What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-10 compared with 2021-03-09 · 277 added, 341 removed, 545 unchanged (53% of the section changed)

2 unchanged sentences

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).

As of December 31, 2021 (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.

15 unchanged sentences

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.

There have been no changes in our internal control over financial reporting for the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Directors, Executive Officers and Corporate Governance

8 unchanged sentences

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.

The information required by this Item is set forth in our 2022 Proxy Statement to be filed with the SEC within 120 days of December 31, 2021 and is incorporated by reference into this Annual Report on Form 10‑K, for Deloitte & Touche LLP (PCAOB ID No.

34 ) and Wolf & Company P.C.

(PCAOB ID No.

Exhibits and Financial Statement Schedules

2 unchanged sentences

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

(i) Reports of Independent Registered Public Accounting Firm s

(ii) Consolidated Balance Sheets

97 unchanged sentences

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).

Letter Agreement between AquaBounty Technologies, Inc.

and Third Security And its affiliates dated July 30, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 4, 2021).

Letter from Wolf & Company, P.C.

dated July 6, 2021 (incorporated by reference to Exhibit 16.1 to the Registrant’s Current Report on Form 8-K, filed July 7, 2021).

List of Subsidiaries of AquaBounty Technologies, Inc.

Consent of Deloitte & Touche LLP

Consent of Wolf & Company, P.C.

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

1 unchanged sentence

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL instance document-the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

Inline XBRL taxonomy extension schema document.

Inline XBRL taxonomy extension calculation linkbase document.

Inline XBRL taxonomy extension definition linkbase document.

Inline XBRL taxonomy label linkbase document.

Inline XBRL taxonomy extension presentation linkbase document.

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in exhibit 101).

*Incorporated herein by reference as indicated.

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March 10, 2022

/s/ Richard L.

March 9, 2021

/s/ Christine St.Clare

8 unchanged sentences

March 10, 2022

/s/ Ricardo Alvarez

March 10, 2022

Ricardo Alvarez

/s/ Gail Sharps Myers

March 10, 2022

Gail Sharps Myers

Report of Independent Registered Public Accounting Firm

1 unchanged sentence

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.

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

and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders'

equity, and cash flows, for the year ended December 31, 2021, 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, 2021 and the results of its operations and its cash flows for the year ended December 31, 2021, 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 audit.

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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Baltimore, Maryland

March 10, 2022

We have served as the Company's auditor since 2021.

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 sheet of AquaBounty Technologies, Inc.

(the “Company”) as of December 31, 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the year 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 the results of its operations and its cash flows for the year 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.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

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.

We conducted our audit 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.

As part of our audit 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.

1 unchanged sentence

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.

Our audit 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 audit provide a reasonable basis for our opinion.

/s/ Wolf & Company, P.C.

1 unchanged sentence

March 9, 2021

We have served as the Company’s auditor since 2011.

We served as the Company’s auditor from 2011 to 2020.

AquaBounty Technologies, Inc.

Consolidated Balance Sheets

As of December 31,

Current assets:

Cash and cash equivalents

Other receivables

Marketable securities

Inventory, net

Prepaid expenses and other current assets

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Right of use assets, net

Definite lived intangible assets, net

Indefinite lived intangible assets

Intangible assets, net

Restricted cash

2 unchanged sentences

Accounts payable and accrued liabilities

Accrued employee compensation

Other current liabilities

1 unchanged sentence

Long-term lease obligations

Long-term debt

Long-term debt, net

Total liabilities

Commitments and contingencies (Note 10)

Stockholders'

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

55,497,133 (2019:

21,635,365 ) shares outstanding

Common stock, $ 0.001 par value, 80,000,000 shares authorized at December 31, 2021 and

71,025,738 and 55,497,133 shares outstanding at December 31, 2021 and 2020, respectively

Additional paid-in capital

8 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss

Years ended December 31,

‎ December 31,

Product revenues

Costs and expenses

Production costs

Product costs

Sales and marketing

5 unchanged sentences

( 16,247,830 )

( 10,365,796 )

Other income (expense)

4 unchanged sentences

( 16,399,985 )

( 10,382,059 )

Other comprehensive income (loss):

Foreign currency translation gain (loss)

Total other comprehensive income (loss)

Foreign currency

Unrealized losses on marketable securities

Total other comprehensive income

Comprehensive loss

1 unchanged sentence

( 16,307,083 )

( 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

Basic and diluted net loss per share

Weighted average number of common shares -

basic and diluted

See accompanying notes to the consolidated financial statements.

