AQUABOUNTY TECHNOLOGIES INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of December 31, 2022 (the “Evaluation Date”), our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded based upon the evaluation described above that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our Chief Executive and Chief Financial Officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:  pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles;  provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and  provide re asonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 37 Table of Contents Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022. In conducting this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based upon this evaluation and those criteria, management believes that, as of December 31, 2022, our internal controls over financial reporting were effective. This Annual Report on Form 10‑K does not include an auditor’s attestation of management’s assessment of internal controls over financial reporting as of December 31, 2022, as we are not an “accelerated filer” under SEC rules. Changes in Internal Control There have been no changes in our internal control over financial reporting for the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. ‎ 38 Table of Contents Part III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is set forth in our 2023 Proxy Statement to be filed with the SEC within 120 days of December 31, 2022, and is incorporated by reference into this Annual Report on Form 10‑K. Item 11. Executive Compensation The information required by this Item is set forth in our 2023 Proxy Statement to be filed with the SEC within 120 days of December 31, 2022, and is incorporated by reference into this Annual Report on Form 10‑K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is set forth in our 2023 Proxy Statement to be filed with the SEC within 120 days of December 31, 2022, and is incorporated by reference into this Annual Report on Form 10‑K. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item is set forth in our 2023 Proxy Statement to be filed with the SEC within 120 days of December 31, 2022, and is incorporated by reference into this Annual Report on Form 10‑K. Item 14. Principal Accounting Fees and Services The information required by this Item is set forth in our 2023 Proxy Statement to be filed with the SEC within 120 days of December 31, 2022 and is incorporated by reference into this Annual Report on Form 10‑K, for Deloitte & Touche LLP (PCAOB ID No. 34 ). Part IV Item 15. Exhibits and Financial Statement Schedules List of Documents Filed as Part of this Report 1. Consolidated Financial Statements The following consolidated financial statements are filed herewith in accordance with Item 8 of Part II above: (i) Report of Independent Registered Public Accounting Firm (ii) Consolidated Balance Sheets (iii) Consolidated Statements of Operations and Comprehensive Loss (iv) Consolidated Statements of Changes in Stockholders’ Equity (v) Consolidated Statements of Cash Flows (vi) Notes to Consolidated Financial Statements 2. Schedules Schedules not listed are omitted because the required information is inapplicable or is presented in the consolidated financial statements. ‎ 39 Table of Contents 3. Exhibits Exhibit Number Exhibit Description 3.1* Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 3.2* Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on January 6, 2017). 3.3* Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1, filed on January 15, 2020). 3.4* Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 19, 2020). 3.5* Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 27, 2022). 3.6* Certificate of Validation dated October 18, 2022 relating to Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. dated May 27, 2022 (incorporated by reference to Exhibit 3.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 8, 2022). 3.7* Amended and Restated Bylaws of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 4.1* Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 4.2* Specimen Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1, filed on January 9, 2018). 4.3 * Description of Registrant’s securities. (incorporated by reference to Exhibit 4.3 to the Registration’s Annual Report on Form 10-K, filed on March 10, 2020). 10.1* Stock Purchase Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated November 7, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.2*† AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.3*† Amendment No. 1 to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.4*† Form of Stock Option Agreement pursuant to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.5*† Form of Restricted Stock Agreement pursuant to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.6*† AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.7*† Amendment No. 1 to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on May 2. 2019). 10.8* † Amendment No. 2 to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on April 29, 2020). 10.9*† Form of Stock Option Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form 10, filed on December 12, 2016). 10.10*† Form of Restricted Stock Purchase Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form 10, filed on December 12, 2016). 10.11* Form of Warrant Exercise Agreement, by and between AquaBounty Technologies, Inc. and certain holders of its Common Stock Purchase Warrants, dated October 24, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 25, 2018). 