UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2020
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 001-36426
____________
AquaBounty Technologies, Inc.
(Exact name of the registrant as specified in its charter)
Delaware | 04-3156167 | ||||
(State or other jurisdiction of | (I.R.S. Employer |
2 Mill & Main Place, Suite 395
Maynard, Massachusetts 01754
(978) 648-6000
(Address and telephone number of the registrant’s principal executive offices)
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||
Common Stock, par value $0.001 per share | AQB | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Yes ☒x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
| Non-accelerated filer |
| Smaller reporting company |
| ||||||||||||||||
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐¨ No ☒
At November 2, 2020,August 3, 2021, the registrant had 44,960,80671,025,738 shares of common stock, par value $0.001 per share (“Common Shares”) outstanding.
AquaBounty Technologies, Inc. | ||||||||||
FORM 10-Q | ||||||||||
For the Quarterly Period Ended | ||||||||||
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Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, particularly the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward looking statements. All statements other than present and historical facts and conditions contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial positions, business strategy, plans, and our objectives for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. These forward-looking statements include statements that are not historical facts, including statements regarding management’s expectations for future financial and operational performance and operating expenditures, expected growth, and business outlook; the nature of and progress toward our commercialization plan; the future introduction of our products to consumers; the countries in which we may obtain regulatory approval and the progress toward such approvals; the volume of eggs or fish we may be able to produce; the timeline for our production of saleable fish; the expected advantages of land-based systems over sea cage production; the validity and impact of legal actions; the completion of renovations at our farms; and the establishment of a larger-scale grow-out facility.
We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties, and other factors, many of which are outside of our control, which could cause our actual results, performance, or achievements to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•
the anticipated benefits and characteristics of our AquAdvantageAquaBounty’s genetically engineered (“GE”) Atlantic salmon product;
•the implementation and likelihood of achieving the business plan, future revenue, and operating results;
•our plans for (including without limitation, projected costs, locations and third-party involvement) and the cost and timing of the development of new farms and the output of those farms;
•developments concerning our research projects;
•our expectations regarding our ability to successfully enter new markets or develop additional products;
•our competitive position and developments and projections relating to our competitors and our industry;
•expectations regarding anticipated operating results;
•our cash position and ability to raise additional capital to finance our activities;
•the impact of the evolving COVID-19 coronavirus outbreakpandemic (the “COVID-19 pandemic”) on our business, operations and financial results, any of which could be significantly impaired by the COVID-19 pandemic;
•our ability to protect our intellectual property and other proprietary rights and technologies;
•the impact of and our ability to adapt to changes in laws or regulations and policies;
•the ability to secure any necessary regulatory approvals to commercialize any products;
•the rate and degree of market acceptance of any products developed through the application of bioengineering, including bioengineered fish;
•our ability to retain and recruit key personnel;
•the success of any of our future acquisitions or investments;
•our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; andJumpstart Our Business Startups Act (the “JOBS Act”);
•our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing.financing; and
other risks and uncertainties referenced under “Risk Factors” below and in any documents incorporated by reference herein.
We caution you that the foregoing list may not contain all of the risks to which the forward-looking statements made in this Quarterly Report on Form 10-Q are subject. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included, particularly in the section titled “Risk Factors,” that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments that we may make.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments unless required by federal securities law. New risks emerge from time to time, and it is not possible for us to predict all such risks.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaBounty Technologies, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
As of | |||||
June 30, | December 31, | ||||
2021 | 2020 | ||||
Assets | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 132,345,351 | $ | 95,751,160 | |
Marketable securities | 71,693,675 | — | |||
Inventory | 2,655,098 | 1,525,377 | |||
Prepaid expenses and other current assets | 1,285,168 | 405,370 | |||
Total current assets | 207,979,292 | 97,681,907 | |||
Property, plant and equipment, net | 29,159,517 | 26,930,338 | |||
Right of use assets, net | 313,318 | 341,997 | |||
Intangible assets, net | 238,694 | 245,546 | |||
Restricted cash | 500,000 | 500,000 | |||
Other assets | 81,629 | 76,715 | |||
Total assets | $ | 238,272,450 | $ | 125,776,503 | |
Liabilities and stockholders' equity | |||||
Current liabilities: | |||||
Accounts payable and accrued liabilities | $ | 1,980,365 | $ | 1,760,103 | |
Other current liabilities | 63,902 | 62,483 | |||
Current debt, net | 501,553 | 259,939 | |||
Total current liabilities | 2,545,820 | 2,082,525 | |||
Long-term lease obligations | 257,826 | 290,327 | |||
Long-term debt, net | 8,766,986 | 8,528,490 | |||
Total liabilities | 11,570,632 | 10,901,342 | |||
Commitments and contingencies |
|
| |||
Stockholders' equity: | |||||
Common stock, $0.001 par value, 80,000,000 shares authorized; | |||||
71,025,738 and 55,497,133 shares outstanding as of June 30, 2021 and December 31,2020, respectively | 71,026 | 55,497 | |||
Additional paid-in capital | 384,674,939 | 263,629,116 | |||
Accumulated other comprehensive loss | (112,325) | (267,258) | |||
Accumulated deficit | (157,931,822) | (148,542,194) | |||
Total stockholders' equity | 226,701,818 | 114,875,161 | |||
Total liabilities and stockholders' equity | $ | 238,272,450 | $ | 125,776,503 |
As of | ||||||||||||||
September 30, | December 31, | |||||||||||||
2020 | 2019 | |||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 38,989,366 | $ | 2,798,744 | ||||||||||
Other receivables | 62,034 | 55,198 | ||||||||||||
Inventory | 2,869,470 | 1,232,049 | ||||||||||||
Prepaid expenses and other current assets | 820,193 | 391,162 | ||||||||||||
Total current assets | 42,741,063 | 4,477,153 | ||||||||||||
Property, plant and equipment, net | 25,699,143 | 25,065,836 | ||||||||||||
Right of use assets, net | 356,788 | 399,477 | ||||||||||||
Definite-lived intangible assets, net | 147,311 | 157,588 | ||||||||||||
Indefinite-lived intangible assets | 101,661 | 101,661 | ||||||||||||
Restricted cash | 500,000 | 0 | ||||||||||||
Other assets | 50,213 | 32,024 | ||||||||||||
Total assets | $ | 69,596,179 | $ | 30,233,739 | ||||||||||
Liabilities and stockholders’ equity | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable and accrued liabilities | $ | 2,116,877 | $ | 1,462,809 | ||||||||||
Current lease liabilities and other | 62,627 | 62,286 | ||||||||||||
Current debt | 152,501 | 163,155 | ||||||||||||
Total current liabilities | 2,332,005 | 1,688,250 | ||||||||||||
Long-term lease obligations | 306,174 | 352,808 | ||||||||||||
Long-term debt, net | 8,425,552 | 4,432,052 | ||||||||||||
Total liabilities | 11,063,731 | 6,473,110 | ||||||||||||
Commitments and contingencies | ||||||||||||||
Stockholders’ equity: | ||||||||||||||
Common stock, $0.001 par value, 50,000,000 shares authorized; | ||||||||||||||
44,916,926 (2019: 21,635,365) shares outstanding | 44,917 | 21,635 | ||||||||||||
Additional paid-in capital | 201,402,983 | 156,241,363 | ||||||||||||
Accumulated other comprehensive loss | (490,153) | (360,160) | ||||||||||||
Accumulated deficit | (142,425,299) | (132,142,209) | ||||||||||||
Total stockholders’ equity | 58,532,448 | 23,760,629 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 69,596,179 | $ | 30,233,739 |
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Revenues | |||||||||||
Product revenues | $ | 227,393 | $ | 2,950 | $ | 301,765 | $ | 9,703 | |||
Costs and expenses | |||||||||||
Product costs | 1,847,596 | 1,041,316 | 3,402,251 | 1,882,750 | |||||||
Sales and marketing | 548,881 | 137,434 | 867,516 | 188,222 | |||||||
Research and development | 431,373 | 635,655 | 931,993 | 1,204,417 | |||||||
General and administrative | 2,578,958 | 1,693,544 | 4,364,468 | 3,330,734 | |||||||
