UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2020

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to _____________________

Commission File Number: 001-36426

AquaBounty Technologies, Inc.

(Exact name of the registrant as specified in its charter)



Delaware	04-3156167
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2 Mill & Main Place, Suite 395

Maynard, Massachusetts 01754

(978) 648-6000

(Address and telephone number of the registrant’s principal executive offices)



Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.001 per share	AQB	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer þ	Smaller reporting company ☐þ
			Emerging growth company þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

At ~~November 2, 2017,~~May 4, 2020, the registrant had ~~8,895,094~~ 32,085,684 shares of common stock, par value $0.001 per share (“Common ~~Shares~~Shares”) outstanding.



AquaBounty Technologies, Inc.
FORM 10-Q
For the Quarterly Period Ended March 31, 2020

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1514
Item 4.	Controls and Procedures	1614
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	1715
Item 1A.	Risk Factors	1715
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1716
Item 3.	Defaults Upon Senior Securities	1716
Item 4.	Mine Safety Disclosures	1816
Item 5.	Other Information	1817
Item 6.	Exhibits	1918
~~SIGNATURES~~Signatures		2019

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10‑Q, particularly the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward looking statements. All statements other than present and historical facts and conditions contained in this Quarterly Report on Form 10‑Q, including statements regarding our future results of operations and financial positions, business strategy, plans, and our objectives for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10‑Q, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. These forward-looking statements include statements that are not historical facts, including statements regarding management’s expectations for future financial and operational performance and operating expenditures, expected growth, and business outlook; the nature of and progress toward our commercialization plan; the future introduction of our products to consumers; the countries in which we may obtain regulatory approval and the progress toward such approvals; the volume of eggs or fish we may be able to produce; the timeline for our production of saleable fish; the expected advantages of land-based systems over sea cage production; the validity and impact of legal actions; the completion of renovations at our farms; and the establishment of a larger-scale grow-out facility.

We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties, and other factors, many of which are outside of our control, which could cause our actual results, performance, or achievements to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10‑Q include, but are not limited to, statements about:

the anticipated benefits and characteristics of our AquAdvantage Salmon product;

the implementation and likelihood of achieving the business plan, future revenue, and operating results;

our plans for and the timing of the development of new farms and the output of those farms;

developments concerning our research projects;

our expectations regarding our ability to successfully enter new markets or develop additional products;

our competitive position and developments and projections relating to our competitors and our industry;

expectations regarding anticipated operating results;

our cash position and ability to raise additional capital to finance our activities;

the impact of the COVID-19 coronavirus outbreak on our business, operations, and financial results, any of which could be significantly impaired by the COVID-19 pandemic;

our ability to protect our intellectual property and other proprietary rights and technologies;

the impact of and our ability to adapt to changes in laws or regulations and policies;

the ability to secure any necessary regulatory approvals to commercialize any products;

the rate and degree of market acceptance of any products developed through the application of bioengineering, including bioengineered fish;

our ability to retain and recruit key personnel;

the success of any of our future acquisitions or investments;

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and

our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing.

We caution you that the foregoing list may not contain all of the risks to which the forward-looking statements made in this Quarterly Report on Form 10‑Q are subject. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included, particularly in the section titled “Risk Factors,” that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments that we may make.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10‑Q. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments unless required by federal securities law. New risks emerge from time to time, and it is not possible for us to predict all such risks.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AquaBounty Technologies, Inc.

Consolidated Balance Sheets

(Unaudited)


	As of						As of
	September 30,			December 31,			March 31,			December 31,
	2017			2016			2020			2019
Assets
Current assets:
Cash and cash equivalents	$	4,717,821		$	3,324,609		$	14,749,746		$	2,798,744
Certificate of deposit	13,489			10,666
Other receivables	219,334			164,743			82,873			55,198
Inventory	78,499			—			1,833,957			1,232,049
Prepaid expenses and other current assets	245,242			72,983			364,700			391,162
Total current assets	5,274,385			3,573,001			17,031,276			4,477,153