5 unchanged sentences

Accumulated deficit

Balance at December 31, 2017

( 108,532,508 )

( 10,382,059 )

Other comprehensive income (loss)

Issuance of common stock, net of expenses

Exercise of warrants for common stock

Share based compensation

Balance at December 31, 2018

Balance as of December 31, 2019

( 132,142,209 )

1 unchanged sentence

( 16,399,985 )

Other comprehensive income (loss)

Other comprehensive income

Issuance of common stock for service

Issuance of common stock, net of expenses

1 unchanged sentence

Share based compensation

Balance at December 31, 2019

Balance as of December 31, 2020

( 148,542,194 )

1 unchanged sentence

( 22,322,588 )

Other comprehensive income (loss)

Issuance of common stock for services

Other comprehensive income

Cashless exercise of options for common stock

Issuance of common stock, net of expenses

1 unchanged sentence

Share based compensation

Balance at December 31, 2020

Balance as of December 31, 2021

( 170,864,782 )

2 unchanged sentences

Consolidated Statements of Cash Flows

Years ended December 31,

‎ December 31,

Operating activities

1 unchanged sentence

( 16,399,985 )

( 10,382,059 )

Adjustment to reconcile net loss to net cash used in

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Share-based compensation

Gain on sale of equipment

Loss on asset held for sale

Impairment loss

Other non-cash charges

Other non-cash charge

Changes in operating assets and liabilities:

Other receivables

( 1,154,222 )

Prepaid expenses and other assets

( 1,138,691 )

Accounts payable and accrued liabilities

Accrued employee compensation

Net cash used in operating activities

1 unchanged sentence

( 14,288,821 )

( 9,816,765 )

Investing activities

Purchase of property, plant and equipment

( 3,975,135 )

Purchases of property, plant and equipment

( 5,668,696 )

1 unchanged sentence

Deposits on equipment purchases

Proceeds from sale of equipment

Proceeds from sale equipment

Purchases of marketable securities, net

( 101,813,882 )

Proceeds from legal settlement, net

3 unchanged sentences

( 3,238,411 )

( 4,081,504 )

Financing activities

3 unchanged sentences

Proceeds from the issuance of common stock, net

Proceeds from exercise of stock options and warrants, net

Proceeds from the exercise of stock options and warrants

Net cash provided by financing activities

1 unchanged sentence

Net change in cash, cash equivalents and restricted cash

( 6,796,172 )

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Reconciliation of cash, cash equivalents and restricted cash reported

in the consolidated balance sheet:

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash

Supplemental disclosure of cash flow information and

2 unchanged sentences

Property and equipment included in accounts payable and accrued liabilities

Acquisition of equipment under debt arrangement

See accompanying notes to the consolidated financial statements.

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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.

(the “Parent” and, together with its wholly owned 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.

(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.

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.

Food and Drug Administration for the production and sale of its genetically engineered AquAdvantage salmon product (“GE Atlantic salmon”) in the United States and in 2016, the Parent obtained regulatory approval from Health Canada for the production and sale of its GE Atlantic salmon product in Canada.

In 2021, the Parent obtained regulatory approval from the National Biosafety Technical Commission for the sale of its GE Atlantic salmon product 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.

AquaBounty Farms, Inc.;

AquaBounty Farms Indiana LLC;

and AquaBounty Brasil Participacoes Ltda.

and its wholly owned subsidiaries.

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

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.

The Company completed an equity raise in 2021with net proceeds of $ 119.1 million and has $ 191.2 million in cash and cash equivalents, marketable securities and restricted cash as of December 31, 2021.

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 beyond the next twelve months from the filing date of these consolidated financial statements.

