What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-03-09 compared with 2020-03-10 · 286 added, 168 removed, 600 unchanged (43% of the section changed)

11 unchanged sentences

 provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 provide re asonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.

23 unchanged sentences

The following consolidated financial statements are filed herewith in accordance with Item 8 of Part II above:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(i) Report of Independent Registered Public Accounting Firm

(ii) Consolidated Balance Sheets

(iii) Consolidated Statements of Operations and Comprehensive Loss

(iv) Consolidated Statements of Changes in Stockholders’ Equity

(v) Consolidated Statements of Cash Flows

(vi) Notes to Consolidated Financial Statements

Schedules not listed are omitted because the required information is inapplicable or is presented in the consolidated financial statements.

7 unchanged sentences

(incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1, filed on January 15, 2020).

Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc.

(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 19, 2020).

Amended and Restated Bylaws of AquaBounty Technologies, Inc.

3 unchanged sentences

Description of Registrant’s securities.

(incorporated by reference to Exhibit 4.3 to the Registration’s Annual Report on Form 10-K, filed on March 10, 2020).

Stock Purchase Agreement, by and between AquaBounty Technologies, Inc.

14 unchanged sentences

2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on May 2.

Amendment No.

2 to AquaBounty Technologies, Inc.

2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on April 29, 2020).

Form of Stock Option Agreement pursuant to AquaBounty Technologies, Inc.

2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form 10, filed on December 12, 2016).

Exhibit Number

Exhibit Description

Form of Restricted Stock Agreement pursuant to AquaBounty Technologies, Inc.

41 unchanged sentences

and Bell Fish Company LLC, dated as of June 9, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 4, 2017).

Loan and Security Agreement by and between AquaBounty Farms Indiana LLC and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Term Note granted by AquaBounty Farms Indiana LLC in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Mortgage, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement granted by AquaBounty Technologies, Inc.

in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Guarantor Security Agreement by and between AquaBounty Technologies, Inc.

and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Unconditional and Continuing Secured Guaranty Agreement by and between AquaBounty Technologies, Inc.

and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Collateral Access Agreement by and between AquaBounty Technologies, Inc.

and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Unconditional and Continuing Guaranty Agreement by and between AquaBounty Farms, Inc.

and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

Environmental Indemnity Agreement by and among AquaBounty Technologies, Inc., AquaBounty Farms Indiana LLC, and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).

List of Subsidiaries of AquaBounty Technologies, Inc.

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit Number

Exhibit Description

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

1 unchanged sentence

*Incorporated herein by reference as indicated.

# Schedules, exhibits, and similar supporting attachments or agreements to the Loan and Security Agreement are omitted pursuant to Item 601(b)(2) of Regulation S-K.

The Registrant agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

†Management contract or compensatory plan or arrangement.

21 unchanged sentences

March 9, 2021

/s/ Jeffrey T.

March 10, 2020

/s/ Christine St.Clare

5 unchanged sentences

March 9, 2021

/s/ Theodore J.

March 9, 2021

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

We have audited the accompanying consolidated balance sheets of AquaBounty Technologies, Inc.

(the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows, for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”).

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows, for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

28 unchanged sentences

Indefinite lived intangible assets

Liabilities and stockholders’ equity

Restricted cash

Liabilities and stockholders'

Current liabilities:

5 unchanged sentences

Total liabilities

Commitments and contingencies

Stockholders’ equity:

Stockholders'

Common stock, $ 0.001 par value, 80,000,000 shares authorized;

4 unchanged sentences

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to the consolidated financial statements and report of the independent registered public accounting firm.

( 148,542,194 )

( 132,142,209 )

Total stockholders'

Total liabilities and stockholders'

See accompanying notes to the consolidated financial statements.

AquaBounty Technologies, Inc.

9 unchanged sentences

Operating loss

( 16,247,830 )

( 13,178,644 )

( 10,365,796 )

Other income (expense)

2 unchanged sentences

Total other income (expense)

( 16,399,985 )

( 13,227,642 )

( 10,382,059 )

Other comprehensive income (loss):

2 unchanged sentences

Comprehensive loss

( 16,307,083 )

( 13,013,616 )

( 10,742,361 )

Earnings per share

( 16,399,985 )

( 13,227,642 )

( 10,382,059 )

Deemed dividend

( 1,822,873 )

Net loss attributable to common shareholders

( 16,399,985 )

( 13,227,642 )

( 12,204,932 )

Basic and diluted net loss per share attributable to common shareholders

Weighted average number of common shares - basic and diluted

See accompanying notes to the consolidated financial statements and report of the independent registered public accounting firm.