40 Table of Contents 10.12* Agreement, by and among Atlantic Canada Opportunities Agency and AQUA Bounty Canada Inc. and AquaBounty Technologies Inc., dated December 16, 2009 (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.13* Offer Letter, dated as of July 10, 2018, from Prince Edward Island Century 2000 Fund Inc. to AQUA Bounty Canada Inc. and accepted by AQUA Bounty Canada Inc. and AquaBounty Technologies, Inc. on August 20, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.14* Negotiable Promissory Note, dated as of October 16, 2018, issued by AQUA Bounty Canada Inc. in favor of Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.15* Collateral Mortgage dated as of July 26, 2016, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.16* Collateral Mortgage, dated as of October 9, 2018, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.17* General Security Agreement, dated as of July 26, 2016, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.18* Guarantee, dated as of October 9, 2018, made by AquaBounty Technologies, Inc. in favor of Prince Edward Island Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018). 10.19*† Executive Employment Agreement, by and between Sylvia Wulf and AquaBounty Technologies, Inc., dated November 27, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2018). 10.20*† Employment Agreement, by and between David Frank and AquaBounty Technologies, Inc., dated October 1, 2007 (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.21*† Employment Agreement, by and between Alejandro Rojas and AquaBounty Technologies, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.22* Intellectual Property License and Full and Final Release among Genesis Group Inc., HSC Research and Development Partnership and AquaBounty Technologies, Inc., dated February 28, 2014 (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016). 10.23* Asset Purchase Agreement by and between AquaBounty Technologies, Inc. and Bell Fish Company LLC, dated as of June 9, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 4, 2017). 10.24*# Loan and Security Agreement by and between AquaBounty Farms Indiana LLC and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 10.30* Term Note granted by AquaBounty Farms Indiana LLC in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 10.25* Mortgage, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement granted by AquaBounty Technologies, Inc. in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 10.26* Guarantor Security Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 10.27* Unconditional and Continuing Secured Guaranty Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 10.28* Collateral Access Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 10.29* Unconditional and Continuing Guaranty Agreement by and between AquaBounty Farms, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020). 41 Table of Contents 10.30* 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). 10.31* 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). 16.1* 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). 21.1 List of Subsidiaries of AquaBounty Technologies, Inc. 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Wolf & Company, P.C. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS 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. 101.SCH Inline XBRL taxonomy extension schema document. 101.CAL Inline XBRL taxonomy extension calculation linkbase document. 101.DEF Inline XBRL taxonomy extension definition linkbase document. 101.LAB Inline XBRL taxonomy label linkbase document. 101.PRE Inline XBRL taxonomy extension presentation linkbase document. 104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in exhibit 101). *Incorporated herein by reference as indicated. # Schedules, exhibits, and similar supporting attachments or agreements to the Loan and Security Agreement are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request. †Management contract or compensatory plan or arrangement. The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. ‎ 42 Table of Contents Item 16. Form 10‑K Summary Not applicable. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AQUABOUNTY TECHNOLOGIES, INC. By: /s/ Sylvia A. Wulf Sylvia A. Wulf Chief Executive Officer, President, and Director Power of Attorney KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Frank and Angela M. Olsen, as his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Annual Report on Form 10‑K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated below. Signature Title Date /s/ Sylvia A. Wulf President, Chief Executive Officer and Director (Principal Executive Officer) March 7, 2023 Sylvia A. Wulf /s/ David A. Frank Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) March 7, 2023 David A. Frank /s/ Richard J. Clothier Chairman of the Board, Director March 7, 2023 Richard J. Clothier /s/ Ricardo Alvarez Director March 7, 2023 Ricardo Alvarez /s/ Erin Sharp Director March 7, 2023 Erin Sharp /s/ Gail Sharps Myers Director March 7, 2023 Gail Sharps Myers /s/ Christine St.Clare Director March 7, 2023 Christine St.Clare /s/ Rick Sterling Director March 7, 2023 Rick Sterling /s/ Michael Stern Director March 7, 2023 Michael Stern 43 Table of Contents Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of AquaBounty Technologies, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AquaBounty Technologies, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows, for the years then ended, 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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventory – Fish in Process – Refer to Notes 2 and 5 to the financial statements Critical Audit Matter Description Fish in process inventory is measured at the lower of cost or net realizable value. The Company’s determination of net realizable value of fish in process inventory requires management to make various estimates and assumptions related to the calculation of the biomass, including expected yield, market value of biomass and estimated costs of processing, packaging and transportation. Changes in these assumptions could have a significant impact on the net realizable value of fish in process inventory. Given the determination of net realizable value requires management to make significant estimates and assumptions relating to yield, market value and future costs, performing audit procedures to evaluate the reasonableness of such estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. 