Total costs and expenses | 5,406,808 | 3,507,949 | 9,566,228 | 6,606,123 | |||||||
Operating loss | (5,179,415) | (3,504,999) | (9,264,463) | (6,596,420) | |||||||
Other income (expense) | |||||||||||
Interest expense | (80,210) | (18,147) | (159,014) | (35,192) | |||||||
Other income (expense), net | 28,888 | (538) | 33,849 | (1,690) | |||||||
Total other income (expense) | (51,322) | (18,685) | (125,165) | (36,882) | |||||||
Net loss | $ | (5,230,737) | $ | (3,523,684) | $ | (9,389,628) | $ | (6,633,302) | |||
Other comprehensive income (loss): | |||||||||||
Foreign currency | 65,924 | 165,501 | 145,963 | (216,484) | |||||||
Unrealized gains | 8,970 | — | 8,970 | — | |||||||
Total other comprehensive income (loss) | 74,894 | 165,501 | 154,933 | (216,484) | |||||||
Comprehensive loss | $ | (5,155,843) | $ | (3,358,183) | $ | (9,234,695) | $ | (6,849,786) | |||
Basic and diluted net loss per share | $ | (0.07) | $ | (0.11) | $ | (0.14) | $ | (0.22) | |||
Weighted average number of common shares - | |||||||||||
basic and diluted | 71,021,141 | 32,097,992 | 67,803,904 | 29,607,373 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||
Product revenues | $ | 67,763 | $ | 0 | $ | 77,466 | $ | 140,371 | ||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||
Production costs | 1,355,939 | 846,306 | 3,238,689 | 2,649,674 | ||||||||||||||||||||||
Sales and marketing | 143,646 | 206,256 | 331,868 | 381,637 | ||||||||||||||||||||||
Research and development | 458,462 | 446,582 | 1,662,879 | 1,923,512 | ||||||||||||||||||||||
General and administrative | 1,722,874 | 1,500,448 | 5,053,608 | 4,960,553 | ||||||||||||||||||||||
Total costs and expenses | 3,680,921 | 2,999,592 | 10,287,044 | 9,915,376 | ||||||||||||||||||||||
Operating loss | (3,613,158) | (2,999,592) | (10,209,578) | (9,775,005) | ||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||
Interest expense | (38,335) | (17,933) | (73,527) | (45,483) | ||||||||||||||||||||||
Other income (expense), net | 1,705 | (697) | 15 | 11,603 | ||||||||||||||||||||||
Total other income (expense) | (36,630) | (18,630) | (73,512) | (33,880) | ||||||||||||||||||||||
Net loss | $ | (3,649,788) | $ | (3,018,222) | $ | (10,283,090) | $ | (9,808,885) | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||
Foreign currency translation gain (loss) | 86,491 | (38,892) | (129,993) | 133,448 | ||||||||||||||||||||||
Total other comprehensive income (loss) | 86,491 | (38,892) | (129,993) | 133,448 | ||||||||||||||||||||||
Comprehensive loss | $ | (3,563,297) | $ | (3,057,114) | $ | (10,413,083) | $ | (9,675,437) | ||||||||||||||||||
Basic and diluted net loss per share | $ | (0.09) | $ | (0.14) | $ | (0.31) | $ | (0.50) | ||||||||||||||||||
Weighted average number of Common Shares - | ||||||||||||||||||||||||||
basic and diluted | 38,911,054 | 21,604,072 | 32,756,074 | 19,556,607 | ||||||||||||||||||||||
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | |||||||||||||||
Balance at December 31, 2019 | 21,635,365 | $ | 21,635 | $ | 156,241,363 | $ | (360,160) | $ | (132,142,209) | $ | 23,760,629 | |||||||||
Net loss | (3,109,618) | (3,109,618) | ||||||||||||||||||
Other comprehensive income (loss) | (381,985) | (381,985) | ||||||||||||||||||
Issuance of common stock, net of issuance costs | 10,350,000 | 10,350 | 14,511,354 | 14,521,704 | ||||||||||||||||
Share based compensation | 100,319 | 101 | 205,252 | 205,353 | ||||||||||||||||
Balance at March 31, 2020 | 32,085,684 | 32,086 | 170,957,969 | (742,145) | (135,251,827) | 34,996,083 | ||||||||||||||
Net loss | (3,523,684) | (3,523,684) | ||||||||||||||||||
Other comprehensive income (loss) | 165,501 | 165,501 | ||||||||||||||||||
Issuance of common stock, net of issuance costs | 20,000 | 20 | 40,580 | 40,600 | ||||||||||||||||
Share based compensation | 103,891 | 103,891 | ||||||||||||||||||
Balance at June 30, 2020 | 32,105,684 | 32,106 | 171,102,440 | (576,644) | (138,775,511) | 31,782,391 | ||||||||||||||
Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | |||||||||||||||
Balance at December 31, 2020 | 55,497,133 | $ | 55,497 | $ | 263,629,116 | $ | (267,258) | $ | (148,542,194) | $ | 114,875,161 | |||||||||
Net loss | (4,158,891) | (4,158,891) | ||||||||||||||||||
Other comprehensive income (loss) | 80,039 | 80,039 | ||||||||||||||||||
Cashless exercise of options for common stock | 4,354 | 4 | (4) | — | ||||||||||||||||
Issuance of common stock, net of issuance costs | 14,950,000 | 14,950 | 119,105,487 | 119,120,437 | ||||||||||||||||
Exercise of warrants for common stock | 491,133 | 491 | 1,595,691 | 1,596,182 | ||||||||||||||||
Share based compensation | 40,525 | 41 | 129,674 | 129,715 | ||||||||||||||||
Balance at March 31, 2021 | 70,983,145 | 70,983 | 384,459,964 | (187,219) | (152,701,085) | 231,642,643 | ||||||||||||||
Net loss | (5,230,737) | (5,230,737) | ||||||||||||||||||
Other comprehensive income (loss) | 74,894 | 74,894 | ||||||||||||||||||
Exercise of warrants for common stock | 39,281 | 39 | 127,625 | 127,664 | ||||||||||||||||
Share based compensation | 3,312 | 4 | 87,350 | 87,354 | ||||||||||||||||
Balance at June 30, 2021 | 71,025,738 | 71,026 | 384,674,939 | (112,325) | (157,931,822) | 226,701,818 | ||||||||||||||
Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | |||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | 15,098,837 | $ | 15,099 | $ | 142,707,957 | $ | (574,186) | $ | (118,914,567) | $ | 23,234,303 | |||||||||||||||||||||||||||
Net loss | (2,763,932) | (2,763,932) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 87,552 | 87,552 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | 3,345,282 | 3345 | 6,606,310 | 6,609,655 | ||||||||||||||||||||||||||||||||||
Exercise of warrants | 76,797 | 77 | 250,347 | 250,424 | ||||||||||||||||||||||||||||||||||
Share based compensation | 176,561 | 176 | 138,322 | 138,498 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2019 | 18,697,477 | $ | 18,697 | $ | 149,702,936 | $ | (486,634) | $ | (121,678,499) | $ | 27,556,500 | |||||||||||||||||||||||||||
Net loss | (4,026,731) | (4,026,731) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 84,788 | 84,788 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | 2,901,078 | 2901 | 5,782,792 | 5,785,693 | ||||||||||||||||||||||||||||||||||
Share based compensation | 318,218 | 318,218 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 21,598,555 | $ | 21,598 | $ | 155,803,946 | $ | (401,846) | $ | (125,705,230) | $ | 29,718,468 | |||||||||||||||||||||||||||
Net loss | $ | (3,018,222) | $ | (3,018,222) | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | (38,892) | $ | (38,892) | ||||||||||||||||||||||||||||||||||
Exercise of warrants for common stock | 6,767 | $ | 7 | $ | 21,986 | $ | 21,993 | |||||||||||||||||||||||||||||||
Share based compensation | $ | 196,736 | $ | 196,736 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 21,605,322 | $ | 21,605 | $ | 156,022,668 | $ | (440,738) | $ | (128,723,452) | $ | 26,880,083 | |||||||||||||||||||||||||||
Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | |||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 21,635,365 | $ | 21,635 | $ | 156,241,363 | $ | (360,160) | $ | (132,142,209) | $ | 23,760,629 | |||||||||||||||||||||||||||
Net loss | (3,109,618) | (3,109,618) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (381,985) | (381,985) | ||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | 10,350,000 | 10,350 | 14,511,354 | 14,521,704 | ||||||||||||||||||||||||||||||||||
Share based compensation | 100,319 | 101 | 205,252 | 205,353 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | 32,085,684 | $ | 32,086 | $ | 170,957,969 | $ | (742,145) | $ | (135,251,827) | $ | 34,996,083 | |||||||||||||||||||||||||||
Net loss | (3,523,684) | (3,523,684) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 165,501 | 165,501 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | 20,000 | 20 | 40,580 | 40,600 | ||||||||||||||||||||||||||||||||||
Share based compensation | 103,891 | 103,891 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | 32,105,684 | $ | 32,106 | $ | 171,102,440 | $ | (576,644) | $ | (138,775,511) | $ | 31,782,391 | |||||||||||||||||||||||||||
Net loss | $ | (3,649,788) | $ | (3,649,788) | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 86,491 | $ | 86,491 | ||||||||||||||||||||||||||||||||||
Issuance of common stock, net of expenses | 12,650,000 | $ | 12,650 | $ | 29,701,947 | $ | 29,714,597 | |||||||||||||||||||||||||||||||
Exercise of warrants for common stock | 161,242 | $ | 161 | $ | 523,876 | $ | 524,037 | |||||||||||||||||||||||||||||||
Share based compensation | $ | 74,720 | $ | 74,720 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 44,916,926 | $ | 44,917 | $ | 201,402,983 | $ | (490,153) | $ | (142,425,299) | $ | 58,532,448 | |||||||||||||||||||||||||||
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
AquaBounty Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, | |||||
2021 | 2020 | ||||
Operating activities | |||||
Net loss | $ | (9,389,628) | $ | (6,633,302) | |
Adjustment to reconcile net loss to net cash used in | |||||
operating activities: | |||||
Depreciation and amortization | 857,842 | 701,593 | |||
Share-based compensation | 217,069 | 309,244 | |||