See accompanying notes to the consolidated financial statements.

AquaBounty Technologies, Inc.

5 unchanged sentences

Balance at December 31, 2017

Other comprehensive income

( 108,532,508 )

( 10,382,059 )

Other comprehensive income (loss)

Issuance of common stock, net of expenses

Exercise of options for common stock

Exercise of warrants for common stock

Share based compensation

Balance at December 31, 2018

Other comprehensive loss

Issuance of common stock and warrants, net of expenses

Exercise of warrants for common stock, net of expenses

( 118,914,567 )

( 13,227,642 )

Other comprehensive income (loss)

Issuance of common stock, net of expenses

Exercise of warrants for common stock

Share based compensation

Balance at December 31, 2019

Other comprehensive income

( 132,142,209 )

( 16,399,985 )

Other comprehensive income (loss)

Issuance of common stock for services

Issuance of common stock, net of expenses

Exercise of warrants for common stock, net of expenses

Exercise of warrants for common stock

Share based compensation

Balance at December 31, 2020

See accompanying notes to the consolidated financial statements and report of the independent registered public accounting firm.

( 148,542,194 )

See accompanying notes to the consolidated financial statements.

AquaBounty Technologies, Inc.

2 unchanged sentences

Operating activities

( 16,399,985 )

( 13,227,642 )

( 10,382,059 )

Adjustment to reconcile net loss to net cash used in

2 unchanged sentences

Share-based compensation

Gain on disposal of equipment

Gain on sale of equipment

Loss on asset held for sale

3 unchanged sentences

Other receivables

( 1,154,222 )

Prepaid expenses and other assets

Accounts payable, accrued liabilities and other liabilities

Accounts payable and accrued liabilities

Net cash used in operating activities

( 14,288,821 )

( 11,248,747 )

( 9,816,765 )

Investing activities

Purchase of property, plant and equipment

( 3,975,135 )

( 2,316,809 )

( 4,009,736 )

Deposits on equipment purchases

Proceeds from sale of equipment

Proceeds from legal settlement, net

Other investing activities

Net cash used in investing activities

( 3,238,411 )

( 2,461,636 )

( 4,081,504 )

Financing activities

Proceeds from issuance of debt

Payment of debt issuance costs

Repayment of term debt

Proceeds from the issuance of common stock and warrants, net

Proceeds from the issuance of common stock, net

Proceeds from exercise of stock options and warrants, net

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at the end of period

Supplemental disclosure of cash flow information and non-cash transactions:

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of cash flow information and

non-cash transactions:

Interest paid in cash

1 unchanged sentence

Acquisition of equipment under debt arrangement

See accompanying notes to the consolidated financial statements and report of the independent registered public accounting firm.

See accompanying notes to the consolidated financial statements.

AquaBounty Technologies, Inc.

6 unchanged sentences

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.

In 2015, the Parent obtained approval from the US Food and Drug Administration (the “FDA”) for the production, sale, and consumption of its AquAdvantage Salmon product in the United States.

In 2016, the Parent obtained approval from Health Canada for the sale and consumption of its AquAdvantage Salmon product in Canada.

Previously, in 2013, the Parent obtained approval from Environment Canada for the production of the product.

In 2015, the Parent obtained regulatory approval from the U.S.

Food and Drug Administration for the production and sale of its AquAdvantage salmon product in the United States and in 2016, the Parent obtained regulatory approval from Health Canada for the production and sale of its AquAdvantage salmon product in Canada.

AQUA Bounty Canada Inc.

2 unchanged sentences

(the “Panama Subsidiary”) was incorporated in May 2008 in Panama for the purpose of conducting commercial trials of the Parent’s products.

With the regulatory approval of the Company’s farms in Indiana and Rollo Bay, the site in Panama was no longer needed for commercial trials.

Operations at the site ceased in May 2019.

Operations at the site concluded in May 2019.

AquaBounty Farms, Inc.

12 unchanged sentences

The entities are collectively referred to herein as the “Company.” All inter-company transactions and balances have been eliminated upon consolidation.

Certain balances in the 2018 and 2017 Financial Statements have been reclassified to conform with the presentation of the 2019 Financial Statements.