44 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to fish in process inventory included the following, among others:  We tested the design and implementation of the Company's inventory controls, including the review of the net realizable value estimate and assumptions.  We evaluated management's process for determining the net realizable value of fish in process inventory.  We observed and tested the Company’s physical inventory inspection and fish weighing processes near December 31, 2022.  We tested the completeness and accuracy of management's estimates and assumptions within the net realizable value calculation by comparing expected: o Sales amounts to historical revenue. o Processing, packaging and transportation costs to historical amounts. o Market value to historical sales prices and market benchmarks. o Yield to the Company's historical results and industry peer data.  We tested the changes in fish in process biomass from our physical observation date to December 31, 2022. /s/ Deloitte & Touche LLP Baltimore, Maryland March 7, 2023 We have served as the Company's auditor since 2021. ‎ 45 Table of Contents AquaBounty Technologies, Inc. Consolidated Balance Sheets As of December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 101,638,557 $ 88,454,988 Marketable securities — 101,773,781 Inventory 2,276,592 1,259,910 Prepaid expenses and other current assets 2,133,583 1,536,484 Total current assets 106,048,732 193,025,163 Property, plant and equipment, net 106,286,186 33,815,119 Right of use assets, net 222,856 284,320 Intangible assets, net 218,139 231,842 Restricted cash 1,000,000 1,000,000 Other assets 64,859 79,548 Total assets $ 213,840,772 $ 228,435,992 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $ 12,000,592 $ 4,317,615 Accrued employee compensation 1,021,740 874,589 Current debt 2,387,231 627,365 Other current liabilities 20,830 66,269 Total current liabilities 15,430,393 5,885,838 Long-term lease obligations 203,227 224,058 Long-term debt, net 6,286,109 8,523,333 Total liabilities 21,919,729 14,633,229 Commitments and contingencies Stockholders' equity: Common stock, $ 0.001 par value, 150,000,000 and 80,000,000 shares authorized at December 31, 2022 and 2021, respectively; 71,110,713 and 71,025,738 shares outstanding at December 31, 2022 and 2021, respectively 71,111 71,026 Additional paid-in capital 385,388,684 384,852,107 Accumulated other comprehensive loss ( 516,775 ) ( 255,588 ) Accumulated deficit ( 193,021,977 ) ( 170,864,782 ) Total stockholders' equity 191,921,043 213,802,763 Total liabilities and stockholders' equity $ 213,840,772 $ 228,435,992 See accompanying notes to the consolidated financial statements. ‎ 46 Table of Contents AquaBounty Technologies, Inc. Consolidated Statements of Operations and Comprehensive Loss Years ended ‎ December 31, 2022 2021 Revenues Product revenues $ 3,136,954 $ 1,174,832 Costs and expenses Product costs 13,630,911 10,786,072 Sales and marketing 1,138,781 1,261,764 Research and development 903,981 2,145,548 General and administrative 9,786,819 9,103,213 Total costs and expenses 25,460,492 23,296,597 Operating loss ( 22,323,538 ) ( 22,121,765 ) Other income (expense) Interest expense ( 291,177 ) ( 316,442 ) Other income (expense), net 457,520 115,619 Total other income (expense) 166,343 ( 200,823 ) Net loss $ ( 22,157,195 ) $ ( 22,322,588 ) Other comprehensive income (loss): Foreign currency ( 301,288 ) 51,771 Unrealized gains (losses) on marketable securities 40,101 ( 40,101 ) Total other comprehensive income ( 261,187 ) 11,670 Comprehensive loss $ ( 22,418,382 ) $ ( 22,310,918 ) Basic and diluted net loss per share $ ( 0.31 ) $ ( 0.32 ) Weighted average number of common shares - basic and diluted 71,068,515 69,428,061 See accompanying notes to the consolidated financial statements. ‎ 47 Table of Contents AquaBounty Technologies, Inc. Consolidated Statements of Changes in Stockholders’ Equity Common stock issued and outstanding Par value Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total Balance as of December 31, 2020 55,497,133 $ 55,497 $ 263,629,116 $ ( 267,258 ) $ ( 148,542,194 ) $ 114,875,161 Net loss ( 22,322,588 ) ( 22,322,588 ) Other comprehensive income 11,670 11,670 Cashless exercise of options for common stock 4,354 4 ( 4 ) — Issuance of common stock, net of expenses 14,950,000 14,950 119,105,487 119,120,437 Exercise of warrants for common stock 530,414 530 1,723,316 1,723,846 Share based compensation 43,837 45 394,192 394,237 Balance as of December 31, 2021 71,025,738 $ 71,026 $ 384,852,107 $ ( 255,588 ) $ ( 170,864,782 ) $ 213,802,763 Net loss ( 22,157,195 ) ( 22,157,195 ) Other comprehensive (loss) ( 261,187 ) ( 261,187 ) Exercise of options for common stock 1,012 1 1,538 1,539 Share based compensation 83,963 84 535,039 535,123 Balance at December 31, 2022 71,110,713 $ 71,111 $ 385,388,684 $ ( 516,775 ) $ ( 193,021,977 ) $ 191,921,043 See accompanying notes to the consolidated financial statements. ‎ 48 Table of Contents AquaBounty Technologies, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2022 2021 Operating activities Net loss $ ( 22,157,195 ) $ ( 22,322,588 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,024,783 1,787,564 Share-based compensation 535,123 394,237 Other non-cash charge 22,983 17,386 Changes in operating assets and liabilities: Inventory ( 1,027,650 ) 267,833 Prepaid expenses and other assets ( 550,120 ) ( 1,138,691 ) Accounts payable and accrued liabilities ( 1,905 ) 230,712 Accrued employee compensation 147,151 291,288 Net cash used in operating