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

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Actual results could differ from those estimates.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

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

Comprehensive loss

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Comprehensive loss consists of net loss and other comprehensive income (loss).

Other comprehensive income (loss) includes foreign currency translation adjustments.

Other comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains (losses) on the Company’s marketable securities.

Foreign currency translation

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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.

Marketable securities

Marketable securities include government bonds, corporate bonds and commercial paper.

The Company's investment policy requires investments to be explicitly rated by two of Standard & Poor's, Moody's or Fitch and to have a minimum rating of A1, P1 or F-1,

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

respectively, from those agencies.

In addition, the investment policy limits individual maturities to 12 months, the dollar-weighted average maturity to 180 days and the amount of credit exposure to any one issuer to 5%.

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

Fish in process inventory 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.

The 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.

Intangible assets

4 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

5 unchanged sentences

shorter of asset life or lease term

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.

The Company commences depreciation on an asset when it is placed into service.

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.

The Company reviews the carrying value of its long-lived assets, definite lived intangible assets, and property, plant and equipment when facts and circumstances suggest that they may be impaired.

The carrying values of such assets are considered impaired when the estimated 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 the fair value of such assets.

Indefinite lived intangible assets are subject to impairment testing annually or more frequently if impairment indicators arise.

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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.

The Company leases certain facilities, property, and equipment under noncancelable operating leases.

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

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

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.

3 unchanged sentences

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.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

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

The Company generates revenue from the sale of its products.

Revenue is recognized when the customer takes physical control of the goods, in an amount that reflects the transaction price consideration that the Company expects to receive in exchange for the goods.

Revenue excludes any sales tax collected and includes any estimate of future credits.

During 2021, the Company recognized $ 747 thousand and $ 428 thousand in revenue from product sales from its Canada and U.S.

subsidiaries, respectively.

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

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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.

The Company is not currently under exam and is no longer subject to federal and state tax examinations by tax authorities for years before 2018.

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.

Basic net loss per share 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 unless the impact of the warrant or option is anti-dilutive to the calculation.

Since the Company is reporting a net loss for all periods presented, all potential common shares are considered anti - dilutive and are excluded from the calculation of diluted net loss per share.

As of December 31, 2021, the Company had 1,081,866 potentially dilutive securities outstanding, consisting of 418,441 warrants and 663,425 stock options.

As of December 31, 2020, the Company had 2,236,229 potentially dilutive securities outstanding, consisting of 1,662,304 warrants and 573,925 stock options.

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 Company measures and recognizes all share - based payment awards, including stock options and restricted share units 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.

2 unchanged sentences

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 .

Recently Issued Accounting Standards

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies.

Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards.

The Company has elected to use the extended transition period for complying with new or revised accounting standards unless otherwise state.

The Company will remain an “emerging growth company” until the earliest of (i) December 31, 2023, (ii) the last day of the fiscal year in which it has total annual gross revenues of $1.07 billion or more, (iii) the date on which it has issued more than $1.0 billion in

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

nonconvertible debt during the previous three years or (iv) the date on which it is deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission (“SEC”), which generally is when it has more than $700 million in market value of its stock held by non-affiliates, has been a public company for at least 12 months and have filed one annual report on Form 10-K.

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.

Risks and uncertainties

3 unchanged sentences

(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;

(iii) the commercial acceptance of any products approved for sale and the Company’s ability to produce, distribute, and sell for a profit any products approved for sale;

(iv) the Company’s ability to obtain the necessary patents and proprietary rights to effectively protect its technologies;

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.

Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, several variants of the virus continue to spread.

Local governmental authorities in the United States and Canada have issued, and continue to update, directives aimed at minimizing the spread of the virus and the Company continues to monitor its status.

The ultimate impact of the evolving COVID-19 pandemic on the Company’s operations will depend on future developments, which cannot be predicted with confidence, and the Company cannot predict the extent or impact of the extended period of continued business interruption and reduced operations caused by the COVID-19 pandemic or any additional preventative or protective measures taken in response.

In connection with the COVID-19 pandemic, management made modifications to biosecurity procedures at the farm sites in early 2020 to adapt to local requirements and to provide a safe work environment.

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.

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, and marketable securities.