Property, plant and equipment, net	19,478,853			1,723,707			23,708,229			25,065,836
Right of use assets, net							385,519			399,477
Definite-lived intangible assets, net	188,421			198,698			154,162			157,588
Indefinite-lived intangible assets	191,800			191,800			101,661			101,661
Other assets	162,093			21,628			33,331			32,024
Total assets	$	25,295,552		$	5,708,834		$	41,414,178		$	30,233,739

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	1,602,396		$	1,017,851		$	1,834,685		$	1,462,809
Other current liabilities							62,939			62,286
Current debt	55,223			17,913			150,730			163,155
Total current liabilities	1,657,619			1,035,764			2,048,354			1,688,250

Long-term lease obligations							336,997			352,808
Long-term debt	3,059,990			2,645,015			4,032,744			4,432,052
Total liabilities	4,717,609			3,680,779			6,418,095			6,473,110

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.001 par value, 200,000,000 shares authorized;
8,895,094 (2016: 6,463,936) shares outstanding	8,895			6,464
Common stock, $0.001 par value, 50,000,000 shares authorized;
32,085,684 (2019: 21,635,365) shares outstanding							32,086			21,635
Additional paid-in capital	126,681,495			101,581,724			170,957,969			156,241,363
Accumulated other comprehensive loss	(243,188		)	(286,272		)	(742,145		)	(360,160		)
Accumulated deficit	(105,869,259		)	(99,273,861		)	(135,251,827		)	(132,142,209		)
Total stockholders’ equity	20,577,943			2,028,055			34,996,083			23,760,629

Total liabilities and stockholders’ equity	$	25,295,552		$	5,708,834		$	41,414,178		$	30,233,739

See accompanying notes to these unaudited interim consolidated financial statements.

AquaBounty Technologies, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019

Revenues
Product revenues	$	—		$	—		$	53,278		$	—		$	6,753		$	97,885

Costs and expenses
Product costs	—			—			50,777			—
Production costs													841,434			862,255
Sales and marketing	195,947			209,556			607,145			650,075			50,788			71,991
Research and development	860,903			974,980			2,517,242			2,705,978			568,762			663,481
General and administrative	1,382,380			824,381			3,453,516			2,428,044			1,637,190			1,255,851
Total costs and expenses	2,439,230			2,008,917			6,628,680			5,784,097			3,098,174			2,853,578

Operating loss	(2,439,230		)	(2,008,917		)	(6,575,402		)	(5,784,097		)	(3,091,421		)	(2,755,693		)

Other income (expense)
Gain on disposal of equipment	—			—			—			2,861
Interest expense	(5,597		)	(131,301		)	(16,130		)	(238,940		)	(17,045		)	(13,338		)
Other income (expense), net	(1,392		)	(1,608		)	(3,866		)	(4,463		)	(1,152		)	5,100
Total other income (expense)	(6,989		)	(132,909		)	(19,996		)	(240,542		)	(18,197		)	(8,238		)

Net loss	$	(2,446,219	)	$	(2,141,826	)	$	(6,595,398	)	$	(6,024,639	)	$	(3,109,618	)	$	(2,763,931	)

Other comprehensive income (loss):
Foreign currency translation gain (loss)	34,933			13,659			43,084			(86,516		)	(381,985		)	87,551
Total other comprehensive income (loss)	34,933			13,659			43,084			(86,516		)	(381,985		)	87,551

Comprehensive loss	$	(2,411,286	)	$	(2,128,167	)	$	(6,552,314	)	$	(6,111,155	)	$	(3,491,603	)	$	(2,676,380	)


Basic and diluted net loss per share	$	(0.28	)	$	(0.41	)	$	(0.76	)	$	(1.15	)	$	(0.11	)	$	(0.18	)
Weighted average number of common shares -
basic and diluted	8,895,094			5,250,510			8,731,178			5,249,776			27,116,754			15,687,681

See accompanying notes to these unaudited interim consolidated financial statements.

AquaBounty Technologies, Inc.

