AQUABOUNTY TECHNOLOGIES INC 10-K

Item 1. Business Overview Feed a growing world by developing and deploying new aquaculture technologies. At AquaBounty, our Purpose is to “Feed a growing world by transforming aquaculture through the use of technology, creating a safe, secure and sustainable future.” We demonstrate our care for our people, our environment and our fish through our EPIC Values which include: “Excellence, Passion, Innovation and Collaboration”. We believe we are a leader in the field of land-based aquaculture and the use of technology for improving its productivity and sustainability. Our objective is to ensure the availability of high-quality seafood to meet growing global consumer demand, while addressing critical production constraints in one of the most popular farmed species. Aquaculture is the farming of aquatic organisms such as fish, shellfish, crustaceans, and aquatic plants. It involves cultivating freshwater or saltwater species under controlled conditions, as an alternative to the commercial harvesting of wild species of aquatic organisms. According to the Food and Agriculture Organization of the United Nations (“FAO”), aquaculture was a $265 billion industry in 2020, and we are targeting the $18 billion salmon farming segment of that industry. We believe that AquaBounty has four core competencies that provide us with a competitive advantage over other land-based salmon farmers; our proprietary genetically engineered (“GE”) Atlantic salmon, our experience operating land-based farms, our vertical integration, and our expertise in biotechnology. Our GE Atlantic salmon is based upon proprietary salmon genetics and grows to harvest size faster, while consuming less feed, than conventional Atlantic salmon. With our salmon, we can produce more output at a lower cost in a land-based farm than with conventional salmon. Our GE Atlantic salmon was approved for production, sale, and consumption in the United States on November 19, 2015 by the U.S. Food and Drug Administration (“FDA”). This was followed by an approval from Health Canada for the production, sale, and consumption of our salmon in Canada on May 19, 2016 and an approval from the National Biosafety Technical Commission for the sale and consumption of our salmon in Brazil on May 12, 2021. Consequently, we have received approvals for our product from what we believe are three of the most respected and rigorous regulatory agencies in the world. We farm our GE Atlantic salmon in land-based, recirculating aquaculture systems (“RAS”), which allow land-based fish farms to be established close to major demand centers in a profitable and environmentally sustainable manner. We have over 25 years of experience growing salmon in RAS farms, which are bio-secure, so we do not need to use vaccines or antibiotics to protect our fish. We control and optimize their living environment to promote their general health. By locating our farms near to major food markets, we reduce our transportation costs and carbon footprint. We are vertically integrated and maintain our own broodstock hatchery, which produces the eggs that we grow-out to harvest size in our production farms. This hatchery also produces non-GE eggs for external sales. We have our own research and development team with expertise in biology, chemistry and RAS operations. This allows us to continuously focus on improving the breeding, genetics and health of our fish and improving the efficiency of our farm operations. We currently operate two salmon farms: a 1,200 metric ton production grow-out farm in Indiana and a broodstock farm on Prince Edward Island, Canada. Our plans include completing the construction of a new 10,000 metric ton production grow-out farm in Pioneer, Ohio and building additional production farms in North America at sites close to consumer consumption. We are also pursuing regulatory approval for our GE Atlantic salmon in Israel, with the goal of entering that market with a local partner in the form of a joint venture or licensing arrangement. Additionally, we plan to utilize our expertise in biotechnology and RAS operations to enter complimentary areas of the aquaculture industry, with an initial focus on shrimp. Our strategy is to continually strengthen our core capabilities, scale our business and pursue growth opportunities. 1 Table of Contents Market Drivers Population Growth Drives Demand for Food Protein According to FAO, the global population is projected to approach 9 billion people by 2050, or roughly 15% growth over the next 27 years. In addition to the increased demand for food from the rising population, increased incomes and urbanization from a growing middle class will drive increased demand for protein food sources. And according to FAO, global fish consumption has been growing faster than all other animal protein foods. Traditional Fisheries Cannot Meet the Demand The increased demand for fish protein cannot be satisfied from traditional capture fisheries. FAO states that over 90% of the world's fisheries are fully fished or overfished. Total production from global capture fisheries has been relatively stable since the late-1980s, with catches generally fluctuating between 86 million metric tons and 96 million metric tons per year, with 90 million metric tons recorded in 2020, the last year for which data is available from FAO. In contrast, over the same period, aquaculture fish production has grown from 14 million metric tons to a level of 88 million metric tons in 2020 and now accounts for 49% of global fish production. Feeding the growing population and meeting the demand for fish protein will require aquaculture production to nearly double by 2050. The chart below depicts the projected gap between supply and demand over the next 27 years. Source: FAO - The State of World Fisheries and Aquaculture 2022 for actual data through 2020. Company estimates based on FAO data for projections through 2050. Salmon Farming Atlantic salmon farming is a major industry in the cold-water countries of the northern and southern hemispheres. According to Kontali, global tonnage of Atlantic salmon aquaculture production grew by approximately 6% annually between 2017 and 2021, reaching 2.6 million metric tons with a value of over $18 billion. We believe that the aquaculture industry – and in particular salmon farming – is poised for significant growth in the coming years, as the global population continues to expand and consumers seek out high-quality proteins. Below is a break-down by major producing country for the time period 2017 through 2021, with estimated data for 2022 from Kontali. Global Supply of Atlantic Salmon (in thousands of metric tons GWE) , Area 2017 2018 2019 2020 2021 2022 (Est) Norway 1,087 1,128 1,200 1,232 1,379 1,360 Chile 508 594 621 701 646 644 United Kingdom 159 138 171 160 179 172 North America 143 149 142 141 145 139 Faroe Islands 72 65 78 73 95 91 Other areas 93 92 107 133 161 163 Volume-Worldwide 2,062 2,166 2,319 2,440 2,605 2,569 2 Table of Contents Source: Kontali Limitations of Conventional Sea-Cage Salmon Farming Conventional salmon aquaculture takes place in large cages (sea-cages) in coastal waterways