This risk is mitigated by the Company’s policy of maintaining all balances with highly rated financial institutions, investing cash equivalents with maturities of less than 90 days, and investing marketable securities with maturities of less than 180 days.

The Company’s cash balances may at times exceed insurance limitations.

2 unchanged sentences

Balances in Canadian bank accounts totaled $ 224 thousand at December 31, 2021.

The Company also holds cash equivalent investments in a highly liquid investment account at a major financial institution.

As of December 31, 2021 and 2020 the cash equivalent investment balance was $ 73.3 million and $ 0 , respectively.

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 amounts reported in the consolidated balance sheets for receivables, prepaid expenses and other current assets, 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.

All of the Company’s interest-bearing debt is at fixed rates, except for the loan with First Farmer’s Bank and Trust, which has a rate reset in July 2025.

The Company groups its financial instruments measured at fair value, if any, in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Financial instruments with readily available quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgement used in measuring fair value.

The three levels of the fair value hierarchy are as follows:

Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2021 and 2020

Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

or inputs derived principally from, or that can be corroborated by, observable market data by correlation or other means.

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgement or estimation.

Marketable Securities

Marketable securities are classified as available-for-sale.

The following table summarizes the amortized cost, gross unrealized gains and losses, and the fair value as of December 31, 2021:

December 31, 2021

Government bonds

Corporate bonds

Commercial paper

Marketable securities

There were no marketable securities as of December 31, 2020.

Major classifications of inventory are summarized as follows for December 31, 2021 and 2020:

December 31, 2021

December 31, 2020

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.

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

The Company donated substantially all of its conventional salmon to local food charities in 2021.

Property, plant and equipment

Major classifications of property, plant and equipment are summarized as follows for December 31, 2021 and 2020:

December 31, 2021

December 31, 2020

Building and improvements

6 unchanged sentences

Property, plant and equipment, net

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

$ 1.3 million;

$ 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.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities include the following at December 31, 2020 and 2019:

Accounts payable

Accrued payroll including vacation

Accrued professional fees and contract services

Accrued taxes

Accrued other

Accounts payable and accrued liabilities

Depreciation and amortization expense for 2021 and 2020 on property, plant and equipment was $ 1.8 million and $ 1.5 million, respectively.

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2021 and 2020

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

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, 2021, construction in process included $ 5.2 million, $ 2.0 million and $ 856 thousand for construction related to the Ohio, Rollo Bay and Indiana farm sites, respectively.

An additional $ 12.2 million has been contractually committed for these farm sites, though if a contract were terminated, a portion of this total would be refundable based on the amount of work completed as of the date of contract termination.

The current terms and conditions of long-term debt outstanding as of December 31, 2021 and 2020, are as follows:

December 31, 2021

December 31, 2020

ACOA AIF Grant

1 unchanged sentence

ACOA term loan #2

ACOA term loan #3

Kubota Canada Ltd

PEI Finance term loan

First Farmers Bank & Trust

DFO term loan

First Farmers Bank & Trust term loan

debt issuance costs

current portion

Long-term debt

Long-term debt, net

Principal payments due on the long-term debt are as follows:

5 unchanged sentences

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.

Revenue from the sale of the Company’s GE Atlantic salmon is 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

1 unchanged sentence

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.

The loan is being repaid over a 108 -month term at a zero percent interest rate.

AquaBounty Technologies, Inc.

1 unchanged sentence

for the years ended December 31, 2021 and 2020

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.

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 is being repaid over a 108 -month term with a zero percent interest rate.

In response to the COVID-19 pandemic, the Company was informed by ACOA during 2020, that all loan payments to the Canadian government would be deferred for nine months and resume on January 1, 2021.

In July 2021, the Canadian Subsidiary entered into a contribution agreement with ACOA under its REGI-Business Scale-up and Productivity program to provide funding assistance for the Rollo Bay farm site, and on August 20, 2021, the Canadian Subsidiary received C$ 250,000 ($ 200,075 ).

All funds received are to be repaid over a 36 -month term commencing January 2023 at a zero percent interest rate.

In January 2018, the Canadian Subsidiary financed the purchase of equipment through a loan with Kubota.