Liquidity matters

The Company has experienced net losses and negative cash flows from operations since its inception and has cumulative losses attributable to common stockholders of $132 million as of December 31, 2019 .

At December 31, 2019, the Company’s cash balance totaled $2.8 million.

Subsequent to year end, in February 2020, the Company completed a public offering of common shares resulting in net proceeds of $14.5 million (Note 16).

Management has evaluated its cash resources in view of its planned spending for on-going operations, capital expenditures and working capital and believes that its cash resources will meet the Company’s cash requirements for at least the next twelve months from the filing date.

Until such time, if ever, as the Company can generate positive operating cash flows, it may finance its cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements.

The Company completed multiple equity raises in 2020 and has $ 95.8 million in cash and cash equivalents as of December 31, 2020.

Subsequent to year end, in February 2021, the Company raised an additional $ 119.2 million.

While the Company has experienced net losses and negative cash flows from operations since inception, management believes that it has sufficient cash to meet the Company's requirements for at least the next twelve months from the filing date.

However, until such time as the Company reaches profitability, it may require additional financing to fund its operations and execute its business plan.

Summary of significant accounting policies

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods.

Actual results could differ from those estimates.

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2020, 2019, and 2018

contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of expenses during the reporting periods.

Actual results could differ from those estimates.

Comprehensive loss

4 unchanged sentences

The functional currency of the Parent is the US Dollar.

The functional currency of the Canadian Subsidiary is the Canadian Dollar (C$), and the functional currency of the Panama, US, Indiana, and Brazil Subsidiaries is the US Dollar.

The functional currency of the Canadian Subsidiary is the Canadian Dollar (C$) and the functional currency of the US and Brazil Subsidiaries is the US 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 other comprehensive income (loss) within stockholders’ equity (deficit).

Net translation gains or losses are adjusted directly to a separate component of other comprehensive income (loss) within stockholders’ equity.

Cash equivalents

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Cash equivalents consist primarily of business savings accounts and certificates of deposit.

Inventories mainly comprise of feed, eggs, 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.

Cash equivalents consist primarily of business savings accounts, certificates of deposit and money market accounts.

Included in cash equivalents at December 31, 2020 is $ 80 million in a Dreyfus Government Cash Management money market account.

Inventories are mainly comprised of feed, eggs, fish in process and packaging materials.

Fish in process inventory is a biological asset that is measured based on the estimated biomass of fish on hand.

The Company has established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques.

The Company measures inventory at the lower of cost or net realizable value (NRV).

Our NRV calculation contains various estimates and assumptions in regard to the calculation of the biomass, including expected yield, the market value of the biomass and estimated costs of completion and transportation.

As of December 31, 2020, the NRV of our conventional salmon biomass was valued at $ 0 as a result of our intent to harvest and donate this fish.

The NRV of our AquAdvantage salmon biomass was valued at $ 1.2 million.

The Company also considers capacity utilization in calculating its inventory value with any excess capacity charged to production costs as idle capacity.

Inventory reserves are recorded as needed to represent the difference between the carrying value and the NRV calculation, taking into consideration the expected timing and disposition of the inventory.

Asset held for sale

9 unchanged sentences

Indefinite lived intangible assets include trademark costs, which are capitalized with no amortization as they have an indefinite life.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2020, 2019, and 2018

Property, plant and equipment

Property, plant and equipment are carried at cost, and depreciation expense commences when the asset is placed into service, which may include receiving applicable regulatory approval.

Property, plant and equipment are carried at cost.

The Company depreciates all asset classes over their estimated useful lives, as follows:

3 unchanged sentences

shorter of asset life or lease term

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2019, 2018, and 2017

The Company commences depreciation on an asset in the month it is placed into service, which is dependent upon when the asset is available for its intended use.

Impairment of long-lived assets

8 unchanged sentences

A determination is made if an arrangement is a lease at its inception, and leases with an initial term of twelve months or less are not recorded on the balance sheet.

The Company adopted Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 2016-02 Leases on January 1, 2019, and recognized a lease liability of $532 thousand and a corresponding right-of-use asset of $512 thousand .

Management calculated the lease liability based on the net present value of the remaining lease payments on the date of adoption using a weighted average discount rate of 8% .

As most of the Company’s leases did not provide an implicit interest rate, management used an estimated incremental borrowing rate.

