AQUABOUNTY TECHNOLOGIES INC 10-Q

Item 1. Financial Statements AquaBounty Technologies, Inc. Condensed Consolidated Balance Sheets (Unaudited) March 31, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 72,776,543 $ 101,638,557 Inventory 2,376,207 2,276,592 Prepaid expenses and other current assets 2,290,836 2,133,583 Total current assets 77,443,586 106,048,732 Property, plant and equipment, net 127,357,662 106,286,186 Right of use assets, net 206,734 222,856 Intangible assets, net 214,713 218,139 Restricted cash 1,000,000 1,000,000 Other assets 65,162 64,859 Total assets $ 206,287,857 $ 213,840,772 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $ 10,836,269 $ 12,000,592 Accrued employee compensation 704,925 1,021,740 Current debt 2,377,781 2,387,231 Other current liabilities 4,631 20,830 Total current liabilities 13,923,606 15,430,393 Long-term lease obligations 202,103 203,227 Long-term debt, net 6,526,105 6,286,109 Total liabilities 20,651,814 21,919,729 Commitments and contingencies Stockholders' equity: Common stock, $ 0.001 par value, 150,000,000 shares authorized at March 31, 2023 and December 31, 2022; 71,338,938 and 71,110,713 shares outstanding at March 31, 2023 and December 31, 2022, respectively 71,339 71,111 Additional paid-in capital 385,585,097 385,388,684 Accumulated other comprehensive loss ( 512,348 ) ( 516,775 ) Accumulated deficit ( 199,508,045 ) ( 193,021,977 ) Total stockholders' equity 185,636,043 191,921,043 Total liabilities and stockholders' equity $ 206,287,857 $ 213,840,772 See accompanying notes to these condensed interim consolidated financial statements. ‎ 1 Table of Contents AquaBounty Technologies, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Three Months Ended ‎ March 31, 2023 2022 Revenues Product revenues $ 397,846 $ 962,881 Costs and expenses Product costs 3,559,240 3,275,690 Sales and marketing 198,285 247,572 Research and development 122,917 167,189 General and administrative 3,000,482 2,376,236 Total costs and expenses 6,880,924 6,066,687 Operating loss ( 6,483,078 ) ( 5,103,806 ) Other expense Interest expense ( 66,274 ) ( 75,288 ) Other income, net 63,284 67,368 Total other expense ( 2,990 ) ( 7,920 ) Net loss $ ( 6,486,068 ) $ ( 5,111,726 ) Other comprehensive income (loss): Foreign currency translation gain 4,427 82,905 Unrealized loss on marketable securities — ( 114,065 ) Total other comprehensive income (loss) 4,427 ( 31,160 ) Comprehensive loss $ ( 6,481,641 ) $ ( 5,142,886 ) Basic and diluted net loss per share $ ( 0.09 ) $ ( 0.07 ) Weighted average number of Common Shares - basic and diluted 71,169,277 71,004,454 See accompanying notes to these condensed interim consolidated financial statements. ‎ 2 Table of Contents AquaBounty Technologies, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Common stock issued and outstanding Par value Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total Balance at December 31, 2021 71,025,738 $ 71,026 $ 384,852,107 $ ( 255,588 ) $ ( 170,864,782 ) $ 213,802,763 Net loss ( 5,111,726 ) ( 5,111,726 ) Other comprehensive loss ( 31,160 ) ( 31,160 ) Share based compensation 83,963 84 211,244 211,328 Balance at March 31, 2022 71,109,701 $ 71,110 $ 385,063,351 $ ( 286,748 ) $ ( 175,976,508 ) $ 208,871,205 Common stock issued and outstanding Par value Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total Balance at December 31, 2022 71,110,713 $ 71,111 $ 385,388,684 $ ( 516,775 ) $ ( 193,021,977 ) $ 191,921,043 Net loss ( 6,486,068 ) ( 6,486,068 ) Other comprehensive income 4,427 4,427 Share based compensation 228,225 228 196,413 196,641 Balance at March 31, 2023 71,338,938 $ 71,339 $ 385,585,097 $ ( 512,348 ) $ ( 199,508,045 ) $ 185,636,043 See accompanying notes to these condensed interim consolidated financial statements. ‎ 3 Table of Contents AquaBounty Technologies, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended ‎ March 31, 2023 2022 Operating activities Net loss $ ( 6,486,068 ) $ ( 5,111,726 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 531,726 490,563 Share-based compensation 196,641 211,328 Other non-cash charge 3,834 4,251 Changes in operating assets and liabilities: Inventory ( 99,936 ) ( 411,794 ) Prepaid expenses and other assets ( 155,167 ) ( 139,671 ) Accounts payable and accrued liabilities 184,232 ( 6,949 ) Accrued employee compensation ( 316,815 ) ( 362,416 ) Net cash used in operating activities ( 6,141,553 ) ( 5,326,414 ) Investing activities Purchases of and deposits on property, plant and equipment ( 22,931,293 ) ( 5,762,143 ) Maturities of marketable securities — 45,915,851 Purchases of marketable securities — ( 47,621,291 ) Other investing activities ( 3,959 ) — Net cash used in investing activities ( 22,935,252 ) ( 7,467,583 ) Financing activities Proceeds from issuance of debt 394,156 — Repayment of term debt ( 179,392 ) ( 159,304 ) Net cash provided by (used in) financing activities 214,764 ( 159,304 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 27 8,106 Net change in cash, cash equivalents and restricted cash ( 28,862,014 ) ( 12,945,195 ) Cash, cash equivalents and restricted cash at beginning of period 102,638,557 89,454,988 Cash, cash equivalents and restricted cash at end of period $ 73,776,543 $ 76,509,793 Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet: Cash and cash equivalents $ 72,776,543 $ 75,509,793 Restricted cash 1,000,000 1,000,000 Total cash, cash equivalents and restricted cash $ 73,776,543 $ 76,509,793 Supplemental disclosure of cash flow information and non-cash transactions: Interest paid in cash $ 62,439 $ 71,037 Property and equipment included in accounts payable and accrued liabilities $ 9,216,027 $ 1,507,514 See accompanying notes to these condensed interim consolidated financial statements. ‎ 4 Table of Contents AquaBounty Technologies, Inc. Notes to the condensed consolidated financial statements (unaudited) 1. Nature of business and organization 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 Atlantic 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. 2. Basis of presentation The unaudited interim condensed consolidated financial statements include the accounts of AquaBounty Technologies, Inc. and its wholly owned direct subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. The unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited financial statements and related notes for the year ended December 31, 2022. The unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of March 31, 2023, results of operations and cash flows for the interim periods presented, and are not necessarily indicative of results for subsequent interim periods or for the full year. The unaudited interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements, as allowed by the relevant U.S. Securities and Exchange Commission (“SEC”) rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. Liquidity The Company had $ 73.8 million in cash and cash equivalents, and restricted cash as of March 31, 2023. 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, of which $ 99 million has been expended as of March 31, 2023. The Company plans to use cash-on-hand and debt financing to fund the remaining construction cost of the Ohio farm. 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 condensed 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. 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. 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. 5 Table of Contents During the period ended March 31, 2023 and 2022, the Company recognized the following product revenue: Three Months Ended March 31, 2023 U.S. Canada Total GE Atlantic salmon $ 392,428 $ - $ 392,428 Non-GE Atlantic salmon eggs - 730 730 Non-GE Atlantic salmon fry 730 730 Other revenue - 3,958 3,958 Total Revenue $ 392,428 $ 5,418 $ 397,846 Three Months Ended March 31, 2022 U.S. Canada Total GE Atlantic salmon $ 788,977 $ 131,860 $ 920,837 Non-GE Atlantic salmon eggs - - - Non-GE Atlantic salmon fry - 41,807 41,807 Other revenue - 237 237 Total Revenue $ 788,977 $ 173,904 $ 962,881 During the period ended March 31, 2023 and 2022, the Company had the following customer concentration of revenue: Three Months Ended March 31 2023 2022 Customer A 54 % 34 % Customer B 24 % 21 % Customer C 15 % 14 % All other 7 % 31 % Total of all customers 100 % 100 % 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 shares of common stock outstanding during the year. Basic net loss per share is based solely on the number of shares of common stock outstanding during the year. Fully diluted net loss per share includes the number of shares of common stock issuable upon the exercise or vesting of equity instruments 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 shares of common stock 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: Three Months Ended March 31, Weighted Average Outstanding 2023 2022 Stock options 840,110 768,303 Warrants 209,221 418,441 Unvested stock awards 301,474 124,873 Accounting Pronouncements 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. 