What changed in this filing

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Item 1. Business

2021-03-09 compared with 2020-03-10 · 204 added, 276 removed, 40 unchanged (92% of the section changed)

Feed a growing world by developing and deploying new aquaculture technologies.

AquaBounty is a leader in the field of land-based aquaculture and the use of technology for improving its productivity and sustainability.

Our objective is to ensure the availability of high-quality seafood to meet global consumer demand, while addressing critical production constraints in the most popular farmed species.

In 1995, we began the process of seeking regulatory approval from the FDA for our first bioengineered product, AquAdvantage Salmon, which grows to harvest size faster than conventional Atlantic salmon.

In 1996, we acquired our first land-based RAS hatchery on Prince Edward Island, Canada, and we now have over two decades of experience in successfully rearing Atlantic salmon in RAS facilities.

On November 19, 2015, we received approval from the FDA of our NADA for the production, sale, and consumption in the United States of AquAdvantage Salmon.

This was followed on May 19, 2016, by the approval from Health Canada for the production, sale, and consumption of AquAdvantage Salmon in Canada.

Consequently, we have received approvals for our product from what we believe are two of the most respected and rigorous regulatory agencies in the world.

We believe that receipt of FDA approval for AquAdvantage Salmon not only represents a major milestone for us, but also a significant pioneering development in introducing bioengineered animals into the food chain.

Although genetically modified crops have been accepted by consumers in the United States and South America for some time, AquAdvantage Salmon is the first bioengineered animal to be approved for human consumption.

We farm AquAdvantage Salmon in land-based, contained, freshwater aquaculture systems, which allows inland fish farms to be established close to major demand centers in a profitable and environmentally sustainable manner.

Our years of experience growing Atlantic salmon in land-based farms, coupled with the economic advantage of our faster-growing AquAdvantage Salmon, offers the opportunity to energize salmon aquaculture in the United States, which imported more than $3.4 billion of Atlantic salmon in 2018 according to the DOC.

In 2017, we purchased an existing land-based aquaculture facility in Indiana as our first farm in the United States.

We currently are growing both conventional Atlantic salmon and AquAdvantage Salmon at the farm, with our first harvests of conventional Atlantic salmon expected in Q2 of 2020 and our first harvests of AquAdvantage Salmon expected in Q4 of 2020.

Our future plans include construction of four to five new farms in North America at sites close to consumer consumption over the next several years.

Additionally, we are pursuing regulatory approval for AquAdvantage Salmon in Argentina, Brazil, China, and Israel.

See “-Our Product” for more information on AquAdvantage Salmon and “-Regulatory Environment” for more information on our completed NADA process with the FDA.

Due to an Import Alert that was implemented by the FDA in response to a provision in the 2016 Appropriations bill requiring labeling guidance for our product, AquAdvantage Salmon could not be imported into the U.S.

until March 2019.

In the interim, we introduced conventional Atlantic Salmon into our Indiana facility for grow-out, and, after the Import Alert was lifted, added AquAdvantage Salmon.

We expect our first harvest of each group in the second quarter and fourth quarter, respectively.

For more information, see “Risk Factors-Risks Relating to Our Business-We may become subject to increasing regulation, changes in existing regulations, and review of existing regulatory decisions.” We also anticipate the first harvest from our Rollo Bay farm in the same period.

We have incurred significant losses since our inception in 1991 and expect to continue to incur significant losses until we achieve market acceptance for our product and expand our production capacity.

We have sold small quantities of AquAdvantage Salmon from our demonstration farm site in Panama during 2018 and 2019, and we expect more significant revenues in 2020 once we begin to harvest from our farms in Indiana and on Prince Edward Island.

For the fiscal years ended December 31, 2019, 2018 and 2017, we experienced operating losses of $13.2 million, $10.4 million and $9.3 million, respectively.

The Aquaculture Industry

Our objective is to ensure the availability of high-quality seafood to meet growing global consumer demand, while addressing critical production constraints in one of the most popular farmed species.

We are committed to feeding the world efficiently, sustainably and profitably.

Aquaculture is the farming of aquatic organisms such as fish, shellfish, crustaceans, and aquatic plants.

It involves cultivating freshwater or saltwater species under controlled conditions, as an alternative to the commercial harvesting of wild species of aquatic organisms.

According to Research and Markets, an industry research organization, the global aquaculture market was valued at $264.5 billion in 2018 and is expected to grow at a compound annual rate of 7.7% to reach a market size of $509.7 billion by the year 2027.

We believe that the aquaculture industry-and in particular salmon farming-is poised for significant additional growth in the coming years as the global population expands and consumers seek out high-quality proteins.

According to the Food and Agriculture Organization of the United Nations (“FAO”), aquaculture was a $250 billion industry in 2018, and we are targeting the $17 billion salmon farming segment of that industry.

Our genetically engineered AquAdvantage salmon is based upon proprietary salmon genetics and grows to harvest size faster than conventional Atlantic salmon.

Our salmon was approved for production, sale, and consumption in the United States on November 19, 2015 by the Food and Drug Administration (“FDA”).

This was followed by an approval from Health Canada for the production, sale, and consumption of AquAdvantage salmon in Canada on May 19, 2016.

Consequently, we have received approvals for our product from what we believe are two of the most respected and rigorous regulatory agencies in the world.

We farm AquAdvantage salmon in land-based, recirculating aquaculture systems (“RAS”), which allow inland fish farms to be established close to major demand centers in a profitable and environmentally sustainable manner.

We believe that our 25 years of experience growing salmon in land-based farms, coupled with the unique genetics of our faster-growing AquAdvantage salmon, provides us with a competitive advantage and an opportunity to establish multiple salmon farms throughout North America and the world.

We currently have two salmon farms in production – a 1,200 metric ton facility in Indiana and a 250 metric ton demonstration facility on Prince Edward Island.

Our plans include the construction of a new 10,000 metric ton farm in the Midwest United States during the next eighteen months and an additional three to four new 10,000 metric ton farms in North America at sites close to consumer consumption over the next seven-to-ten years.

We are also pursuing regulatory approval for AquAdvantage salmon in Brazil, China, and Israel, with the goal of entering those markets with local partners in the form of joint ventures or licensing arrangements.

Additionally, we plan to utilize our expertise in biotechnology and RAS operations to enter complimentary areas of the aquaculture industry.

Our strategy is to continually strengthen our core capabilities, scale our business and pursue growth opportunities.

Market Drivers

Population Growth Drives Demand for Food Protein

According to FAO, the global population is projected to exceed 9 billion people by 2050, or roughly 26% growth over the next 30 years.

Along with this increase is a growing middle class with more disposable income, which is driving increased demand for protein food sources.

And according to FAO, global fish consumption has been growing faster than all other animal protein foods.

Traditional Fisheries Cannot Meet the Demand

The increased demand for fish protein cannot be satisfied from traditional capture fisheries.

FAO states that over 90% of the world's fisheries are fully fished or overfished.

Total production from global capture fisheries has been relatively stable since the late-1980s, with catches generally fluctuating between 86 million metric tons and 93 million metric tons per year, reaching 96 million metric tons in 2018.

In contrast, aquaculture fish production has grown from 14 million metric tons to a level of 82 million metric tons in 2018 and now accounts for 46% of global fish production.