exposed to currents, which can bring a variety of pathogens in contact with the farmed salmon. The presence of pathogens in an uncontrolled environment such as this is a universally accepted fact in human and animal health. Such disease agents in these uncontrolled water currents can result in infection and spread of infection within the captive population. The risks and outcomes of conventional, open sea-cage systems are well established, including the susceptibility to extreme weather conditions, and are often evidenced by outbreaks of a variety of bacterial and viral diseases as well as water fouling and contamination due to algal blooms and similar events. This risk of disease has led to the widespread use of antibiotics, vaccines, and other pharmacological agents. The most prevalent disease and health management issues are infectious salmon anemia (“ISA”) and sea lice. ISA is a viral disease in Atlantic salmon, and outbreaks have occurred in virtually every major salmon farming geography since 1984, including a major event in Chile in 2008 that impacted the country’s production for three years. There is currently no effective treatment for the disease, and the salmon farming industry relies on health management practices to mitigate its impact. Sea lice are marine parasites that occur naturally and attach to the skin of Atlantic salmon. Even a few sea lice can increase the likelihood of secondary infections and mortality, and the presence of significant numbers are likely to have adverse effects on fish health and aesthetic appearance. The cost of managing sea lice in sea-cage farming environments can be significant. Other viral diseases such as Salmonis Piscirickettsia (“SRS”) continue to present significant challenges in Chile while new emerging diseases caused by viruses including heart and skeletal muscle inflammation (“HSMI”), and cardio myopathy syndrome (“CMS”) are on the rise in Norway. Another limitation of the conventional salmon production system is that the farms are not located near the ultimate consumers and thus an additional carbon footprint is created in transporting the fish from its production to its consumption location. We believe we offer a better, more sustainable alternative to conventional salmon production. AquaBounty Solution Land-Based RAS Production The closed, contained, land-based production systems using RAS technology that we use for the grow-out of our fish are less susceptible to the disease-related pressures of conventional salmon farming, because this type of culture system is isolated from the environment. RAS facilities employ sophisticated water treatment technology including the use of ozone, salt treatment and ultraviolet radiation to kill potential bacterial, fungal, or viral pathogens which might enter the system. In addition, incoming water is similarly filtered and treated prior to entering the system, and water quality is regularly measured as part of the standard procedures. The fish in RAS facilities are generally not vaccinated against typical fish diseases, and no antibiotics, pesticides, or pharmacological agents are typically required. RAS facilities employ effective biosecurity to prevent disease by reducing or eliminating the introduction of pathogens and continuously treating the water to assure optimal fish health. RAS production allows our fish to be raised in optimized conditions with total control of the water coming in and going out of the system, while recirculating greater than 95% of the water used. Further, stocking our RAS farms with disease-free eggs from our own hatchery results in a much higher degree of biosecurity and protection from disease. In addition to biosecurity measures to optimize fish health, our farms feature multiple layers of containment designed to prevent escapes. We have been growing fish in RAS facilities for decades and we have never experienced an escape. The multiple layers of containment redundancy, coupled with the fact that our salmon are sterile female fish, pose a much-needed solution to raising fresh, healthy seafood in a manner that prevents harming native fish populations. The method of land-based fish farming that we employ has been promoted by many environmental NGOs and it does not pose a threat to wild salmon populations. We have significant experience in operating land-based RAS facilities. Our operating practices and procedures have been developed and honed over two decades and are geared towards meeting stringent regulatory requirements. Our experience operating land-based RAS salmon farms enables us to protect both the fish and the environment. 3 Table of Contents Source: Innovasea Our GE Atlantic Salmon Our GE Atlantic salmon program began over 30 years ago and is based upon a single, specific molecular modification in our salmon that results in more rapid growth during early development. The result is a genetically engineered Atlantic salmon that can grow to market size faster than a conventional farmed Atlantic salmon. The original research on the Atlantic salmon was conducted at Memorial University in Newfoundland, Canada, by a team seeking to protect the fish from the effects of the cold waters of the North Atlantic Ocean. They discovered that the single genetic change made by placing a second copy of the salmon growth hormone gene under the control of an alternative genetic promoter (gene switch) from the ocean pout resulted in more consistent levels of growth hormone being released, which accelerated the early stages of the salmon’s development, a time period when the salmon are more susceptible to disease and mortality. The accelerated growth allows these fish to reach a marketable size sooner. This can reduce farming time in a RAS facility from roughly 26 to 28 months for conventional Atlantic salmon to roughly 18 to 20 months for our salmon. This accelerated growth has economic and environmental advantages. The faster life cycle from hatch to harvesting of our salmon, as compared to conventional salmon, allows it to be produced more economically in contained, land-based RAS farms. Although RAS farms require greater capital investment than the sea-cage approach, we believe that the higher costs are offset by more efficient growth and a shorter transportation distance to market. Compared to conventional salmon grown in a RAS farm with a similar capital investment, we can produce approximately 70% more of our GE Atlantic salmon each year. Our fish are also 25% more efficient at converting their feed to biomass, which represents a significant cost advantage as feed is the largest variable cost of growing salmon. Further, locating our farms nearer to major food markets allows us to realize savings on transportation of the harvested stock, while maintaining a reduced carbon footprint, and an improved ability to get fresh product to market faster. Intellectual Property Our GE Atlantic salmon is based upon a single, specific molecular modification in the fish that results in more rapid growth in early development. The patent for the underlying technology, which had been issued in certain salmon producing countries, expired in August 2013 and we currently