, interest income, and miscellaneous gains or losses on asset disposals from our continuing operations.
Loss from Discontinued Operations
Loss from Discontinued Operations includes all operating costs for our Indiana Farms and our Canadian Farms, including fish and egg production costs, sales and marketing, research and development, general and administrative expenses, $27.9 million of non-cash long-lived asset impairment charges recorded in conjunction with the sales of the Indiana Farm and the Canadian Farms, a $1.0 million net realizable value adjustment of inventory for the Indiana Farm, interest expense, banking fees and other charges.
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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.
Valuation of Long-Lived Assets
We evaluate long-lived assets to be held and used, which include property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. Our decision in 2024 to sell certain Ohio Equipment Assets and the Canadian Farms to provide additional liquidity indicated the carrying amount of all Ohio Farm Project property, plant and equipment may not be recoverable. We compared future anticipated undiscounted cash flows for the different Ohio Farm Project asset groups to the carrying value of such asset groups, noting that the carrying value of these assets exceeded the cash flows. Therefore, we proceeded to engage a third-party valuation consultant to assist in the calculation of the fair values of these different asset groups.
Fair value of the Ohio Equipment Assets as of December 31, 2024 was determined based upon our actual experience of similar sales for these assets in 2024 and early 2025. The fair value of the Ohio Farm Site land and construction in process was primarily determined based on the income approach. The income approach is a valuation technique in which fair value is based on forecasted future cash flows, discounted at the appropriate rate of return commensurate with the risk, as well as current rates of return for equity and debt capital as of the valuation date. The forecast used in our estimation of fair value was developed by management based on various established business models, incorporating adjustments to reflect management's planned changes in operations and market considerations. The discount rate utilizes a risk adjusted weighted average cost of capital. To assess the reasonableness of the calculated fair value, we compared the ratio of fair value to carrying value prior to the recording of any impairment to the ratio of net realizable values to the carrying value prior to impairment to our transactions involving the Indiana Farm, Canadian Farms and Ohio Equipment Asset sales.
During the year ended December 31, 2024, we recorded $101.9 million of impairment charges from continuing operations to write down the carrying value of long-lived assets. See additional discussion regarding this impairment in "Notes to the Consolidated Financial Statements - Notes 4 and 6 appearing elsewhere in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
For a discussion of these items, see “Note 2 – Recently Issued Accounting Standards” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.
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Results of Operations
Comparison of the year ended December 31, 2024 to the year ended December 31, 2023.
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023, together with the changes in those items in dollars (in thousands) and as a percentage:
Years Ended
December 31,
Dollar
%
2024
2023
Change
Change
Costs and expenses
Sales and marketing
$
191
$
650
(459)
(71)%
Research and development
203
506
(303)
(60)%
General and administrative
9,130
12,516
(3,386)
(27)%
Long-lived asset impairment
101,915
-
101,915
—%
Operating loss
111,439
13,672
97,767
715%
Other expense
2,314
169
2,145
1,269%
Loss from continuing operations
113,753
13,841
99,912
722%
Loss from discontinued operations
35,440
13,717
21,723
158%
Net loss
$
149,193
$
27,558
121,635
441%
Sales and Marketing Expenses
Sales and marketing expenses for the year ended December 31, 2024 decreased $459 thousand or 71% from the year ended December 31, 2023, primarily due to decreases in personnel costs, marketing programs, and share-based compensation costs related to the sale of our production grow-out Indiana Farm.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2024 decreased $303 thousand or 60% from the year ended December 31, 2023, primarily due to decreases in personnel costs and project spending in our efforts to reduce operating spend.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2024 decreased $3.4 million or 27% from the year ended December 31, 2023, primarily due to decreases in personnel costs, professional service fees, legal costs, state excise tax liabilities, share-based compensation costs, and travel, related to the sale of our production grow-out farm in Indiana, and our efforts to reduce operating spend.
Long-lived Asset Impairment
For the year ended December 31, 2024, we recorded non-cash impairment charges of $101.7 million and $0.2 million against the long-lived assets of the Ohio Farm Project and Corporate IP, respectively. We determined the impairment charges based on the estimate of potential market value of the asset group compared to the carrying value of those assets.
Other Expense
Other expense for 2024 and 2023 is comprised of interest income, interest on debt, bank charges, and miscellaneous gains and losses on the disposal of assets. The increase in other expense of $2.1 million in the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to interest expense related to the cost of our bridge loan.
Loss from Discontinued Operations
The loss from discontinued operations for the year ended December 31, 2024 was significantly higher than for the year ended December 31, 2023 as a result of $27.9 million in non-cash asset impairment charges recorded in conjunction with the sales of the Indiana Farm and the Canadian Farms and a $1.0 million net realizable value adjustment of inventory for the Indiana Farm. The 2024 loss was partly offset by lower Indiana Farm losses, as we owned the farm for only seven months in 2024, as compared to twelve months in 2023.