Feeding the growing population and meeting the demand for fish protein will require aquaculture production to almost double by 2050.

The chart below depicts the projected gap between supply and demand over the next 30 years.

FAO - The State of World Fisheries and Aquaculture 2020 for actual data

through 2018.

Company estimates based on FAO data for projections through 2050.

Salmon Farming

Atlantic salmon farming is a major industry in the cold-water countries of the northern and southern hemispheres.

According to the FAO, Atlantic salmon aquaculture production grew by approximately 5.9% annually between 2000 and 2017.

Total production volume

of farmed Atlantic salmon during 2017 was 2.36 million metric tons with a value of over $16.7 billion.

Industry analyst Kontali expects increases in demand to drive continued production growth through 2020, although at a lower annual rate of approximately 3.0%, primarily due to supply constraints.

According to FAO, global tonnage of Atlantic salmon aquaculture production grew by approximately 3.3% annually between 2013 and 2018, reaching 2.4 million metric tons with a value of over $17 billion.

We believe that the aquaculture industry-and in particular salmon farming-is poised for significant growth in the coming years, as the global population expands and consumers seek out high-quality proteins.

However, the near-term outlook will continue to be influenced by the COVID-19 pandemic and its impact on both production and demand.

Below is a break-down by major producing country for the time period 2013 through 2018, which is the last year for which data is readily available from FAO.

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FAO - Fisheries and Aquaculture Information and Statistics Service - 2/9/2021

According to the DOC, which tracks the volume and value of Atlantic salmon imports into the United States, from 2011 to 2018 the average wholesale price of Atlantic salmon imported into the country increased from $3.81 per pound ($8.39/kilogram) to $4.77 per pound ($10.51/kilogram).

The daily spot (farm-gate or wholesale market) price for Atlantic salmon is very volatile due to the species’ long production cycle, which normally ranges between two and three years, and its short shelf life, which usually ranges between two and three weeks.

Farmed salmon is typically sold as fresh and thus must be consumed within this timeframe.

Consequently, the available supply is very inelastic over the short term, while demand can be very elastic due to price, season, or market size.

Major Producers

The global Atlantic salmon farming industry includes several very large companies with operations in each of the major producing countries.

Consolidation has been evident in the past few years as producers attempt to gain competitive cost advantages while overcoming the regulatory challenges associated with developing new marine farm sites.

Major market producers include the following companies:

Mowi, Cermaq, Agrosuper, Leroy Seafood Group, SalMar, Cooke Aquaculture, and Grieg Seafood.

According to Kontali, these seven companies accounted for approximately 46% of the Atlantic salmon produced in 2018.

Atlantic Salmon Market

According to the DOC, in 2018 the United States imported a record 719 million pounds (326 thousand metric tons) of Atlantic salmon with an aggregate market value of approximately $3.4 billion, or $4.77 per pound.

The DOC also reported that over 89% of the total quantity of Atlantic salmon imports into the United States in 2018 originated from Chile, Canada, and Norway.

The Atlantic salmon farming industry in the United States contracted significantly beginning in the 1990s in the face of environmental concerns and lower costs of production from foreign sources, notably Chile.

According to the FAO, a total of only 32 million pounds (15 thousand metric tons) of farmed Atlantic salmon was produced in the United States in 2017, representing only 4.7% of the total farmed Atlantic salmon supplied to the country.

Despite intensive public consumer education campaigns promoting its health benefits, seafood consumption in the United States still lags behind other protein sources and trails consumption in overseas markets.

According to the USDA, during the period from 2012 to 2017, annual seafood consumption in the United States ranged between 14 and 16 pounds per capita, significantly behind consumption of poultry (96 to 108 pounds), beef (53 to 57 pounds), and pork (45 to 50 pounds).

In comparison, according to FAO, average seafood consumption worldwide was 45 pounds per capita in 2016.

Perception of Bioengineered Atlantic Salmon

Though Atlantic salmon is the second most consumed seafood in the United States, activist groups opposing bioengineering have pressured a number of retail food outlets and grocery chains to publicly state that they will not carry bioengineered Atlantic salmon.

However, we do not expect that this will have a significant impact on overall consumer demand and product placement in the marketplace generally, and in particular the wholesale marketplace.

To date, large wholesalers have not followed the example of these

retailers, and we believe that there will be sufficient demand from smaller retailers, wholesalers, and institutional seafood buyers to absorb our projected production.

We believe that FDA approval reinforces the message that AquAdvantage Salmon is a safe and nutritious seafood product that is identical to conventional farmed Atlantic salmon.

There are surveys that have been cited by various NGOs that indicate that consumers are reluctant to purchase bioengineered food and that they would like to see labeling in order to avoid it.

In response to the potential for state-by-state labeling laws, Congress passed the National Bioengineered Food Disclosure Law in 2016, which directed USDA to establish a national mandatory standard for disclosing foods that are or may be bioengineered.

The Disclosure Standard requires food manufacturers, importers, and certain retailers to ensure bioengineered foods are appropriately disclosed.

The implementation date of the Disclosure Standard is January 1, 2020, except for small food manufacturers, whose implementation date is January 1, 2021.

The mandatory compliance date of the Disclosure Standard is January 1, 2022.

We plan to implement the Disclosure Standard immediately with the first sales of AquAdvantage Salmon.

In conjunction with the bioengineered disclosure, we plan to educate consumers on the benefits of AquAdvantage Salmon versus conventional Atlantic salmon, including its 25% improved feed conversion (meaning less feed is needed to produce the same harvest), a lower carbon footprint due to local production, reduced impact on the environment, reduced exposure of the fish to environmental toxins due to use of land-based aquaculture systems, and reduced reliance on vaccines or antibiotics due to improved biosecurity.

Atlantic Salmon Disease Impact

An area of concern with current Atlantic salmon farming production is the environmental impact and the cost of disease management associated with those operations.

Salmon farming systems, particularly conventional, open sea-cage systems, are vulnerable to disease introduction and transmission, primarily from the marine environment or adjacent culture systems.

The economic impact of disease to these production systems can be significant, as farmers must incur the cost of preventative measures, such as vaccines and antibiotics and then, if infected, the cost of lost or reduced harvests.

The most prevalent disease and health management issues are infectious salmon anemia and sea lice.

Limitations of Conventional Sea-Cage Salmon Farming

Conventional salmon aquaculture takes place in large cages (sea cages) in coastal waterways exposed to currents, which can bring a variety of pathogens in contact with the farmed salmon.

The presence of pathogens in an uncontrolled environment such as this is a universally accepted fact in human and animal health.

Such disease agents in these uncontrolled water currents can result in infection and spread of infection within the captive population.

The risks and outcomes of conventional, open sea-cage systems are well established, including the susceptibility to extreme weather conditions, and are often evidenced by outbreaks of a variety of bacterial

and viral diseases as well as water fouling and contamination due to algal blooms and similar events.

This risk of disease has led to the widespread use of antibiotics, vaccines, and other pharmacological agents.

The most prevalent disease and health management issues are infectious salmon anemia (“ISA”) and sea lice.

ISA is a viral disease in Atlantic salmon, and outbreaks have occurred in virtually every major salmon farming geography since 1984, including a major event in Chile in 2008 that impacted the country’s production for three years.