Other non-cash charge | 8,565 | 40,600 | |||
Changes in operating assets and liabilities: | |||||
Inventory | (1,122,422) | (1,261,930) | |||
Prepaid expenses and other assets | (876,139) | (409,635) | |||
Accounts payable and accrued liabilities | (153,120) | 280,142 | |||
Net cash used in operating activities | (10,457,833) | (6,973,288) | |||
Investing activities | |||||
Purchase of property, plant and equipment | (2,437,911) | (1,588,497) | |||
Proceeds from sale of asset held for sale | — | 98,000 | |||
Purchases of marketable securities | (71,702,645) | — | |||
Proceeds from legal settlement, net | — | 1,014,008 | |||
Other investing activities | (11,010) | (12,460) | |||
Net cash used in investing activities | (74,151,566) | (488,949) | |||
Financing activities | |||||
Proceeds from issuance of debt | 406,378 | 221,130 | |||
Repayment of term debt | (79,600) | (41,262) | |||
Proceeds from the issuance of common stock, net | 119,120,437 | 14,521,704 | |||
Proceeds from the exercise of stock options and warrants | 1,723,846 | — | |||
Net cash provided by financing activities | 121,171,061 | 14,701,572 | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 32,529 | (16,685) | |||
Net change in cash, cash equivalents and restricted cash | 36,594,191 | 7,222,650 | |||
Cash, cash equivalents and restricted cash at beginning of period | 96,251,160 | 2,798,744 | |||
Cash, cash equivalents and restricted cash at end of period | $ | 132,845,351 | $ | 10,021,394 | |
Reconciliation of cash, cash equivalents and restricted cash reported | |||||
in the consolidated balance sheet: | |||||
Cash and cash equivalents | $ | 132,345,351 | $ | 10,021,394 | |
Restricted cash | 500,000 | — | |||
Total cash, cash equivalents and restricted cash | $ | 132,845,351 | $ | 10,021,394 | |
Supplemental disclosure of cash flow information and | |||||
non-cash transactions: | |||||
Interest paid in cash | $ | 149,533 | $ | 17,058 | |
Property and equipment included in accounts payable and accrued liabilities | $ | 388,495 | $ | 238,235 |
Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | |||||||||||||
Operating activities | ||||||||||||||
Net loss | $ | (10,283,090) | $ | (9,808,885) | ||||||||||
Adjustment to reconcile net loss to net cash used in | ||||||||||||||
operating activities: | ||||||||||||||
Depreciation and amortization | 1,082,261 | 928,476 | ||||||||||||
Share-based compensation | 383,964 | 653,452 | ||||||||||||
Gain on disposal of equipment | (1,816) | (8,548) | ||||||||||||
Other non-cash charges | 41,967 | 0 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Other receivables | (8,252) | 45,880 | ||||||||||||
Inventory | (1,638,981) | (400,716) | ||||||||||||
Prepaid expenses and other assets | (527,913) | (43,404) | ||||||||||||
Accounts payable and accrued liabilities | 366,403 | 345,569 | ||||||||||||
Net cash used in operating activities | (10,585,457) | (8,288,176) | ||||||||||||
Investing activities | ||||||||||||||
Purchase of property, plant and equipment | (2,640,039) | (1,824,831) | ||||||||||||
Proceeds from sale of equipment | 99,816 | 8,548 | ||||||||||||
Proceeds from legal settlement, net | 1,014,008 | 0 | ||||||||||||
Other investing activities | (18,900) | 12 | ||||||||||||
Net cash used in investing activities | (1,545,115) | (1,816,271) | ||||||||||||
Financing activities | ||||||||||||||
Proceeds from issuance of debt | 4,221,130 | 900,767 | ||||||||||||
Payment of debt issuance costs | (91,620) | 0 | ||||||||||||
Repayment of term debt | (49,862) | (57,001) | ||||||||||||
Proceeds from the issuance of common stock, net | 44,236,301 | 12,395,348 | ||||||||||||
Proceeds from the exercise of stock options and warrants, net | 524,037 | 272,416 | ||||||||||||
Net cash provided by financing activities | 48,839,986 | 13,511,530 | ||||||||||||
Effect of exchange rate changes on cash | (18,792) | 15,993 | ||||||||||||
Net change in cash, cash equivalents and restricted cash | 36,690,622 | 3,423,076 | ||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | 2,798,744 | 3,002,557 | ||||||||||||
Cash, cash equivalents and restricted cash at the end of period | $ | 39,489,366 | $ | 6,425,633 | ||||||||||
Supplemental disclosure of cash flow information and | ||||||||||||||
non-cash transactions: | ||||||||||||||
Interest paid in cash | $ | 47,275 | $ | 45,483 | ||||||||||
Property and equipment included in accounts payable and accrued liabilities | $ | 517,344 | $ | 119,541 |
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
Notes to the condensed consolidated financial statements
(unaudited)
1. Nature of business and organization
AquaBounty Technologies, Inc. (the “Parent” and, together with its subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of farm-raised Atlantic salmon that exhibit growth rates that are substantially faster than conventional salmon.
AquaBounty Farms, Inc. (the “U.S. Subsidiary”) was incorporated in December 2014 in the State of Delaware for the purpose of conducting field trials and commercializing the Parent’s products in the United States.
2. Basis of presentation
The unaudited interim condensed consolidated financial statements include the accounts of AquaBounty Technologies, Inc. and its wholly owned direct subsidiaries, AQUA Bounty Canada Inc.; AquaBounty Farms, Inc.; AquaBounty Panama, S. de R.L.; AquaBounty Farms, Inc.; AquaBounty Farms Indiana LLC; and AquaBounty Brasil Participações Ltda. The entities are collectively referred to herein as the “Company.” All intercompany transactions and balances have been eliminated upon consolidation.
The unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited financial statements and related footnotes for the year ended December 31, 2019.2020. The unaudited interim consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of SeptemberJune 30, 2020, and its2021. The Company's results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The unaudited interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements, as allowed by the relevant SECU.S. Securities and Exchange Commission (“SEC”) rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.
Liquidity
In February 2021, the Company completed an equity raise with net proceeds of $119.1 million and has $204 million in the 2019 financial statements have been reclassified to conform with the presentationcash, cash equivalents and marketable securities as of June 30, 2021. While the 2020 unaudited interim consolidated financial statements.
Inventories
Inventories are mainly comprised of feed, eggs and fish in process and packaging materials. Inventories are measured at the lower of cost or net realizable value (“NRV”), where NRV is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and transportation.
Revenue recognition
The Company records revenue on the sale of a product when all revenue recognition criteria are fulfilled, including identifying the contract with a customer; identifying the performance obligations in the contract; determining the transaction price; allocating the
transaction price to the performance obligations in the contract; and recognizing revenue when (or as) the Company satisfies a performance obligation. The Company evaluates customer credit risk in order to conclude it is “probable” it will collect the amount of consideration due in exchange for the goods or services.
Net loss per share
Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss by the weighted average number of Common Sharescommon shares outstanding during the period.year. Basic net loss per share is based solely on the number of Common Sharescommon shares outstanding during the period.year. Fully diluted net loss per share includes the number of Common Shares potentiallyshares of common stock issuable upon the exercise of warrants and options with an exercise price less than the fair value of the Common Shares.common stock unless the impact of the warrant or option is anti-dilutive to the calculation. Since the Company is reporting a net loss for all periods presented, all potential Common Sharescommon shares are considered anti-dilutiveanti-dilutive and are excluded from the calculation of diluted net loss per share.
At SeptemberJune 30, 2020,2021, the Company had 2,164,6101,100,607 potentially dilutive securities outstanding, consisting of 1,501,062418,441 warrants and 663,548682,166 stock options.
Accounting Pronouncements
Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition.
3. Risks and uncertainties
The Company is subject to the risks inherentand uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in other countries with respect to approval and commercial sale of any of the Company’s industryproposed products; (iii) the commercial acceptance of any products approved for sale and the Company’s ability to produce, distribute, and sell for a profit any products approved for sale; (iv) the Company’s ability to obtain the necessary patents and proprietary rights to effectively protect its stagetechnologies; and (v) the outcome of commercialization,any collaborations or alliances entered into by the Company.
COVID-19
Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, several 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 the Company continues to monitor its status.