activities ( 21,006,830 ) ( 20,472,259 ) Investing activities Purchases of and deposits on property, plant and equipment ( 67,476,327 ) ( 5,713,807 ) Maturities of marketable securities 149,435,173 86,488,271 Purchases of marketable securities ( 47,621,291 ) ( 188,302,153 ) Other investing activities 12,500 ( 11,010 ) Net cash provided by (used in) investing activities 34,350,055 ( 107,538,699 ) Financing activities Proceeds from issuance of debt 476,228 606,453 Repayment of term debt ( 640,170 ) ( 272,102 ) Proceeds from the issuance of common stock, net — 119,120,437 Proceeds from the exercise of stock options and warrants 1,538 1,723,846 Net cash (used in) provided by financing activities ( 162,404 ) 121,178,634 Effect of exchange rate changes on cash, cash equivalents and restricted cash 2,748 36,152 Net change in cash, cash equivalents and restricted cash 13,183,569 ( 6,796,172 ) Cash, cash equivalents and restricted cash at beginning of period 89,454,988 96,251,160 Cash, cash equivalents and restricted cash at end of period $ 102,638,557 $ 89,454,988 Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet: Cash and cash equivalents $ 101,638,557 $ 88,454,988 Restricted cash 1,000,000 1,000,000 Total cash, cash equivalents and restricted cash $ 102,638,557 $ 89,454,988 Supplemental disclosure of cash flow information and non-cash transactions: Interest paid in cash $ 274,562 $ 299,056 Property and equipment included in accounts payable and accrued liabilities $ 10,565,820 $ 2,926,016 See accompanying notes to the consolidated financial statements. 49 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 1. Nature of business and organization Nature of business AquaBounty Technologies, Inc. (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 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. In 2021, the Company began harvesting and selling its GE Atlantic salmon in the United States and Canada. Basis of presentation The consolidated financial statements include the accounts of AquaBounty Technologies, Inc. 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. Liquidity The Company completed an equity raise in 2021with net proceeds of $ 119.1 million and has $ 102.6 million in cash and cash equivalents, and restricted cash as of December 31, 2022. The Company’s plans include the continued construction of a 10,000 metric ton salmon farm in Ohio at a total project cost that is estimated to be between $ 375 million and $ 395 million. The Company plans to use cash-on-hand and debt financing to fund the remaining construction. While the Company has committed a significant amount of its current cash to fund a portion of the project, if necessary, management can utilize that cash for working capital purposes and therefore, 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 will require additional financing to fund its operations and execute its business plan. 2. Summary of significant accounting policies Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. Comprehensive loss The Company displays comprehensive loss and its components as part of its consolidated financial statements. Comprehensive loss consists of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains (losses) on the Company’s marketable securities. Foreign currency translation The functional currency of the Parent is the US Dollar. The functional currency of the Canadian Subsidiary is the Canadian Dollar (C$) and the functional currency of the US and Brazil Subsidiaries is the US Dollar. For the Canadian Subsidiary, assets and liabilities are translated at the exchange rates in effect at the balance sheet date, equity accounts are translated at the historical exchange rate and the income statement accounts are translated at the average rate for each period during the year. Net translation gains or losses are adjusted directly to a separate component of other comprehensive income (loss) within stockholders’ equity. Cash equivalents The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of business savings accounts, certificates of deposit and money market accounts. 50 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 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, 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%. Fair Value of Financial instruments 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: Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. Level 2: 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. Level 3: 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. 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 includes market terms and interest rates. 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 following tables present the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis as of December 31, 2022 and 2021: Quoted Prices in Significant Other Significant Active Markets Observable Inputs Unobservable Inputs Total (Level 1) (Level 2) (Level 3) December 31, 2021 Marketable securities $ - $ 101,773,781 $ - $ 101,773,781 Long term equity investment - - 8,651 8,651 Total $ - $ 101,773,781 $ 8,651 $ 101,782,432 December 31, 2022 Marketable securities $ - $ - $ - $ - Long term equity investment - - 8,651 8,651 Total $ - $ - $ 8,651 $ 8,651 Inventories Inventories are mainly comprised of feed, eggs, fry, fish in process and fish for sale. Fish in process inventory is a biological asset that is measured based on the estimated biomass of fish on hand. The Company has established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques. The Company measures inventory at the lower of cost or net realizable value (NRV), where NRV is defined as the estimated market price, less the estimated costs of processing, packaging and transportation. The Company considers fish that has been harvested and transported from its farm to be fish for sale. 51 