The adoption did not result in any cumulative-effect adjustment to beginning retained earnings.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

For operating leases, expense is recognized on a straight-line basis over the lease term.

The Company has agreements with lease ( e.g.

, minimum rent payments) and non-lease components ( e.g.

, maintenance), which are generally accounted for separately.

The Company has agreements with lease (e.g., minimum rent payments) and non-lease components (e.g., maintenance), which are generally accounted for separately.

The Company has not elected the practical expedient to account for lease and non-lease components as one lease component.

The Company adopted Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 2016-02 Leases on January 1, 2019 and recognized a lease liability of $ 532 thousand and a corresponding right-of-use asset of $ 512 thousand.

Management calculated the lease liability based on the net present value of the remaining lease payments on the date of adoption using a weighted average discount rate of 8 %.

As most of the Company’s leases did not provide an implicit interest rate, management used an estimated incremental borrowing rate.

The adoption did not result in any cumulative-effect adjustment to beginning retained earnings.

Revenue recognition

4 unchanged sentences

and recognizing revenue when (or as) the Company satisfies a performance obligation.

In addition, collectability is assessed before applying the revenue recognition criteria.

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.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2020, 2019, and 2018

The Company uses the liability method of accounting for income taxes.

5 unchanged sentences

The Company did not recognize any tax liabilities associated with uncertain tax positions, nor has it recognized any interest or penalties related to unrecognized tax positions.

In the event any arise, the Company classifies interest and penalties on uncertain tax positions as income tax expense.

Generally, the Company is no longer subject to federal and state tax examinations by tax authorities for years before 2017.

3 unchanged sentences

The amended guidance became effective for the Company on January 1, 2018.

During 2019, the Company transferred certain IP rights from its Canadian subsidiary to

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2019, 2018, and 2017

During 2019, the Company transferred certain IP rights from its Canadian subsidiary to the US.

The tax effects of this intra-entity transfer are reflected within the components of deferred taxes with an adjustment to the valuation allowance.

Net loss per share

Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the year.

Basic net loss per share is based solely on the number of common shares outstanding during the year.

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 shares outstanding during the year.

Basic net loss is based solely on the number of common shares outstanding during the year.

Fully diluted net loss per share includes the number of shares of common stock issuable upon the exercise of warrants and options with an exercise price less than the fair value of the common stock.

14 unchanged sentences

and (v) the outcome of any collaborations or alliances entered into by the Company.

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

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2020, 2019, and 2018

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 the Company’s 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 the Company, may direct, which may result in an extended period of continued business disruption and reduced operations.

To date, the Company’s farm operations have not been materially affected by the pandemic, although management has made modifications to biosecurity procedures and the farm sites to adapt to local requirements and to provide a safe work environment.

The Company’s 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.

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

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

The Company has 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 revenue and inventory value, as the company is not yet an established vendor and customers do not need a new supplier during a period of depressed demand.

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

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

The donation program commenced in February 2021.

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 impact beyond the near-term cannot be reasonably estimated at this time but may have a material adverse impact on the Company’s business, financial condition, and results of operations in 2021.

Concentration of credit risk

12 unchanged sentences

AFP and the Company have certain shareholders in common.

Major classifications of inventory are summarized as follows for December 31, 2019 and 2018 :

Fish in process

Total inventory

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2020, 2019, and 2018

Major classifications of inventory are summarized as follows for December 31, 2020 and 2019:

Fish in process, net

Inventory, net

In December 2020, the Company wrote-down the value of its fish-in-process inventory by $ 1.53 million, representing the total carrying amount of the conventional salmon biomass.

The Company plans to donate substantially all of its conventional salmon to local food charities during the first quarter of 2021.

Property, plant and equipment

5 unchanged sentences

Less accumulated depreciation and amortization

( 5,106,157 )

( 3,561,641 )

Property, plant and equipment, net

Depreciation and amortization expense for 2020 on property, plant and equipment was $ 1.5 million (2019:

$830 thousand ;

$ 1.3 million;

$ 830 thousand).

During 2019, the Company’s grow-out facility at its Rollo Bay farm was placed in service, and as a result, the Company transferred $5.2 million of construction in process to building and improvements and equipment and commenced deprecation of these assets.

Included in construction in process at December 31, 2019, is $1.9 million for construction costs related to the farm site.

An additional $257 thousand has been committed.

In June 2017, the Company purchased an aquaculture farm in Indiana, for $14.2 million .