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, 2016 6,463,936
$ 6,464
$ 101,581,724
$ (286,272 ) $ (99,273,861 ) $ 2,028,055

Net loss (6,595,398 ) (6,595,398 )
Other comprehensive loss 43,084
43,084
Issuance of common stock, net of expenses 2,421,073
2,421
24,986,836
24,989,257
Exercise of options for common stock 8,334
8
27,494
27,502
Share based compensation 1,751
2
85,441
85,443
Balance at September 30, 2017 8,895,094
$ 8,895
$ 126,681,495
$ (243,188 ) $ (105,869,259 ) $ 20,577,943



	Common stock issued and outstanding	Par value		Additional paid-in capital		Accumulated other comprehensive loss			Accumulated deficit			Total
Balance at December 31, 2018	15,098,837	$	15,099	$	142,707,957	$	(574,186	)	$	(118,914,567	)	$	23,234,303
Net loss									(2,763,931		)	(2,763,931		)
Other comprehensive income (loss)						87,551						87,551
Issuance of common stock, net	3,345,282	3345		6,606,310								6,609,655
Exercise of warrants	76,797	77		250,347								250,424
Share based compensation	176,561	176		138,322								138,498
Balance at March 31, 2019	18,697,477	$	18,697	$	149,702,936	$	(486,635	)	$	(121,678,498	)	$	27,556,500



	Common stock issued and outstanding	Par value		Additional paid-in capital		Accumulated other comprehensive loss			Accumulated deficit			Total
Balance at December 31, 2019	21,635,365	$	21,635	$	156,241,363	$	(360,160	)	$	(132,142,209	)	$	23,760,629
Net loss									(3,109,618		)	(3,109,618		)
Other comprehensive income (loss)						(381,985		)				(381,985		)
Issuance of common stock, net	10,350,000	10350		14,511,354								14,521,704
Share based compensation	100,319	101		205,252								205,353
Balance at March 31, 2020	32,085,684	$	32,086	$	170,957,969	$	(742,145	)	$	(135,251,827	)	$	34,996,083

See accompanying notes to these unaudited interim consolidated financial statements.

AquaBounty Technologies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019

Operating activities
Net loss	$	(6,595,398	)	$	(6,024,639	)	$	(3,109,618	)	$	(2,763,931	)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization	137,229			109,207			347,859			285,308
Share-based compensation	85,443			166,478			205,353			138,498
Gain on disposal of equipment	—			(2,861		)
Changes in operating assets and liabilities:
Other receivables	(43,346		)	13,174			(33,978		)	(18,410		)
Inventory	(78,499		)	—			(610,200		)	(83,158		)
Prepaid expenses and other assets	(309,986		)	(27,313		)	(73,944		)	55,504
Accounts payable and accrued liabilities	128,917			332,254			339,818			253,509
Net cash used in operating activities	(6,675,640		)	(5,433,700		)	(2,934,710		)	(2,132,680		)

Investing activities
Purchase of property, plant and equipment	(17,235,184		)	(757,402		)	(691,351		)	(456,436		)
Proceeds from sale of equipment	—			23,844
Payment of patent costs	—			(5,665		)
Net cash used in investing activities	(17,235,184		)	(739,223		)
Proceeds from sale of asset held for sale							98,000			—
Proceeds from legal settlement, net							1,014,008			—
Other investing activities							(1,307		)	13
Net cash provided by (used in) investing activities							419,350			(456,423		)

Financing activities
Proceeds from issuance of debt	256,807			547,142			—			376,117
Repayment of term debt	(23,677		)	(1,866		)	(39,391		)	(9,619		)
Proceeds from the issuance of convertible debt	—			7,500,000
Proceeds from the issuance of common stock, net	24,989,257			—			14,521,704			6,609,655
Proceeds from the exercise of stock options	27,502			—
Proceeds from the exercise of stock options and warrants, net							—			250,424
Net cash provided by financing activities	25,249,889			8,045,276			14,482,313			7,226,577

Effect of exchange rate changes on cash and cash equivalents	54,147			(2,249		)	(15,951		)	2,951
Net change in cash and cash equivalents	1,393,212			1,870,104			11,951,002			4,640,425
Cash and cash equivalents at beginning of period	3,324,609			1,313,421			2,798,744			3,002,557
Cash and cash equivalents at the end of period	$	4,717,821		$	3,183,525		$	14,749,746		$	7,642,982

Supplemental disclosure of cash flow information and
non-cash transactions:
Interest paid in cash	$	16,130		$	1,440		$	17,045		$	13,338
Property and equipment included in accounts payable and accrued liabilities	$	472,283		$	—		$	257,884		$	79,193

See accompanying notes to these unaudited interim consolidated financial statements.