The ultimate impact of the evolving COVID-19 pandemic introduces a novel risk that is difficult to assesson the Company’s operations will depend on future developments, which cannot be predicted with confidence, and the Company cannot predict the extent or predict.impact of the extended period of continued business interruption and reduced operations caused by the COVID-19 pandemic or any additional preventative or protective measures taken in response. To date, the Company’s farm operations have not been adverselymaterially affected by the pandemic, although the Company hasmanagement made modifications to its biosecurity procedures and itsthe farm sites in early 2020 to adapt to local requirements and to provide a safe work environment.
The Company has experienced delays in capital projects due to the pandemic including a delay in the completion of its processing facility at the Indiana farm. The delay in the completion of this project is expectedand continues to continue into the fourth quarter of 2020 and the Company is therefore utilizing third party alternatives for fish processing in the interim.experience extended lead times on equipment purchases. The Company has also seenmay continue to experience delays on purchases of capital equipment and supplies and other materials required in its operations due to vendor shortages or it could be impacted by transportation or other supply chain disruptions to its partners or customers.
The Company was primarily impacted by a reduction in the market price and demand for Atlantic salmon due to the pandemic’s impact on demand in the food service sector. This has had a negative impact on the Company’s revenue and inventory value, inas the current quarterCompany is not yet an established vendor and is likelycustomers were reluctant to continue foradd a new supplier during a period of depressed demand.
The Company remains focused on maintaining a strong balance sheet, liquidity, and financial flexibility and continues to monitor developments as it deals with the near-term.disruptions and uncertainties from a business and financial perspective relating to the evolving COVID-19 pandemic.
Concentration of credit risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, marketable securities and restricted cash.debt. This risk is minimizedmitigated by the Company’s policy of investing in financial instrumentsmaintaining all balances with short-term maturities issued by highly rated financial institutions.institutions, investing cash equivalents with maturities of less than 90 days, and investing marketable securities with maturities of less than 180 days. The Company’s cash, cash equivalents and restricted cash balances may at times exceed insurance limitations. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign currency exchange risk, which is mitigatedminimized by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled $133$273 thousand at SeptemberJune 30, 2020.
Marketable securities are classified as available-for-sale. The following table summarizes the amortized cost, gross unrealized gains and losses, and the fair value as of June 30, 2021:
Amortized | Unrealized | Unrealized | Market | ||||||||
Cost | Gains | Losses | Value | ||||||||
June 30, 2021 | |||||||||||
Government bonds | $ | 37,650,869 | $ | 1,751 | $ | (8,101) | $ | 37,644,519 | |||
Corporate bonds | 3,558,858 |
| (1,493) | 3,557,365 | |||||||
Commercial paper | 30,491,791 | - | - | 30,491,791 | |||||||
Marketable securities | $ | 71,701,518 | $ | 1,751 | $ | (9,594) | $ | 71,693,675 |
5. Inventory
Major classifications of inventory are summarized as follows:
June 30, 2021 | December 31, 2020 | ||||
Feed | $ | 281,171 | 244,311 | ||
Eggs and fry | 48,396 | 54,929 | |||
Packaging | — | 6,452 | |||
Fish in process | 2,325,531 | 1,219,685 | |||
Inventory | $ | 2,655,098 | 1,525,377 |
September 30, | December 31, | |||||||||||||
2020 | 2019 | |||||||||||||
Feed | $ | 221,300 | $ | 251,778 | ||||||||||
Eggs and fry | 41,151 | 55,887 | ||||||||||||
Packaging | 3,105 | 0 | ||||||||||||
Fish in process | 2,603,914 | 924,384 | ||||||||||||
Total inventory | $ | 2,869,470 | $ | 1,232,049 |
6. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows:
June 30, 2021 | December 31, 2020 | ||||
Land | $ | 733,012 | $ | 724,785 | |
Building and improvements | 14,525,837 | 14,048,917 | |||
Construction in process | 4,879,476 | 3,212,287 | |||
Equipment | 14,788,329 | 13,819,210 | |||
Office furniture and equipment | 218,063 | 202,596 | |||
Vehicles | 37,164 | 28,700 | |||
Total property and equipment | $ | 35,181,881 | $ | 32,036,495 | |
Less accumulated depreciation and amortization | (6,022,364) | (5,106,157) | |||
Property, plant and equipment, net | $ | 29,159,517 | $ | 26,930,338 |
September 30, | December 31, | |||||||||||||
2020 | 2019 | |||||||||||||
Land | $ | 711,073 | $ | 718,586 | ||||||||||
Building and improvements | 13,717,243 | 13,297,489 | ||||||||||||
Construction in process | 2,257,913 | 2,105,873 | ||||||||||||
Equipment | 13,369,665 | 12,275,619 | ||||||||||||
Office furniture and equipment | 200,862 | 201,813 | ||||||||||||
Vehicles | 27,365 | 28,097 | ||||||||||||
Total property and equipment | $ | 30,284,121 | $ | 28,627,477 | ||||||||||
Less accumulated depreciation and amortization | (4,584,978) | (3,561,641) | ||||||||||||
Property, plant and equipment, net | $ | 25,699,143 | $ | 25,065,836 |
Depreciation expense was $845 thousand and $695 thousand, for the six-month period ended June 30, 2021 and 2020.
Included in construction in process is $1.9$2.0 million for construction related to the Rollo Bay farm site. An additional $185 thousand has been committed.
7. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities include the following:
June 30, 2021 | December 31, 2020 | ||||
Accounts payable | $ | 820,534 | $ | 799,888 | |
Accrued payroll including vacation | 581,132 | 583,301 | |||
Accrued professional fees and contract services | 515,499 | 278,165 | |||
Accrued other | 63,200 | 98,749 | |||
Accounts payable and accrued liabilities | $ | 1,980,365 | $ | 1,760,103 |
September 30, | December 31, | |||||||||||||
2020 | 2019 | |||||||||||||
Accounts payable | $ | 983,709 | $ | 809,444 | ||||||||||
Accrued payroll including vacation | 414,228 | 236,489 | ||||||||||||
Accrued professional fees and contract services | 295,272 | 346,349 | ||||||||||||
Accrued construction costs | 277,268 | 0 | ||||||||||||
Accrued taxes and other | 146,400 | 70,527 | ||||||||||||
Accounts payable and accrued liabilities | $ | 2,116,877 | $ | 1,462,809 |
The current material terms and conditions of debt outstanding are as follows:
Interest | Monthly | Maturity | June 30, 2021 | December 31, 2020 | ||||||||
ACOA AIF Grant | 0% | Royalties | - | $ | 2,316,490 | $ | 2,253,595 | |||||
ACOA term loan #1 | 0% | C$3,120 | Feb 2027 | 171,161 | 181,203 | |||||||
ACOA term loan #2 | 0% | C$4,630 | Sep 2029 | 369,689 | 381,451 | |||||||
Kubota Canada Ltd | 0% | C$1,142 | Jan 2025 | 39,622 | 43,925 | |||||||
PEI Finance term loan | 4% | C$16,313 | Nov 2023 | 2,033,484 | 2,014,321 | |||||||
DFO term loan | 0% | C$2,091 | Aug 2032 | 415,593 | — | |||||||
First Farmers Bank & Trust term loan (FFBT) | 5.375% | $56,832 | Oct 2028 | 4,000,000 | 4,000,000 | |||||||
Total debt | $ | 9,346,039 | $ | 8,874,495 | ||||||||
less: debt issuance costs | (77,500) | (86,066) | ||||||||||
less: current portion | (501,553) | (259,939) | ||||||||||
Long-term debt, net | $ | 8,766,986 | $ | 8,528,490 |
Original loan amount | Interest rate | Monthly repayment | Maturity date | September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||
ACOA AIF grant (C$2,871,919) | 0% | Royalties | - | $ | 2,148,770 | $ | 2,206,208 | |||||||||||||||||||||||||
ACOA term loan (C$337,000) | 0% | C$3,120 | June 2026 | 172,774 | 184,583 | |||||||||||||||||||||||||||
ACOA term loan (C$500,000) | 0% | C$4,630 | November 2028 | 363,708 | 384,100 | |||||||||||||||||||||||||||
Kubota Canada Ltd. (C$95,961) | 0% | C$1,142 | January 2025 | 44,446 | 53,533 | |||||||||||||||||||||||||||
Finance PEI term loan (C$2,717,093) | 4% | C$16,313 | November 2023 | 1,938,608 | 1,766,783 | |||||||||||||||||||||||||||
First Farmers Bank &Trust ($4,000,000) | 5.375% | $56,832 | October 2028 | 4,000,000 | 0 | |||||||||||||||||||||||||||
Total debt | $ | 8,668,306 | $ | 4,595,207 | ||||||||||||||||||||||||||||
less: debt issuance costs | (90,253) | 0 | ||||||||||||||||||||||||||||||
less: current portion | (152,501) | (163,155) | ||||||||||||||||||||||||||||||
Long-term debt | $ | 8,425,552 | $ | 4,432,052 |
Estimated principal payments remaining on loan debt are as follows:
AIF | ACOA | Kubota | FPEI | DFO | FFBT | Total | ||||||||||||||
Remainder of 2021 | $ | — | $ | 37,507 | $ | 5,529 | $ | 38,485 | $ | — | $ | 116,675 | $ | 198,196 | ||||||
2022 | — | 75,014 | 11,057 | 79,545 | — | 482,306 | 647,922 | |||||||||||||
2023 | — | 75,014 | 11,057 | 1,915,454 | 36,455 | 509,256 | 2,547,236 | |||||||||||||
2024 | — | 75,014 | 11,057 | — | 43,747 | 537,276 | 667,094 | |||||||||||||
2025 | — | 75,013 | 922 | — | 43,747 | 567,735 | 687,417 | |||||||||||||
Thereafter | 2,316,490 | 203,288 | — | — | 291,644 | 1,786,752 | 4,598,174 | |||||||||||||
Total | $ | 2,316,490 | $ | 540,850 | $ | 39,622 | $ | 2,033,484 | $ | 415,593 | $ | 4,000,000 | $ | 9,346,039 |
Year | AIF | ACOA | FPEI | Kubota | FFBT | Total | ||||||||||||||||||||||||||||||||
2020 | $ | 0 | $ | 17,396 | $ | 17,982 | $ | 2,564 | $ | 0 | $ | 37,942 | ||||||||||||||||||||||||||
2021 | 0 | 69,583 | 73,337 | 10,257 | 116,675 | 269,852 | ||||||||||||||||||||||||||||||||
2022 | 0 | 69,583 | 76,325 | 10,257 | 482,306 | 638,471 | ||||||||||||||||||||||||||||||||
2023 | 0 | 69,582 | 1,770,964 | 10,256 | 509,256 | 2,360,058 | ||||||||||||||||||||||||||||||||
2024 | 0 | 69,582 | 0 | 10,257 | 537,276 | 617,115 | ||||||||||||||||||||||||||||||||
Thereafter | 2,148,770 | 240,756 | 0 | 855 | 2,354,487 | 4,744,868 | ||||||||||||||||||||||||||||||||
Total | $ | 2,148,770 | $ | 536,482 | $ | 1,938,608 | $ | 44,446 | $ | 4,000,000 | $ | 8,668,306 |
In response to the COVID-19 pandemic, the Company was informed by Atlantic Canada Opportunities Agency (ACOA) on March 19, 2020, that all payments to the Canadian government would be deferred for three months, commencing April 1, 2020. On June 15, 2020, the Company was informed that payments would be deferred an additional three months, recommencing October 1, 2020. On October 14, 2020, the Company was informed that payments would continue to be deferred until further notice. A revised loan amortization schedule has not yet been received from ACOA.
