AQUABOUNTY TECHNOLOGIES INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of December 31, 2020 (the “Evaluation Date”), our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded based upon the evaluation described above that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our Chief Executive and Chief Financial Officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:  pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; 35 Table of Contents  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles;  provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and  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. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020. In conducting this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based upon this evaluation and those criteria, management believes that, as of December 31, 2020, our internal controls over financial reporting were effective. This Annual Report on Form 10‑K does not include an attestation report of the Company’s independent registered accounting firm as we are an emerging growth company, as defined under the JOBS Act, and are subject to reduced public company reporting requirements. The JOBS Act provides that an emerging growth company is not required to have the effectiveness of the Company’s internal control over financial reporting audited by its external auditors for as long as the Company is deemed to be an emerging growth company. Changes in Internal Control There have been no changes in our internal control over financial reporting for the year ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. ‎ 36 Table of Contents Part III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is set forth in our 2021 Proxy Statement to be filed with the SEC within 120 days of December 31, 2020, and is incorporated by reference into this Annual Report on Form 10‑K by reference. Item 11. Executive Compensation We are an emerging growth company, as defined under the JOBS Act, and are therefore not required to provide certain disclosures regarding executive compensation required of larger public companies or hold a nonbinding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved. The information required by this Item is set forth in our 2021 Proxy Statement to be filed with the SEC within 120 days of December 31, 2020, and is incorporated by reference into this Annual Report on Form 10‑K by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is set forth in our 2021 Proxy Statement to be filed with the SEC within 120 days of December 31, 2020, and is incorporated by reference into this Annual Report on Form 10‑K by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item is set forth in our 2021 Proxy Statement to be filed with the SEC within 120 days of December 31, 2020, and is incorporated by reference into this Annual Report on Form 10‑K by reference. Item 14. Principal Accounting Fees and Services The information required by this Item is set forth in our 2021 Proxy Statement to be filed with the SEC within 120 days of December 31, 2020, and is incorporated by reference into this Annual Report on Form 10‑K by reference. 37 Table of Contents Part IV Item 15. Exhibits and Financial Statement Schedules List of Documents Filed as Part of this Report 1. Consolidated Financial Statements The following consolidated financial statements are filed herewith in accordance with Item 8 of Part II above: (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 2. Schedules Schedules not listed are omitted because the required information is inapplicable or is presented in the consolidated financial statements. ‎ 38 Table of Contents 3. Exhibits Exhibit Number Exhibit Description 3.1* Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 3.2* Certificate of Amendment of Third Amended and Restated Bylaws of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on January 6, 2017). 3.3* Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1, filed on January 15, 2020). 3.4* 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). 3.5* Amended and Restated Bylaws of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 4.1* Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 4.2* Specimen Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1, filed on January 9, 2018). 4.3 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). 10.1* Stock Purchase Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated November 7, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.2*† AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.3*† Amendment No. 1 to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.4*† Form of Stock Option Agreement pursuant to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.5*† Form of Restricted Stock Agreement pursuant to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.6*† AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.7*† Amendment No. 1 to AquaBounty Technologies, Inc. 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. 2019). 10.8* 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). 10.9*† 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). 10.10*† Form of Restricted Stock Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form 10, filed on December 12, 2016). 