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The cost of managing sea lice in sea-cage farming environments can be significant.

The closed, contained, land-based production systems using RAS technology proposed for the grow-out of AquAdvantage Salmon are less susceptible, though not immune, to the same disease-related pressures because this type of culture system is isolated from the environment.

Another limitation of the conventional salmon production system is that the farms are not located near the ultimate consumers and thus an additional carbon footprint is created in transporting the fish from its production to its consumption location.

We believe we offer a better, more sustainable alternative to conventional salmon production.

AquaBounty Solution

Land-Based RAS Production

The closed, contained, land-based production systems using RAS technology that we use for the grow-out of our fish are less susceptible to the disease-related pressures of conventional salmon farming, because this type of culture system is isolated from the environment.

RAS facilities employ sophisticated water treatment technology including the use of ozone, salt treatment and ultraviolet radiation to kill potential bacterial, fungal, or viral pathogens which might enter the system.

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RAS facilities employ effective biosecurity to prevent disease by reducing or eliminating the introduction of pathogens and continuously treating the water to assure optimal fish health.

RAS production will allow the AquAdvantage Salmon to be raised in optimized conditions with total control of the water coming in and going out of the system, while recirculating greater than 95% of the water used.

In contrast, conventional salmon aquaculture takes place in large cages (sea cages) in coastal waterways exposed to currents, which can bring a variety of pathogens in contact with the farmed salmon.

The presence of pathogens in an uncontrolled environment is a universally accepted fact in human and animal health.

The presence of disease agents in these uncontrolled water currents could result in infection and spread of infection within the captive population.

The risks and outcomes of conventional, open sea-cage systems are well established, and are often evidenced by outbreaks of a variety of bacterial and viral diseases as well as water fouling and contamination due to algal blooms and similar events.

This risk of disease has led to the widespread use of antibiotics, vaccines, and other pharmacological agents, which are unnecessary in a RAS environment.

Further, stocking RAS facilities with disease-free eggs results in a much higher degree of biosecurity and protection from disease.

We expect that production and economic losses due to disease will be significantly less in the closed, land-based culture systems proposed for the production of AquAdvantage Salmon, because of greater control over environmental conditions and superior biosecurity than in traditional Atlantic salmon production systems.

Restrictions on Atlantic Salmon Farming

Environmental concerns have led certain states to impose legislative and regulatory restrictions or bans on the farming of Atlantic salmon.

This could reduce the number of potential sites available to us for production farms in the United States.

Nevertheless, we have identified several states that would be excellent potential sites for AquAdvantage Salmon farms and are in the process of conducting a site search for the location of our next farm.

Our product, AquAdvantage Salmon, is a bioengineered Atlantic salmon that can grow to market size faster than conventional farmed Atlantic salmon.

RAS production will allow our fish to be raised in optimized conditions with total control of the water coming in and going out of the system, while recirculating greater than 95% of the water used.

Further, stocking our RAS farms with disease-free eggs from our own hatchery results in a much higher degree of biosecurity and protection from disease.

In addition to biosecurity measures to optimize fish health, our farms feature multiple layers of containment designed to prevent escapes.

We have been growing fish in RAS facilities for decades and we have never experienced an escape.

The multiple layers of containment redundancy, coupled with the fact that our salmon are sterile female fish, pose a much-needed solution to raising fresh, healthy seafood in a manner that prevents harming native fish populations.

The method of land-based fish farming that we employ has been promoted by many environmental NGOs and it does not pose a threat to wild salmon populations.

We have significant experience in operating land-based RAS facilities.

Our operating practices and procedures have been developed and honed over several decades and are geared towards meeting stringent regulatory requirements.

Our experience operating land-based RAS salmon farms enables us to protect both the fish and the environment.

AquAdvantage Salmon

Our AquAdvantage fish program began over 30 years ago and is based upon a single, specific molecular modification in our salmon that results in more rapid growth during early development.

The result is a genetically engineered Atlantic salmon that can grow to market size faster than a conventional farmed Atlantic salmon.

The original research on the Atlantic salmon was conducted at Memorial University in Newfoundland, Canada, by a team seeking to protect the fish from the effects of the cold waters of the North Atlantic Ocean.

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The accelerated growth allows these fish to reach a marketable size sooner.

This can reduce farming time from between 28 to 36 months for conventional Atlantic salmon to between 18 to 20 months for AquAdvantage Salmon.

This can reduce farming time in a RAS facility from roughly 26 to 28 months for conventional Atlantic salmon to roughly 18 to 20 months for AquAdvantage salmon.

This accelerated growth has economic and environmental advantages.

The faster life cycle, from birth to harvesting, of AquAdvantage Salmon, as compared to conventional salmon, allows it to be produced more economically in contained, land-based RAS farms.

Although this requires greater capital investment than the sea cage approach, we believe that the higher costs will be offset by more efficient growth, which allows for us to produce approximately 70% more AquAdvantage Salmon each year in comparison to conventional Atlantic salmon;

25% better feed conversion;

reduced exposure to environmental threats;

and more effective control of disease.

In addition, with farms located nearer to the major food markets, we believe there will be savings on transportation of the harvested stock, a reduced carbon footprint, and an improved ability to get fresh product to market faster.

We estimate that producing AquAdvantage Salmon in a land-based RAS farm can provide a 2x advantage in EBITDA annual cash returns in comparison to growing conventional Atlantic salmon in a facility of the same size (EBITDA being defined as farm operation net income (loss), plus depreciation expense, other income/expense, including interest expense and interest income, and the provision for income taxes).

The following table reflects current estimates of the financial impact of building a facility for conventional Atlantic salmon production in comparison to AquAdvantage Salmon.

We believe that the current assumptions and other considerations used to make these estimates are accurate;

however, actual outcomes may differ.

See “Risk Factors” for more information.

Annual Output

Annual Revenue*

Contribution Margin %

Payback Period

Plan of Operation

We are an aquaculture company that utilizes technology to produce fish economically and sustainably.

We have over 25 years of experience raising Atlantic salmon in land-based RAS facilities, and our first bioengineered product is the AquAdvantage Salmon, which can grow to harvest size faster than conventional Atlantic salmon.

Our near-term business plan contemplates that we will construct and operate four to five new, land-based RAS farms in North America at locations close to consumer consumption.

Each of these farms could cost $75 million to $100 million to construct.

We currently have two farms in operation, a 250-metric-ton farm in Rollo Bay, Prince Edward Island, and a 1,200-metric-ton farm in Indiana.

Based on our progress to date, we expect that the Indiana farm will begin harvesting its fish in the second quarter of 2020, and the Rollo Bay farm will begin harvesting in the fourth quarter of 2020.

Our target is to achieve an annual production output of at least 50,000 metric tons by 2027.

We also are seeking regulatory approval for AquAdvantage Salmon in Brazil, Argentina, Israel, and China.

Once approved in these locations, we plan to commercialize through a combination of partnerships, joint ventures, and licensing arrangements.

In order to scale up our egg production capabilities, we have begun construction on a new broodstock facility at our farm site in Rollo Bay.

Once completed and at full capacity, this facility will be capable of producing over ten million AquAdvantage Salmon eggs annually.