6 Table of Contents Concentration of credit risk Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. This risk is mitigated by the Company’s policy of maintaining all balances with highly rated financial institutions and investing cash equivalents with maturities of less than 90 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 totaled $ 488 thousand and $ 518 thousand as of March 31, 2023 and December 31, 2022, respectively. The Company also holds cash equivalent investments in a highly liquid investment account at a major financial institution. As of March 31, 2023 and December 31, 2022 the cash equivalent investment balance was $ 651 thousand and $ 10.6 million, respectively. 4. Inventory Major classifications of inventory are summarized as follows: March 31, 2023 December 31, 2022 Feed $ 282,620 366,957 Eggs and fry 106,250 22,140 Fish in process 1,932,745 1,869,387 Fish for sale 54,592 18,108 Inventory $ 2,376,207 2,276,592 5. Property, plant and equipment Major classifications of property, plant and equipment are summarized as follows: March 31, 2023 December 31, 2022 Land $ 2,968,937 $ 2,968,561 Building and improvements 15,605,291 15,535,904 Construction in process 100,226,546 78,806,762 Equipment 17,358,133 17,259,301 Office furniture and equipment 271,449 258,972 Vehicles 106,200 106,074 Total property and equipment $ 136,536,556 $ 114,935,574 Less accumulated depreciation and amortization ( 9,178,894 ) ( 8,649,388 ) Property, plant and equipment, net $ 127,357,662 $ 106,286,186 Depreciation expense was $ 525 thousand and $ 484 thousand, for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, construction in process included $ 95.6 million, $ 3.4 million, and $ 1.2 million for construction related to the Ohio, Rollo Bay and Indiana farm sites, respectively. An additional $ 36.5 million has been contractually committed for these farm sites as of March 31, 2023. 7 Table of Contents 6. Debt The current material terms and conditions of debt outstanding are as follows: Interest ‎ rate Monthly ‎ repayment Maturity ‎ date March 31, 2023 December 31, 2022 ACOA AIF Grant 0 % Royalties - $ 2,122,348 $ 2,119,476 ACOA term loan #1 0 % C$ 3,120 Feb 2027 108,397 115,158 ACOA term loan #2 0 % C$ 4,630 Sep 2029 266,853 276,743 ACOA term loan #3 0 % C$ 6,945 Dec 2025 169,353 184,500 Kubota Canada Ltd 0 % C$ 1,142 Jan 2025 18,573 21,077 DFO term loan 0 % C$ 16,865 Jan 2034 1,254,896 854,885 Finance PEI term loan 4 % C$ 16,313 Nov 2023 1,736,008 1,752,547 First Farmers Bank & Trust term loan 5.375 % $ 56,832 Oct 2028 3,275,690 3,401,019 Total debt $ 8,952,118 $ 8,725,405 less: debt issuance costs ( 48,232 ) ( 52,065 ) less: current portion ( 2,377,781 ) ( 2,387,231 ) Long-term debt, net $ 6,526,105 $ 6,286,109 Estimated principal payments remaining on debt outstanding are as follows: Total 2023 remaining $ 2,225,269 2024 732,763 2025 830,977 2026 800,284 2027 810,753 Thereafter 3,552,072 Total $ 8,952,118 In September 2020, the Canadian Subsidiary entered into a Contribution Agreement with the Department of Fisheries and Ocean'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”). O n March 28, 2023, the Canadian Subsidiary borrowed an additional C$ 539,718 ($ 394,156 ) under the DFO Term Loan . Borrowings are interest free and monthly repayments commence in August 2024, with maturity in January 2034. In August 2020, the Indiana Subsidiary entered into a term loan agreement with First Farmers Bank and Trust (“FFBT”) in the amount of $ 4 million, which is secured by the assets of the Indiana subsidiary and a corporate guarantee. The agreement contains certain financial and non-financial covenants, which if not met, could result in an event of default pursuant to the terms of the loan. At March 31, 2023, the Indiana subsidiary was in compliance with its loan covenants. The Company recognized interest expense of $ 66 thousand and $ 75 thousand for the three months ended March 31, 2023 and 