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 Intangible assets Definite lived intangible assets include patents and licenses. Patent costs consist primarily of legal and filing fees incurred to file patents on proprietary technology developed by the Company. Patent costs are amortized on a straight - line basis over 20 years beginning with the filing date of the applicable patent. License fees are capitalized and expensed over the term of the licensing agreement. Indefinite lived intangible assets include trademark costs, which are capitalized with no amortization as they have an indefinite life. Property, plant and equipment Property, plant and equipment are recorded at cost. The Company depreciates all asset classes over their estimated useful lives, as follows: Building 20 - 25 years Equipment 5 - 20 years Office furniture and equipment 3 years Leasehold improvements shorter of asset life or lease term Vehicles 3 years The Company commences depreciation on an asset when it is placed into service. Impairment of long-lived assets 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. The Company’s impairment testing utilizes a discounted cash flow analysis that requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of the appropriate discount rate. An impairment loss is recognized in the amount of the difference between the carrying amount and fair value. Leases The Company leases certain facilities, property, and equipment under noncancelable operating leases. A determination is made if an arrangement is a lease at its inception, and leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For operating leases, expense is recognized on a straight-line basis over the lease term. The Company has agreements with lease (e.g., minimum rent payments) and non-lease components (e.g., maintenance), which are generally accounted for separately. The Company has not elected the practical expedient to account for lease and non-lease components as one lease component. Revenue recognition The Company is comprised of one reporting segment and 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 the years ended December 31, 2022 and 2021, the Company recognized the following product revenue: Year Ended December 31, 2021 U.S. Canada Total GE Atlantic salmon $ 427,615 $ 355,391 $ 783,006 Non-GE Atlantic salmon eggs - 194,028 194,028 Non-GE Atlantic salmon fry 196,582 196,582 Other revenue - 1,216 1,216 Total Revenue $ 427,615 $ 747,217 $ 1,174,832 52 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 Year Ended December 31, 2022 U.S. Canada Total GE Atlantic salmon $ 2,518,495 $ 394,478 $ 2,912,973 Non-GE Atlantic salmon eggs - 85,089 85,089 Non-GE Atlantic salmon fry - 102,387 102,387 Other revenue - 36,505 36,505 Total Revenue $ 2,518,495 $ 618,459 $ 3,136,954 During the years ended December 31, 2022 and 2021, the Company had the following customer concentration of revenue: Year Ended December 31, 2022 2021 Customer A 36 % 30 % Customer B 17 % 27 % Customer C 15 % 21 % All other 32 % 22 % Total of all customers 100 % 100 % Income taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized. The Company follows accounting guidance regarding the recognition, measurement, presentation and disclosure of uncertain tax positions in the financial statements. Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more likely than not” to be upheld under regulatory review. The resulting tax impact of these tax positions is recognized in the financial statements based on the results of this evaluation. The Company did not recognize any tax liabilities associated with uncertain tax positions, nor has it recognized any interest or penalties related to unrecognized tax positions. The Company is not currently under exam and is no longer subject to federal and state tax examinations by tax authorities for years before 2019. 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 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. 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. The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive: Year Ended December 31, Weighted Average Outstanding 2022 2021 Stock options 816,602 670,111 Warrants 418,441 532,380 Unvested restricted shares 166,261 68,981 Share-based compensation 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. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s consolidated statement of operations. The Company uses the 53 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 Black - Scholes option pricing model (“Black - Scholes”) as its method of valuation. Non - employee stock - based compensation is accounted for using Black - Scholes to determine the fair value of warrants or options awarded to non - employees with the fair value of such issuances expensed over the period of service . 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 . 3. Risks and uncertainties The Company is subject to risks and uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in other countries with respect to approval and commercial sale of any of the Company’s proposed products; (iii) the commercial acceptance of any products approved for sale and the Company’s ability to 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. Concentration of credit risk 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. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign currency exchange risk, which is minimized by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts at December 31, 2022 and 2021 totaled $ 518 thousand and $ 224 thousand, respectively. The Company also holds cash equivalent investments in a highly liquid investment account at a major financial institution. As of December 31, 2022 and 2021 the cash equivalent investment balance was $ 10.6 million and $ 73.3 million, respectively. 4. 