AquaBounty Technologies, Inc.

Notes to the consolidated financial statements

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (unaudited)

1. Nature of business and organization

AquaBounty Technologies, Inc. (the “Parent” and, together with its subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. 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 traditional salmon.

In 2015, the Parent obtained approval from the US Food and Drug Administration (the “FDA”) for the production, sale, and consumption of its ~~AquAdvantage®~~AquAdvantage Salmon product in the United States.

In 2016, the Parent obtained approval from Health Canada ~~the department of the government of Canada responsible for national public health,~~ for the sale and consumption of its AquAdvantage Salmon product in Canada. Previously, in 2013, the Parent obtained approval from Environment Canada ~~the agency of the government of Canada responsible for regulating environmental policies and issues,~~ for the production of the product.

AQUA Bounty Canada Inc. (the “Canadian Subsidiary”) was incorporated in January 1994 ~~in Canada~~ for the purpose of establishing a commercial biotechnology laboratory to conduct research and development programs related to the Parent’s ~~technologies.~~technologies and to commercialize the Parent’s products in Canada.

AquaBounty Panama, S. de R.L. (the “Panama Subsidiary”) was incorporated in May 2008 in Panama for the purpose of conducting commercial trials of the Parent’s products. With the regulatory approval of the Company’s ~~AquAdvantage Salmon.~~farms in Indiana and Rollo Bay, the site in Panama was no longer needed for commercial trials. Operations at the site ceased in May 2019.

AquaBounty Farms, Inc. ~~(“AquaBounty Farms”~~(the “U.S. Subsidiary”) was incorporated in December 2014 in the State of Delaware for the purpose of conducting field trials and commercializing the ~~Company’s AquAdvantage Salmon~~Parent’s products in the United States.

AquaBounty Farms Indiana LLC (the “Indiana Subsidiary”), which is wholly owned by the U.S. Subsidiary, was formed in June 2017 in the State of Delaware for the purpose of operating ~~the Company’s~~its aquaculture facility in Albany, ~~Indiana, and is wholly owned by AquaBounty Farms.~~Indiana.

AquaBounty Brasil Participações Ltda. (the “Brazil Subsidiary”) was incorporated in May 2015 ~~in Brazil~~ for the purpose of conducting ~~commercial~~field trials ofand commercializing the ~~Company’s AquAdvantage Salmon.~~Parent’s products in Brazil.

2. Basis of presentation

The unaudited interim consolidated financial statements include the accounts of AquaBounty Technologies, Inc. and its wholly owned direct ~~and indirect~~ subsidiaries, AQUA Bounty Canada Inc.; AquaBounty Panama, S. de R.L.; AquaBounty Farms, Inc.; AquaBounty Farms Indiana LLC; and AquaBounty Brasil Participações Ltda. The entities are collectively referred to herein as the “Company.” All ~~inter-company~~intercompany transactions and balances have been eliminated upon consolidation.

The unaudited interim 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 footnotes for the year ended December 31, ~~2016.~~2019. The unaudited interim 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 ~~September 30, 2017,~~March 31, 2020, and its 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 consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements, as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.

~~On January 5, 2017, the Company implemented a 1-for-30 reverse split of its outstanding common shares. All share~~Certain balances in the 2019 Financial Statements have been reclassified to conform with the presentation of the 2020 unaudited interim consolidated financial ~~statements~~statements.

Liquidity Matters

The Company has experienced net losses and ~~accompanying notes have been restated~~negative cash flows from operations since its inception and has cumulative losses attributable to ~~reflect this change.~~common stockholders of $135 million as of March 31, 2020. At March 31, 2020, the Company’s cash balance totaled $14.7 million. Management has evaluated its cash resources in view of its planned spending for on-going operations, capital expenditures, and working capital and believes that its cash resources will meet the Company’s cash requirements for at least the next twelve months from the filing date, taking into consideration the foreseeable financial impact of delays or other events associated with the COVID-19 virus pandemic. Until such time, if ever, as the Company can generate positive operating cash flows, it may finance its cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. The current COVID-19 pandemic has introduced uncertainty into the financial markets and, as a result, future funding sources may be more difficult to obtain, if at all.