10.11* Relationship Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated December 5, 2012 (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.12* Subscription Agreement, by and between AquaBounty Technologies, Inc. and the investors listed therein, dated February 14, 2013 (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.13* Subscription Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated March 5, 2014 (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.14* Subscription Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated June 24, 2015 (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 39 Table of Contents 10.15* Promissory Note Purchase Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated February 22, 2016 (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.16* Form of Warrant Exercise Agreement, by and between AquaBounty Technologies, Inc. and certain holders of its Common Stock Purchase Warrants, dated October 24, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 25, 2018). 10.17* Agreement, by and among Atlantic Canada Opportunities Agency and AQUA Bounty Canada Inc. and AquaBounty Technologies Inc., dated December 16, 2009 (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.18* Offer Letter dated as of July 10, 2018, from Prince Edward Island Century 2000 Fund Inc. to AQUA Bounty Canada Inc. and accepted by AQUA Bounty Canada Inc. and AquaBounty Technologies, Inc. on August 20, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.19* Negotiable Promissory Note dated as of October 16, 2018, issued by AQUA Bounty Canada Inc. in favor of Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.20* Collateral Mortgage dated as of July 26, 2016, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.21* Collateral Mortgage dated as of October 9, 2018, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.22* General Security Agreement dated as of July 26, 2016, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.23* Guarantee dated as of October 9, 2018, made by AquaBounty Technologies, Inc. in favor of Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.24*† Employment Agreement, by and between Sylvia Wulf and AquaBounty Technologies, Inc., dated November 27. 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2018). 10.25*† Employment Agreement, by and between David Frank and AquaBounty Technologies, Inc., dated October 1, 2007 (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.26*† Employment Agreement, by and between Alejandro Rojas and AquaBounty Technologies, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.27* Intellectual Property License and Full and Final Release among Genesis Group, Inc., HSC Research and Development Partnership and AquaBounty Technologies, Inc., dated February 28, 2014 (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.28* Asset Purchase Agreement by and between AquaBounty Technologies, Inc. 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). 10.29*# 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). 10.30* 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). 10.31* 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). 10.31* 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). 10.32* 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). 40 Table of Contents 10.33* 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). 10.34* 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). 10.35* 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). 21.1 List of Subsidiaries of AquaBounty Technologies, Inc. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *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. The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. ‎ 41 Table of Contents Item 16. Form 10‑K Summary Not applicable. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AQUABOUNTY TECHNOLOGIES, INC. By: /s/ Sylvia A. Wulf Sylvia A. Wulf Chief Executive Officer, President, and Director Power of Attorney KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Frank and Angela M. Olsen, as his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Annual Report on Form 10‑K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated below. Signature Title Date /s/ Sylvia A. Wulf President, Chief Executive Officer and Director (Principal Executive Officer) March 9, 2021 Sylvia A. Wulf /s/ David A. Frank Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) March 9, 2021 David A. Frank /s/ Richard J. Clothier Chairman of the Board, Director March 9, 2021 Richard J. Clothier /s/ Richard L. Huber Director March 9, 2021 Richard L. Huber /s/ Christine St.Clare Director March 9, 2021 Christine St.Clare /s/ Rick Sterling Director March 9, 2021 Rick Sterling /s/ James C. Turk Director March 9, 2021 James C. Turk /s/ Alana D. Kirk Director March 9, 2021 Alana D. Kirk /s/ Theodore J. Fisher Director March 9, 2021 Theodore J. Fisher 42 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of AquaBounty Technologies, Inc .: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AquaBounty Technologies, Inc. (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. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Wolf & Company, P.C. Boston, Massachusetts March 9, 2021 We have served as the Company’s auditor since 2011. F- 1 Table of Contents AquaBounty Technologies, Inc. Consolidated Balance Sheets As of December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 95,751,160 $ 2,798,744 Other receivables 46,678 55,198 Inventory 1,525,377 1,232,049 Prepaid expenses and other current assets 358,692 391,162 Total current assets 97,681,907 4,477,153 Property, plant and equipment, net 26,930,338 25,065,836 Right of use assets, net 341,997 399,477 Definite lived intangible assets, net 143,885 157,588 Indefinite lived intangible assets 101,661 101,661 Restricted cash 500,000 — Other assets 76,715 32,024 Total assets $ 125,776,503 $ 30,233,739 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $ 1,760,103 $ 1,462,809 Other current liabilities 62,483 62,286 Current debt 259,939 163,155 Total current liabilities 2,082,525 1,688,250 Long-term lease obligations 290,327 352,808 Long-term debt 8,528,490 4,432,052 Total liabilities 10,901,342 6,473,110 Stockholders' equity: Common stock, $ 0.001 par value, 80,000,000 shares authorized; 55,497,133 (2019: 21,635,365 ) shares outstanding 55,497 21,635 Additional paid-in capital 263,629,116 156,241,363 Accumulated other comprehensive loss ( 267,258 ) ( 360,160 ) Accumulated deficit ( 148,542,194 ) ( 132,142,209 ) Total stockholders' equity 114,875,161 23,760,629 Total liabilities and stockholders' equity $ 125,776,503 $ 30,233,739 See accompanying notes to the consolidated financial statements. ‎ F- 2 Table of Contents AquaBounty Technologies, Inc. Consolidated Statements of Operations and Comprehensive Loss Years ended December 31, 2020 2019 2018 Revenues Product revenues $ 127,663 $ 186,738 $ 84,518 Costs and expenses Production costs 6,680,012 3,573,858 2,626,353 Sales and marketing 533,428 709,023 297,687 Research and development 2,364,610 2,359,441 3,458,564 General and administrative 6,797,443 6,723,060 4,067,710 Total costs and expenses 16,375,493 13,365,382 10,450,314 Operating loss ( 16,247,830 ) ( 13,178,644 ) ( 10,365,796 ) Other income (expense) Interest expense ( 152,367 ) ( 62,988 ) ( 22,257 ) Other income (expense), net 212 13,990 5,994 Total other income (expense) ( 152,155 ) ( 48,998 ) ( 16,263 ) Net loss $ ( 16,399,985 ) $ ( 13,227,642 ) $ ( 10,382,059 ) Other comprehensive income (loss): Foreign currency translation gain (loss) 92,902 214,026 ( 360,302 ) Total other comprehensive income (loss) 92,902 214,026 ( 360,302 ) Comprehensive loss $ ( 16,307,083 ) $ ( 13,013,616 ) $ ( 10,742,361 ) Earnings per share Net loss $ ( 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 $ ( 0.45 ) $ ( 0.66 ) $ ( 0.94 ) Weighted average number of common shares - basic and diluted 36,347,398 20,078,017 13,028,760 See accompanying notes to the consolidated financial statements. ‎ F- 3 Table of Contents AquaBounty Technologies, Inc. Consolidated Statements of Changes in Stockholders’ Equity Common stock issued and outstanding Par value Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total Balance at December 31, 2017 8,895,094 $ 8,895 $ 126,718,186 $ ( 213,884 ) $ ( 108,532,508 ) $ 17,980,689 Net loss ( 10,382,059 ) ( 10,382,059 ) Other comprehensive income (loss) ( 360,302 ) ( 360,302 ) Issuance of common stock, net of expenses 3,692,307 3,692 10,612,354 10,616,046 Exercise of warrants for common stock 2,500,285 2,501 5,114,032 5,116,533 Share based compensation 11,151 11 263,385 263,396 Balance at December 31, 2018 15,098,837 $ 15,099 $ 142,707,957 $ ( 574,186 ) $ ( 118,914,567 ) $ 23,234,303 Net loss ( 13,227,642 ) ( 13,227,642 ) Other comprehensive income (loss) 214,026 214,026 Issuance of common stock, net of expenses 6,246,360 6,246 12,389,102 12,395,348 Exercise of warrants for common stock 83,564 84 272,333 272,417 Share based compensation 206,604 206 871,971 872,177 Balance at December 31, 2019 21,635,365 $ 21,635 $ 156,241,363 $ ( 360,160 ) $ ( 132,142,209 ) $ 23,760,629 Net loss ( 16,399,985 ) ( 16,399,985 ) Other comprehensive income (loss) 92,902 92,902 Issuance of common stock for services 20,000 20 40,580 40,600 Issuance of common stock, net of expenses 33,028,000 33,028 104,592,587 104,625,615 Exercise of warrants for common stock 713,449 713 2,317,996 2,318,709 Share based compensation 100,319 101 436,590 436,691 Balance at December 31, 2020 55,497,133 $ 55,497 $ 263,629,116 $ ( 267,258 ) $ ( 148,542,194 ) $ 114,875,161 See accompanying notes to the consolidated financial statements. ‎ F- 4 Table of Contents AquaBounty Technologies, Inc. Consolidated Statements of Cash Flows Years ended December 31, 2020 2019 2018 Operating activities Net loss $ ( 16,399,985 ) $ ( 13,227,642 ) $ ( 10,382,059 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,494,596 1,285,902 843,387 Share-based compensation 436,691 872,177 263,396 Gain on sale of equipment ( 1,816 ) ( 12,133 ) ( 13,233 ) Loss on asset held for sale — 149,800 — Impairment loss — 103,116 — Other non-cash charges 46,155 — ( 1,364 ) Changes in operating assets and liabilities: — Other receivables 9,229 65,002 56,212 Inventory ( 282,260 ) ( 1,154,222 ) 93,956 Prepaid expenses and other assets ( 83,850 ) 59,942 289,868 Accounts payable and accrued liabilities 492,419 609,311 ( 966,928 ) 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 ( 349,847 ) ( 160,675 ) ( 95,001 ) Proceeds from sale of equipment 99,816 15,848 23,233 Proceeds from legal settlement, net 1,014,008 — — Other investing activities ( 27,253 ) — — Net cash used in investing activities ( 3,238,411 ) ( 2,461,636 ) ( 4,081,504 ) Financing activities Proceeds from issuance of debt 4,221,130 900,767 771,858 Payment of debt issuance costs ( 91,620 ) — — Repayment of term debt ( 70,826 ) ( 85,802 ) ( 55,615 ) Proceeds from the issuance of common stock, net 104,625,615 12,395,348 10,616,046 Proceeds from exercise of stock options and warrants, net 2,318,709 272,417 5,116,533 Net cash provided by financing activities 111,003,008 13,482,730 16,448,822 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 23,360 ) 23,840 ( 54,279 ) Net change in cash, cash equivalents and restricted cash 93,452,416 ( 203,813 ) 2,496,274 Cash, cash equivalents and restricted cash at beginning of period 2,798,744 3,002,557 506,283 Cash, cash equivalents and restricted cash at end of period $ 96,251,160 $ 2,798,744 $ 3,002,557 Supplemental disclosure of cash flow information and non-cash transactions: Interest paid in cash $ 114,893 $ 62,988 $ 22,257 Property and equipment included in accounts payable and accrued liabilities $ 23,600 $ 210,270 $ 193,378 Acquisition of equipment under debt arrangement $ — $ — $ 74,068 See accompanying notes to the consolidated financial statements. F- 5 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 1. Nature of business and organization Nature of business AquaBounty Technologies, Inc. (the “Parent” and, together with its subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of farm‑raised Atlantic salmon that exhibit growth rates that are substantially faster than conventional salmon. 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. (the “Canadian Subsidiary”) was incorporated in January 1994 for the purpose of establishing a commercial biotechnology laboratory to conduct research and development programs related to the Parent’s technologies and to commercialize the Parent’s products in Canada. AquaBounty Panama, S. de R.L. (the “Panama Subsidiary”) was incorporated in May 2008 in Panama for the purpose of conducting commercial trials of the Parent’s products. Operations at the site concluded in May 2019. AquaBounty Farms, Inc. (the “U.S. Subsidiary”) was incorporated in December 2014 in the State of Delaware for the purpose of conducting field trials and commercializing the Parent’s products in the United States. AquaBounty Farms Indiana LLC (the “Indiana Subsidiary”), which is wholly owned by the U.S. Subsidiary, was formed in June 2017 in the State of Delaware for the purpose of operating its aquaculture facility in Albany, Indiana. AquaBounty Brasil Participações Ltda. (the “Brazil Subsidiary”) was incorporated in May 2015 for the purpose of conducting field trials and commercializing the Parent’s products in Brazil. Basis of presentation The consolidated financial statements include the accounts of AquaBounty Technologies, Inc. and its wholly owned direct subsidiaries, AQUA Bounty Canada Inc.; AquaBounty Panama, S. de R.L.; AquaBounty Farms, Inc.; AquaBounty Farms Indiana LLC; and AquaBounty Brasil Participacoes Ltda. The entities are collectively referred to herein as the “Company.” All inter-company transactions and balances have been eliminated upon consolidation. Liquidity 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. 2. 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. F- 6 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 Comprehensive loss The Company displays comprehensive loss and its components as part of its consolidated financial statements. Comprehensive loss consists of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments. Foreign currency translation 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 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. 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, 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 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 Equipment classified as held for sale is measured at the lower of fair value, less selling costs, or its carrying value. Gains or losses are recognized for any subsequent changes to fair value, less selling costs. Equipment held for sale is not depreciated. In December 2019, the Company reclassified certain feed mill equipment at the Indiana farm, with a net book value of $ 248 thousand, as held for sale, a component of prepaid expenses and other current assets, and recorded a charge of $ 150 thousand to general and administrative expenses to reduce its value to fair value, less estimated selling costs. Intangible assets Definite lived intangible assets include patents and licenses. Patent costs consist primarily of legal and filing fees incurred to file patents on proprietary technology developed by the Company. Patent costs are amortized on a straight - line basis over 20 years beginning with the filing date of the applicable patent. License fees are capitalized and expensed over the term of the licensing agreement. Indefinite lived intangible assets include trademark costs, which are capitalized with no amortization as they have an indefinite life. F- 7 Table of Contents 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. The Company depreciates all asset classes over their estimated useful lives, as follows: Building 20 - 25 years Equipment 5 - 20 years Office furniture and equipment 3 years Leasehold improvements shorter of asset life or lease term Vehicles 3 years 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 The Company reviews the carrying value of its long-lived tangible assets and definite lived intangible assets on an annual basis or more frequently if facts and circumstances suggest that they may be impaired. The carrying values of such assets are considered impaired when the anticipated identifiable undiscounted cash flows from such assets are less than their carrying values. An impairment loss, if any, is recognized in the amount of the difference between the carrying amount and fair value. Indefinite lived intangible assets are subject to impairment testing annually or more frequently if impairment indicators arise. The Company’s impairment testing utilizes a discounted cash flow analysis that requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of the appropriate discount rate. An impairment loss is recognized in the amount of the difference between the carrying amount and fair value. During 2019, the Company recognized an impairment loss of $ 103 thousand, included in general and administrative expenses, and consisting of $ 90 thousand for one of its trademarks and a write-down of $ 13 thousand on the value of a long-term equity holding. Leases The Company leases certain facilities, property, and equipment under noncancelable operating leases. 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. 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 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 The Company records revenue on the sale of a product when all revenue recognition criteria are fulfilled, including identifying the contract with a customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations in the contract; and recognizing revenue when (or as) the Company satisfies a performance obligation. The Company evaluates customer credit risk in order to conclude it is “probable” it will collect the amount of consideration due in exchange for the goods or services. F- 8 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 Income taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized. The Company follows accounting guidance regarding the recognition, measurement, presentation and disclosure of uncertain tax positions in the financial statements. Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more likely than not” to be upheld under regulatory review. The resulting tax impact of these tax positions is recognized in the financial statements based on the results of this evaluation. 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. Generally, the Company is no longer subject to federal and state tax examinations by tax authorities for years before 2017. In 2016, the FASB issued amended guidance related to intra-entity transfers other than inventory. This guidance removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. 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 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 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. Since the Company is reporting a net loss for all periods presented, all potential common shares are considered anti - dilutive and are excluded from the calculation of diluted net loss per share. Share-based compensation The Company measures and recognizes all share - based payment awards, including stock options made to employees and Directors, based on estimated fair values. The fair value of a share - based payment award is estimated on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s consolidated statement of operations. The Company uses the Black - Scholes option pricing model (“Black - Scholes”) as its method of valuation. Non - employee stock - based compensation is accounted for using Black - Scholes to determine the fair value of warrants or options awarded to non - employees with the fair value of such issuances expensed over the period of service . 3. Risks and uncertainties The Company is subject to risks and uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in other countries with respect to approval and commercial sale of any of the Company’s proposed products; (iii) the commercial acceptance of any products approved for sale and the Company’s ability to manufacture, distribute, and sell for a profit any products approved for sale; (iv) the Company’s ability to obtain the necessary patents and proprietary rights to effectively protect its technologies; and (v) the outcome of any collaborations or alliances entered into by the Company. COVID-19 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 F- 9 Table of Contents 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 Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and certificates of deposit. This risk is mitigated by the Company’s policy of investing in financial instruments with short-term maturities issued by highly rated financial institutions. The Company’s cash balances may at times exceed insurance limitations. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign currency exchange risk, which is minimized by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled $ 242 thousand at December 31, 2020. Financial instruments The carrying amounts reported in the consolidated balance sheets for other receivables and accounts payable approximate fair value based on the short-term maturity of these instruments. The carrying value of term debt approximates its fair value since it provides for market terms and interest rates. Included in other assets is a long-term investment that consists of 216,281 shares of common stock of A/F Protein, Inc. (AFP), equating to less than 1 % ownership. During 2019, the cost basis for these shares was reduced from $ 22 thousand to $ 9 thousand, which the Company believes to be the best estimate of market value. AFP and the Company have certain shareholders in common. F- 10 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 4. Inventory Major classifications of inventory are summarized as follows for December 31, 2020 and 2019: 2020 2019 Feed $ 244,311 $ 251,778 Eggs 54,929 55,887 Packaging 6,452 — Fish in process, net 1,219,685 924,384 Inventory, net 1,525,377 1,232,049 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. 5. Property, plant and equipment Major classifications of property, plant and equipment are summarized as follows for December 31, 2020 and 2019: 2020 2019 Land $ 724,785 $ 718,586 Building and improvements 14,048,917 13,297,489 Construction in Process 3,212,287 2,105,873 Equipment 13,819,210 12,275,619 Office furniture and equipment 202,596 201,813 Vehicles 28,700 28,097 Total property and equipment $ 32,036,495 $ 28,627,477 Less accumulated depreciation and amortization ( 5,106,157 ) ( 3,561,641 ) Property, plant and equipment, net $ 26,930,338 $ 25,065,836 Depreciation and amortization expense for 2020 on property, plant and equipment was $ 1.5 million (2019: $ 1.3 million; 2018: $ 830 thousand). 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. 6. Accounts payable and accrued liabilities Accounts payable and accrued liabilities include the following at December 31, 2020 and 2019: 2020 2019 Accounts payable $ 799,888 $ 809,444 Accrued payroll including vacation 583,301 236,489 Accrued professional fees and contract services 278,165 346,349 Accrued taxes 86,052 68,831 Accrued other 12,697 1,696 Accounts payable and accrued liabilities $ 1,760,103 $ 1,462,809 F- 11 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 7. Debt The current terms and conditions of long-term debt outstanding at December 31, 2020 and 2019, are as follows: Interest ‎ rate Monthly ‎ repayment Maturity ‎ date 2020 2019 ACOA AIF grant 0 % Royalties — $ 2,253,595 $ 2,206,208 ACOA term loan#1 0 % C$ 3,120 Feb 2027 181,203 184,583 ACOA term loan#2 0 % C$ 4,630 Sept 2029 381,451 384,100 Kubota Canada Ltd 0 % C$ 1,142 Jan 2025 43,925 53,533 PEI Finance term loan 4 % C$ 16,313 Nov 2023 2,014,321 1,766,783 First Farmers Bank & Trust 5.375 % $ 56,832 Oct 2028 4,000,000 — Total debt $ 8,874,495 $ 4,595,207 less: debt issuance costs ( 86,066 ) — less: current portion ( 259,939 ) ( 163,155 ) Long-term debt $ 8,528,490 $ 4,432,052 Principal payments due on the long-term debt are as follows: Year AIF ACOA FPEI Kubota FFBT Total 2021 72,977 76,915 10,757 116,675 277,324 2022 72,977 80,049 10,757 482,306 646,089 2023 72,977 1,857,357 10,757 509,256 2,450,347 2024 72,977 — 10,757 537,276 621,010 2025 72,977 — 897 567,735 641,609 Thereafter 2,253,595 197,769 — — 1,786,752 4,238,116 Total 2,253,595 562,654 2,014,321 43,925 4,000,000 8,874,495 Atlantic Canada Opportunities Agency (“ACOA”) ACOA is a Canadian government agency that provides funding to support the development of businesses and promote employment in the Atlantic region of Canada. ACOA Atlantic Innovation Fund (“AIF”) Grant In January 2009, the Canadian Subsidiary was awarded an AIF grant from ACOA to provide a contribution towards the funding of a research and development project. Contributions under the grant were made through 2014 and no further funds are available. Amounts claimed by the Canadian Subsidiary must be repaid in the form of a 10 % royalty on any products that are commercialized out of this research project until the loan is fully repaid. Revenue from the sale of AquAdvantage salmon are not subject to the royalty, and the Company does not expect to commercialize products that would be subject to the royalty in the next five years. ACOA term loans In February 2016, the Canadian Subsidiary executed an agreement with ACOA to partially finance the renovations to the Rollo Bay farm site. 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 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 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. On June 15, F- 12 Table of Contents 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 Kubota is a manufacturer of power equipment for the construction, agriculture, commercial, and residential industries. In January 2018, the Canadian Subsidiary financed the purchase of equipment through a loan with Kubota. The total amount is being repaid in monthly installments. The loan is secured by the underlying equipment. Finance PEI (“FPEI”) 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. 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) 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: $ 62 thousand; 2018: $ 22 thousand) on its interest-bearing debt. F- 13 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 8. Stockholders’ equity The Company’s shareholders have authorized 85 million shares of stock, of which 5 million are authorized as preferred stock and 80 million as common stock. At December 31, 2020, the Company had zero shares (2019: zero ) of preferred stock and 55,497,133 shares (2019: 21,635,365 ) of common stock, issued and outstanding. Common stock The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders. Dividends and distribution of assets of the Company in the event of liquidation are subject to the preferential rights of any outstanding preferred shares. Recent issuances In January 2018, the Company completed a public offering of 3,692,307 Common Shares and warrants for 4,246,153 Common Shares. Net proceeds to the Company were $ 10.6 million after deducting discounts, fees, and expenses. Precigen, the Company’s then majority shareholder, participated in the offering, purchasing 1,538,461 Common Shares and warrants for 1,538,461 Common Shares for gross proceeds of $ 5.0 million. On October 24, 2018, 2,250,461 Common Shares were issued through the exercise of outstanding warrants at a discounted price of $ 2.00 . Net proceeds to the Company were $ 4.3 million after deducting discounts, fees, and expenses. Precigen participated in the exercise, converting warrants for the issuance of 1,538,461 Common Shares, resulting in gross proceeds of $ 3.1 million. During 2018, the Company issued 249,824 Common Shares in conjunction with the exercise of warrants, with total proceeds of $ 0.8 million. 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, 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. F- 14 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 Warrants The following table summarizes information about outstanding warrants at December 31, 2020: Number of ‎ warrants Weighted ‎ average ‎ exercise price Outstanding at December 31, 2019 1,662,304 $ 3.25 Exercised ( 713,449 ) 3.25 Outstanding at December 31, 2020 948,855 $ 3.25 Exercisable at December 31, 2020 948,855 $ 3.25 Share-based compensation In 2006, the Company established the 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan provided for the issuance of incentive stock options to employees of the Company and non-qualified stock options and awards of restricted stock to Directors, officers, employees, and consultants of the Company. In accordance with its original terms, the 2006 Plan terminated on March 18, 2016. All outstanding awards under the 2006 Plan will continue until their individual termination dates. In March 2016, the Company’s Board of Directors adopted the AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2006 Plan. The 2016 Plan provides for the issuance of incentive stock options, non-qualified stock options, and awards of restricted and direct stock purchases to Directors, officers, employees, and consultants of the Company. The 2016 Plan was approved by the Company’s shareholders at its Annual Meeting on April 26, 2016 and the aggregate number of shares of common stock that were to be issued pursuant to awards granted under the 2016 Plan could not exceed 450,000 . 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 The Company’s restricted stock activity under the 2006 Plan and the 2016 Plan is summarized as follows: Shares Weighted ‎ average grant ‎ date fair value Unvested at December 31, 2019 39,900 $ 2.31 Granted 100,319 1.88 Vested ( 67,566 ) 2.12 Unvested at December 31, 2020 72,653 $ 1.90 During 2020, the Company expensed $ 186 thousand (2019: $ 385 thousand; 2018: $ 27 thousand) related to restricted stock awards. At December 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $ 95 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.2 years. F- 15 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 Stock options The Company’s option activity under the 2006 Plan and the 2016 Plan is summarized as follows: Number of ‎ options Weighted ‎ average ‎ exercise price Outstanding at December 31, 2019 573,925 $ 4.94 Issued 104,458 1.99 Expired ( 20,969 ) 11.04 Outstanding at December 31, 2020 657,414 $ 4.28 Exercisable at December 31, 2020 598,139 $ 4.51 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: $ 1.62 ; 2018: 2.50 .). 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; 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: 198,034 ; 2018: 268,138 ). The following table summarizes information about options outstanding and exercisable at December 31, 2020: Weighted Weighted Weighted average average exercise Number of average remaining Number of price of outstanding price of outstanding options estimated life options and exercisable options outstanding (in years) exercisable options $ 1.88 - $ 2.50 531,519 8.3 472,244 $ 3.30 - $ 6.90 33,805 1.3 33,805 $ 7.50 - $ 10.80 20,503 3.5 20,503 $ 14.20 - $ 23.40 71,587 5.3 71,587 657,414 598,139 $ 4.51 The fair values of stock option grants to employees and members of the Board of Directors during 2020, 2019, and 2018 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions: 2020 2019 2018 Expected volatility 101 % - 104 % 89 % - 100 % 81 % Risk free interest rate 0.31 % - 1.67 % 1.55 % - 2.85 % 2.60 % Expected dividend yield 0.0 % 0.0 % 0.0 % Expected life (in years) 5 5 5 The risk-free interest rate is estimated using the Federal Funds interest rate for a period that is commensurate with the expected term of the awards. The expected dividend yield is zero because the Company has never paid a dividend and does not expect to do so for the foreseeable future. The expected life was based on a number of factors including historical experience, vesting provisions, exercise price relative to market price, and expected volatility. The Company believes that all groups of employees demonstrate similar exercise and post-vesting termination behavior and, therefore, does not stratify employees into multiple groups and forfeitures are recognized as they occur. The expected volatility was estimated using the Company’s historical price volatility over a period that is commensurate with the expected term of the awards. Total share-based compensation on stock-option grants amounted to $ 251 thousand in 2020 (2019: $ 487 thousand; 2018: $ 236 thousand). At December 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to F- 16 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 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. The following table summarizes the expense related to the options revalued in June 2019: Grant date Number of options Previous Accelerated Incremental Total 1/11/2011 16,667 $ 109,769 $ — $ 11,782 $ 121,551 1/20/2014 6,667 120,712 — 7,621 128,333 2/27/2018 60,606 99,738 — 12,313 112,051 4/21/2017 20,000 70,346 20,736 13,485 104,567 4/30/2019 50,000 13,453 67,047 1,274 81,774 153,940 $ 414,018 $ 87,783 $ 46,475 $ 548,276 Share-based compensation The following table summarizes share-based compensation costs recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020, 2019, and 2018: 2020 2019 2018 Research and development $ 497 $ 3,127 $ 3,238 Sales and marketing — 12,578 — General and administrative 436,194 856,472 260,158 Total share-based compensation $ 436,691 $ 872,177 $ 263,396 9. Income taxes The components of loss before income taxes for the years ended December 31, 2020, 2019, and 2018, are presented below: 2020 2019 2018 Domestic $ ( 15,768,224 ) $ ( 12,950,725 ) $ ( 9,702,869 ) Foreign ( 631,761 ) ( 276,917 ) ( 679,190 ) 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: 2020 2019 2018 Income tax benefit $ ( 3,443,997 ) $ ( 2,777,805 ) $ ( 2,180,233 ) State and provincial income tax, net of federal benefit ( 732,994 ) 397,081 ( 534,789 ) Permanent differences 131,141 219,549 53,795 US-Foreign rate differential ( 142,663 ) 38,776 ( 13,955 ) Other, net ( 145,973 ) 866,250 1,182,900 $ ( 4,334,486 ) $ ( 1,256,149 ) $ ( 1,492,282 ) Change in valuation allowance 4,334,486 1,256,149 1,492,282 Total income tax $ — $ — $ — F- 17 Table of Contents 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. The Company experienced a change in ownership under these rules during 2012 and revised its calculation of net operating loss carryforwards based on annual limitation rules. 