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. The Company had no marketable securities as of December 31, 2022 The balance of unrealized losses at December 31, 2021 were recognized during 2022. Amortized Unrealized Unrealized Market Cost Gains Losses Value December 31, 2021 Government bonds $ 28,453,161 $ 82 $ ( 18,255 ) $ 28,434,988 Corporate bonds 29,874,696 - ( 21,928 ) 29,852,768 Commercial paper 43,486,025 - - 43,486,025 Marketable securities $ 101,813,882 $ 82 $ ( 40,183 ) $ 101,773,781 5. Inventory Major classifications of inventory are summarized as follows for December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Feed $ 366,957 162,047 Eggs and fry 22,140 — Fish in process 1,869,387 926,360 Fish for sale 18,108 171,503 Inventory $ 2,276,592 1,259,910 54 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 6. Property, plant and equipment Major classifications of property, plant and equipment are summarized as follows for December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Land $ 2,968,561 $ 725,799 Building and improvements 15,535,904 15,580,385 Construction in process 78,806,762 8,119,575 Equipment 17,259,301 15,981,408 Office furniture and equipment 258,972 240,939 Vehicles 106,074 36,280 Total property and equipment $ 114,935,574 $ 40,684,386 Less accumulated depreciation and amortization ( 8,649,388 ) ( 6,869,267 ) Property, plant and equipment, net $ 106,286,186 $ 33,815,119 Depreciation and amortization expense for 2022 and 2021 on property, plant and equipment was $ 2.0 million and $ 1.8 million, respectively. As of December 31, 2022, construction in process included $ 75.5 million, $ 2.7 million and $ 590 thousand for construction related to the Ohio, Rollo Bay and Indiana farm sites, respectively. An additional $ 29.2 million has been contractually committed for these farm sites as of December 31, 2022. 7. Debt The current terms and conditions of long-term debt outstanding as of December 31, 2022 and 2021, are as follows: Interest ‎ rate Monthly ‎ repayment Maturity ‎ date December 31, 2022 December 31, 2021 ACOA AIF Grant 0 % Royalties - $ 2,119,476 $ 2,261,349 ACOA term loan #1 0 % C$ 3,120 Feb 2027 115,158 152,346 ACOA term loan #2 0 % C$ 4,630 Sep 2029 276,743 339,015 ACOA term loan #3 0 % C$ 6,945 Dec 2025 184,500 196,850 Kubota Canada Ltd 0 % C$ 1,142 Jan 2025 21,077 33,283 DFO term loan 0 % C$ 16,865 Jan 2034 854,885 405,700 Finance PEI term loan 4 % C$ 16,313 Nov 2023 1,752,547 1,947,510 First Farmers Bank & Trust term loan 5.375 % $ 56,832 Oct 2028 3,401,019 3,883,325 Total debt $ 8,725,405 $ 9,219,378 less: debt issuance costs ( 52,065 ) ( 68,680 ) less: current portion ( 2,387,231 ) ( 627,365 ) Long-term debt, net $ 6,286,109 $ 8,523,333 Principal payments due on the long-term debt are as follows: Total 2023 $ 2,402,059 2024 715,026 2025 788,688 2026 758,079 2027 768,580 Thereafter 3,292,973 Total $ 8,725,405 55 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 Atlantic Canada Opportunities Agency (“ACOA”) ACOA is a Canadian government agency that provides funding to support the development of businesses and promote employment in the Atlantic region of Canada. ACOA Atlantic Innovation Fund (“AIF”) Grant In January 2009, the Canadian Subsidiary was awarded an AIF grant from ACOA to provide a contribution towards the funding of a research and development project. Contributions under the grant were made through 2014 and no further funds are available. Amounts claimed by the Canadian Subsidiary must be repaid in the form of a 10 % royalty on any products that are commercialized out of this research project until the loan is fully repaid. Revenue from the sale of 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 In February 2016, the Canadian Subsidiary executed an agreement with ACOA to partially finance the renovations to the Rollo Bay farm site. All available funding under the agreement was disbursed through May 2017, and no further amounts are available. The loan is being repaid over a 108 -month term at a zero percent interest rate. 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 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. Kubota In January 2018, the Canadian Subsidiary financed the purchase of equipment through a loan with Kubota. The total amount is being repaid in monthly installments. The loan is secured by the underlying equipment. Finance PEI (“FPEI”) FPEI is a corporation of the Ministry of Economic Development and Tourism for Prince Edward Island, Canada, and administers business financing programs for the provincial government. In August 2016, the Canadian Subsidiary obtained a loan from FPEI to partially finance the purchase of the assets of the former Atlantic Sea Smolt plant in Rollo Bay West on Prince Edward Island. In 2018, the Canadian Subsidiary obtained a new loan from FPEI, which 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. A balloon payment for the loan is due in November 2023. The loan is guaranteed by the Parent. First Farmers Bank & Trust (“FFBT”) On July 31, 2020, the Company’s Indiana Subsidiary obtained a $ 4.0 million loan from First Farmers Bank and Trust. Net proceeds were $ 3.9 million after deducting $ 90 thousand in loan costs. The loan bears interest at a rate of 5.375 % for the first five 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 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 provide certification of compliance quarterly. At December 31, 2022, 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 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 FFBT 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 56 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 cash balance amount from $ 500 thousand to $ 1.0 million. On December 13, 2022, FFBT removed two of the loan’s negative covenants. Department of Fisheries and Oceans (“DFO”) DFO is a department of the government of Canada responsible for safeguarding its waters and managing its fisheries, oceans and freshwater resources. DFO supports economic growth in the marine and fisheries sectors, and innovation in areas such as aquaculture and biotechnology . In September 2020, the Canadian Subsidiary entered into a Contribution Agreement with DFO's Atlantic Fisheries Fund, whereby it is eligible to receive up to C$ 1.9 million ($ 1.4 million) to finance new equipment for its Rollo Bay farm (the “DFO Term Loan”). 