Through December 31, 2019, the Company has invested an additional $3.2 million to upgrade the farm and has $227 thousand in construction in process and an additional $216 thousand committed.

This farm is operational, although the Company expects that upgrades will continue through 2020.

Prepaid expenses and other current assets

Prepaid expenses and other current assets include the following at December 31, 2019 and 2018 :

Prepaid insurance

Prepaid supplies

Prepaid professional services

Prepaid rent and lease deposits

Asset held for sale

Other current assets

Total prepaid expenses and other current assets

In March 2020, the Company settled an outstanding legal claim against a third party resulting in net proceeds of $ 1.0 million.

The proceeds received reduced the carrying value of the acquired equipment.

Depreciation on these items has been recalculated prospectively over their remaining useful lives.

As of December 31, 2020, included in construction in process is $ 1.9 million for construction related to the Rollo Bay farm site and $ 407 thousand for construction related to the Indiana farm site.

An additional $ 258 thousand and $ 1.1 million have been committed for the Rollo Bay and Indiana farm sites, respectively.

Accounts payable and accrued liabilities

4 unchanged sentences

Accrued taxes

Accrued construction costs

Accrued other

4 unchanged sentences

The current terms and conditions of long-term debt outstanding at December 31, 2020 and 2019, are as follows:

ACOA AIF grant (C$2,871,919)

ACOA term loan#1 (C$337,000)

ACOA term loan#2 (C$500,000)

November 2028

Kubota Canada Ltd (C$95,961)

PEI Finance term loan (C$2,717,093)

ACOA AIF grant

ACOA term loan#1

ACOA term loan#2

Kubota Canada Ltd

PEI Finance term loan

First Farmers Bank & Trust

debt issuance costs

current portion

11 unchanged sentences

All available funding under the agreement was disbursed through May 2017, and no further amounts are available.

The loan is being repaid over a period of nine years.

The loan is being repaid over a period of nine year s.

In November 2018, the Canadian Subsidiary executed a second agreement with ACOA to partially finance the renovations to the Rollo Bay site.

All available funding under the agreement was disbursed through March 2019, and no further amounts are available.

The loan term is nine years with a zero percent interest rate.

Repayments begin in January 2020.

The loan term is nine year s with a zero percent interest rate.

Repayments began in January 2020.

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.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2020, 2019, and 2018

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.

Payments to ACOA resumed on January 1, 2021.

Kubota is a manufacturer of power equipment for the construction, agriculture, commercial, and residential industries.

4 unchanged sentences

FPEI is a corporation of the Ministry of Economic Development and Tourism for Prince Edward Island, Canada, and administers business financing programs for the provincial government.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2019, 2018, and 2017

In August 2016, the Canadian Subsidiary obtained a loan from FPEI to partially finance the purchase of the assets of the former Atlantic Sea Smolt plant in Rollo Bay West on Prince Edward Island.

In 2018, the Canadian Subsidiary obtained a new loan from FPEI, which incorporates the existing loan and provides

C$2.0 million ( $1.5 million ) of additional funds.

As of December 31, 2019, C $1.7 million ( $1.3 million ) has been drawn down.

The final C $300 thousand ( $230 thousand ) is anticipated to be drawn down during the first quarter of 2020, though repayment has commenced.

In 2018, the Canadian Subsidiary obtained a new loan from FPEI, which incorporates the existing loan and provides C$ 2.0 million ($ 1.5 million) of additional funds.

As of December 31, 2019, C$ 1.7 million ($ 1.3 million) had been drawn down.

The final C$ 300 thousand ($ 230 thousand) was drawn down on April 23, 2020.

Repayment commenced in 2019.

The loan has an interest rate of 4 % and is collateralized by a mortgage executed by the Canadian Subsidiary, which conveys a first security interest in all of its current and acquired assets.

The loan is guaranteed by the Parent.

On March 24, 2020, the Company was informed by FPEI that all payments would be deferred for three months due to the COVID-19 pandemic.

Payments on the loan resumed on August 1, 2020.

First Farmers Bank & Trust (“FFBT”)

On July 31, 2020, the Company’s Indiana Subsidiary obtained a $ 4.0 million loan from First Farmers Bank and Trust.

Net proceeds were $ 3.9 million after deducting $ 90 thousand in loan costs.

The loan bears interest at a rate of 5.375 % for the first five year s.