4 unchanged sentences

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.

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

All funds have been dispersed and the loan is being repaid over an 87 -month term ending in November 2023.

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.

5 unchanged sentences

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.

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

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.

The note required 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 Company must comply with certain financial and non-financial covenants and provide certification of compliance quarterly.

At December 31, 2021, the Company was in compliance with such covenants.

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.

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

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

On October 12, 2021, the Company and First Farmers Bank & Trust agreed to a modification to the terms of its outstanding loan.

The new terms delay the start date of certain of the loan’s negative covenants to the quarter commencing on October 1, 2022 and raises the required restricted cash balance amount from $ 500 thousand to $ 1.0 million.

Department of Fisheries and Oceans (“DFO”)

1 unchanged sentence

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;

$ 22 thousand) on its interest-bearing debt.

On February 25, 2021, the Canadian Subsidiary borrowed C$ 238,400 ($ 187,120 ) and on April 27, 2021 the Canadian Subsidiary borrowed C$ 276,840 ($ 219,258 ) under the DFO Term Loan.

Borrowings are interest free and monthly repayments commence in March 2023 , with maturity in August 2032 .

All funding requests must be submitted by August 22, 2022.

The Company recognized interest expense of $ 316 thousand and $ 152 thousand for the years ended December 31, 2021 and 2020, respectively , on its interest-bearing debt.

AquaBounty Technologies, Inc.

3 unchanged sentences

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.

As of December 31, 2021 and 2020, the Company had zero shares of preferred stock and 71,025,738 shares and 55,497,133 shares of common stock, issued and outstanding, respectively.

The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders.

1 unchanged sentence

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.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

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

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

During 2020, the Company completed a series of public offerings, resulting in the aggregate issuance of 33,028,000 shares of common stock for net proceeds of approximately $ 104.6 million.

During 2021, the Company completed a public offering of 14,950,000 shares of common stock for net proceeds of approximately $ 119.1 million.

The following table summarizes information about outstanding warrants as of December 31, 2021:

‎ exercise price

2 unchanged sentences

Exercisable at December 31, 2021

All remaining warrants have an expiration date of January 17, 2023 .

Share-based compensation

6 unchanged sentences

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 .

Total common shares authorized under the 2016 Plan were 1,900,000 , of which 916,516 shares are reserved for future issuance as of December 31, 2021.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

Restricted stock

The Company’s restricted stock activity under the 2006 Plan and the 2016 Plan is summarized as follows:

The Company’s restricted stock activity under the 2016 Plan is summarized as follows:

‎ average grant

‎ date fair value

Unvested at December 31, 2019

Unvested at December 31, 2020

During 2020, the Company expensed $ 186 thousand (2019:

$ 385 thousand;

$ 27 thousand) related to restricted stock awards.

Balance at December 31, 2020

Balance at December 31, 2021

During 2021 and 2020, the Company expensed $ 240 thousand and $ 227 thousand, respectively related to restricted stock awards.

At December 31, 2021, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $ 147 thousand.

The period over which the unearned share-based compensation is expected to be earned is approximately 2.2 years.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

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

Stock options

4 unchanged sentences

Exercisable at December 31, 2021

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.

Options issued to employees, members of the Board of Directors, and non-employees generally vest over a period of one year to three years and are exercisable for a term of ten years from the date of issuance.

The weighted average fair value of stock options granted during 2021 was $ 5.36 (2020:

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;

$ 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

There were 16,667 options exercised in 2021 (2020:

The total intrinsic value of options exercised in 2021 was $ 41 thousand (2020:

As of December 31, 2021, the total intrinsic value of all options outstanding was $ 18 thousand (2020:

$ 3.6 million) and the total intrinsic value of exercisable options was $ 11 thousand (2020:

$ 3.2 million).

The following table summarizes information about options outstanding and exercisable as of December 31, 2021:

‎ average exercise

average remaining

‎ price of outstanding

price of outstanding

‎ outstanding

‎ average remaining

‎ estimated life

and exercisable

‎ exercisable

$ 1.88 - $ 2.50

2 unchanged sentences

$ 14.20 - $ 23.40

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

The fair values of stock option grants to employees and members of the Board of Directors during 2021 and 2020 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:

Expected volatility

101 % - 104 %

Risk free interest rate

0.31 %- 1.67 %

1.55 % - 2.85 %

Expected dividend yield

5 unchanged sentences

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;

$ 236 thousand).

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

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.

Total share-based compensation on stock-option grants amounted to $ 154 thousand and $ 251 thousand for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards is $ 182 thousand.

The period over which the unearned share-based compensation is expected to be earned is 2.2 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:

Number of options

Share-based compensation

1 unchanged sentence

Research and development

Sales and marketing

General and administrative

7 unchanged sentences

( 16,399,985 )

( 10,382,059 )

We have made no provision for foreign or domestic income taxes on the cumulative unremitted earnings of our foreign subsidiaries.

We intend to permanently reinvest all foreign earnings and have no intention to repatriate foreign earnings for the foreseeable future.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate for the years ended December 31, 2021 and 2020 primarily due to the following:

2 unchanged sentences

( 3,443,997 )

( 2,180,233 )

State and provincial income tax, net of federal benefit

( 1,157,840 )

Permanent differences

2 unchanged sentences

( 4,334,486 )

( 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, 2021, the Company has domestic net operating loss carryforwards of approximately $ 78 million, after consideration of limitations pursuant to section 382, to offset future federal taxable income, which begin to expire in 2032.

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

As of December 31, 2021, the Company has domestic net operating loss carryforwards of approximately $ 50 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.

The Company also has foreign research and development loss carryforwards totaling approximately $ 11 million and foreign research and development expense tax credits of approximately $ 2 million as of December 31, 2021, which expire at various times commencing in 2022.

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.

4 unchanged sentences

Property and equipment

Intangibles and other

Total deferred tax assets

9 unchanged sentences

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:

Lease expense for the years ended December 31, 2021 and 2020, amounted to $ 84 thousand and $ 86 thousand, respectively.

As of December 31, 2021, the weighted average remaining lease term of the Company’s operating leases was 24.1 years.

Lease payments included in operating cash flows totaled $ 84 thousand and $ 85 thousand for the years ended December 31, 2021 and 2020, respectively.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

for the years ended December 31, 2021 and 2020

The table below summarizes the Company’s lease obligations as of December 31, 2021 and 2020:

December 31, 2021

December 31, 2020

Maynard Office Lease

Indiana Auto Lease

Indiana Well Lease

Lease Liability

current portion

Long-term leases

The Company used a weighted average discount rate of 8% in calculating the net present value of the future lease payments.

The current portion of the lease liability is included as a component of other current liabilities in the consolidated balance sheets.

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:

Remaining payments under leases are as follows as of December 31, 2021:

Total lease payments

imputed interest

Total operating lease liabilities

Retirement plan

2 unchanged sentences

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;

$ 44 thousand).

Company contributions made and expensed in operations in connection with the plan during the years ended December 31, 2021 and 2020, amounted to $ 81 thousand and $ 72 thousand, respectively.

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;

$ 26 thousand).

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;

$ 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.

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.

AquaBounty Technologies, Inc.

Notes to the Consolidated Financial Statements

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

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

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

Three Months Ended 2019

Operating loss

( 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 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).

Company contributions made and expensed in operations in connection with the plan during the years ended December 31, 2021 and 2020, amounted to $ 38 thousand and $ 32 thousand, respectively.

Related Party Agreement

Letter Agreement with Third Security

On July 30, 2021, the Company entered into an agreement with TS Aquaculture LLC and certain of its affiliates (“TS Aquaculture”) that required the Company to file a registration statement to register the Company’s shares held by TS Aquaculture.

The registration statement was filed on August 5, 2021 and TS Aquaculture completed a transaction to sell 12,880,000 shares of common stock of the Company on November 23, 2021.

TS Aquaculture ceased being a related party after completing the sale.

TS Aquaculture agreed to pay all expenses incurred in connection with these transactions, which totaled $ 418 thousand and is included in prepaid and other current assets in the consolidated financial statements as of December 31, 2021.

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