The Company recognized interest expense of $73$159 thousand and $44$35 thousand for the ninesix months ended September 30,June 2021 and 2020, and 2019, respectively, on its interest-bearing debt.
9. Leases
Lease expense for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, amounted to $60$43 thousand and $102$40 thousand, respectively. The weighted average remaining lease term of the Company’s operating leases was 2324 years as of SeptemberJune 30, 2020.2021. Lease payments included in operating cash flows totaled $63 thousand and $122$42 thousand for the ninesix months ended SeptemberJune 30, 20202021 and 2019, respectively.2020.
The table below summarizes the Company’s lease obligations and remaining payments at Septembera June 30, 2020:2021:
June 30, 2021 | December 31, 2020 | ||||||
Lease | Lease | Remaining | Remaining | Lease | Remaining | Lease | |
Type | Term | Years | Payments | Liability | Payments | Liability | |
Maynard Office Lease | Operating | Mar 2023 | 1.67 | 118,007 | 106,390 | 150,918 | 134,099 |
Indiana Auto Lease | Operating | Feb 2021 | - | - | 1,157 | 821 | |
Indiana Well Lease | Operating | Dec 2048 | 27.44 | 678,810 | 215,338 | 686,809 | 217,890 |
Total | 796,817 | 321,728 | 838,884 | 352,810 | |||
Less: current portion | (83,543) | (63,902) | (83,571) | (62,483) | |||
Long-term leases | $ 713,274 | $ 257,826 | $ 755,313 | $ 290,327 |
September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||
Lease Type | End Date | Remaining Years | Remaining Payments | Lease Liability | Remaining Payments | Lease Liability | ||||||||||||||||||||
Maynard Office Lease | Operating | Mar 2023 | 2.5 | $ | 167,374 | $ | 147,541 | $ | 215,556 | $ | 186,323 | |||||||||||||||
Indiana Auto Lease | Operating | Feb 2021 | 0.4 | 2,368 | 2,034 | 5,999 | 5,533 | |||||||||||||||||||
Indiana Well Lease | Operating | Dec 2048 | 28.3 | 690,691 | 219,226 | 702,341 | 223,238 | |||||||||||||||||||
Total leases | $ | 860,433 | $ | 368,801 | $ | 923,896 | $ | 415,094 | ||||||||||||||||||
Less: current portion | (84,220) | (62,627) | (85,011) | (62,286) | ||||||||||||||||||||||
Long-term leases | $ | 776,213 | $ | 306,174 | $ | 838,885 | $ | 352,808 |
Remaining payments under leases are as follows at SeptemberJune 30, 2020:2021:
Year | Office | Well | Amount | |||
Remainder of 2021 | 33,505 | 7,999 | 41,504 | |||
2022 | 67,602 | 16,478 | 84,080 | |||
2023 | 16,900 | 16,972 | 33,872 | |||
2024 | - | 17,481 | 17,481 | |||
2025 | - | 18,006 | 18,006 | |||
Thereafter | - | 601,874 | 601,874 | |||
Total Lease Payments | 118,007 | 678,810 | 796,817 |
Year | Office | Auto | Well | Total | ||||||||||||||||
2020 | $ | 16,456 | $ | 1,211 | $ | 3,883 | $ | 21,550 | ||||||||||||
2021 | 66,416 | 1,157 | 15,998 | 83,571 | ||||||||||||||||
2022 | 67,602 | 0 | 16,478 | 84,080 | ||||||||||||||||
2023 | 16,900 | 0 | 16,972 | 33,872 | ||||||||||||||||
2024 | 0 | 0 | 17,481 | 17,481 | ||||||||||||||||
Thereafter | 0 | 0 | 619,879 | 619,879 | ||||||||||||||||
Total Lease Payments | $ | 167,374 | $ | 2,368 | $ | 690,691 | $ | 860,433 |
10. Stockholders’ equity
Recent issuances
On February 12, 2020,8, 2021, the Company completed a public offering of 10,350,000 Common Shares. Net proceeds to the Company were $14.5 million after deducting discounts, fees, and expenses. TS Biotechnology Holdings, which is managed by Third Security and is controlled by Randal J. Kirk, our largest shareholder, participated in this offering, purchasing 5,175,00014,950,000 Common Shares for a totalnet proceeds of approximately $7.8 million in gross proceeds.
Warrants
The following table summarizes information about outstanding warrants at SeptemberJune 30, 2020:
Number of warrant shares | Weighted average exercise price | |||||||||||||
Outstanding at December 31, 2019 | 1,662,304 | $3.25 | ||||||||||||
Exercised | (161,242) | 3.25 | ||||||||||||
Outstanding at September 30, 2020 | 1,501,062 | $3.25 | ||||||||||||
Exercisable at September 30, 2020 | 1,501,062 | $3.25 |
Number of | Weighted | |||
Outstanding at December 31, 2020 | 948,855 | $ | 3.25 | |
Exercised | (530,414) | 3.25 | ||
Outstanding at June 30, 2021 | 418,441 | 3.25 | ||
Exercisable at June 30, 2021 | 418,441 | 3.25 |
All remaining warrants have an expiration date of warrants, with total proceeds of $524 thousand.
At SeptemberJune 30, 2020,2021, the Company has reserved 1,658,315 shares of common stock682,166 Common Shares issuable upon the exercise of outstanding stock options and future issuances under its 2006 and 2016 Equity Incentive Plans. An additional 904,016 Common Shares are reserved for future issuance under the 2016 Equity Incentive Plan.
Restricted stock
A summary of the Company’s shares of restricted stockCommon Shares as of SeptemberJune 30, 2020,2021, is as follows:
Shares | Weighted | |||
Balance at December 31, 2020 | 72,653 | $ | 1.90 | |
Granted | 43,837 | 6.67 | ||
Vested | (46,327) | 3.23 | ||
Balance at June 30, 2021 | 70,163 | $ | 4.00 |
Shares | Weighted average grant date fair value | ||||||||||
Balance at December 31, 2019 | 39,900 | $2.31 | |||||||||
Granted | 100,319 | 1.88 | |||||||||
Vested | (61,894) | 2.10 | |||||||||
Balance at September 30, 2020 | 78,325 | $1.92 |
During the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the Company expensed $160$149 thousand and $279$122 thousand, respectively, related to the restricted stock awards. At SeptemberJune 30, 2020,2021, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $121$238 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.53 years.