On July 31, 2025, the interest rate resets to the then U.S.

Treasury 5-year maturities rate plus 5 % and remains fixed at that rate through maturity on October 1, 2028 .

The note requires interest only payments for the first 13 months, followed by monthly principal and interest payments of approximately $ 57 thousand through maturity.

Proceeds from the loan may be used for the purpose of performing equipment upgrades, purchasing equipment and other improvements to the Indiana farm.

The Company must comply with certain financial and non-financial covenants and at December 31, 2020, the Company was in compliance.

The loan is also subject to certain prepayment penalties and is secured by the assets of the Indiana subsidiary and a guarantee by the Parent.

The loan agreement requires the Company to maintain a $ 500 thousand minimum cash balance with the bank throughout the loan term.

This amount is reflected as restricted cash on the balance sheet.

Department of Fisheries and Oceans (“DFO”)

DFO is a department of the government of Canada responsible for safeguarding its waters and managing its fisheries, oceans and freshwater resources.

DFO supports economic growth in the marine and fisheries sectors, and innovation in areas such as aquaculture and biotechnology.

In September 2020, the Canadian Subsidiary entered into a Contribution Agreement with DFO's Atlantic Fisheries Fund, whereby it is eligible to receive up to C$ 1.9 million ($ 1.4 million) to finance new equipment for its Rollo Bay farm.

As of December 31, 2020, the Canadian Subsidiary had not drawn down any of the funds available under the agreement.

Any borrowings under the agreement are interest free and monthly repayments of any borrowed amounts commence in March 2023, with maturity in September 2029 .

The Company recognized interest expense in 2020 of $ 152 thousand (2019:

1 unchanged sentence

$ 22 thousand) on its interest-bearing debt.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2020, 2019, and 2018

Stockholders’ equity

6 unchanged sentences

Recent issuances

In January 2017, the Company closed an equity subscription of $25 million with Precigen for 2,421,073 common shares at a price of $10.326 .

In January 2018, the Company completed a public offering of 3,692,307 Common Shares and warrants for 4,246,153 Common Shares.

6 unchanged sentences

During 2019, the Company issued 83,564 Common Shares in connection with the exercise of warrants, with total proceeds of $ 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 5, 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 for net proceeds of approximately $0.7 million .

Subsequent to year end, 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 .

In connection with the public offering of Common Shares that was completed in January 2018, the Company issued warrants to purchase 4,246,153 Common Shares.

Each warrant has an exercise price per share of $3.25 , is immediately exercisable, and will expire five years from the date of issuance.

During 2018, 249,824 warrants were exercised at $3.25 and the Board approved the exercise of 2,250,461 warrants in October 2018 at a discounted price of $2.00 .

The intrinsic value of the warrants that were converted at the discounted price was $1.8 million .

The warrant inducement was treated as an extinguishment of an equity contract, as the warrant holders had to exercise their warrants in order to take advantage of the discounted conversion price.

In accounting for the transaction the Company analogized to guidance

On March 21, 2019, the Company completed a public offering of 3,345,282 Common Shares for net proceeds of approximately $ 6.6 million.

On April 5, 2019, the Company completed a public offering of 2,554,590 Common Shares for net proceeds of approximately $ 5.1 million.

On April 17, 2019, the Company issued 346,488 Common Shares in conjunction with the over-allotment exercise of its underwriters for net proceeds of approximately $ 0.7 million.

On May 6, 2020, the Company issued 20,000 restricted common shares to a consultant.

The Company recorded a charge of $ 41 thousand in conjunction with the share issuance.

On August 7, 2020, the Company completed a public offering of 11,000,000 Common Shares for net proceeds of approximately $ 25.8 million.

On August 17, 2020, the Company issued 1,650,000 Common Shares in conjunction with the over-allotment exercise of its underwriters for net proceeds of approximately $ 3.9 million.

On December 14, 2020, the Company completed a public offering of 10,028,000 Common Shares for net proceeds of approximately $ 60.4 million.

During 2020, the Company issued 713,449 Common Shares in connection with the exercise of warrants, with total proceeds of $ 2.3 million.

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

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2020, 2019, and 2018

regarding the treatment of preferred stock extinguishments and recognized the intrinsic value of the inducement, totaling $1.8 million , as a return of capital and as an addition to net loss for the purpose of calculating basic and diluted earnings per share.

During 2019, 83,564 warrants were exercised at $3.25 .