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. On April 7, 2022, the Canadian Subsidiary borrowed C$ 53,456 ($ 42,338 ) and on December 1, 2022 the Canadian Subsidiary borrowed C$ 589,684 ($ 433,890 ) under the DFO Term Loan. Borrowings are interest free and monthly repayments commence in August 2024 , with maturity in January 2034 . The Company recognized interest expense of $ 291 thousand and $ 316 thousand for the years ended December 31, 2022 and 2021, respectively , on its interest-bearing debt. 8. Stockholders’ equity The Company’s shareholders have authorized 155 million shares of stock, of which 5 million are authorized as preferred stock and 150 million as common stock. As of December 31, 2022 and 2021, the Company had zero shares of preferred stock and 71,110,713 shares and 71,025,738 shares of common stock, issued and outstanding, respectively. Common stock The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders. Dividends and distribution of assets of the Company in the event of liquidation are subject to the preferential rights of any outstanding preferred shares. Recent issuances During 2021, the Company completed a public offering of 14,950,000 shares of common stock for net proceeds of approximately $ 119.1 million. Warrants As of December 31, 2022 and 2021, 418,441 warrants to purchase common stock were outstanding. All outstanding warrants had an expiration date of January 17, 2023 . Share-based compensation In 2006, the Company established the 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan provided for the issuance of incentive stock options to employees of the Company and non-qualified stock options and awards of restricted stock to Directors, officers, employees, and consultants of the Company. In accordance with its original terms, the 2006 Plan terminated on March 18, 2016. All outstanding awards under the 2006 Plan will continue until their individual termination dates. In March 2016, the Company’s Board of Directors adopted the AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2006 Plan. The 2016 Plan provides for the issuance of incentive stock options, non-qualified stock options, and awards of restricted and direct stock purchases to Directors, officers, employees, and consultants of the Company. Total common shares authorized under the 2016 Plan are 1,900,000 , of which 452,620 shares are reserved for future issuance as of December 31, 2022. 57 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 Restricted stock The Company’s restricted stock activity under the 2016 Plan is summarized as follows: Shares Weighted ‎ average grant ‎ date fair value Unvested at December 31, 2021 65,100 $ 4.10 Granted 265,088 1.51 Vested ( 128,979 ) 2.27 Forfeited ( 1,755 ) 1.52 Unvested at December 31, 2022 199,454 $ 1.86 During 2022 and 2021, the Company expensed $ 358 thousand and $ 240 thousand, respectively related to restricted stock awards. At December 31, 2022, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $ 187 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.3 years. Stock options The Company’s option activity under the 2006 Plan and the 2016 Plan is summarized as follows: Number of ‎ options Weighted ‎ average ‎ exercise price Outstanding at December 31, 2021 663,425 $ 4.31 Issued 214,755 1.55 Exercised ( 1,012 ) 1.52 Forfeited ( 8,020 ) 1.52 Expired ( 29,038 ) 5.82 Outstanding at December 31, 2022 840,110 $ 3.58 Exercisable at December 31, 2022 678,634 $ 3.97 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 2022 was $ 1.11 (2021: $ 5.36 ). There were 1,012 options exercised in 2022 (2021: 16,667 ). The total intrinsic value of options exercised in 2022 was $ 142 (2021: $ 41 thousand). As of December 31, 2022, the total intrinsic value of all options outstanding was $ 0 (2021: $ 18 thousand) and the total intrinsic value of exercisable options was $ 0 (2021: $ 11 thousand). The following table summarizes information about options outstanding and exercisable as of December 31, 2022: Weighted ‎ average exercise ‎ price of outstanding ‎ options Number of ‎ options ‎ outstanding Weighted ‎ average remaining ‎ estimated life ‎ (in years) Number of ‎ options ‎ exercisable $ 1.49 - $ 2.50 715,985 7.1 567,130 $ 5.44 - $ 6.72 45,235 7.6 32,614 $ 7.50 - $ 10.80 12,303 1.0 12,303 $ 14.20 - $ 23.40 66,587 3.2 66,587 840,110 678,634 58 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 The fair values of stock option grants to employees and members of the Board of Directors during 2022 and 2021 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions: 2022 Expected volatility 92 % - 103 % Risk free interest rate 1.71 % - 3.95 % Expected dividend yield 0.0 % Expected life (in years) 5 The risk-free interest rate is estimated using the Federal Funds interest rate for a period that is commensurate with the expected term of the awards. The expected dividend yield is zero because the Company has never paid a dividend and does not expect to do so for the foreseeable future. The expected life was based on a number of factors including historical experience, vesting provisions, exercise price relative to market price, and expected volatility. The Company believes that all groups of employees demonstrate similar exercise and post-vesting termination behavior and, therefore, does not stratify employees into multiple groups and forfeitures are recognized as they occur. The