2022, respectively, on its interest-bearing debt. 7. Leases Lease expense for the three months ended March 31, 2023 and 2022, amounted to $ 22 thousand and $ 21 thousand, respectively. The weighted average remaining lease term of the Company’s operating leases was 26 years. Lease payments included in operating cash flows totaled $ 26 thousand and $ 25 thousand for the three months ended March 31, 2023 and 2022, respectively. The table below summarizes the outstanding lease liabilities at March 31, 2023 and December 31, 2022: Lease Liability March 31, 2023 December 31, 2022 Total leases $ 206,734 $ 224,058 Less: current portion ( 4,631 ) ( 20,831 ) Long-term leases $ 202,103 $ 203,227 8 Table of Contents Remaining payments under leases are as follows: Year Amount 2023 remaining $ 12,729 2024 17,481 2025 18,006 2026 18,546 2027 19,103 Thereafter 564,225 Total lease payments 650,090 Less: imputed interest ( 443,356 ) Total operational lease liabilities $ 206,734 8. Stockholders’ equity Warrants At March 31, 2023 and December 31, 2022, there were zero and 418,441 warrants outstanding, respectively, which were issued in conjunction with a public equity offering in January 2018. All outstanding warrants expired on January 17, 2023 . Share-based compensation At March 31, 2023, the Company has reserved 840,110 and 403,232 shares of common stock issuable upon the exercise of outstanding stock options and unvested stock awards, respectively under its 2006 and 2016 Equity Incentive Plans. An additional 533 shares of common stock are reserved for future equity awards under the 2016 Equity Incentive Plan. Unvested Stock Awards A summary of the Company’s unvested stock awards for the three months ended March 31, 2023, is as follows: Shares Weighted ‎ average grant ‎ date fair value Unvested at December 31, 2022 199,454 $ 1.86 Granted 452,087 0.65 Vested ( 248,047 ) 1.28 Forfeited — — Unvested at March 31, 2023 403,494 $ 0.87 During the three months ended March 31, 2023 and 2022, the Company expensed $ 155 thousand and $ 168 thousand, respectively, related to the stock awards. At March 31, 2023, the balance of unearned share-based compensation to be expensed in future periods related to the stock awards is $ 130 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2 years. Stock options The Company’s option activity is summarized as follows: Number of ‎ options Weighted ‎ average ‎ exercise price Outstanding at December 31, 2022 840,110 $ 3.58 Issued — — Exercised — — Outstanding at March 31, 2023 840,110 $ 3.58 Exercisable at March 31, 2023 705,942 $ 3.90 Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested daily over one to three years and are exercisable for a term of ten years from the date of issuance. There were no stock options granted during the three months ended March 31, 2023. 9 Table of Contents The total intrinsic value of all options outstanding was $ 0 at March 31, 2023 and December 31, 2022. The total intrinsic value of exercisable options was $ 0 at March 31, 2023 and December 31, 2022. The following table summarizes information about options outstanding and exercisable at March 31, 2023: 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 6.9 591,820 $ 5.44 - $ 6.72 45,235 7.3 35,232 $ 7.50 - $ 10.80 12,303 0.7 12,303 $ 14.20 - $ 23.40 66,587 3.0 66,587 840,110 705,942 Total share-based compensation on stock options amounted to $ 41 thousand and $ 43 thousand for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was $ 192 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.2 years. 9. 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 March 31, 2023, will not have a material adverse effect on the Company’s financial position or results of operations. 10. Income Taxes The Company estimates an annual effective tax rate of 0 % for the year ending December 31, 2023 as the Company incurred losses for the three months ended March 31, 2023 and is forecasting additional losses through the remainder of the year ending December 31, 2023, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2023. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method. Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not. As of March 31, 2023, the Company had no unrecognized income tax benefits that would reduce the Company’s effective tax rate if recognized. ‎ 10 Table of Contents