hold a global, perpetual, royalty-free, fully paid, sub-licensable, assignable, non-exclusive right to the technology covering genetically engineered salmonid fish that express endogenous growth hormone under the control of a protein gene promoter from an edible fish. Despite the expiration of the patent for the licensed technology, we believe that the degree of know-how in the molecular modification process and the regulatory timescales associated with approval of genetically engineered fish present significant barriers to entry and a competitive advantage. We rely on a combination of patent, trademark, and trade secret laws in the United States and applicable foreign jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our proprietary technology, processes, and brand. In December 2015, we were granted a U.S. patent for our molecular sterility system, which renders sterile the progeny of any female fish carrying a defined maternal sterility gene. Subsequently, the maternal sterility patent has been issued in Australia, Brazil, Canada, Chile, Japan, and the Republic of Korea. While the technology described in the sterility system patent is not required under any of our current regulatory approvals, the technology may be desirable in the future to obtain or maintain regulatory approvals. 4 Table of Contents Regulatory Aspects of Genetically Engineered Fish The genetic engineering of food using the tools of modern biotechnology is regulated in the United States by two government organizations, the U.S Department of Agriculture (“USDA”) for genetically engineered plants and the FDA for genetically engineered animals. The regulatory process for genetically engineered food and animal feed is based upon the Coordinated Framework, issued by the Office of Science and Technology Policy in 1986, but the enabling legislation is the Federal Food, Drug, and Cosmetic Act (“FFDCA”). The FDA is also required to determine the environmental impact of a proposed application under the National Environmental Policy Act (“NEPA”). In the case of animals intended for food or materials for feed, the FDA process is a pre-approval review followed by an approval if the application is acceptable under the relevant legislation, with ongoing oversight following approval. We opened an Investigational New Animal Drug file for AquAdvantage salmon with the FDA in 1995. At that time, there was no defined regulatory framework for the regulation of bioengineered animals. There were, however, certain studies that were generally acknowledged to be necessary for an eventual approval process. We commenced work on those studies and began a phased submission of studies to the FDA that ultimately was responsive to each technical section of the New Animal Drug Application (“NADA”). These technical sections require submission of studies relating to molecular characterization of the construct; molecular characterization of AquAdvantage salmon lineage; phenotypic characterization of AquAdvantage salmon; a genotypic and phenotypic durability plan; support for environmental, food, and feed safety; and claim validation. The FDA’s phased review process, which included a cycle of study conduct, submission, review, and acceptance, continued over the period from 1995 to 2010. Following this process, the FDA concluded that AquAdvantage salmon “is as safe as food from conventional salmon, and that there is a reasonable certainty of no harm from consumption of food” from AquAdvantage salmon. On November 19, 2015, the FDA issued an approval letter for the NADA for AquAdvantage salmon, along with a final Environmental Assessment (“EA”) and a finding of No Significant Impact on the EA under NEPA. Regulatory Legal Challenge On March 30, 2016, a coalition of non-governmental organizations (“NGOs”) filed a complaint in the United States District Court for the Northern District of California against the FDA, the United States Fish and Wildlife Service, and related individuals for their roles in the approval of AquAdvantage salmon. Subsequently, AquaBounty joined the case as an intervenor to protect our interests. Shortly thereafter, the Fish and Wildlife Service was dismissed from the case. The NGOs, including the Center for Food Safety and Friends of the Earth, claimed that the FDA had no statutory authority to regulate genetically engineered animals, and, if it did, that the agency failed to adequately analyze and implement measures to mitigate ecological, environmental, and socioeconomic risks that could impact wild salmon and the environment, including the risk that AquAdvantage salmon could escape and threaten endangered wild salmon stocks. In December 2019 the court found that the FDA did have authority/jurisdiction over genetically engineered animals under the FFDCA, and in November 2020, the court remanded the EA to the FDA for further work on its NEPA and Endangered Species Act (“ESA”) assessments. In December 2020, the plaintiffs filed a motion to alter or amend the judgment. In February 2021, the judge denied that motion. The court’s decisions do not have a current business impact on AquaBounty’s egg production on Prince Edward Island, Canada or AquaBounty’s salmon production in Albany, Indiana. AquaBounty is working with the FDA on the NEPA and ESA regulatory matters. On-going Regulatory Requirements In addition to the FDA approval of the NADA for AquAdvantage salmon, our operating sites in the United States and on Prince Edward Island, as well as those we plan to operate in the future, must be registered with, and periodically inspected by, the FDA as drug manufacturing establishments. Drug manufacturing establishments that supply FDA-regulated products for use in the United States must comply with the product’s conditions for approval, whether located in the United States or in a foreign country. Each of our operating sites in Indiana and on Prince Edward Island, is currently registered with the FDA, and the FDA has performed inspections and site visits at each of those facilities. Going forward, we must continue to comply with FDA requirements not only for manufacturing, but also for labeling, advertising, record keeping, and reporting to the FDA of adverse events and other information. We also need to comply with USDA disclosure requirements pertaining to bioengineered foods under the National Bioengineered Food Disclosure Law. Failure to comply with these requirements could subject us to administrative or judicial enforcement actions, including but not limited to product seizures, injunctions, civil penalties, criminal prosecution, refusals to approve new products, or withdrawal of existing approvals, as well as increased product liability exposure. 