expected volatility was estimated using the Company’s historical price volatility over a period that is commensurate with the expected term of the awards. Total share-based compensation on stock-option grants amounted to $ 177 thousand and $ 154 thousand for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards is $ 233 thousand. The period over which the unearned share-based compensation is expected to be earned is 2.4 years. Share-based compensation The following table summarizes share-based compensation costs recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021: 2022 2021 Sales and marketing 15,956 - General and administrative 519,167 394,237 Total share-based compensation $ 535,123 $ 394,237 9. Income taxes The components of loss before income taxes for the years ended December 31, 2022 and 2021 are presented below: 2022 2021 Domestic $ ( 20,673,855 ) $ ( 21,105,065 ) Foreign ( 1,483,340 ) ( 1,217,523 ) Loss before income taxes $ ( 22,157,195 ) $ ( 22,322,588 ) 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. Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate for the years ended December 31, 2022 and 2021 primarily due to the following: 2022 2021 Income tax benefit $ ( 4,653,011 ) $ ( 4,687,744 ) State and provincial income tax, net of federal benefit ( 1,031,963 ) ( 1,157,840 ) Permanent differences ( 60,904 ) 202,583 US-Foreign rate differential ( 65,058 ) 39,045 Other, net 483,873 ( 299,071 ) $ ( 5,327,063 ) $ ( 5,903,027 ) Change in valuation allowance 5,327,063 5,903,027 Total income tax $ - $ - 59 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 As of December 31, 2022, the Company has domestic net operating loss carryforwards of approximately $ 97 million, after consideration of limitations pursuant to section 382, to offset future federal taxable income, which begin to expire in 2033. As of December 31, 2022, the Company has domestic net operating loss carryforwards of approximately $ 69 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 and development loss carryforwards totaling approximately $ 12 million and foreign research and development expense tax credits of approximately $ 2 million as of December 31, 2022, which expire at various times commencing in 2023. 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. The IRS recently released guidance which modifies the procedures for taxpayers that incur specified research or experimental (R&E) expenditures to change their method of accounting to comply with the new capitalization and amortization rules provided in Section 174, as revised by the Tax Cuts and Jobs Act. The new Section 174 rules require taxpayers to capitalize and amortize specified R&E expenditures over a period of five years (for domestic research) or 15 years (for foreign research), beginning with the midpoint of the taxable year in which the expenses are paid or incurred. The impact will be to defer the tax benefit of R&E expenditures. Significant components of the Company’s deferred tax assets and liabilities are as follows: 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 28,188,265 $ 23,216,863 Foreign research and development tax credit carryforwards 2,454,756 2,428,663 Property and equipment ( 249,382 ) 145,530 Intangibles and other 3,658,921 2,934,441 Total deferred tax assets $ 34,052,560 $ 28,725,497 Valuation allowance ( 34,052,560 ) ( 28,725,497 ) Net deferred tax assets $ - $ - 10. Commitments and contingencies The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company is subject to legal proceedings and claims arising in the normal course of business. Management believes that final disposition of any such matters existing at December 31, 2022, will not have a material adverse effect on the Company’s financial position or results of operations. Lease commitments Lease expense for the years ended December 31, 2022 and 2021, amounted to $ 86 thousand and $ 84 thousand, respectively. As of December 31, 2022, the weighted average remaining lease term of the Company’s operating leases was 26 years. Lease payments included in operating cash flows totaled $ 84 thousand and $ 84 thousand for the years ended December 31, 2022 and 2021, respectively. The table below summarizes the Company’s lease obligations as of December 31, 2022 and 2021: Lease Liability at December 31, 2022 2021 Total leases $ 224,058 $ 290,327 Less: current portion ( 20,831 ) ( 66,269 ) Long-term leases $ 203,227 $ 224,058 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. 60 Table of Contents AquaBounty Technologies, Inc. Notes to the Consolidated Financial Statements for the years ended December 31, 2022 and 2021 Remaining payments under leases are as follows as of December 31, 2022: Year Amount 2023 $ 33,873 2024 17,481 2025 18,006 2026 18,546 2027 19,102 Thereafter 564,225 Total lease payments 671,233 Less: imputed interest ( 447,175 ) Total operational lease liabilities $ 224,058 11. Retirement plan The Company has a savings and retirement plan for its US employees that qualifies under Section 401(k) of the Internal Revenue Code. The plan covers substantially all employees and provides for voluntary contributions by participating employees up to the maximum contribution allowed under the Internal Revenue Code. Contributions by the Company can be made, as determined by the Board of Directors, provided the amount does not exceed the maximum permitted by the Internal Revenue Code. Company contributions made and expensed in operations in connection with the plan during the years ended December 31, 2022 and 2021, amounted to $ 94 thousand and $ 81 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 years ended December 31, 2022 and 2021, amounted to $ 44 thousand and $ 38 thousand, respectively. 12. 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. The receivable balance was received in full from TS Aquaculture in 2022. 61