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Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses from operations since our inception in 1991, and, as of December 31, 2024, we had an accumulated deficit of $370 million. We expect to continue to experience significant losses for the foreseeable future, and we will require additional cash to provide liquidity for working capital and to fund the completion of our Ohio Farm Project. Liquidity has primarily come from equity financings, supplemented by debt transactions and asset sales.
During 2024 and 2023, we received $6.9 million and $418 thousand, respectively, in debt proceeds. During 2024, we sold $10.5 million of assets. In the future, we expect to use a combination of asset sales and debt issuances to fund our remaining operations.
As of December 31, 2024, we had $230 thousand in cash and cash equivalents. With the sale of our Canadian Farms and additional sales of our Ohio Equipment Assets, we have $557 thousand in cash as of March 24, 2025.
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):
Years Ended
December 31,
Dollar
%
2024
2023
Change
Change
(unaudited)
Net cash (used in) provided by:
Operating activities
$
(13,863)
$
(24,236)
10,373
(43)%
Investing activities
7,563
(68,893)
76,456
(111)%
Financing activities
(2,664)
(309)
(2,355)
762%
Effect of exchange rate changes on cash
(10)
3
(13)
(433)%
Net change in cash
$
(8,974)
$
(93,435)
84,461
(90)%
Cash Flows from Operating Activities
Net cash used in operating activities during the year ended December 31, 2024, was primarily due to our $149.2 million net loss, partially offset by non-cash depreciation and share-based compensation charges of $1.2 million, long-lived asset impairment charges of $129.8 million, and working capital sources of $4.3 million. Spending on both continuing and discontinued operations decreased in the current year, before the recording of non-cash asset impairment charges, due to the sale of the Indiana Farm, and reductions in personnel, marketing programs, outside research projects, professional services, and share-based compensation. The increase in c ash provided by working capital sources was due to reductions in inventory and other current assets, along with increases in accounts payable and accrued liabilities.
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 working capital sources of $604 thousand. Spending on operations increased in 2023 as compared to 2022 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. Increase in cash provided by working capital was primarily due to a decrease in inventory and prepaid expenses, partially offset by an increase in accounts payable and accrued expenses.
Cash Flows from Investing Activities
Net cash provided by investing activities was $7.6 million during the year ended December 31, 2024, compared to net cash used in investing activities of $68.9 million during the year ended December 31, 2023. During 2024, we used $2.9 million for the purchase of property, plant and equipment at our farm sites, and we received $10.5 million from the sale of our Indiana Farm and certain Ohio Equipment Assets. During 2023, we used $65.1 million for construction charges and equipment deposits for our Ohio Farm Project, and $2.2 million and $1.6 million for equipment purchases and deposits for our Indiana Farm and Canadian Farms, respectively.
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Cash Flows from Financing Activities
Net cash used in financing activities was $2.7 million during the year ended December 31, 2024, compared to $309 thousand during the year ended December 31, 2023. During 2024, we received $6.9 million in proceeds from new debt, and we repaid $9.6 million of outstanding debt. During 2023, we received $418 thousand in proceeds from new debt, and we repaid $726 thousand of outstanding debt.
Future Capital Requirements
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, 2024, we had $230 thousand of cash and cash equivalents. With the sale of our Canadian Farms and additional sales of our Ohio Equipment Assets, we have $557 thousand in cash as of March 24, 2025. 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.
In April 2024, we entered into a Loan Agreement with JMB Capital Partners Lending, LLC to fund working capital through a secured term loan of up to $10 million that was scheduled to mature on July 31, 2024 or, if earlier, upon the sale of certain collateral or upon an Event of Default (as defined in the Loan Agreement). Of the total loan amount, $5 million was advanced in April 2024 and $1.5 million was advanced in July 2024. The loan bore interest at a rate of 15% on its outstanding principal balance and was subject to a commitment fee equal to 5% and an exit fee equal to 8%. Of the initial loan advancement, approximately $2.8 million was used to pay the remaining outstanding balance of our term loan with First Farmers Bank & Trust, upon which the $1 million of restricted cash held by us as of December 31, 2023 was no longer deemed to be restricted. The outstanding loan balance of $6.5 million was repaid on July 26, 2024 from the net proceeds of the Indiana farm sale.
During 2024, we completed the sale of our Indiana Farm, along with certain Ohio Equipment Assets for net proceeds of $9.2 million. In March 2025, we completed the sale of our Canadian operations for net proceeds of $1.9 million. We plan to continue to sell available Ohio Equipment Assets to increase our cash liquidity and fund our working capital and the construction of our Ohio Farm Project.
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 sales of non-core assets, 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 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.