5 Table of Contents Production of AquAdvantage salmon in the United States also requires compliance with environmental regulations and local site permitting statutes. In addition, every production site for AquAdvantage salmon in the United States requires approval by the FDA of both a Supplemental NADA and satisfaction of corresponding obligations under NEPA, as well as compliance with local permitting requirements for construction of grow-out facilities. We expect that we may incur significant costs to comply with these environmental and regulatory requirements, which could be a multi-year process to complete for each production site, though conducted in parallel with our construction timelines. Labeling and Disclosure Standard There have been surveys cited by various NGOs that indicate that consumers are reluctant to purchase genetically engineered food and that they would like to see labeling in order to avoid it. Many states reacted to this by enacting genetically engineered food labeling laws. Consequently, in response to the potential for state-by-state labeling laws, Congress passed the National Bioengineered Food Disclosure Law (“Disclosure Standard”) in 2016, which directed USDA to establish a national mandatory standard for disclosing foods that are or may be bioengineered. The Disclosure Standard requires food manufacturers, importers, and certain retailers to ensure bioengineered foods are appropriately disclosed. The Disclosure Standard came into effect on January 1, 2022, but we began complying in 2021 on a voluntary basis when our salmon began to be harvested and sold. In conjunction with the bioengineered disclosure, we also have begun to educate consumers on the benefits of our GE Atlantic salmon versus conventional Atlantic salmon, including its 25% improved feed conversion (meaning less feed is needed to produce the same harvest), a lower carbon footprint due to local production, reduced impact on the environment, reduced exposure of the fish to environmental toxins due to use of land-based aquaculture systems, and reduced reliance on vaccines or antibiotics due to improved biosecurity. In December 2019, the 2020 Appropriations Act was signed into law, which was reintroduced and passed in 2021 and 2022, which contained an amendment that requires that any genetically engineered animal approved by FDA prior to the effective date of the Disclosure Standard shall include the words ‘‘genetically engineered’’ prior to the existing acceptable market name. While we believe that this labeling requirement is unnecessary and redundant to the requirement of the Disclosure Standard, we have and will continue to comply with all applicable laws. Our compliance with these laws and regulations may be onerous and could increase our cost of doing business, impact our competitive position relative to our peers or otherwise have an adverse impact on our business, reputation, financial condition and operating results. For more information about government regulations applicable to our business, refer to “ Risk Factors ” in Item 1A. U.S. Market According to Kontali, in 2020 the supply of Atlantic salmon to the U.S. market reached a record 1.24 million pounds (563 thousand metric tons) with an aggregate market value of over $4.5 billion. The vast majority of the imported Atlantic salmon originated from Chile, Canada, and Norway. The Atlantic salmon farming industry in the United States contracted significantly beginning in the 1990s in the face of environmental concerns and lower costs of production from foreign sources, notably Chile. According to Kontali, a total of only 20 thousand pounds (9 thousand metric tons) of farmed Atlantic salmon was produced in the United States in 2020, representing less than 2.0% of the total farmed Atlantic salmon supplied to the country. Supply of Atlantic salmon to U.S. market in thousands of metric tons (wfe) Area 2014 2015 2016 2017 2018 2019 2020E Canada 55 93 101 92 91 92 93 Chile 215 224 217 220 267 284 325 Faroe Islands 17 15 17 15 13 19 14 Norway 40 51 56 68 67 68 68 United Kingdom 20 16 13 18 16 20 12 USA - own production 16 14 8 13 7 8 9 Other countries 11 15 16 20 23 30 42 Total 374 428 428 446 484 521 563 Source: Kontali Despite intensive public consumer education campaigns promoting its health benefits, seafood consumption in the United States still lags behind other protein sources and trails consumption in overseas markets. According to the USDA, during the period from 2013 to 2018, annual seafood consumption in the United States ranged between 14 and 16 pounds per capita, significantly behind consumption 6 Table of Contents of poultry (70 to 78 pounds), beef (51 to 55 pounds), and pork (43 to 47 pounds). In comparison, according to FAO, average seafood consumption worldwide was 45 pounds per capita in 2018. Consumer Sentiment Regarding Genetically Engineered Fish Though Atlantic salmon is the second most consumed seafood in the United States, activist groups opposing genetically engineered foods have pressured a number of distributors, food service operations, retail food outlets and grocery chains to publicly state that they will not carry genetically engineered salmon. However, currently we do not expect that this will have a significant impact on overall consumer demand and product placement in the marketplace generally, and in particular the wholesale marketplace. To date, large wholesalers have not followed the example of these distributors, food service operations and retailers, and we have sold our GE Atlantic salmon from both our Indiana and Prince Edward Island farms since commencing harvesting in May 2021. We believe that there will be sufficient demand from smaller retailers, wholesalers, and institutional seafood buyers to absorb our projected production. We believe that the FDA approval reinforces the message that our salmon is a safe and nutritious seafood product that is identical to conventional farmed Atlantic salmon. Consumer sentiment towards genetically engineered foods is evolving. Based on market research that we commissioned, the top attributes for consumer selection of farm-raised salmon are availability, affordability, freshness, safety, and taste. According to the poll conducted, 53% of respondents had a first impression of genetically engineered food that was neutral to very positive; 60% were neutral to very likely to purchase genetically engineered products they buy regularly if labeled as such; 70% were neutral to very likely to purchase genetically engineered products they buy regularly if labeled with the USDA Bioengineered Disclosure Symbol; 81% were neutral to very positive to the AquaBounty and our GE Atlantic salmon story and product benefits; and 70% were likely to purchase and try our salmon at least once. According to a study conducted by the Boyce Thompson Institute, which looked at the number and tone of over 100,000 online and print articles published in top-ranked media between 2018 and 2020 as well as 1.7 million social media interactions, the overall tone of the conversation on GE foods is “surprisingly positive, averaging 73% favorable if neutral and positive reporting are combined.” The positive reporting became more favorable over the time period studied. Their findings suggest a drop in the importance of GE, with a more favorable and less polarized conversation across the globe. Sales Plan The salmon distribution system in the United States is complex and varied. Participants include fishermen, fish farmers, processors, importers, secondary processors, broadline distributors, specialty seafood distributors, brokers, traders, and many different