The following table summarizes information about outstanding warrants at December 31, 2020:

warrant shares

‎ exercise price

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At the April 30, 2019, Annual Meeting, an additional 450,000 shares of common stock that may be issued pursuant to awards granted under the 2016 Plan were authorized, for a total of 900,000 .

At the April 28, 2020, Annual Meeting, an additional 1,000,000 shares of common stock that may be issued pursuant to awards granted under the 2016 Plan were authorized, for a total of 1,900,000 .

Restricted stock

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Exercisable at December 31, 2020

Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested over one to three years and are exercisable for a term of ten years from the date of issuance.

Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested over one year to three year s and are exercisable for a term of ten year s from the date of issuance.

The weighted average fair value of stock options granted during 2020 was $ 1.49 (2019:

There were no options exercised in 2019 and 2018.

There were no options exercised in 2020, 2019 or 2018.

The total intrinsic value of options exercised in 2020, 2019 and 2018 was $ 0 .

At December 31, 2020, the total intrinsic value of all options outstanding was $ 3.6 million (2019:

$ 1 thousand;

At December 31, 2019 , the total intrinsic value of all options outstanding was $1 thousand ( 2018 :

$17 thousand ), the total intrinsic value of exercisable options was $0 ( 2018 :

2017 $17 thousand ), and the total number of shares available for grant under the 2016 Plan was 198,034 ( 2018 :

$ 0 ), the total intrinsic value of exercisable options was $ 3.2 million (2019:

$ 1 thousand;

2018 $ 0 ), and the total number of shares available for grant under the 2016 Plan was 996,767 (2019:

The following table summarizes information about options outstanding and exercisable at December 31, 2020:

Weighted average

average exercise

price of outstanding

average remaining

estimated life

Weighted average

price of outstanding

estimated life

and exercisable

5 unchanged sentences

Expected volatility

101 % - 104 %

Risk free interest rate

0.31 % - 1.67 %

1.55 % - 2.85 %

Expected dividend yield

8 unchanged sentences

$ 236 thousand).

At December 31, 2019 , the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards is $179 thousand .

The period over which the unearned share-based compensation is expected to be earned is 0.9 years.

In June 2019, the Company recognized share based compensation of $134 thousand related to the accelerated vesting and exercisable term change for options to purchase an aggregate of 153,940 shares for the Company’s former CEO, who retired June 30, 2019.

At December 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2020, 2019, and 2018

option granted was revalued as of June 30, 2019, using the following Black-Scholes values to determine the incremental charges for the option modification:

unvested share-based awards is $ 84 thousand.

The period over which the unearned share-based compensation is expected to be earned is 2.5 years.

In June 2019, the Company recognized share based compensation of $ 134 thousand related to the accelerated vesting and exercisable term change for options to purchase an aggregate of 153,940 shares for the Company’s former CEO, who retired June 30, 2019.

Each option granted was revalued as of June 30, 2019, using the following Black-Scholes values to determine the incremental charges for the option modification:

expected volatility of 97 %, risk free interest rate of 1.71 % to 1.92 %, expected dividend yield of 0.0 %, and expected life of 1.5 to 5 years.

8 unchanged sentences

The components of loss before income taxes for the years ended December 31, 2020, 2019, and 2018, are presented below:

( 15,768,224 )

( 12,950,725 )

( 9,702,869 )

Loss before income taxes

( 16,399,985 )

( 13,227,642 )

( 10,382,059 )

Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate for the years ended December 31, 2020, 2019, and 2018, primarily due to the following:

Income tax benefit

( 3,443,997 )

( 2,777,805 )

( 2,180,233 )

State and provincial income tax, net of federal benefit

1 unchanged sentence

US-Foreign rate differential

Effect of tax reform

( 4,334,486 )

( 1,256,149 )

( 1,492,282 )

Change in valuation allowance

Total income tax

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2020, 2019, and 2018

As of December 31, 2020, the Company has domestic net operating loss carryforwards of approximately $ 56 million, after consideration of limitations pursuant to section 382, to offset future federal taxable income, which begin to expire in 2031.

At December 31, 2020, the Company has domestic net operating loss carryforwards of approximately $ 27 million, which can be carried forward indefinitely.

The future utilization of certain historic net operating loss and tax credit carryforwards, however, is subject to annual use limitations based on the change in stock ownership rules of Internal Revenue Code Sections 382 and 383.