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 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: 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 16,964,199 $ 12,251,892 Foreign research and development tax credit carryforwards 2,679,180 2,564,679 Property and equipment 56,697 429,764 Intangibles 3,122,394 3,241,649 Total deferred tax assets $ 22,822,470 $ 18,487,984 Valuation allowance $ ( 22,822,470 ) $ ( 18,487,984 ) Net deferred tax assets $ — $ — 10. Commitments and contingencies The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company is subject to legal proceedings and claims arising in the normal course of business. Management believes that final disposition of any such matters existing at December 31, 2020, will not have a material adverse effect on the Company’s financial position or results of operations. Lease commitments Lease expense for the year ended December 31, 2020, amounted to $ 86 thousand. The weighted average remaining lease term of the Company’s operating leases was 23.3 years as of December 31, 2020. Lease payments included in operating cash flows totaled $ 85 thousand for the year ended December 31, 2020. The table below summarizes the Company’s lease obligations and remaining payments at December 31, 2020: December 31, 2020 December 31, 2019 Lease ‎ Type End ‎ Date Remaining ‎ Years Remaining ‎ Payments Lease ‎ Liability Remaining ‎ Payments Lease ‎ Liability Maynard Office Lease Operating Mar 2023 2.3 $ 150,918 $ 134,099 $ 215,556 $ 186,323 Indiana Auto Lease Operating Feb 2021 0.2 1,157 821 5,999 5,533 Indiana Well Lease Operating Dec 2048 28.0 686,809 217,890 702,341 223,238 Total leases $ 838,884 $ 352,810 $ 923,896 $ 415,094 Less: current portion ( 83,571 ) ( 62,483 ) ( 85,011 ) ( 62,286 ) Long-term leases $ 755,313 $ 290,327 $ 838,885 $ 352,808 The current portion of the lease liability is included as a component of other current liabilities in the consolidated balance sheets. F- 18 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 Remaining payments under leases are as follows at December 31, 2020: Year Office Auto Well Amount 2021 $ 66,416 $ 1,157 $ 15,998 $ 83,571 2022 67,602 — 16,478 84,080 2023 16,901 — 16,972 33,873 2024 — — 17,481 17,481 2025 — — 18,006 18,006 Thereafter — — 601,873 601,873 Total Lease Payments $ 150,919 $ 1,157 $ 686,808 $ 838,884 11. Retirement plan The Company has a savings and retirement plan for its US employees that qualifies under Section 401(k) of the Internal Revenue Code. The plan covers substantially all employees and provides for voluntary contributions by participating employees up to the maximum contribution allowed under the Internal Revenue Code. Contributions by the Company can be made, as determined by the Board of Directors, provided the amount does not exceed the maximum permitted by the Internal Revenue Code. Company contributions made and expensed in operations in connection with the plan during the year ended December 31, 2020, amounted to $ 72 thousand (2019: $ 64 thousand; 2018: $ 44 thousand). The Company also has a Registered Retirement Savings Plan for its Canadian employees. Company contributions made and expensed in operations in connection with the plan during the year ended December 31, 2020, amounted to $ 32 thousand (2019: $ 28 thousand; 2018: $ 26 thousand). 12. 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 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; 2018: $ 562 thousand), of which $ 0 is included in accounts payable and accrued liabilities at December 31, 2020 (2019: $ 1 thousand), and is included as a component of research and development expense in the Consolidated Statements of Operations and Comprehensive Loss. 13. Recently Issued Accounting Standards Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition. F- 19 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018 14. Quarterly Financial Information (unaudited) The following information has been derived from unaudited consolidated statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information. Three Months Ended 2020 March 31 June 30 September 30 December 31 Revenue $ 6,753 $ 2,950 $ 67,763 $ 50,197 Operating loss ( 3,091,421 ) ( 3,504,999 ) ( 3,613,158 ) ( 6,038,252 ) Net loss ( 3,109,618 ) ( 3,523,684 ) ( 3,649,788 ) ( 6,116,895 ) Basic and diluted net loss per share attributable to common shareholders $ ( 0.11 ) $ ( 0.11 ) $ ( 0.09 ) $ ( 0.13 ) Three Months Ended 2019 March 31 June 30 September 30 December 31 Revenue $ 97,885 $ 42,486 $ — $ 46,367 Operating loss ( 2,755,694 ) ( 4,019,719 ) ( 2,999,592 ) ( 3,403,639 ) Net loss ( 2,763,932 ) ( 4,026,731 ) ( 3,018,222 ) ( 3,418,757 ) Basic and diluted net loss per share attributable to common shareholders $ ( 0.17 ) $ ( 0.19 ) $ ( 0.14 ) $ ( 0.16 ) 15. Subsequent events 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). F- 20