kinds of retail and food service companies. Salmon distribution channels are evolving, with fewer and larger distributors handling an increasing share of total volume and an increasing share of salmon being sold directly by large fish-farming companies and large wild salmon processors to major retail and food service chains. Our GE Atlantic salmon is currently being sold into this distribution network with an initial focus on seafood distributors and wholesalers. This is due to our limited supply of fish, which necessitates our being selective in bringing on new customers. We expect that once our Ohio farm is in commercial operation, we will be able to expand our customer depth and breadth and increase our channel coverage. As a commodity food item, the price of Atlantic salmon is variable based on the supply and demand for product weekly. We base our pricing on a published index by Urner Barry, which provides comprehensive market coverage across all major center-of-the-plate food proteins, taking into account differences for fish size and quality. Competition The global Atlantic salmon farming industry includes several very large companies with operations in each of the major producing countries. Consolidation has been evident in the past few years as producers attempt to gain competitive cost advantages while overcoming the regulatory challenges associated with developing new marine farm sites. Major market producers include the following companies: Mowi, Aquachile, Leroy Seafood Group, Mitsubishi/Cermaq, SalMar, Cooke Aquaculture, Multiexport and Bakkafrost. It is estimated that these eight companies accounted for approximately 49% of the Atlantic salmon produced in 2020. Since salmon is primarily sold as a commodity in the United States, we compete against these well-established, sea-cage production companies. In addition, new entrants to salmon production have emerged that use, or plan to use, land-based RAS facilities. Atlantic Sapphire is operating a ten thousand metric ton facility in Florida, with stated plans to increase production to over 220 thousand metric tons. Other entrants include Nordic Aquafarms, with plans for facilities in Maine and California, and Whole Oceans with plans for a farm in Maine. 7 Table of Contents Operations Current Production We currently operate two salmon farms: a refurbished 1,200 metric ton production grow-out farm in Indiana and a broodstock farm on Prince Edward Island, Canada. Our first harvests of conventional salmon in Indiana commenced in June 2020 and our first harvests of our GE Atlantic salmon commenced in June 2021 at both of our U.S. and Canadian farms. During 2022, we transitioned the grow-out operation at the Canadian farm to egg production. At December 31, 2022, we had a total grow-out production biomass of 492 metric tons. Impact of COVID-19 and Supply Chain, Labor Market and Transportation Challenges Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, 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 their status. At least in part due to the pandemic, we have experienced delays and cost increases in capital projects, additional challenges in our efforts to meet the capacity expectations at our existing facilities and continue to experience extended lead times on equipment purchases. We may continue to experience delays and cost increases on farm construction, purchases of capital equipment and supplies and other materials required in our operations due to vendor shortages and labor shortages. We expect to continue to be impacted by transportation or supply chain disruptions to our partners or customers and we are carefully managing and monitoring the impact of labor shortages on our ability to meet the annual capacity expectations at our existing facilities. Impact of Inflation Recent increases in global inflation rates have impacted all areas of our business. We are experiencing higher costs for farming supplies, transportation costs, wage rates, and other direct operating expenses. Additionally, inflation has impacted the total project cost estimate for our Ohio farm, which has increased to a range of $375 million to $395 million. We expect inflation to continue to negatively impact our results of operations for at least the near-term. North America Plan Our longer-term business plan contemplates that we will construct and operate several new, land-based RAS farms in North America at locations close to consumer consumption. Our target is to achieve an annual production output of 50,000 metric tons within the next ten years. During 2021, we selected Pioneer, Ohio as the site location for our first 10,000 metric ton farm. Based on the engineering design that has been completed, we have estimated that the project, which includes a roughly 479,000 square foot facility, land, insurance and other ancillary items will cost between $375 million and $395 million. We have commenced site construction activities and our targeted timeline for the introduction of our first batch of GE Atlantic salmon eggs is the end of 2024, pending the required facility approval by the FDA. Our plan to finance the construction of the farm includes both equity and debt components. In October 2022, the Board of Directors of the Toledo-Lucas County Port Authority approved the issuance of up to $425 million in municipal bonds for our project. We are currently proceeding with the bond financing and targeting to close the transaction in mid-2023. 8 Table of Contents The work that we have done to date on the design of the Ohio farm will serve as a template for future farm projects, though we will continue to incorporate the learnings from our current farm operations and our philosophy of continual improvement. The picture below shows a design rendering of the inside of the farm. Source: AquaBounty Egg Production We have scaled-up our egg production capability at our Fortune and Rollo Bay hatcheries on Prince Edward Island and we can now produce over 10 million eyed eggs annually, which is more than our current internal demand. As there is a shortage of supply of salmon eggs in the market, we have begun to sell our excess conventional (“non-transgenic”) salmon eggs and fry to other salmon farmers. We also made the decision to transition the grow-out operation at our Canada farm to egg production in order to increase our egg production capacity over the next four years to 30 million eyed eggs annually, which would be sufficient to stock six 10,000 metric ton farms. International Plans While our primary focus is on North America, we also plan to expand internationally, targeting those markets that are net salmon importers, unable to supply their domestic needs and where we believe we will have success in gaining further regulatory approvals and consumer acceptance. Once approved in these locations, we plan to commercialize through a combination of partnerships, joint ventures, and licensing arrangements. Consequently, we have targeted Brazil, Israel and China as potential markets. In Brazil, we have received approval for the sale and consumption of our fish, and we are now seeking to identify a local partner. In Israel, we have selected a partner and we are preparing our regulatory application. In China, we have paused our efforts to conduct field trials until we have greater certainty of both the regulatory and political landscape. Growth Strategy Optimizing Technology and Innovating for the Future We are exploring the potential development of a range of additional products, including a second generation of our GE Atlantic salmon to help ensure 100% sterility, molecular sterility systems to provide an improved means of sterility for farmed fish, and improved methods for generating genetically engineered fish. Our primary research and development operations are located in our owned hatcheries on Prince Edward Island. As of December 31, 2022, we employed 36 scientists and technicians to oversee our broodstock, as well as the lines of fish we maintain for research and development purposes. In addition, we contract some research activities to third parties. In the future, we may enter into other partnerships and collaboration agreements to advance our research and development efforts. 