Stock options
The Company’s option activity is summarized as follows:
Number of | Weighted | |||
Outstanding at December 31, 2020 | 657,414 | $ | 4.28 | |
Granted | 48,914 | 6.72 | ||
Exercised | (16,667) | 6.90 | ||
Forfeited | (1,959) | 6.72 | ||
Expired | (5,536) | 6.90 | ||
Outstanding at June 30, 2021 | 682,166 | $ | 4.36 | |
Exercisable at June 30, 2021 | 600,470 | $ | 4.39 |
Number of options | Weighted average exercise price | ||||||||||
Outstanding at December 31, 2019 | 573,925 | $4.94 | |||||||||
Issued | 104,458 | 1.99 | |||||||||
Expired | (14,835) | 11.62 | |||||||||
Outstanding at September 30, 2020 | 663,548 | $4.33 | |||||||||
Exercisable at September 30, 2020 | 587,738 | $4.64 |
Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested daily over one to three years and are exercisable for a term of ten years from the date of issuance.
The fair values of stock option grants to employees and members of the Board of Directors during 20202021 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:
March 2021 | ||
Expected volatility | 111% | |
Risk free interest rate | 0.80% | |
Expected dividend yield | 0% | |
Expected life (in years) | 5 |
May 2020 | March 2020 | January 2020 | ||||||||||||||||||||||||
Expected volatility | 104% | 102% | 101% | |||||||||||||||||||||||
Risk free interest rate | 0.31% | 0.66% | 1.67% | |||||||||||||||||||||||
Expected dividend yield | 0% | 0% | 0% | |||||||||||||||||||||||
Expected life (in years) | 5 | 5 | 5 |
The weighted average fair value of stock options granted during the ninesix months ended SeptemberJune 30, 2020,2021, was $1.49.
The total intrinsic value of all options outstanding was $1.2$1.7 million and $1 thousand$3.6 million at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively. The total intrinsic value of exercisable options was $1$1.5 million and $3.2 million at SeptemberJune 30, 2020,2021 and $1 thousand at December 31, 2019,2020, respectively.
The following table summarizes information about options outstanding and exercisable at SeptemberJune 30, 2020:2021:
Weighted | Number of | Weighted | Number of | |||
$1.88 - $2.50 | 531,519 | 7.8 | 488,509 | |||
$3.30 - $6.72 | 58,557 | 8.4 | 19,871 | |||
$7.50 - $10.80 | 20,503 | 3.0 | 20,503 | |||
$14.20 - $23.40 | 71,587 | 4.8 | 71,587 | |||
682,166 | 600,470 |
Weighted average exercise price of outstanding options | Number of options outstanding | Weighted average remaining estimated life (in years) | Number of options exercisable | Weighted average exercise price of outstanding and exercisable options | ||||||||||||||||||||||
$1.88 - $2.50 | 531,519 | 8.5 | 455,709 | |||||||||||||||||||||||
$3.30 - $6.90 | 37,139 | 1.8 | 37,139 | |||||||||||||||||||||||
$7.50 - $10.80 | 21,303 | 3.6 | 21,303 | |||||||||||||||||||||||
$14.20 - $23.40 | 73,587 | 5.6 | 73,587 | |||||||||||||||||||||||
663,548 | 587,738 | $4.64 |
Total share-based compensation on stock options amounted to $224$68 thousand and $374$187 thousand for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. At SeptemberJune 30, 2020,2021, the balance of unearned share-based compensation to be
11. Commitments and contingencies
The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
See Note 5 for commitments related to ourthe Company’s renovation and construction costs.
The Company is subject to legal proceedings and claims arising in the normal course of business. The Company records estimated losses from these legal proceedings and claims when it determines that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Litigation is subject to many factors that are difficult to predict so that there can be no assurance, in the event of a material unfavorable result in one or more claims, the Company will not incur material costs. There have been no other material changes to the commitments and contingencies disclosed in ourthe Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2019.2020.
12. Income Taxes
The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2021 as the Company incurred losses for the six months ended June 30, 2021 and is forecasting additional losses through the remainder of fiscal year ending December 31, 2021, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2021. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method.
Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not.
As of June 30, 2021, the Company had 0 unrecognized income tax benefits that would reduce the Company’s effective tax rate if recognized.
13. Subsequent Events
ACOA Loan
On July 8, 2021, the Canadian Subsidiary entered into a contribution agreement with the Atlantic Canada Opportunities Agency under its REGI-Business Scale-up and Productivity program that can provide up to C$250 thousand ($200 thousand) in funding assistance. All funds received are to be repaid over a 36-month term commencing January 2023 at a 0% interest rate.
Site Purchase
On July 23, 2021, the Company executed a Purchase and Sale Agreement with Kidston Consultants, Ltd for the purchase of approximately 85 acres of land in the Village of Pioneer, Williams County Ohio for $2.1 million. The sale is subject to the satisfaction of certain contingencies and customary closing conditions. The transaction is expected to close in early 2022, though the Company has been approved for a loan from the Department of Fisheries and Oceans in Canada. The loan amount is for C$1.9 million ($1.4 million), the interest rate is 0% and monthly repayments of C$16,865 ($12,650) willan option to commence in March 2023 for a term of 9.5 years. Proceeds will be used to complete constructionwork on the Canadian Subsidiary’s broodstock facility atsite prior to close.
Related Party Agreement
On July 30, 2021, the Company executed an agreement with its Rollo Bay site.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 December 31, 2019,2020, which was filed on March 10, 2020.
Overview
We believe that we are a leader in the field of land-based aquaculture and the use of technology for improving its productivity and sustainability. Our lead product is the AquAdvantageour GE Atlantic salmon, which received FDA approval in 2015 as the first bioengineered animal available for sale for human consumption. We have commenced commercial activities with operations in the United States and Canada where we have received regulatory approval.
COVID-19
Although the World Health Organization declared the outbreak of a novel coronavirus, SARS-CoV-2, as aCOVID-19 pandemic which continues to spread throughouthas diminished in the United States and worldwide. Because infections of this virus and incidencesother parts of the disease it causes, COVID-19,world as vaccines have been reported throughout bothbecome more readily available, several variants of the virus continue to spread. Local governmental authorities in the United States and Canada certain national, provincial, state, and local governmental authorities have issued, proclamations and continue to update, directives aimed at minimizing the spread of the virus. Additional, more restrictive proclamationsvirus and directives may be issued in the future.
The ultimate impact of the evolving COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, includingand we cannot predict the durationextent or impact of the COVID-19 pandemic, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in an extended period of continued business disruptioninterruption and reduced operations.operations caused by the COVID-19 pandemic or any additional preventative or protective measures taken in response. To date, our farm operations have not been materially affected by the pandemic, although we made modifications to biosecurity procedures and the farm sites in early 2020 to adapt to local requirements and to provide a safe work environment. Our current preventative and protective measures include, but are not limited to, segregating farm workers to specific locations, rotating shifts, and monitoring worker temperatures upon arrival at our facilities. To the extent possible, work-from-home is utilized for employees that do not have fish care responsibilities. Any resulting financial impact cannot be reasonably estimated at this time but may have a material adverse impact on our business, financial condition, and results of operations.
We have experienced delays in capital projects due to the pandemic including a delayand continue to experience extended lead times on equipment purchases. We may continue to experience delays on purchases of capital equipment and supplies and other materials required in the completion of the processing facility at the Indiana farm. The delay in the completion of this project is expectedour operations due to continue into the fourth quarter of 2020 andvendor shortages or we are therefore utilizing third party alternatives for fish processing in the interim. We have also seencould be impacted by transportation or other supply chain disruptions to our partners or customers.
Our operations were primarily impacted by a reduction in the market price and demand for Atlantic salmon due to the pandemic’s impact on demand in the food service sector. This has had a negative impact on our revenue and inventory value, as we are not yet an established vendor and is likelycustomers were reluctant to continue for the near-term.
We remain focused on maintaining a strong balance sheet, liquidity, and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective relating to the evolving COVID-19 pandemic. Management expects that all of its operations, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 pandemic on our business and the duration for which it may have an impact cannot be determined at this time.
Revenue
We currently generate product revenue through the sales of our GE Atlantic salmon, conventional Atlantic salmon salmon eggs and fry, and salmon byproducts. We expect that our sales will be modest and infrequent inrevenues for the near-termsecond half of 2021 to slowly grow as we slowly buildincrease our sales and distribution supply chain forharvesting capability at our Indiana and Rollo Bay farm sites and as we deal with the supply chain disruption from the COVID-19 pandemic.
Production Costs
Production costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs; an application of overhead; and the cost to process and ship our products to customers. A portion of production costs are absorbed into inventory as fish in process to the extent that these costs do not exceed the net realizable value of the fish in process. As our farms in Indiana and Rollo Bay ramp up their production activity, theThe costs that are not absorbed into inventory, as well as any net realizable inventory valuate adjustments, are classified as other production costs. As of SeptemberJune 30, 2020,2021, we had forty-onefifty employees engaged in production activities.