We intend to continue investing in research and development.

We anticipate that our research and development expenditures will increase as we continue to develop our other aquaculture products and initiate new research projects focusing on health and productivity.

Any additions to staff in our research and production activities will depend on the number of development activities we undertake and the success of our commercialization efforts for AquAdvantage Salmon.

We also expect to increase our staffing in administration and at our farms as we grow our company.

With regulatory approvals in the United States and Canada, we plan to market AquAdvantage Salmon throughout both countries.

In addition, we intend to focus on those significant fish farming markets where we believe we will have success in gaining further regulatory approvals and consumer acceptance.

We currently expect to market AquAdvantage Salmon in the United States and Canada, as well as Argentina, Brazil, China, and Israel following receipt of required regulatory approval in the respective jurisdictions.

The salmon distribution system in the United States is complex and varied.

Participants include fishermen, fish farmers, processors, importers, secondary processors, broadline distributors, specialty seafood distributors, brokers, traders, and many different kinds of retail and food service companies.

Salmon distribution channels are evolving, with fewer and larger distributors handling an increasing share of total volume and an increasing share of salmon being sold directly by large fish-farming companies and large wild salmon processors to large retail and food service chains.

We expect that harvested AquAdvantage Salmon will be sold into this distribution network.

Regulatory Environment

United States Regulation of Bioengineered Products

The bioengineering of food using the tools of modern biotechnology is regulated in the United States by two government organizations, the USDA for bioengineered plants and the FDA for bioengineered animals.

The regulatory system for bioengineered plants is based upon the Coordinated Framework, issued by the Office of Science and Technology Policy in 1986 and regulated by the USDA’s Biotechnology Regulatory Services and Animal and Plant Health Inspection Services under the Federal Plant Protection Act.

Certain bioengineered plants are regulated under the Federal Insecticide, Fungicide, and Rodenticide Act by the EPA.

The USDA is also required to determine the environmental impact of a proposed application under the National Environmental Policy Act (“NEPA”).

The process for plants is essentially one of issuing test permits and data dossiers for the product’s proposed use, followed by a process of de-regulation or approval if the application is found to be acceptable under the applicable law and regulations.

The regulatory process for food and animal feed is also based upon the Coordinated Framework, but the enabling legislation is the Federal Food, Drug, and Cosmetic Act, along with NEPA.

In the case of animals for food or materials for feed, the FDA process is a pre-approval review followed by an approval if the application is acceptable under the relevant legislation.

The faster life cycle from birth to harvesting of our salmon, as compared to conventional salmon, allows it to be produced more economically in contained, land-based RAS farms.

Although RAS farms require greater capital investment than the sea cage approach, we believe that the higher costs are offset by more efficient growth and a shorter transportation distance to market.

Compared to conventional salmon grown in a RAS farm with a similar capital investment, we can produce approximately 70% more AquAdvantage salmon each year.

Our fish are also 25% more efficient at converting their feed to biomass, which represents a significant cost advantage as feed is the largest variable cost of growing salmon.

AquaBounty - Management estimates based on current assumptions.

EBITDA is defined as farm operation

net income (loss), plus depreciation expense, other income/expense, including interest expense and interest income,

and the provision for income taxes.

Further, with our plan to locate our farms nearer to the major food markets, we expect savings on transportation of the harvested stock, a reduced carbon footprint, and an improved ability to get fresh product to market faster.

Intellectual Property

The AquAdvantage fish program is based upon a single, specific molecular modification in fish that results in more rapid growth in early development.

The patent for the AquAdvantage technology, which had been issued in certain salmon producing countries, expired in August 2013 and we currently hold a global, perpetual, royalty-free, fully paid, sub-licensable, assignable, non-exclusive right to the technology covering genetically engineered salmonid fish that express endogenous growth hormone under the control of a protein gene promoter from an edible fish.

Despite the expiration of the patent for the licensed technology, we believe that the degree of know-how in the molecular modification process and the regulatory timescales associated with approval of genetically engineered fish present significant barriers to entry and a competitive advantage.

We rely on a combination of patent, trademark, and trade secret laws in the United States and applicable foreign jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our proprietary technology, processes, and brand.

In December 2015, we were granted a U.S.

patent for our molecular sterility system, which renders sterile the progeny of any female fish carrying a defined maternal sterility gene.

Subsequently, the maternal sterility patent has been issued in Australia, Brazil, Canada, Chile, Japan, and the Republic of Korea.

While the technology described in the sterility system patent is not currently used or required under any of our current regulatory approvals, the technology may be desirable in the future to obtain or maintain regulatory approvals.

Regulatory Aspects of Genetically Engineered Fish

The genetic engineering of food using the tools of modern biotechnology is regulated in the United States by two government organizations, the U.S Department of Agriculture (“USDA”) for genetically engineered plants and the FDA for genetically engineered animals.

The regulatory process for genetically engineered food and animal feed is based upon the Coordinated Framework, issued by the Office of Science and Technology Policy in 1986, but the enabling legislation is the Federal Food, Drug, and Cosmetic Act (“FFDCA”).

The FDA is also required to determine the environmental impact of a proposed application under the National Environmental Policy Act (“NEPA”).

In the case of animals intended for food or materials for feed, the FDA process is a pre-approval review followed by an approval if the application is acceptable under the relevant legislation, with ongoing oversight following approval.

We opened an Investigational New Animal Drug file for AquAdvantage salmon with the FDA in 1995.

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There were, however, certain studies that were generally acknowledged to be necessary for an eventual approval process.

We commenced work on those studies and began a phased submission of studies to the FDA that ultimately was responsive to each technical section of the NADA.

These technical sections require submission of studies relating to molecular characterization of the construct;

We commenced work on those studies and began a phased submission of studies to the FDA that ultimately was responsive to each technical section of the New Animal Drug Application (“NADA”).

technical sections require submission of studies relating to molecular characterization of the construct;

molecular characterization of AquAdvantage salmon lineage;

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Following this process, the FDA concluded that AquAdvantage salmon “is as safe as food from conventional salmon, and that there is a reasonable certainty of no harm from consumption of food” from AquAdvantage salmon.

On November 19, 2015, the FDA issued an approval letter for the NADA for AquAdvantage Salmon.

This approval was published in the Federal Register on November 24, 2015.

In conjunction with the approval, the FDA issued a guidance document on the voluntary labeling of food derived from Atlantic salmon that has or has not been bioengineered.

That document was intended to assist those manufacturers who wish to voluntarily make the distinction on the labeling of their food products.

Legal Challenge to FDA Approval

Following the FDA approval, in March 2016, a coalition of NGOs sued the FDA for their approval of AquAdvantage Salmon.

The NGOs claim that the FDA failed to analyze and prevent risks to wild salmon and the environment.

Among other things, the claimants are seeking a judgment that the FDA decision to approve AquAdvantage Salmon is not authorized by the Federal Food, Drug and Cosmetic Act (“FFDCA”);

that an injunction be issued requiring the FDA to withdraw its assertion of jurisdiction over bioengineered animals;

that the FDA decision to approve AquAdvantage Salmon and its EA and FONSI be declared in violation of the FFDCA;

and that the decision to approve the AquAdvantage Salmon NADA be vacated.