9 Table of Contents Vertical and horizontal integration We may have multiple opportunities to vertically integrate and strategically increase our value-added capabilities within the seafood industry. These capabilities can be obtained by building and developing in-house, forming partnerships, direct investment or through acquisition. We could also seek to expand our production capabilities in adjacent markets, including:  Di versify into additional high value species such as shrimp, trout, or tuna.  Evaluate markets for inputs and by-products such as animal feed, fish meal and fish oil.  Acquire new production technologies such as cellular aquaculture in the rapidly growing bio-engineered food market. Human Capital Resources We believe in the positive impact that a team-based management structure delivers. We empower our people by placing decision making power at the team level; driven by those closest to the work. We provide training opportunities to our teams to continually improve their decision-making skills. Our recent development initiatives included introduction to lean and continuous improvement, leadership coaching skills, goal setting and coaching performance, creation of detailed work instructions and operations training based upon our standard operating procedures. We believe such initiatives ensure our team’s alignment with our company’s expectations, and when coupled with our confidence in our people’s abilities, our team is positioned to succeed. As of December 31, 2022, we had 100 team members, 70 of which were in our farm operations and 12 in research and technical support functions. As of December 31, 2022, we had 18 corporate team members who provided support to all of our operations and were responsible for the execution of all corporate functions, including executive, operational, finance, information technology, legal, and corporate communications. None of our team members are represented by a labor union, and we consider our employee relations to be good. We structure our compensation packages to compete for the best talent. Our compensation packages include a competitive base salary and health and wellness benefits, along with a retirement plan that includes a Company match. 10 Table of Contents ESG Leadership We view the focus on Environmental, Social and Governance (“ESG”) concerns as foundational to a well-run business and fundamental to our Purpose and Values, as well as a critical aspect of how we operate our business, deliver results and drive continuous improvement. We embraced ESG early in the development of our business practices, as we see it as a critical component to building our culture and as a strategic imperative for identifying increased efficiencies and effectiveness as we grow. The ESG reporting requirements will continue to evolve and we will continue to monitor those changes. We believe taking ESG considerations into account in our decision-making process ensures a disciplined approach to risk management. Our ESG Committee, comprised of our executive management team with oversight by our Board of Directors, has worked cross functionally to develop our strategy, structure, processes and the roadmap for the standards that are relevant to our business. In 2021, we took an important step in our corporate governance evolution by committing to deeper understanding of material non-financial matters of our business across environmental, social, and governance aspects. We deployed a rigorous process where we identified and interviewed external advisors/consulting groups that would provide expertise to assist in developing and implementing our ESG initiatives and selected a qualified strategic counsel and partner. We also identified and implemented a digital system platform to track data inputs used for reporting calculations and to ensure we are collecting data and other ESG inputs on a consistent and ongoing basis. Following a thorough review of the various ESG reporting standards, we selected the SASB Framework as our primary standard, as the accounting metrics for the Food Sector contain topics that are more specific and pertinent to our business model and operations during the current reporting period. Additionally, our program and reporting incorporates alignment with several applicable GRI metrics and the United Nations Sustainable Development Goals (“UNSDGs”). In our initial ESG materiality assessment we chose to focus on the following aspects: Environmental Energy Management Our current operating farms utilize energy from the grid, but we are acutely aware of the need to diversify into green energy sources for existing facilities, as well as incorporate alternative energy sources for future farming operations . We are evaluating various alternative energy sources, from constructing our own green energy facilities to purchasing green energy through purchase power agreements (PPA). Onsite renewable options being considered include photovoltaic (PV) solar technology, wind turbine generator (WTG) technology (large/small), and battery energy storage system (BESS) technology. Greenhouse Gas Emissions We are currently collecting, monitoring, and managing data on a monthly basis that supports our Scope 1 and Scope 2 (both defined below) emission inventory. Our carbon footprint for the year ended December 31, 2022 is as follows:  Our Total Scope 1 and Location-Based Scope 2 emissions amounted to 7,698 metric tons of CO2e. We did not have any eligible offsets. Of that, 11 Table of Contents  GHG Emissions: Scope 1 emissions – 2,986 metric tons of CO2e We define Scope 1 emissions in accordance with The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (GHG Protocol), Revised Edition, March 2004, published by the World Resources Institute and the World Business Council on Sustainable Development (WRI/WBCSD). The scope of GHG emissions includes the seven GHGs covered under the Kyoto Protocol—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3). GHGs are reported here on a gross basis, i.e., not accounting for offsets, credits, or other similar mechanisms that have reduced or compensated for our emissions. Our Scope 1 emissions comprise approximately 39% of our total Scope 1 and 2 emissions, with natural gas for furnace and heating equipment contributing approximately 2,177 metric tons of CO2e or 72.9% of the total Scope 1 emissions. The rest of the Scope I is attributable to furnace oil (7%), refrigerants (16%), diesel (2%), and other de minimis inputs. Our mobile combustion and fugitive emissions are responsible for approximately 17% of Scope 1 and 7% of total Scope 1 & 2 emissions, respectively.  