Sales and Marketing Expenses
Our sales and marketing expenses currently include consulting fees for market-related activities.activities and the cost of our salmon donation program. As of SeptemberJune 30, 2020,2021, we had no employeesone employee dedicated to sales and marketing.
As of SeptemberJune 30, 2020,2021, we employed seventeennineteen scientists and technicians at our facilities on Prince Edward Island to oversee our broodstock of AquAdvantageGE Atlantic salmon, as well as 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, development functions, and brood-stock husbandry;
•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 compliance,affairs, rent and utilities, insurance, and legal service. We had thirteenfifteen employees in our general and administrative group at SeptemberJune 30, 2020.
Other Income (Expense)
Interest expense includes the interest on our outstanding loans and amortization of debt issuance costs. Other income (expense) includes bank charges, fees, interest income, and miscellaneous gains or losses on asset disposals.
Results of Operations
Comparison of the three months ended SeptemberJune 30, 2020,2021, to the three months ended SeptemberJune 30, 2019.
The following table summarizes our results of operations for the three months ended SeptemberJune 30, 20202021 and 2019,2020, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
Three Months Ended June 30, | Dollar | % | |||||||
2021 | 2020 | Change | Change | ||||||
(unaudited) | |||||||||
Product revenue | $ | 227 | $ | 3 | 224 | 7,467% | |||
Operating expenses: | |||||||||
Product costs | 1,848 | 1,041 | 807 | 78% | |||||
Sales and marketing | 549 | 137 | 412 | 301% | |||||
Research and development | 431 | 636 | (205) | (32)% | |||||
General and administrative | 2,579 | 1,694 | 885 | 52% | |||||
Operating loss | 5,180 | 3,505 | 1,675 | 48% | |||||
Total other expense | 51 | 19 | 32 | 168% | |||||
Net loss | $ | 5,231 | $ | 3,524 | 1,707 | 48% |
Three Months Ended September 30, | Dollar Change | % Change | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
Product revenue | $ | 68 | $ | — | $ | 68 | 100 | % | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Production costs | 1,356 | 846 | 510 | 60 | % | |||||||||||||||||||||
Sales and marketing | 144 | 206 | (62) | (30) | % | |||||||||||||||||||||
Research and development | 458 | 447 | 11 | 2 | % | |||||||||||||||||||||
General and administrative | 1,723 | 1,500 | 223 | 15 | % | |||||||||||||||||||||
Operating loss | 3,613 | 2,999 | 614 | 20 | % | |||||||||||||||||||||
Total other (income) expense | 37 | 19 | 18 | 95 | % | |||||||||||||||||||||
Net loss | $ | 3,650 | $ | 3,018 | $ | 632 | 21 | % |
Product Revenue
Product revenue for the three months ended SeptemberJune 30, 20202021 consisted of sales of our GE Atlantic salmon and conventional Atlantic salmon fry and eggs. There was no productProduct revenue for the three months ended SeptemberJune 30, 2019.2020 consisted of sales of conventional Atlantic salmon fry and eggs. During the current period, we began harvesting and selling our GE Atlantic salmon from both our Indiana and Rollo Bay farms. We expect our sales will be modest inrevenues for the near-termsecond half of 2021 to slowly grow as we buildincrease our customer base while dealing with the productionharvesting capability at our Indiana and market disruption from the COVID-19 pandemic.
Production Costs
Production costs for the three months ended SeptemberJune 30, 2020,2021, were up from the corresponding period in 2019,2020, due to production cost increases related to increasing fish biomass at the Indiana and Rollo Bay farmsfarms. Increases included headcount additions, feed costs
and other direct supplies. Current period costs also included processing and transportation costs to bring our product to market as they continue their ramp-up.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended SeptemberJune 30, 2020,2021, were downup from the corresponding period in 20192020 due to a decrease in personnel, offset by an increase in chargeshead count and promotional expenses related to the commencement of marketing activities for our salmon. We expect that our sales and marketing expenses will increase as we increase salesCosts for the current period also include a $335 thousand charge related to the donation program of our fish.
Research and development expenses for the three months ended SeptemberJune 30, 2020,2021, were slightly updown from the corresponding period in 20192020 due to increased personnel costs, offset by a decrease in outside contract service fees. We expect that ourfees andan increase in broodstock cost transferred to production costs for related product revenue during the period, partly offset by increased personnel costs. During the current period, research activities included feed nutrition trials, discovery research in salmon immunology and development expenses will increase as we expand our broodstock capacity, commence new field trials, and continuework on a genome study to pursue regulatory approval for additional products and additional markets.
General and Administrative Expenses
General and administrative expenses for the three months ended SeptemberJune 30, 2020,2021, were up from the corresponding period in 20192020 due to an increase in personnel associated compensation, regulatoryoutside consulting and advisory fees, auditing fees, insurance costs, legal fees, associated with the FDA legal challenge,personnel costs and corporate costs,travel, partially offset by decreasesa decrease in travel and stock compensation charges. We expect that our general and administrative expenses will fluctuate based on our legal fees associated with the FDA legal challenge.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, gain on disposal of equipment and interest income for the three months ended September 30, 2020, and interest on debt, bank charges, and interest income for the three months ended SeptemberJune 30, 2019.
Comparison of the ninesix months ended SeptemberJune 30, 2020,2021, to the ninesix months ended SeptemberJune 30, 2019.
The following table summarizes our results of operations for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
Six Months Ended June 30, | Dollar | % | |||||||
2021 | 2020 | Change | Change | ||||||
(unaudited) | |||||||||
Product revenue | $ | 302 | $ | 10 | 292 | 2,920% | |||
Operating expenses: | |||||||||
Product costs | 3,402 | 1,883 | 1,519 | 81% | |||||
Sales and marketing | 868 | 188 | 680 | 362% | |||||
Research and development | 932 | 1,204 | (272) | (23)% | |||||
General and administrative | 4,365 | 3,331 | 1,034 | 31% | |||||
Operating loss | 9,265 | 6,596 | 2,669 | 40% | |||||
Total other expense | 125 | 37 | 88 | 238% | |||||
Net loss | $ | 9,390 | $ | 6,633 | 2,757 | 42% |
Nine Months Ended September 30, | Dollar Change | % Change | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
Product revenue | $ | 77 | $ | 140 | $ | (63) | (45) | % | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Production costs | 3,239 | 2,650 | 589 | 22 | % | |||||||||||||||||||||
Sales and marketing | 332 | 382 | (50) | (13) | % | |||||||||||||||||||||
Research and development | 1,663 | 1,923 | (260) | (14) | % | |||||||||||||||||||||
General and administrative | 5,053 | 4,960 | 93 | 2 | % | |||||||||||||||||||||
Operating loss | 10,210 | 9,775 | 435 | 4 | % | |||||||||||||||||||||
Total other (income) expense | 74 | 34 | 40 | 118 | % | |||||||||||||||||||||
Net loss | $ | 10,284 | $ | 9,809 | $ | 475 | 5 | % |
Product Revenue
Product revenue for the ninesix months ended SeptemberJune 30, 2021 consisted of sales of our GE Atlantic salmon and conventional Atlantic salmon fry and eggs. Product revenue for the six months ended June 30, 2020 consisted of sales of conventional Atlantic salmon fry and eggs. ForDuring the comparativecurrent period, in 2019, revenue included the sale of AquAdvantagewe began harvesting and selling our GE Atlantic salmon from both our Panama demonstration farm.
Production Costs
Production costs for the ninesix months ended SeptemberJune 30, 2020,2021, were up from the corresponding period in 2019,2020, due to production cost increases related to increasing fish biomass at the Indiana and Rollo Bay farmsfarms. Increases included headcount additions, feed costs and other direct supplies. Current period costs also included processing and transportation costs to bring our product to market as they continue their ramp-up.a result of higher product revenue volume.
Sales and Marketing Expenses
Sales and marketing expenses for the ninesix months ended SeptemberJune 30, 2021, were up from the corresponding period in 2020 due to an increase in headcount, promotional expenses related to marketing activities for our salmon. Costs for the period also include a $509 thousand charge related to the donation program of conventional Atlantic salmon to local food charities.
Research and Development Expenses
Research and development expenses for the six months ended June 30, 2021, were down from the corresponding period in 20192020 due to a decrease in personnel cost, offset by an increase in charges related to the commencement of marketing activities for our salmon.