1 unchanged sentence

The Company also has foreign research loss carryforwards totaling approximately $ 10.0 million and foreign research and development expense tax credits of approximately $ 2.7 million at December 31, 2020, which expire at various times commencing in 2021.

Since the Company has incurred only losses from inception and there is uncertainty related to the ultimate use of the loss carryforwards and

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2019, 2018, and 2017

tax credits, a valuation allowance has been recognized to offset the Company’s deferred tax assets, and no benefit for income taxes has been recorded.

Since the Company has incurred only losses from inception and there is uncertainty related to the ultimate use of the loss carryforwards and tax credits, a valuation allowance has been recognized to offset the Company’s deferred tax assets, and no benefit for income taxes has been recorded.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

5 unchanged sentences

Valuation allowance

( 22,822,470 )

( 18,487,984 )

Net deferred tax assets

5 unchanged sentences

Lease commitments

In July 2017, the Company extended the lease for its office space in Maynard, Massachusetts.

The new lease for 3,558 square feet of office space has a term of five years and seven months, ending March 2023.

Lease payments over the term total $333 thousand .

In 2017, the Company assumed a lease for well water rights as part of its purchase of certain assets of Bell Aquaculture.

The lease has a thirty year term with auto-renewal for an additional twenty years.

Semi-annual payments total $7 thousand with annual increases of 3% over the term.

The Company leases office space in Brazil on a month-to-month basis.

Lease expense for the year ended December 31, 2020, amounted to $ 86 thousand.

3 unchanged sentences

December 31, 2020

January 1, 2019

Remaining Years

Remaining Payments

Lease Liability

Remaining Payments

Lease Liability

December 31, 2019

Maynard Office Lease

Panama Farm Lease

Indiana Auto Lease

20 unchanged sentences

Related Party Collaboration Agreement

In February 2013, the Company entered into an Exclusive Channel Collaboration Agreement with Precigen, its then majority shareholder, pursuant to which the Company will use Precigen’s technology platforms to develop and commercialize additional bioengineered traits in finfish for human consumption.

The Company will pay Precigen quarterly 16.66% of the gross profits calculated under the terms of the agreement for each developed product.

The Company has likewise agreed to pay Precigen 50% of quarterly revenue obtained from a sublicensor in the event of a sublicensing arrangement.

In addition, the Company will reimburse Precigen for the costs of certain services provided by Precigen.

No royalties were paid to Precigen in 2019 , and the Company does not expect to pay royalties in 2020.

Total Precigen service costs incurred under the terms of this agreement amounted to $18 thousand in 2019 ( 2018 :

In February 2013, the Company entered into an Exclusive Channel Collaboration Agreement with Precigen, its then majority shareholder, pursuant to which the Company would use Precigen’s technology platforms to develop and commercialize additional bioengineered traits in finfish for human consumption.

The Company agreed to pay Precigen quarterly 16.66 % of the gross profits calculated under the terms of the agreement for each developed product.

The Company likewise agreed to pay Precigen 50 % of quarterly revenue obtained from a sublicensor in the event of a sublicensing arrangement.

In addition, the Company would reimburse Precigen for the costs of certain services provided by Precigen.

The agreement was terminated in 2020 and no royalties were paid to Precigen during the year.

Total Precigen service costs incurred under the terms of this agreement totaled $ 0 in 2020 (2019:

$ 218 thousand;

10 unchanged sentences

Operating loss

( 3,091,421 )

( 3,504,999 )

( 3,613,158 )

( 6,038,252 )

( 3,109,618 )

( 3,523,684 )

( 3,649,788 )

( 6,116,895 )

Basic and diluted net loss per share attributable to common shareholders

1 unchanged sentence

Operating loss

Deemed dividend

( 2,755,694 )

( 4,019,719 )

( 2,999,592 )

( 3,403,639 )

( 2,763,932 )

( 4,026,731 )

( 3,018,222 )

( 3,418,757 )

Basic and diluted net loss per share attributable to common shareholders

Subsequent events

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

On March 2, 2020, the Company settled an outstanding legal claim against a third party with gross proceeds to the Company of $1.2 million .

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

On February 25, 2021, the Canadian Subsidiary received a claim reimbursement under its Contribution Agreement with DFO in the amount of C$ 238,400 or approximately $ 184,760 (see Note 7).

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 9A. Controls and Procedures