GHG Emissions: Scope 2 emissions – 4,712 metric tons of CO2e, which equates with SASB reporting requirements to 38,559, Gigajoules (GJ). Purchased electricity is responsible for 61% of the total Scope 1 and 2 emissions generated by our company. The scope of energy consumption includes energy purchased from various sources and directly consumed by our operations during the calendar year 2022, such as energy purchased from energy companies in the U.S. and Canada: fuel, electricity, heating, and cooling. We do not have self-generated or green-sourced energy at this time. In calculating energy consumption from various fuels, we used conversion factors from the EPA and higher heating values (HHV) from the U.S. Department of Energy (DOE) and the U.S. Energy Information Administration (EIA). We calculate our Scope 2 emissions based on a location-based method utilizing eGRID Subregion RFCW (RFC West) factor for Indiana and AKMS (ACSS Miscellaneous) for Canada. The factor for our Indiana location is approximately 1.07 lb. CO2/kWh and for our Canada location is approximately 0.55 lb. CO2/ kWh. These figures were last updated by EPA in January 2022 (file with most recent U.S. grid factors for CO2 and other derivate emissions can be found at https://www.epa.gov/climateleadership/simplified-ghg-emissions-calculator.) Water Management Fresh water provides critical support for our farming operations. Access to the required quantity and quality of water is essential for protecting our salmon and ensuring they thrive from hatch to harvest. We draw all the water supply for our farms from aquifers, via the underground wells located at or in the immediate proximity of our Indiana and Prince Edward Island facilities. We understand that our business is water-intensive and that we share this resource with other members of surrounding communities – other corporate businesses, other farming operations, and residents. Access to required levels of clean water is also critical for these stakeholders. Ensuring ample supply and quality of fresh water in order to comfortably operate our business without disadvantaging local communities is one of the most important factors we use in determining locations for our commercial operations. We also locate our operations in regions that are not prone to significant base water stress in order to avoid exacerbating drought and further depleting regional resources.  We do not have any permit limitations on the amount of water our Indiana and Canada farms withdraw from the aquifers. The majority of our water resources are used in farming operations at our Indiana facilities, where we grow our GE Atlantic salmon from hatch to harvest. We abide by the requirements of the Indiana Department of Environmental Management (IDEM) and National Pollutant Discharge Elimination System (NPDES) to measure water resources leveraged in our operations at the place of the discharge. Water discharged by our Indiana farm during the year is approximately 1,513 thousand cubic meters (m³), which includes water used in farming (RAS operations and fish production) and also in corporate operations  Percentage of water withdrawn from High or Extremely High Base Water Stress (HEHBWS): 0.0%  Percentage of water consumed from High or Extremely High Base Water Stress (HEHBWS): 0.0% Waste Management Our facilities feature Recirculating Aquaculture System (“RAS”) technology, which utilizes fresh, clean water to grow our salmon from hatch to harvest. Water in the system is continuously recirculated and filtered, at a rate of 95.5% per hour, meaning that less than 5% of each cycle is safely discharged back to the environment. The RAS system features biological filters to remove waste and return fresh water to maintain an optimal growing environment for our salmon. The resulting wastewater is cleaned before being 12 Table of Contents moved to settling ponds. Solid waste is separated and removed from the system through the filtering process, and often recycled as fertilizer for local agricultural farmers. Social Impact Consumer Welfare: Antibiotic Use in Animal Production Unlike wild caught or offshore sea-cage farmed salmon, our fish live in indoor tanks, which are designed to prevent them from escaping and reduce the risk of disease and contaminants. This allows the fish to be raised without the use of antibiotics and chemicals frequently used in sea-cage operations. We have developed and implemented Standard Operating Procedures (“SOPs”) that govern the physical containment and every significant fish husbandry activity on our farms. The scope of our antibiotic administration includes animals, including Broodstock, across all of our operations and facilities: 0% of our animals received important antibiotics; 0% of our animals received non-important antibiotics. Human Capital Management Recruiting, developing, engaging, and protecting our workforce is critical to executing our strategy and achieving business success. The efficient production of high-quality products and successful execution of our strategy requires a talented, skilled, and engaged team of employees. We work to equip our employees with critical skills and expand their contributions over time by providing a range of training and career development opportunities, including hands-on experiences via challenging work assignments and job rotations, coaching and mentoring opportunities, and training programs. To foster employee engagement and commitment, we follow a robust process to listen to employees, take action, and measure our progress with on-going employee conversations, transparent communications, and employee engagement surveys. Employee Health, Safety and Advancement We are committed to maintaining a safe and secure workplace for our employees. We set specific safety standards to identify and manage critical risks. We use global safety management systems and employee training to ensure consistent implementation of safety protocols and accurate measurement and tracking of incidents. To provide a safe and secure working environment for our employees, we prohibit workplace discrimination, and we do not tolerate abusive conduct or harassment. Our attention to the health and safety of our workforce extends to the workers and communities in our supply chain. We believe that respect for human rights is fundamental to our strategy and to our commitment to ethical business conduct. Governance and Business Ethics Governance Our ESG strategy, risk management and reporting is overseen by an internal working committee and external experts. The Committee is chaired by our Chief Commercial Officer and includes all members of our Executive Leadership