General and Administrative Expenses
General and administrative expenses for the ninesix months ended SeptemberJune 30, 2020,2021, were up slightly from the corresponding period in 20192020 due to an increase in outside consulting and advisory fees, auditing fees, insurance costs, legal fees, and personnel costs, regulatory legal fees associated with the FDA legal challenge, and outside consulting fees,partially offset by a decrease in travel and stock compensation charges.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, a gain on disposal of equipment and interest income for the ninesix months ended SeptemberJune 30, 2020,2021, and interest on debt, bank charges, and interest income for the nine months ended September 30, 2019.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Six Months Ended June 30, | Dollar | % | |||||||
2021 | 2020 | Change | Change | ||||||
(unaudited) | |||||||||
Net cash provided by (used in): | |||||||||
Operating activities | $ | (10,458) | $ | (6,973) | (3,485) | 50% | |||
Investing activities | (74,152) | (489) | (73,663) | 15,064% | |||||
Financing activities | 121,171 | 14,702 | 106,469 | 724% | |||||
Effect of exchange rate changes on cash | 33 | (17) | 50 | (294)% | |||||
Net increase in cash | $ | 36,594 | $ | 7,223 | 29,371 | 407% |
Nine Months Ended September 30, | |||||||||||
2020 | 2019 | ||||||||||
(unaudited) | |||||||||||
Net cash provided by (used in): | |||||||||||
Operating activities | $ | (10,585) | $ | (8,288) | |||||||
Investing activities | (1,545) | (1,816) | |||||||||
Financing activities | 48,840 | 13,511 | |||||||||
Effect of exchange rate changes on cash | (19) | 16 | |||||||||
Net increase (decrease) in cash | $ | 36,691 | $ | 3,423 |
Cash Flows from Operating Activities
Net cash used in operating activities during the ninesix months ended SeptemberJune 30, 2020,2021 was primarily comprised of our $10.3$9.4 million net loss, offset by non-cash depreciation and stock compensation charges of $1.5$1.1 million and increased by working capital uses of $1.8$2.1 million. Net cash used in operating activities during the ninesix months ended SeptemberJune 30, 2019,2020 was primarily comprised of our $9.8$6.6 million net loss, offset by non-cash depreciation and stock compensation charges of $1.6$1 million and increased by working capital uses of $61 thousand.
Spending on operations increased in the current period due to increases in production activities at our Rollo Bay and Indiana farm sites offset by lower field trial costs related to our demonstration farm in Panama and travel.outside consulting and advisory fees. Cash used by working capital increased in the current period and was due primarily to an increasedriven by increases in inventory, and prepaid expenses offset by an increaseand other current assets, receivables and a reduction in accounts payable and accrued liabilities.
Cash Flows from Investing Activities
During the ninesix months ended SeptemberJune 30, 2021, we used $2.2 million for renovations to our Indiana farm site, construction charges at our Rollo Bay farm site and renovations at our Fortune Bay hatchery, $254 thousand on deposits on equipment purchases and $71.7 million on marketable securities purchases. During the same period in 2020, we used $2.6$1.6 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $100 thousand in proceeds from the sale of equipment and $1$1.0 million in net proceeds from a legal settlement. During the same period in 2019, we used $1.8 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $9 thousand in proceeds from the sale
Cash Flows from Financing Activities
During the ninesix months ended SeptemberJune 30, 2020,2021, we received approximately $44 million in net proceeds from the issuance of Common Shares in two public offerings, $524 thousand from the exercise of warrants, and $4.2 million from new debt. This was offset by $50 thousand in the repayment of debt. During the same period in 2019, we received approximately $12.4$119.1 million in net proceeds from the issuance of Common Shares in a public offering, $272 thousand$1.7 million from the exercise of warrants, and $901$406 thousand from new debt. This was offset by $57During the same period in 2020, we received approximately $14.5 million in net proceeds from the issuance of Common Shares in a public offering and $221 thousand in the repayment offrom new debt.
Future Capital Requirements
In February 2021, we completed an equity raise with net proceeds of $119.1 million and we have $204 million of cash, cash equivalents and marketable securities as of June 30, 2021. While we have experienced net losses and negative cash flows from operations since its inception, and has cumulative losses attributablewe believe that we have sufficient cash to common stockholders of $142.4 million and a cash balance of $39.5 million as of September 30, 2020. Management believes its current cash balance, along with the expected revenues from its farms will meet the Company’s cashour requirements for at least the next twelve months from the filing date. Management also has the discretion to reduce spending and delay capital projects if necessary, in order to preserve cash.
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
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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 six months ended June 30, 2021. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following sections provide quantitative information on our exposure to interest rate risk and foreign currency exchange risk. We make use of sensitivity analyses, which are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.
Interest Rate Risk
Our primary exposure to market risk is interest rate risk associated with debt financing that we utilize from time to time to fund operations or specific projects. The interest on this debt is usually determined based on a fixed rate and is contractually set in advance. At SeptemberJune 30, 2020,2021, and December 31, 2019,2020, we had $5.8$6.0 million and $1.8 million, respectively, in interest-bearing debt instruments on our consolidated balance sheet.
All of our interest-bearing debt is at fixed rates, except for the next five years, atour loan with First Farmers Bank and Trust, which point one outstanding loan will havehas a one-time rate reset for the remainder of its term.
Foreign Currency Exchange Risk
Our functional currency is the U.S. Dollar. The functional currency of our Canadian subsidiary is the Canadian Dollar, and the functional currency of our Panama, U.S., and Brazil subsidiaries is the U.S. Dollar. For the Canadian Subsidiary, assets and liabilities are translated at the exchange rates in effect at the balance sheet date, equity accounts are translated at the historical exchange rate, and the income statement accounts are translated at the average rate for each period during the year. Net translation gains or losses are adjusted directly to a separate component of accumulated other comprehensive loss within shareholders’ equity (deficit).
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended SeptemberJune 30, 2020,2021, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(g) and 15d-15(f)) that occurred during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are waiting for a ruling from the court.
Item 1A. Risk Factors
As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which was filed on March 10, 2020,9, 2021, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which was filed on August 6, 2020,March 31, 2021, there are a number of risks and uncertaintiesfactors that may have a material effect on the operatingcould affect our business, financial condition, and results of our business and our financial condition.operations. The following risk factors are either new or have changed materially from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.2020 or our 10-Q for the quarter ended March 31, 2021. You should carefully review the risks involveddescribed below and those described in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, for the quarter ended June 30, 2020,including our consolidated financial statements and related notes, and in other reports we file with the Securities and Exchange Commission, in evaluating our business.
This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below, elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K, and in our Quarterly Report on 10-Q for the quarter ended March 31, 2021. See “Cautionary Note Regarding Forward-Looking Statements” for information relating to these forward-looking statements.
Risks Relating to our Business
We have a history of net losses and perceived environmental impacts could lead to legal challenges, limit or prevent the use of our products,will likely incur future losses and limit our revenues.
In the marketplace, and demand forperiod from incorporation to June 30, 2021, we have incurred cumulative net losses of approximately $158 million. These losses reflect our products could fall short of what we expect. These concerns could also result in increased expenses, regulatory scrutiny, delays, or other impediments to implementation of our business plan.
We may experience a significant delay before approval. Therefish mortality event in our broodstock or our production facilities that could impact our share price.
In recent periods, other companies in the land-based aquaculture industry have experienced fish mortality events that resulted in a decline in their share price. It is also no guaranteepossible that any approvals granted will not be subject to onerous obligations in relation to matters such as production or labeling, or that any regulator will not require additional data prior to approval, which may be costly and time-consuming to acquire.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Letter Agreement with Third Security
On July 30, 2021, we entered into a letter agreement (the “Letter Agreement”) with TS Aquaculture LLC and certain of its affiliates that requires that we file a registration statement to register the shares of Common Stock held by TS Aquaculture LLC and certain of its affiliates and keep it effective for a period of not less than 24 months. TS Aquaculture LLC agreed to pay all expenses incurred in connection with such registration statements. We and TS Aquaculture LLC also agreed to modify the terms of the relationship agreement between us and TS Aquaculture LLC as successor in interest to Intrexon Corporation (the “Relationship Agreement”) so as to restrict assignments of the rights of TS Aquaculture LLC thereunder.
The entry into this agreement constituted a “related party transaction” as defined by Item 404 of Regulation S-K because TS Aquaculture is an affiliate and has appointed three members of our board pursuant to the Relationship Agreement. Because of this, the agreement was approved by only the disinterested directors and the Audit Committee was responsible for reviewing, negotiating and approving the terms of the Letter Agreement. Additionally, the Company has a policy that the Audit Committee is responsible for the review and approval of any “related party transaction”, as such term is defined in Item 404 of Regulation S-K, after it has reviewed and considered all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related party’s interest in the transaction.
This transaction was approved by the disinterested members of the Board on July 27, 2021, upon the recommendation of the Audit Committee.
Indemnification Agreements
On July 27, 2021, the Board approved an Indemnification Agreement for our officers and directors. A separate version of the Indemnification Agreement was approved for directors appointed by Third Security.
Item 6. Exhibits
EXHIBIT INDEX
+ The certification furnished in Exhibit 32.1 hereto is deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AQUABOUNTY TECHNOLOGIES, INC. | ||||||||
| /s/ Sylvia Wulf | |||||||
Sylvia Wulf | ||||||||
President, Chief Executive Officer, and Director (Principal Executive Officer) | ||||||||
| /s/ David A. Frank | |||||||
David A. Frank | ||||||||
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |