Item 9A. Controls and Procedures
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 Exchange Act 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, 2023 (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 Exchange Act). 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 Exchange Act, 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 control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023. 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, 2023, our internal control 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 control over financial reporting as of December 31, 2023, 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 three months ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. Other Information
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “ non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, 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 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, 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 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, 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 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, and is incorporated by reference into this Annual Report on Form 10‑K.
Item 14. Principal Accountant Fees and Services
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023 and is incorporated by reference into this Annual Report on Form 10‑K, for Deloitte & Touche LLP (PCAOB ID No. 34 ).
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Part IV
Item 15. Exhibit 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.
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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*
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 October 13, 2023).
3.8*
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).
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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).
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).
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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).
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).
10.32^
Agreement For Architectural/Engineering Services between AquaBounty Farms Ohio LLC and Clark, Richardson and Biskup Consulting Engineers, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on March 3, 2023).
10.33 †
Amended and Restated Employment Agreement, by and between David Frank and AquaBounty Technologies, Inc., dated March 29, 2023 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 4, 2023).
10.34 †
Employment Agreement, by and between Angela Olsen and AquaBounty Technologies, Inc., dated November 1, 2019 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 4, 2023).
10.35 †
Form of Restricted Stock Unit Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 4, 2023).
10.36 †
Amendment No. 3 to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 26, 2023).
10.37^
Agreement For Construction Management Services Between AquaBounty Farms Ohio LLC and Gilbane Building Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on June 30, 2023).
21.1
List of Subsidiaries of AquaBounty Technologies, Inc.
23.1
Consent of Deloitte & Touche LLP
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.
97.1
Compensation Recovery Policy, Adopted November 1, 2023
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.
^Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
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**The certification furnished in Exhibit 32.1 is deemed to be furnished and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
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.
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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 and Board Chair
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 or her 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
Chief Executive Officer and Board Chair (Principal Executive Officer)
April 1, 2024
Sylvia A. Wulf
/s/ David A. Frank
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
April 1, 2024
David A. Frank
/s/ Ricardo Alvarez
Lead Independent Director
April 1, 2024
Ricardo Alvarez
/s/ Erin Sharp
Director
April 1, 2024
Erin Sharp
/s/ Gail Sharps Myers
Director
April 1, 2024
Gail Sharps Myers
/s/ Christine St.Clare
Director
April 1, 2024
Christine St.Clare
/s/ Rick Sterling
Director
April 1, 2024
Rick Sterling
/s/ Michael Stern
Director
April 1, 2024
Michael Stern
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Report of Independent Registered Public Accounting Firm
To the stockholders 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, 2023 and 2022, 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, 2023 and 2022, 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.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred cumulative operating losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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.
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.
Inventory – Fish in Process – Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
Fish in process inventory is measured at the lower of cost or net realizable value, where net realizable value is defined as the estimated market price, less the estimated cost of processing, packaging and transportation. The Company’s determination of net realizable value of fish in process inventory requires management to make various estimates and assumptions related to the estimated biomass of fish,
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as well as the expected harvest yields, market price of biomass and 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 expected harvest yields, market price 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.
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 and compilation of inventory biomass.
We evaluated management's method for determining the net realizable value of fish in process inventory.
We observed and tested the Company’s physical inventory inspection, fish counting and fish weighing processes.
We tested the completeness and accuracy of management's estimates and assumptions within the net realizable value calculation by comparing expected:
o Processing, packaging and transportation costs to historical amounts.
o Market price 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 a physical observation date to December 31, 2023.
/s/ Deloitte & Touche LLP
Baltimore, Maryland
April 1, 2024
We have served as the Company's auditor since 2021.
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AquaBounty Technologies, Inc.
Consolidated Balance Sheets
as of December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
8,203,869
$
101,638,557
Inventory
1,733,603
2,276,592
Prepaid expenses and other current assets
1,700,273
2,133,583
Total current assets
11,637,745
106,048,732
Property, plant and equipment, net
174,381,382
106,286,186
Right of use assets, net
281,104
222,856
Intangible assets, net
204,436
218,139
Restricted cash
1,000,000
1,000,000
Other assets
46,761
64,859
Total assets
$
187,551,428
$
213,840,772
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities
$
12,991,819
$
12,000,592
Accrued employee compensation
754,621
1,021,740
Current debt
795,300
2,387,231
Other current liabilities
30,863
20,830
Total current liabilities
14,572,603
15,430,393
Long-term lease obligations
250,241
203,227
Long-term debt, net
7,711,866
6,286,109
Total liabilities
22,534,710
21,919,729
Commitments and contingencies
Stockholders' equity:
Common stock, $ 0.001 par value, 75,000,000 and 150,000,000 shares authorized at
December 31, 2023 and 2022, respectively; 3,847,022 and 3,834,383 shares
outstanding at December 31, 2023 and 2022, respectively
3,847
3,834
Additional paid-in capital
385,998,213
385,455,961
Accumulated other comprehensive loss
( 405,464 )
( 516,775 )
Accumulated deficit
( 220,579,878 )
( 193,021,977 )
Total stockholders' equity
165,016,718
191,921,043
Total liabilities and stockholders' equity
$
187,551,428
$
213,840,772
See accompanying notes to the consolidated financial statements.
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AquaBounty Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
Years ended
December 31,
2023
2022
Revenues
Product revenues
$
2,472,659
$
3,136,954
Costs and expenses
Product costs
15,281,635
13,630,911
Sales and marketing
795,931
1,138,781
Research and development
703,823
903,981
General and administrative
13,007,869
9,786,819
Total costs and expenses
29,789,258
25,460,492
Operating loss
( 27,316,599 )
( 22,323,538 )
Other (expense) income
Interest expense
( 303,967 )
( 291,177 )
Other income, net
62,665
457,520
Total other (expense) income
( 241,302 )
166,343
Net loss
$
( 27,557,901 )
$
( 22,157,195 )
Other comprehensive income (loss):
Foreign currency gain (loss)
111,311
( 301,288 )
Unrealized gains on marketable securities
—
40,101
Total other comprehensive income (loss)
111,311
( 261,187 )
Comprehensive loss
$
( 27,446,590 )
$
( 22,418,382 )
Basic and diluted net loss per share
$
( 7.17 )
$
( 5.78 )
Weighted average number of common shares -
basic and diluted
3,844,239
3,832,557
See accompanying notes to the consolidated financial statements.
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AquaBounty Technologies, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Common stock issued and outstanding
Par value
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total
Balance at December 31, 2021
3,830,128
$
3,830
$
384,919,303
$
( 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
52
—
1,539
1,539
Share-based compensation
4,203
4
535,119
535,123
Balance at December 31, 2022
3,834,383
$
3,834
$
385,455,961
$
( 516,775 )
$
( 193,021,977 )
$
191,921,043
Net loss
( 27,557,901 )
( 27,557,901 )
Other comprehensive income
111,311
111,311
Share-based compensation
12,639
13
542,252
542,265
Balance at December 31, 2023
3,847,022
$
3,847
$
385,998,213
$
( 405,464 )
$
( 220,579,878 )
$
165,016,718
See accompanying notes to the consolidated financial statements.
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AquaBounty Technologies, Inc.
Consolidated Statements of Cash Flows
Years Ended
December 31,
2023
2022
Operating activities
Net loss
$
( 27,557,901 )
$
( 22,157,195 )
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization
2,158,231
2,024,783
Share-based compensation
542,265
535,123
Other non-cash charge
16,604
22,983
Changes in operating assets and liabilities:
Inventory
546,847
( 1,027,650 )
Prepaid expenses and other assets
375,430
( 550,120 )
Accounts payable and accrued liabilities
( 50,602 )
( 1,905 )
Accrued employee compensation
( 267,119 )
147,151
Net cash used in operating activities
( 24,236,245 )
( 21,006,830 )
Investing activities
Purchases of and deposits on property, plant and equipment
( 68,889,540 )
( 67,476,327 )
Maturities of marketable securities
—
149,435,173
Purchases of marketable securities
—
( 47,621,291 )
Other investing activities
( 3,263 )
12,500
Net cash (used in) provided by investing activities
( 68,892,803 )
34,350,055
Financing activities
Proceeds from issuance of debt
417,673
476,228
Repayment of term debt
( 726,140 )
( 640,170 )
Proceeds from the exercise of stock options and warrants
—
1,538
Net cash used in financing activities
( 308,467 )
( 162,404 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash
2,827
2,748
Net change in cash, cash equivalents and restricted cash
( 93,434,688 )
13,183,569
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
$
9,203,869
$
102,638,557
Reconciliation of cash, cash equivalents and restricted cash reported
in the consolidated balance sheet:
Cash and cash equivalents
$
8,203,869
$
101,638,557
Restricted cash
1,000,000
1,000,000
Total cash, cash equivalents and restricted cash
$
9,203,869
$
102,638,557
Supplemental disclosure of cash flow information and non-cash transactions:
Interest paid in cash
$
289,138
$
274,562
Property and equipment included in accounts payable and accrued liabilities
$
11,670,996
$
10,565,820
See accompanying notes to the consolidated financial statements.
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
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 in Canada. In 2021, the Parent obtained regulatory approval from the National Biosafety Technical Commission for the sale of its GE Atlantic salmon 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 the Parent 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.
On October 12, 2023, the stockholders of the Company approved a reverse stock split of the Company’s common stock, and the Board of Directors approved a split ratio of 1-for-20 . The reverse stock split was implemented on October 16, 2023. In conjunction with the reverse stock split, the number of shares of common stock authorized for issuance was reduced from 150 million to 75 million. All share and per share information, as well as other related information on equity instruments in the consolidated financial statements and accompanying notes, have been adjusted to reflect this change.
Going Concern Uncertainty
Since inception, the Company has incurred cumulative net losses and negative cash flows from operations and expects that this will continue for the foreseeable future. As of December 31, 2023, the Company has $ 9.2 million in cash and cash equivalents, and restricted cash.
The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital, and there can be no assurance that such capital will be available in sufficient amounts, on a timely basis, or on terms acceptable to the Company, or at all. This raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty. 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.
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
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.
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 prepaid expenses and other current assets and accounts payable approximate fair value based on the short-term maturity of these instruments. 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.
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 and expected harvest yields. 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.
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.
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
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
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.
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 12 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.
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, 2023 and 2022, the Company recognized the following product revenue:
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
Year Ended December 31, 2023
U.S.
Canada
Total
GE Atlantic salmon
$
2,331,352
$
-
$
2,331,352
Non-GE Atlantic salmon eggs
-
730
730
Non-GE Atlantic salmon fry
-
123,381
123,381
Other revenue
-
17,196
17,196
Total Revenue
$
2,331,352
$
141,307
$
2,472,659
During the years ended December 31, 2023 and 2022, the Company had the following customer concentration of revenue:
Years Ended December 31,
2023
2022
Customer A
44 %
36 %
Customer B
18 %
17 %
Customer C
14 %
15 %
All other
24 %
32 %
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
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
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 2020.
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:
Years Ended December 31,
Weighted Average Outstanding
2023
2022
Stock options
61,146
40,543
Warrants
917
20,929
Unvested stock awards
27,368
8,299
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 Black - Scholes option pricing model (“Black - Scholes”) as its method of valuation. Non - employee share - 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 in cash equivalents with maturities of less than 90 days, and investing in 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
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts at December 31, 2023 and 2022 totaled $ 227 thousand and $ 518 thousand, respectively.
4. Inventory
Major classifications of inventory are summarized as follows for December 31, 2023 and 2022:
December 31, 2023
December 31, 2022
Feed
$
167,136
$
366,957
Eggs and fry
147,998
22,140
Fish in process
1,418,469
1,869,387
Fish for sale
—
18,108
Inventory
$
1,733,603
$
2,276,592
5. Prepaid and other current assets
Major classifications of prepaid and current assets are summarized as follows for December 31, 2023 and 2022:
December 31, 2023
December 31, 2022
Receivables
$
1,216,585
$
337,154
Prepaid insurance
388,049
272,958
Prepaid supplies
85,988
55,007
Prepaid professional services
-
1,446,819
Deposits and other
9,651
21,645
Total prepaid expenses and other current assets
$
1,700,273
$
2,133,583
Certain prepaid professional services, consisting of $ 2.1 million in legal expenditures and fees related to a bond financing transaction for the Ohio farm site were expensed during the year ended December 31, 2023, as the transaction was postponed for an undetermined amount of time.
6. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows for December 31, 2023 and 2022:
December 31, 2023
December 31, 2022
Land
$
2,974,685
$
2,968,561
Building and improvements
15,804,739
15,535,904
Construction in process
147,755,336
78,806,762
Equipment
18,285,038
17,259,301
Office furniture and equipment
231,758
258,972
Vehicles
108,120
106,074
Total property and equipment
$
185,159,676
$
114,935,574
Less accumulated depreciation and amortization
( 10,778,294 )
( 8,649,388 )
Property, plant and equipment, net
$
174,381,382
$
106,286,186
Depreciation and amortization expense for 2023 and 2022 on property, plant and equipment was $ 2.1 million and $ 2.0 million, respectively.
As of December 31, 2023, construction in process included $ 141.8 million, $ 4.3 million and $ 1.6 million for construction related to the Ohio, Rollo Bay and Indiana farm sites, respectively. An additional $ 16.7 million has been contractually committed for these farm sites as of December 31, 2023.
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
7. Debt
The current terms and conditions of long-term debt outstanding as of December 31, 2023 and 2022, are as follows:
Interest
rate
Monthly
repayment
Maturity
date
December 31, 2023
December 31, 2022
ACOA AIF Grant
0 %
Royalties
-
$
2,166,289
$
2,119,476
ACOA term loan #1
0 %
C$ 3,120
Feb 2027
89,460
115,158
ACOA term loan #2
0 %
C$ 4,630
Sep 2029
240,946
276,743
ACOA term loan #3
0 %
C$ 6,945
Dec 2025
125,712
184,500
Kubota Canada Ltd.
0 %
C$ 1,142
Jan 2025
11,202
21,077
DFO term loan
0 %
C$ 14,896
Jan 2034
1,305,193
854,885
Finance PEI term loan
6.5 %
C$ 19,913
Dec 2028
1,713,837
1,752,547
First Farmers Bank & Trust term loan
5.4 %
$ 56,832
Oct 2028
2,891,763
3,401,019
Total debt
$
8,544,402
$
8,725,405
less: debt issuance costs
( 37,236 )
( 52,065 )
less: current portion
( 795,300 )
( 2,387,231 )
Long-term debt, net
$
7,711,866
$
6,286,109
Principal payments due on the long-term debt are as follows:
Total
2024
$
808,114
2025
913,964
2026
887,032
2027
902,419
2028
2,136,774
Thereafter
2,896,099
Total
$
8,544,402
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
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
received C$ 250,000 ($ 200,075 ). All funds received are being 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 Canada Ltd. The total amount is being repaid in monthly installments. The loan is secured by the underlying equipment.
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”). As of December 31, 2022, the Canadian Subsidiary had borrowed C$ 1.2 million ($ 883 thousand) on the facility, and during 2023, the Canadian Subsidiary borrowed an additional C$ 572 thousand ($ 418 thousand) 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 $ 304 thousand and $ 291 thousand for the years ended December 31, 2023 and 2022, respectively , on its interest-bearing debt.
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 a 147 -month term ending with a balloon payment, which was extended for five additional years to December 2028. The loan has an interest rate of 6.5 % and is collateralized by a mortgage executed by the Canadian Subsidiary, which conveys a first security interest in all of its current and acquired assets. The loan is guaranteed by the Parent.
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. The Company must comply with certain financial and non-financial covenants and provide certification of compliance quarterly. During 2022, FFBT removed two of the loan’s negative covenants and the Company increased its required restrictive cash balance amount from $ 500 thousand to $ 1.0 million. This amount is reflected as restricted cash on the balance sheet. At December 31, 2023, the Company was in compliance with its loan 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.
8. Stockholders’ equity
The Company’s stockholders have authorized 80 million shares of stock, of which 5 million are authorized as preferred stock and 75 million as common stock.
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.
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Table of Contents
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Warrants
All outstanding warrants as of December 31, 2022 expired unexercised during the year ended December 31, 2023.
Share-based compensation
In 2006, the Company established the 2006 Equity Incentive Plan (as amended, 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 (as amended, 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 215,000 , of which 68,280 shares are reserved for future issuance as of December 31, 2023.
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, 2022
9,974
$
37.27
Granted
39,286
10.58
Vested
( 13,584 )
25.40
Forfeited
( 1,536 )
23.20
Unvested at December 31, 2023
34,140
$
11.91
During 2023 and 2022, the Company expensed $ 360 thousand and $ 358 thousand, respectively, related to restricted stock awards. At December 31, 2023, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $ 215 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 1.4 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, 2022
42,035
$
71.69
Issued
36,654
7.20
Exercised
—
—
Forfeited
( 2,315 )
10.13
Expired
( 705 )
146.20
Outstanding at December 31, 2023
75,669
$
41.64
Exercisable at December 31, 2023
46,397
$
61.32
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 10 years from the date of issuance.
The weighted average fair value of stock options granted during 2023 was $ 5.02 (2022: $ 22.20 ). There were no options exercised in 2023 (2022: 52 ). The total intrinsic value of options exercised in 2022 was $ 142 . As of December 31, 2023 and 2022, the total intrinsic value of exercisable and outstanding options was $ 0 .
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
The following table summarizes information about options outstanding and exercisable as of December 31, 2023:
Weighted
average exercise
price of outstanding
options
Number of
options
outstanding
Weighted
average remaining
estimated life
(in years)
Number of
options
exercisable
< $ 10.00
34,604
9.5
8,966
$ 20.00 - $ 50.00
35,380
6.1
31,847
$ 100.00 - $ 200.00
2,369
6.4
2,268
$ 200.00 - $ 500.00
3,316
2.2
3,316
75,669
46,397
The fair values of stock option grants to employees and members of the Board of Directors during 2023 and 2022 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:
2023
2022
Expected volatility
86 %
92 %- 103 %
Risk free interest rate
4.01 %
1.71 %- 3.95 %
Expected dividend yield
0.0 %
0.0 %
Expected life (in years)
5
5
The risk-free interest rate is estimated using the Federal Funds interest rate for a period that is commensurate with the expected term of the awards. The expected dividend yield is zero because the Company has never paid a dividend and does not expect to do so for the foreseeable future. The expected life was based on a number of factors including historical experience, vesting provisions, exercise price relative to market price, and expected volatility. The Company believes that all groups of employees demonstrate similar exercise and post-vesting termination behavior and, therefore, does not stratify employees into multiple groups and forfeitures are recognized as they occur. The expected volatility was estimated using the Company’s historical price volatility over a period that is commensurate with the expected term of the awards.
Total share-based compensation on stock-option grants amounted to $ 182 thousand and $ 177 thousand for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards is $ 219 thousand. The period over which the unearned share-based compensation is expected to be earned is 1.4 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, 2023 and 2022:
2023
2022
Sales and marketing
19,325
15,956
General and administrative
522,940
519,167
Total share-based compensation
$
542,265
$
535,123
9. Income taxes
The components of loss before income taxes for the years ended December 31, 2023 and 2022 are presented below:
2023
2022
Domestic
$
( 23,732,417 )
$
( 20,673,855 )
Foreign
( 3,825,484 )
( 1,483,340 )
Loss before income taxes
$
( 27,557,901 )
$
( 22,157,195 )
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
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, 2023 and 2022 primarily due to the following:
2023
2022
Income tax benefit
$
( 5,787,160 )
$
( 4,653,011 )
State and provincial income tax
( 2,074,037 )
( 1,031,963 )
Permanent differences
48,028
( 60,904 )
US-Foreign rate differential
232,963
( 65,058 )
Other
( 1,013,689 )
483,873
$
( 8,593,895 )
$
( 5,327,063 )
Change in valuation allowance
8,593,895
5,327,063
Total income tax
$
-
$
-
As of December 31, 2023, the Company had domestic net operating loss carryforwards of approximately $ 122 million, after consideration of limitations pursuant to section 382, to offset future federal taxable income, which begin to expire in 2033. Of this amount, the Company had domestic net operating loss carryforwards of approximately $ 93 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 had foreign research and development loss carryforwards totaling approximately $ 18 million and foreign research and development expense tax credits of approximately $ 3 million as of December 31, 2023, which expire at various times commencing in 2024. 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 released guidance which modified 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 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 defers the tax benefit of R&E expenditures.
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Significant components of the Company’s deferred tax assets and liabilities are as follows:
2023
2022
Deferred tax assets:
Net operating loss carryforwards
$
37,551,366
$
28,188,265
Foreign research and development tax credit carryforwards
2,611,184
2,454,756
Intangibles
2,366,372
2,630,122
R&D costs
843,947
696,326
Other
470,847
332,473
Total deferred tax assets
$
43,843,716
$
34,301,942
Valuation allowance
( 42,646,455 )
( 34,052,560 )
Net deferred tax assets
$
1,197,261
$
249,382
Deferred tax liabilities:
Property and equipment
( 1,197,261 )
( 249,382 )
Total deferred tax liabilities
$
( 1,197,261 )
$
( 249,382 )
Net deferred tax liabilities
$
-
$
-
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, 2023, will not have a material adverse effect on the Company’s financial position or results of operations.
Lease commitments
The table below summarizes the Company’s lease obligations as of December 31, 2023 and 2022:
December 31, 2023
December 31, 2022
Operating lease right-of-use assets, net
$
281,104
$
222,856
Right-of-use assets obtained for new lease liabilities
84,143
-
Other current liabilities
30,863
20,830
Operating lease liabilities
250,241
203,227
Total operating lease liabilities
$
281,104
$
224,057
December 31, 2023
December 31, 2022
Operating lease expense
$
41,798
$
85,718
Short-term lease expense
48,968
-
Lease payments included in operating cash flows
92,857
84,080
Weighted average remaining lease term
22.5 years
25.4 years
Weighted average discount rate
8 %
8 %
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Remaining payments under leases are as follows as of December 31, 2023:
Year
Amount
2024
$
48,054
2025
49,801
2026
40,373
2027
19,102
2028
19,676
Thereafter
544,549
Total lease payments
721,555
Less: imputed interest
( 440,451 )
Total operational lease liabilities
$
281,104
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, 2023 and 2022, amounted to $ 113 thousand and $ 94 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, 2023 and 2022, amounted to $ 45 thousand and $ 44 thousand, respectively.
12. Subsequent events
On February 14, 2024, the Company announced that it had made the decision to sell its Indiana farm as part of its strategy to increase liquidity.
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