Although we believe that these claims lack merit, this legal action is ongoing, with the discovery phase now complete and the case moving forward on substantive briefing.

Labeling of Bioengineered Products

In January 2016, the U.S.

Congress passed the 2016 Omnibus Appropriations Act (“2016 Appropriations Act”), which was signed into law.

The 2016 Appropriations Act contained an amendment that directed the FDA to issue final guidance for labeling of AquAdvantage Salmon as a bioengineered product, despite the absence of any bioengineered product labeling requirement in the FDA’s NADA approval.

Current FDA policy does not require labeling for method of production if there is no material difference

compared with its conventional counterpart, and the FDA arrived at the decision that AquAdvantage Salmon is as safe to eat, and as nutritious, as any conventional Atlantic salmon.

However, given this directive, the FDA issued an Import Alert on AquAdvantage Salmon and stated that a temporary hold was being implemented to comply with language in the Appropriations Act.

However, while the language in the 2016 Appropriations Act was in effect, the United States Congress passed the National Bioengineered Food Disclosure Law in July 2016, which provided for the establishment of a national standard for package disclosure for foods containing bioengineered ingredients.

On December 21, 2018, the USDA issued its final rule for such labeling, and AquAdvantage Salmon must be labeled in accordance with this rule.

On March 8, 2019, the FDA released AquAdvantage Salmon from the Import Alert.

In December 2019, the 2020 Appropriations Act was signed into law.

The 2020 Appropriations Act contains an amendment that requires that any engineered animal approved by FDA prior to the effective date of the Disclosure Standard shall include the words ‘‘genetically engineered’’ prior to the existing acceptable market name.

While the Company believes that this labeling requirement is unnecessary and redundant to the requirement of the Disclosure Standard, it plans to work with the USDA and the FDA to determine how to comply.

Ongoing FDA Regulatory Requirements

In addition to FDA approval of the NADA for AquAdvantage Salmon, our operating sites in the United States and on Prince Edward Island, as well as those we plan to build or purchase in the future, must be registered with, and periodically inspected by, the FDA as drug manufacturing establishments.

On November 19, 2015, the FDA issued an approval letter for the NADA for AquAdvantage salmon, along with a final Environmental Assessment (“EA”) and a finding of No Significant Impact on the EA under NEPA.

Regulatory Legal Challenge

On March 30, 2016, a coalition of non-governmental organizations (“NGOs”) filed a complaint in the United States District Court for the Northern District of California against the FDA, the United States Fish and Wildlife Service, and related individuals for their roles in the approval of AquAdvantage salmon.

Subsequently, AquaBounty joined the case as an intervenor to protect our interests.

Shortly thereafter, the Fish and Wildlife Service was dismissed from the case.

The NGOs, including the Center for Food Safety and Friends of the Earth, claimed that the FDA had no statutory authority to regulate genetically engineered animals, and, if it did, that the agency failed to adequately analyze and implement measures to mitigate ecological, environmental, and socioeconomic risks that could impact wild salmon and the environment, including the risk that AquAdvantage salmon could escape and threaten endangered wild salmon stocks.

In December 2019 the court found that the FDA did have authority/jurisdiction over genetically engineered animals under the FFDCA, and in November 2020, the court remanded the EA to the FDA for further work on its NEPA and Endangered Species Act assessments.

In December 2020, the plaintiffs filed a motion to alter or amend the judgment.

In February 2021, the judge denied that motion.

The court’s decisions do not have a current business impact on AquaBounty’s egg production on Prince Edward Island, Canada or AquaBounty’s salmon production in Albany, Indiana.

On-going Regulatory Requirements

In addition to the FDA approval of the NADA for AquAdvantage salmon, our operating sites in the United States and on Prince Edward Island, as well as those we plan to operate in the future, must be registered with, and periodically inspected by, the FDA as drug manufacturing establishments.

Drug manufacturing establishments that supply FDA-regulated products for use in the United States must comply with the product’s conditions for approval, whether located in the United States or in a foreign country.

Each of our operating sites in Indiana and Fortune and Rollo Bay, Prince Edward Island, is currently registered with the FDA, and the FDA has performed inspections and site visits at each of those facilities.

With the FDA approval of our NADA, we must continue to comply with FDA requirements not only for manufacturing, but also for labeling, advertising, record keeping, and reporting to the FDA of adverse events and other information.

We will also need to comply with USDA disclosure requirements.

Each of our operating sites in Indiana and on Prince Edward Island, is currently registered with the FDA, and the FDA has performed inspections and site visits at each of those facilities.

Going forward, we must continue to comply with FDA requirements not only for manufacturing, but also for labeling, advertising, record keeping, and reporting to the FDA of adverse events and other information.

We also need to comply with USDA disclosure requirements pertaining to bioengineered foods under the National Bioengineered Food Disclosure Law.

Failure to comply with these requirements could subject us to administrative or judicial enforcement actions, including but not limited to product seizures, injunctions, civil penalties, criminal prosecution, refusals to approve new products, or withdrawal of existing approvals, as well as increased product liability exposure.

Other Regulatory Approvals

In February 2012, we filed a Novel Food application for AquAdvantage Salmon with Health Canada.

In conjunction with this application, we filed to register AquAdvantage Salmon as a Novel Feed with the Canadian Food Inspection Agency, a prerequisite for a Novel Food approval.

Health Canada and the Canadian Food Inspection Agency reviewed our data submission on the safety of AquAdvantage Salmon as a food and feed, respectively.

On May 19, 2016, Health Canada concluded that AquAdvantage Salmon does not raise concerns related to food safety.

Health Canada also noted in its opinion that fillets derived from AquAdvantage Salmon are as safe and nutritious as fillets from currently available farmed Atlantic salmon.

In April 2013, we filed a New Substances Notification for AquAdvantage Salmon with Environment Canada.

On November 25, 2013, Environment Canada concluded that AquAdvantage Salmon is not harmful to the environment or human health when produced in contained facilities.

This ruling, which was subject to a judicial review brought about by certain environmental groups on administrative procedural grounds, recognized that our Canadian hatchery, which produces sterile, all-female eggs, was no longer solely a research facility but could produce eggs on a commercial scale without harm to the environment or human health.

In December 2015, the Federal Court in Canada ruled that the Ministers of Environment and Health decision to allow production of AquAdvantage Salmon in Canada for commercial use was “reasonable and made in the manner prescribed by the Canadian Environmental Protection Act.” Accordingly, the court dismissed the entire application brought before it by the Ecology Action Centre and Living Oceans Society.

This ruling was appealed by those organizations, but the Canadian Federal Court of Appeal dismissed the appeal on October 21, 2016.

We received approval from regulators to conduct field trials for AquAdvantage Salmon in Argentina and Brazil.

The field trials in both countries have been successfully completed, and we are pursuing approval for the production and sale of AquAdvantage.

We intend to initiate additional regulatory filings outside the United States in selected markets that offer a clear regulatory path and market opportunity.

Grow-out of AquAdvantage Salmon in the United States will require compliance with environmental regulations and local site permitting statutes.

In addition, every production site for AquAdvantage Salmon in the United States will require approval by the FDA of both a Supplemental NADA and a site-specific EA, as well as compliance with local permitting requirements for construction of grow-out facilities.

We expect that we will incur costs to comply with these environmental and regulatory requirements, which could take several years to complete for each production site.

We are currently unable to estimate these costs, but they may be significant.

Raw Materials

We previously sourced the unfertilized eggs that we use for internal research and trials of our AquAdvantage Salmon eggs from a Canadian supplier.

After our FDA approval, we purchased a salmon farm near our hatchery on Prince Edward Island to maintain our own source of unfertilized eggs.

We are currently constructing a broodstock facility on this site, which, when completed and at full capacity, will provide sufficient fertilized AquAdvantage Salmon eggs to satisfy our production requirements for at least the next five years.

Intellectual Property

The AquAdvantage fish program is based upon a single, specific molecular modification in fish that results in more rapid growth in early development.

This enables shorter production cycles and increased efficiency of production.

Prior to February 2014, we were a party to a license agreement with Genesis Group, Inc., an affiliate of Memorial University of Newfoundland (“Genesis”), and an affiliate of the Hospital for Sick Children of Toronto (“HSC”) related to our bioengineered fish program.

Under the terms of this agreement, we were required to make an annual royalty payment of $25 thousand or revenue-based royalty payments equal to five percent of any gross revenues generated from products that utilize the technology covered under the license agreement.

No revenue-based royalty payments were made under this agreement.

The patent for the licensed technology, which had been issued in certain salmon producing countries, expired in August 2013.

In February 2014, we entered into a new license agreement with Genesis and HSC that replaced the prior license agreement.

Under the new agreement, we hold a global, perpetual, royalty-free, fully paid, sub-licensable, assignable, non-exclusive right to the technology covering bioengineered salmonid fish that express endogenous growth hormone under the control of a protein gene promoter from an edible fish.

In consideration for this license, we agreed to pay to Genesis a one-time payment of $140 thousand, which amount was paid on March 6, 2014, but no additional patents are contemplated under this agreement.

Despite the expiration of the patent for the licensed technology, we believe that the degree of know-how in the molecular modification process and the regulatory timescales associated with approval of bioengineered fish would present significant barriers to competition.

In December 2015, we were granted a U.S.

patent for our molecular sterility system, which renders sterile the progeny of any female fish carrying a defined maternal sterility gene.

Atlantic salmon spawn once per year, so there is a natural seasonality of three to five months in the production of Atlantic salmon eggs for commercial use.

This natural seasonality can be lengthened through the use of photoperiod and temperature control techniques to make Atlantic salmon eggs available year-round, and we are currently capable of producing AquAdvantage Salmon eggs year-round on a limited basis.

However, with the establishment of our new broodstock facility at our Rollo Bay farm site on Prince Edward Island, we expect that we will be able to produce sufficient AquAdvantage Salmon eggs year-round to satisfy all of our production needs over the next five years.

The industry and market for farmed Atlantic salmon is dominated by a group of large, multinational corporations with entrenched distribution channels, as discussed in the section of this 10‑K titled “Business-The Aquaculture Industry-Major Producers.” We will compete against large, global Atlantic salmon farming companies when we sell our AquAdvantage Salmon in the market.

We will also compete against new companies utilizing RAS technology to grow their salmon.

We believe the faster growth and better feed efficiency of our fish will provide us with a cost advantage versus these competitors.

Research and Development

As of December 31, 2019, we had twenty-two employees dedicated to research and development.

Our primary research and development operations are located in our owned hatchery on Prince Edward Island.

In addition, we contract some research activities to the Center for Aquaculture Technologies, Inc.

Production of AquAdvantage salmon in the United States also requires compliance with environmental regulations and local site permitting statutes.

In addition, every production site for AquAdvantage salmon in the United States requires approval by the FDA of both a Supplemental NADA and satisfaction of corresponding obligations under NEPA, as well as compliance with local permitting requirements for construction of grow-out facilities.

We expect that we may incur significant costs to comply with these environmental and regulatory requirements, which could take several years to complete for each production site.

According to the U.S.

Department of Commerce (“DOC”), in 2018 the United States imported a record 719 million pounds (326 thousand metric tons) of Atlantic salmon with an aggregate market value of approximately $3.4 billion, or $4.77 per pound.

The DOC also reported that over 89% of the total quantity of Atlantic salmon imports into the United States in 2018 originated from Chile, Canada, and Norway.

According to FAO, a total of only 35 million pounds (16 thousand metric tons) of farmed Atlantic salmon was produced in the United States in 2018, representing only 4.7% of the total farmed Atlantic salmon supplied to the country.

According to the USDA, during the period from 2013 to 2018, annual seafood consumption in the United States ranged between 14 and 16 pounds per capita, significantly behind consumption

of poultry (70 to 78 pounds), beef (51 to 55 pounds), and pork (43 to 47 pounds).

In comparison, according to FAO, average seafood consumption worldwide was 45 pounds per capita in 2018.

Consumer Sentiment Regarding Genetically Engineered Fish

Though Atlantic salmon is the second most consumed seafood in the United States, activist groups opposing genetically engineered foods have pressured a number of retail food outlets and grocery chains to publicly state that they will not carry genetically engineered salmon.

However, currently we do not expect that this will have a significant impact on overall consumer demand and product placement in the marketplace generally, and in particular the wholesale marketplace.

To date, large wholesalers have not followed the example of these retailers, and we believe that there will be sufficient demand from smaller retailers, wholesalers, and institutional seafood buyers to absorb our projected production.

We believe that the FDA approval reinforces the message that AquAdvantage salmon is a safe and nutritious seafood product that is identical to conventional farmed Atlantic salmon.

We believe that consumer sentiment towards genetically engineered foods is evolving.

Based on market research that we commissioned, the top attributes for consumer selection of farm-raised salmon are:

availability, affordability, freshness, safety, and taste.

According to the poll conducted, 53% of respondents had a first impression of genetically engineered food that was neutral to very positive;

60% were neutral to very likely to purchase genetically engineered products they buy regularly if labeled as such;

70% were neutral to very likely to purchase genetically engineered products they buy regularly if labeled with the USDA Bioengineered Disclosure Symbol;

81% were neutral to very positive to the AquaBounty and AquAdvantage story and product benefits;

and 70% were likely to purchase and try AquAdvantage salmon at least once.

There have been surveys cited by various NGOs that indicate that consumers are reluctant to purchase genetically engineered food and that they would like to see labeling in order to avoid it.

Many states reacted to this by enacting genetically engineered food labeling laws.

Consequently, in response to the potential for state-by-state labeling laws, Congress passed the National Bioengineered Food Disclosure Law (“Disclosure Standard”) in 2016, which directed USDA to establish a national mandatory standard for disclosing foods that are or may be bioengineered.

The Disclosure Standard requires food manufacturers, importers, and certain retailers to ensure bioengineered foods are appropriately disclosed.

The Disclosure Standard will come into effect on January 1, 2022, but entities can begin complying sooner on a voluntary basis.

We plan to commence early compliance with the Disclosure Standard, starting immediately from the first sales of AquAdvantage salmon to our customers in 2021.

In conjunction with the bioengineered disclosure, we also plan to educate consumers on the benefits of AquAdvantage salmon versus conventional Atlantic salmon, including its 25% improved feed conversion (meaning less feed is needed to produce the same harvest), a lower carbon footprint due to local production, reduced impact on the environment, reduced exposure of the fish to environmental toxins due to use of land-based aquaculture systems, and reduced reliance on vaccines or antibiotics due to improved biosecurity.

In December 2019, the 2020 Appropriations Act was signed into law, which was reintroduced and passed in 2021, which contained an amendment that requires that any genetically engineered animal approved by FDA prior to the effective date of the Disclosure Standard shall include the words ‘‘genetically engineered’’ prior to the existing acceptable market name.

While we believe that this labeling requirement is unnecessary and redundant to the requirement of the Disclosure Standard, we will comply with all applicable laws.

The salmon distribution system in the United States is complex and varied.

We expect that harvested AquAdvantage salmon will be sold into this distribution network with an initial focus on broadline distributors and seafood distributors.

The global Atlantic salmon farming industry includes several very large companies with operations in each of the major producing countries.

Consolidation has been evident in the past few years as producers attempt to gain competitive cost advantages while

overcoming the regulatory challenges associated with developing new marine farm sites.

Major market producers include the following companies:

Mowi, Aquachile, Cermaq, Leroy Seafood Group, SalMar, Cooke Aquaculture, and Bakkafrost.

According to Kontali, these seven companies accounted for approximately 46% of the Atlantic salmon produced in 2018.

Since salmon is primarily sold as a commodity in the United States, we will compete against these well-established, sea-cage production companies.

In addition, new entrants to salmon production have emerged that plan to use land-based RAS facilities.

A number of projects are either planned, under construction or in operation.

Atlantic Sapphire is operating a ten thousand metric ton facility in Florida, with stated plans to increase production to over 220 thousand metric tons.

Other entrants include Nordic Aquafarms, with plans for facilities in Maine and California, and Whole Oceans and Aquabanq, both with plans for farms in Maine.

Current Production

We currently have two salmon farms in production – a refurbished 1,200 metric ton facility in Indiana and a 250 metric ton demonstration facility on Prince Edward Island.

Our first harvests of conventional salmon in Indiana commenced in June 2020.

At December 31, 2020, we had a total farm biomass of 636 metric tons.

Impact of COVID-19 on Demand

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, SARS-CoV-2, as a pandemic, which continues to spread throughout the United States and worldwide.

Because infections of this virus and the incidences of the disease it causes, certain national, provincial, state, and local governmental authorities in the United States and Canada have issued proclamations and directives aimed at minimizing the spread of the virus.

Additional, more restrictive proclamations and directives may be issued in the future.

The ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration 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 disruption and reduced operations.

To date, our farm operations have not been materially affected by the pandemic, although we have made modifications to biosecurity procedures and our farm sites 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.

We have experienced delays in capital projects due to the pandemic, including a six-month delay in the completion of the processing facility at our Indiana farm, which did not become operational until November 2020.

We utilized third party alternatives for fish processing during the delay.

We have been primarily impacted by a reduction in the market price and demand for Atlantic salmon due to the pandemic’s impact on the food service sector.

This had and continues to have a negative impact on our revenue and inventory value, as we are not yet an

established vendor and customers do not need a new supplier during a period of depressed demand.

Consequently, in December 2020, we made the decision to donate substantially all of our conventional salmon to local food charities, which are experiencing unprecedented need during the pandemic.

This decision was made in order to ease the capacity constraints at our Indiana farm to provide space for our growing biomass of AquAdvantage salmon.

The donation program commenced in February 2021.

We believe the financial impact of the pandemic is likely to continue through at least the first half of 2021, as the industry waits for the roll-out of COVID-19 vaccines and the subsequent reopening of the food service sector.

Any financial impacts beyond the near-term cannot be reasonably estimated at this time but may continue to have a material adverse impact on our business, financial condition, and results of operations in 2021.

North America Plan

Our business plan contemplates that we will construct and operate four to five new, land-based RAS farms in North America at locations close to consumer consumption.

Our target is to achieve an annual production output of at least 50,000 metric tons within the next seven to ten years.

We are currently in the process of selecting the site location and finalizing the engineering design and cost for the first of our planned 10,000 metric ton farms, which we believe will range from $140 million to $175 million to build.

Our target is to commence construction on the new farm in the first half of 2021 and begin operation in 2023.

Egg Production

We have scaled-up our egg production capability at our Fortune and Rollo Bay hatcheries on Prince Edward Island and we can now produce over 10 million eyed eggs annually, which is more than our current internal demand.

As there is a shortage of supply of salmon eggs in the market, we plan to sell our excess conventional salmon eggs and fry to other salmon farmers.

We are also planning to increase our egg production capacity over the next twelve to eighteen months to 30 million eyed eggs annually, which would be sufficient to stock six 10,000 metric ton farms.

International Plans

While our primary focus is on North America, we also plan to expand internationally, targeting those markets that are net salmon importers, unable to supply their domestic needs and where we believe we will have success in gaining further regulatory approvals and consumer acceptance.

Consequently, we are seeking regulatory approval for AquAdvantage salmon in Brazil, Israel, and China.

We have already received approval from regulators to conduct field trials for AquAdvantage salmon in Brazil and China.

The field trial in Brazil has been successfully completed, and we are pursuing approval for the sale of AquAdvantage in that country, while the field trial in China is expected to begin in 2021.

Once approved in these locations, we plan to commercialize through a combination of partnerships, joint ventures, and licensing arrangements.

Growth Strategy

Optimizing Technology and Innovating for the Future

We are exploring the potential development of a range of additional products, including a second generation of AquAdvantage salmon to help ensure 100% sterility, molecular sterility systems to provide an improved means of sterility for farmed fish, and improved methods for generating genetically engineered fish.

Our primary research and development operations are located in our owned hatcheries on Prince Edward Island.

As of December 31, 2020, we employed 15 scientists and technicians to oversee our broodstock, as well as the lines of fish we maintain for research and development purposes.

In addition, we contract some research activities to third parties.

In the future, we may enter into other partnerships and collaboration agreements to advance our research and development efforts.

For example, we are party to a collaboration agreement with Precigen, Inc.

formerly Intrexon Corporation) pursuant to which we are permitted to use certain of Precigen’s technology platforms to develop and commercialize additional bioengineered traits in finfish for human consumption.

Under the agreement, we and Precigen conducted two research projects, one of which led to a gene-edited line of tilapia, and another of which focused on the use of germ cells to perform gene modification.

No additional work is being conducted under the agreement, and, as a result, we are winding down, and may renegotiate, the relationship with Precigen.

We are exploring the potential development of a range of additional products, including a second generation of AquAdvantage Salmon to ensure 100% sterility, a line of AquAdvantage Trout that grows faster than conventional rainbow trout, molecular sterility systems to provide an improved means of sterility for farmed fish, and improved methods for generating bioengineered fish.

Our research and development expenditures are directly tied to the number of projects that we choose to undertake.

We expect to increase our development efforts as we commence additional projects either in-house or with third parties.

We expect that these projects could result in an increase in our research and development expenditures in the range of 5% to 10% per year.

As of December 31, 2019, we had sixty-four employees.

Vertical and horizontal integration

We may have multiple opportunities to vertically integrate and strategically increase our value-added capabilities within the seafood industry.

These capabilities can be obtained by building and developing in-house, forming partnerships, direct investment or through acquisition.

We could also seek to expand our production capabilities in adjacent markets, including:

 Di versify into additional high value species such as shrimp, trout, or tuna.

 Evaluate markets for inputs and by-products such as animal feed, fish meal and fish oil.

 Acquire new production technologies such as cellular aquaculture in the rapidly growing bio-engineered food market.

Human Capital Resources

As of December 31, 2020, we had 72 employees.

None of our employees are represented by a labor union, and we consider our employee relations to be good.

Recent Events

Our common stock was listed on AIM, the London Stock Exchange’s international market for smaller growing companies, from 2006 through May 31, 2017, initially under the symbol “ABTX” and, commencing in 2014, under the symbol “ABTU.” On January 19, 2017, our common stock began “regular way” trading on the Nasdaq Capital Market, and, effective June 1, 2017, we voluntarily delisted our common stock from AIM.

On January 18, 2017, we sold 2,421,073 shares of our common stock to Precigen, our controlling shareholder at the time, for proceeds of approximately $25 million.

Following the closing of this sale, Precigen distributed 1,776,557 shares of our common stock that it held prior to the closing via a share dividend to its shareholders.

On January 17, 2018, we completed a public offering of 3,692,307 shares of our common stock and 4,246,153 warrants to purchase shares of common stock for net proceeds of approximately $10.6 million.

Precigen participated in this offering, purchasing 1,538,461 shares of our common stock and warrants to purchase shares of common stock for $5.0 million.

During the period of March 23, 2018, to June 26, 2018, 249,824 shares of common stock were issued through the conversion of outstanding warrants at a price of $3.25 per share.

Proceeds to the Company totaled $0.8 million.

On October 24, 2018, 2,250,461 shares of common stock were issued through the exercise of outstanding warrants at a discounted price of $2.00 per share.

Net proceeds to the Company were $4.3 million.

Precigen participated in the exercise, converting warrants for 1,538,461 shares of common stock, resulting in gross proceeds of $3.1 million.

During the period of March 8, 2019, to June 17, 2019, 83,564 shares of common stock were issued through the conversion of outstanding warrants at a price of $3.25 per share.

Proceeds to the Company totaled $0.3 million.

On March 21, 2019, we completed a public offering of 3,345,282 shares of our common stock for net proceeds of approximately $6.6 million.

On April 9, 2019, we completed a public offering of 2,554,590 shares of our common stock for net proceeds of approximately $5.1 million.

On April 17, 2019, we completed a public offering of 346,488 shares of our common stock in conjunction with the over-allotment exercise of our underwriter for net proceeds of approximately $0.7 million.

On February 13, 2020 we completed a public offering of 10,350,000 shares of our common stock for net proceeds of approximately $14.5 million.

Our Executive Officers

The following table sets forth certain information regarding our executive officers as of March 9, 2020 :

Director, Chief Executive Officer, and President

Chief Financial Officer and Treasurer

General Counsel and Corporate Secretary

Alejandro Rojas

Chief Operating Officer, AquaBounty Farms

Our executive officers are elected by our Board of Directors and hold office until removed by the Board of Directors, and until their successors have been duly elected and qualified or until their earlier resignation, retirement, removal, or death.

Wulf, Chief Executive Officer and President .

Wulf was appointed Executive Director, President, and Chief Executive Officer of AquaBounty as of January 1, 2019.

Prior to joining AquaBounty, Ms.

Wulf served as a Senior Vice President of US Foods, Inc., where she had been President of the Manufacturing Division since June 2011.

Prior to US Foods, Ms.

Wulf held senior positions in Tyson Foods, Inc., Sara Lee Corporation, and Bunge Corp.

She is also currently on the Board of Directors and the Executive

Committee of the National Fisheries Institute.

Wulf was chosen for her experience in the food industry in North America, including its fish sector.

Wulf received a B.S.

in Finance from Western Illinois University and an MBA from DePaul University.

Frank, M.B.A.

Chief Financial Officer and Treasurer .

Frank was appointed Chief Financial Officer and Treasurer of AquaBounty in October 2007.

Previously he served as President and General Manager of TekCel LLC, a subsidiary of Magellan Biosciences, after serving as Magellan’s Chief Financial Officer since the company’s founding in 2004 and as TekCel’s Chief Financial Officer.

Frank has over 30 years of financial management experience, including as Chief Financial Officer of SmartEnergy, an independent energy supplier, as Corporate Controller for Moldflow Corporation, and in financial roles at PerSeptive Biosystems, Inc., Lotus Development Corporation, Apollo Computer, Inc., and Honeywell International, Inc.

He has a Bachelor of Science in finance and accounting from Boston College and a Masters of Business Administration from Babson College.

General Counsel and Corporate Secretary .

Olsen was appointed General Counsel and Corporate Secretary in November 2019.

Prior to joining AquaBounty, she served as Senior Advisor and Associate General Counsel at E.I.

du Pont de Nemours and Company for nine years, where she worked extensively on legal and commercial matters relating to biotechnology.

She also served for six years on USDA’s Advisory Committee on Biotechnology and 21st Century Agriculture.

Before joining DuPont, Ms.

Olsen spent over a decade in private practice in Washington, D.C.

at Jones Day, followed by Latham & Watkins, LLP.

She also was an appellate trial attorney at the U.S.

Department of Justice.

Olsen holds a Bachelor of Arts from Hamilton College, a Master of Science in cellular and molecular biology from the Catholic University of America, and a Juris Doctor from American University, Washington College of Law.

Olsen also has completed Yale University’s Global Executive Leadership and Management Program.

Alejandro Rojas, D.V.M.

Chief Operating Officer, AquaBounty Farms .

Rojas joined AquaBounty as the Chief Operating Officer, AquaBounty Farms in February 2014.

He formerly was the Production and Technical Manager for Marine Harvest from 1988 to 2000, where he was responsible for operations and the production of salmonids in Chile.

He was also responsible for managing Quality Control Labs, Environmental Programs, and Fish Health Programs.

Rojas has a doctorate in Veterinary Medicine and a Bachelor of Science degree from the Universidad Austral de Chile and for the past 14 years has been a Technical Advisor and Consultant to numerous global aquaculture and biotech companies working with marine fish, including salmon, seabass, seabream, and barramundi.

His areas of expertise include benchmarking and market studies, technical and economic analysis for M&A activities, new species development in Latin America, the Middle East, and Africa, and consulting on fish production, aquatic health, environment, and biosecurity programs to private companies and governments.

During 2019, we completed two public offerings totaling 6,246,360 Common Shares for net proceeds of approximately $12.4 million and we issued 83,564 Common Shares through the conversion of outstanding warrants for total proceeds of $0.3 million.

During 2020, we completed three public offerings totaling 33,028,000 Common Shares for net proceeds of approximately $104.6 million and we issued 713,449 Common Shares through the conversion of outstanding warrants for total proceeds of $2.3 million.

On February 8, 2021, we completed a public offering of 14,950,000 Common Shares for net proceeds of approximately $119.2 million.

As of December 31, 2020, we had a cash and cash equivalents balance of $95.8 million.

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

What changed 10-K

Item 1. Business