Team, including our: President & CEO; Chief Scientific Officer; Chief Operating Officer; General Counsel; Chief People Officer; Vice President Facilities & Continuous Improvement; and Chief Financial Officer. Our Board of Directors have oversight over our ESG Committee and initiatives. Diversity and Inclusion We are making gender, cultural, and racial diversity one of our key priorities for the next 10 years as we grow to become a major player in sustainable seafood production. Starting in 2019, we added the subject of Board Diversity to our corporate agenda. We currently have eight Board members representing different races and ethnicity, and of the eight Board members, four are women. We are focused on adding diverse, creative, talented, and seasoned personnel to our mid and upper management, as well as young, driven, collaborative and environmentally responsible team members to our entry-level positions. As of December 31, 2022, 37% of our team members identified themselves as women and 63% as men. Ethical Innovation in Our Supply Chain To ensure we receive the best equipment, feed, and other key inputs into our production process, our global supplier and vendor network spans across many states in the U.S. and several countries, such as Chile, Norway, Brazil, and Canada. The main suppliers that directly support our production and distribution include RAS equipment vendors, suppliers of parts and maintenance services, ice and oxygen suppliers, refrigeration equipment vendors, feed suppliers, packaging and logistics services and fish processing facilities. 13 Table of Contents In selecting suppliers, we perform due diligence including review of sustainability and environmental impact information. Especially important is the review of the nutritional composition of feed from a vendor. One of the advantages of our land-based farms is that we can locate them close to market consumption, which minimizes transportation costs and therefore, our carbon footprint. This allows us to minimize our transportation requirement to fulfill local and regional distribution. In contrast, salmon imported into the U.S. (i.e., from the largest exporter – Chile) requires well boat transportation to and from the coastal farm, motor transportation from the dock/processing facility to an international airport, airfreight (primarily from Norway or Chile) to a major U.S. international airport, a transportation into the interior of the U.S. by motor transport or airfreight and finally, local and regional distribution transportation. Animal Welfare We raise salmon in natural, safe, and humane ways at every stage of life, from egg to harvest. We utilize technology and skilled human oversight to continually monitor and manage water quality and fish health. Our focus and targets are based on veterinary expertise and counsel; Industry standards; and customer expectations for quality. We use industry-leading technology to help ensure fish are harvested humanely and with the least possible stress.  Animal Care and Welfare We constantly monitor welfare conditions, such as: Crowding; Fish Transfer, Stunning and Bleeding; Harvesting; Grading; and Usage of Emerging Technologies. As part of our welfare indicators, we are monitoring: Skin and Fin Conditions; Scale Losses; Mortality Rate; Reflex Behavior; Appetite – Hunger – Satiation; Gill Bleaching; Sex Maturation; Eye Damage and Cataracts; and Jaw Opercula and Spinal Deformities.  Animal & Feed Sourcing We do not source animals. We are a 100% vertically integrated entity, with our own Broodstock and egg production that are used in our farms from hatch to harvest. At this time, we are not growing our own feed stock or manufacturing feed for our GE salmon. We purchase all of our feed for the Indiana and Canada operations from third parties. We routinely conduct analysis of global salmon feed suppliers, focusing on their sustainability practices, components of the feed that contains wild-caught fish, as well as non-marine ingredients. Feed is a critical input to growing healthy salmon. We evaluate suppliers that have high product safety and ethical standards, consistent with what we set for ourselves. For the year ending December 31, 2022, we partnered with a sole feed supplier who is a global leader in fish feed supplies that supports the entire spectrum of our fish growth – from fry to harvest size fish. All of the feed we source from this supplier to raise our salmon is either BAP or GlobalGAP certified. These globally recognized non-governmental organizations, which follow their respective internal standards, award their independent third-party certifications to aquaculture sector members that have been deemed by these organizations or their authorized representatives, to produce safe, responsibly and ethically farmed seafood. By partnering with this supplier, we help ensure that our salmon are being raised on high quality feed that will eventually carry a high nutritional value to the table of an end-consumer. Also, due to their sustainability profile that covers responsible sourcing and climate change, we have reasonable comfort knowing that by consuming this feed, our salmon are not harming our forests and our oceans, all while creating jobs and supporting small fisheries around the world. Communities We believe in the rejuvenation of rural America and other local communities and strive to utilize local businesses when possible. Only when economically viable local options of similar quality are not reasonably available do we move to non-local vendors for the sourcing of equipment, feed, and other inputs. At our Indiana farm, we purchase oxygen and ice from local vendors and utilize local service providers. Whenever feasible, we contract with local small and medium family businesses to help build up communities and local economies. We also strive to create jobs in local communities that rely on farming operations and communities relying on economic development. We strive to build an experienced, well-compensated and diverse work force. We provide training and learning opportunities to our teams, so they have the required skills and tools to continually improve and make a positive impact on our business. 14 Table of Contents United Nations Sustainable Development Goals Our corporate Purpose and operations are aligned with a number of the UN’s goals. We are committed to end hunger, achieve food security and improve nutrition, while also promoting sustainable land-based aquaculture to provide a resilient and domestic supply of fresh salmon. We continually transform the aquaculture segment through our research, innovation and genetics-based technology. Our management makes conscious decisions to locate our farms close to key consumption markets, providing greater access to all consumers including underserved communities. We work hard to supply populations with high-quality, healthy, affordable and nutritious salmon that is cultivated with the well-being of the planet in mind and provides a much needed relief for our oceans and rivers. Our plans are to bring our technology and expertise to other countries, including developing regions. ‎ 15 Table of Contents