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.~~period. Basic net loss is based solely on the number of ~~common shares~~Common Shares outstanding during the ~~year.~~period. Fully diluted net loss per share includes the number of shares of common stock potentially 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.

Accounting Pronouncements

~~The Company has adopted Accounting Standards Update (“ASU”) 2017-01, “Business Combinations: Clarifying the Definition of~~Management does not expect any recently issued, but not yet effective, accounting standards to have a ~~Business.” The revised guidance changes the definition of a business to assist entities with evaluating whether a set of transferred assets and activities is a business.~~

The Company has adopted ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in Accounting Standard Codification (“ASC”) 605, “Revenue Recognition,” and most industry-specific guidance throughout the ASC. ASU 2014-09 established principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services.

The Company has adopted ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory.” The main provision of the guidance is that an entity should measure inventory at the lower of cost or net realizable value (“NRV”), where NRV is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

The Company has adopted ASU 2016-09, “Compensation – Stock Compensation.” The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.

~~Liquidity and Management’s Plan~~

At September 30, 2017, the Company’s cash balance totaled $4.7 million. Management has evaluated the Company’s cash resources in view of its planned spending for ongoing operations, capital expenditures, and working capital for the next twelve months and has determined that its current funds will be used by the end of December 2017. However, management believes that the Company can continue as a going concern. Management’s assessment is basedmaterial effect on its ~~belief that the Company will be able to raise additional equity~~results of operations or ~~debt to fund its requirements. Additionally, management could slow down spending to conserve the Company’s cash if there is a delay in obtaining new funding. Therefore, the accompanying~~ 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.~~condition.

3. Risks and uncertainties

In addition to the risks inherent in the Company’s industry and its stage of commercialization, the impact of the COVID-19 pandemic introduces a novel risk that is difficult to assess or predict. To date, the Company’s operations have not been adversely affected by the pandemic, although the Company has made modifications to its biosecurity procedures and its farm sites to adapt to local requirements and to provide a safe work environment.

The Company ~~is subject~~continues to ~~risks and uncertainties common~~monitor the broader environment for potential impacts to its commercial plans, including those 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 salesupply chain and the Company’s ability to manufacture, 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.transportation industry.

Concentration of credit risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash ~~equivalents and certificates of deposit.~~equivalents. This risk is minimized by the Company’s policy of investing in financial instruments with short-term maturities issued by highly rated financial institutions. 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 mitigated by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled ~~$85,005~~$240 thousand at ~~September 30, 2017.~~March 31, 2020.

~~Financial instruments~~

The carrying amounts reported in the consolidated balance sheets for other receivables and accounts payable approximate fair value based on the short-term maturity of these instruments. As of September 30, 2017, the carrying value of term debt approximates its fair value since it provides for market terms and interest rates.

Included in other assets is a long-term investment that consists of 216,281 shares of common stock of A/F Protein, Inc. (“AFP”), equating to less than 1% ownership, with a cost basis of $21,628, which the Company believes to be the best estimate of market value.

4. Inventory

Major classifications of inventory are summarized as follows:


	September 30,		December 31,		March 31,		December 31,
	2017		2016		2020		2019
Feed	$	36,403	$	—	$	250,459	$	251,778
Eggs					52,920		55,887
Fish in process	42,096		—		1,530,578		924,384
Total inventory	$	78,499	$	—	$	1,833,957	$	1,232,049

5. Property, plant and equipment

Major classifications of property, plant and equipment are summarized as follows:


	September 30,			December 31,			March 31,			December 31,
	2017			2016			2020			2019
Land	$	665,733		$	157,107		$	695,070		$	718,586
Building and improvements	8,618,289			1,436,814			13,189,326			13,297,489
Construction in process	3,731,112			277,352			2,143,920			2,105,873
Equipment	7,873,930			1,037,549			11,192,849			12,275,619
Office furniture and equipment	81,521			78,780			198,838			201,813
Vehicles	29,311			27,201			25,807			28,097
Total property and equipment	$	20,999,896		$	3,014,803		$	27,445,810		$	28,627,477
Less accumulated depreciation and amortization	(1,521,043		)	(1,291,096		)	(3,737,581		)	(3,561,641		)
Property, plant and equipment, net	$	19,478,853		$	1,723,707		$	23,708,229		$	25,065,836

~~Depreciation and amortization expense was $126,951 and $99,196 for the nine months ended September 30, 2017 and 2016, respectively.~~

Included asin construction in process is ~~$3.7~~$1.7 million for ~~renovation and new~~ construction ~~costs incurred at our~~related to the Rollo Bay farm site. ~~The Company currently~~An additional $236 thousand has ~~an additional $2.1 million committed to these renovations.~~been committed.

~~On June 22, 2017,~~In December 2019, the Company ~~purchased~~reclassified certain feed mill equipment at the ~~aquaculture facility~~Indiana farm as held for sale, a component of ~~Bell Fish Company LLC in Albany, Indiana, for $14.2 million, including legal~~prepaid expenses and other ~~expenses incurred. The facility~~current assets, and ~~related assets acquired from Bell Fish Company LLC provide one input into~~adjusted the ~~Company's process for growing its product, and, accordingly,~~ the ~~purchase~~carrying value to fair value less estimated selling costs. During the first quarter of 2020, the equipment was sold, resulting in proceeds of $98,000. No gain or loss was recognized upon the sales of the facility was accounted for as an asset purchase rather than the acquisition of a “business,” consistent with ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business.” There are no future obligations related to the asset purchase forequipment.

In March 2020, the Company ~~no liabilities were assumed, and no workforce, inventory, or customers were acquired.~~settled an outstanding legal claim against a third party resulting in net proceeds of $1.0 million. The ~~Company allocated~~proceeds received reduced the ~~purchase price to land, buildings, and equipment based~~carrying value of the acquired equipment. Depreciation on external valuations and management’s estimates. The Company intends to invest approximately $5.0 million to upgrade the facility for use to grow out its AquAdvantage Salmon for harvest and sale in the United States. The facilitythese items is ~~currently idle while repairs and upgrades are performed.~~being recalculated prospectively over their remaining useful lives.

6. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities include the following:


	September 30,		December 31,		March 31,		December 31,
	2017		2016		2020		2019
Accounts payable	$	490,840	$	161,768	$	1,233,052	$	809,444
Accrued payroll including vacation	316,588		242,436		365,564		236,489
Accrued professional fees	211,232		500,430
Accrued research and development costs	65,000		87,751
Accrued taxes	126,990		22,994
Accrued professional fees and contract services					196,098		346,349
Accrued construction costs	387,038		—		20,946		—
Accrued other	4,708		2,472
Accrued taxes and other					19,025		70,527
Accounts payable and accrued liabilities	$	1,602,396	$	1,017,851	$	1,834,685	$	1,462,809

7. Debt

The current material terms and conditions of debt outstanding are as follows:


	Interest rate	Monthly repayment	Maturity date	September 30, 2017			December 31, 2016
Original loan amount										Interest rate	Monthly repayment	Maturity date	March 31, 2020			December 31, 2019
ACOA AIF grant (C$2,871,919)	0%	Royalties	-	$	2,301,556		$	2,135,846		0%	Royalties	-	$	2,026,426		$	2,206,208
ACOA term loan (C$337,000)	0%	C$3,120	June 2026	260,071			—			0%	C$3,120	June 2026	162,937			184,583
Finance PEI term loan (C$717,093)	4%	C$4,333	July 2021	553,586			527,082
ACOA term loan (C$500,000)										0%	C$4,630	November 2028	342,999			384,100
Kubota Canada Ltd. (C$95,961)										0%	C$1,142	January 2025	46,752			53,533
Finance PEI term loan (C$2,717,093)										4%	C$16,313	November 2023	1,604,360			1,766,783
Total debt				$	3,115,213		$	2,662,928					$	4,183,474		$	4,595,207
less: current portion				(55,223		)	(17,913		)				(150,730		)	(163,155		)
Long-term debt				$	3,059,990		$	2,645,015					$	4,032,744		$	4,432,052

Estimated principal payments remaining on loan debt are as ~~follows (1):~~follows:


Year	Total		AIF		ACOA		FPEI		Kubota		Total
2017	$	12,414
2018	60,094
2019	60,912
2020	349,662		$	—	$	49,215	$	56,116	$	7,255	$	112,586
2021	2,499,578		—		65,621		77,609		9,673		152,903
2022			—		65,621		80,771		9,673		156,065
2023			—		65,621		1,389,864		9,673		1,465,158
2024			—		65,621		—		9,673		75,294
Thereafter	132,553		2,026,426		194,237		—		805		2,221,468
Total	$	3,115,213	$	2,026,426	$	505,936	$	1,604,360	$	46,752	$	4,183,474

~~(1) Repayments of~~In response to the ~~AIF grants are based on revenue projections for AquAdvantage Salmon.~~

COVID-19 pandemic, the Company was informed by Atlantic Canada Opportunities Agency ~~(“ACOA”)~~

~~ACOA is a Canadian government agency~~on March 19, 2020, that ~~provides funding to support the development of businesses and to promote employment in the Atlantic region of Canada.~~

In January 2009, the Canadian Subsidiary was awarded a grant from ACOA to provide a contribution towards the funding of a research and development project. The total amount claimed under the award over the five-year claim period was $2,301,556. No further funds are available under this grant. 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. The Company expects to make its first repayment in 2018.

~~In February 2016, the Canadian Subsidiary executed an agreement with ACOA to partially finance the renovations~~all payments to the ~~Rollo Bay site. The terms of the agreement include funding up to $270,072 with repayment~~government would be deferred for three months, commencing after the final draw-down of the funds. The loan term is nine years with a zero percent interest rate. As of September 30, 2017, the Canadian Subsidiary has drawn down the full amount of available funds and commenced repayment.

~~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 in the amount of $574,678 to partially finance the purchase of the assets of the former Atlantic Sea Smolt plant in Rollo Bay West on Prince Edward Island. The loan is being repaid through monthly payments of principal and interest with a balloon payment for the balance due in July 2021. The loan 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.April 1, 2020.

The Company recognized interest expense of ~~$16,112~~$17 thousand and ~~$238,931~~$12 thousand for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively, on its interest-bearing debt. ~~Interest expense in 2016 included $237,500 for the convertible debt facility with Intrexon Corporation (“Intrexon”), its majority shareholder.~~

8. Leases

Lease expense for the three months ended March 31, 2020 and 2019, amounted to $20 thousand and $65 thousand, respectively. The weighted average remaining lease term of the Company’s operating leases was 22.9 years as of March 31, 2020. Lease payments included in operating cash flows totaled $21 thousand and $66 thousand for the three months ended March 31, 2020 and 2019, respectively.

The table below summarizes the Company’s lease obligations and remaining payments at March 31, 2020:



				March 31, 2020						December 31, 2019
	Lease Type	End Date	Remaining Years	Remaining Payments			Lease Liability			Remaining Payments			Lease Liability
Maynard Office Lease	Operating	Mar 2023	3.0	$	199,545		$	173,646		$	215,556		$	186,323
Indiana Auto Lease	Operating	Feb 2021	0.9	4,789			4,389			5,999			5,533
Indiana Well Lease	Operating	Dec 2048	28.8	698,458			221,901			702,341			223,238
Total leases				$	902,792		$	399,936		$	923,896		$	415,094
Less: current portion				(85,519		)	(62,939		)	(85,011		)	(62,286		)
Long-term leases				$	817,273		$	336,997		$	838,885		$	352,808

Remaining payments under leases are as follows at March 31, 2020:



Year	Office		Auto		Well		Amount
2020	$	48,626	$	3,632	$	11,649	$	63,907
2021	66,416		1,157		15,998		83,571
2022	67,602		—		16,478		84,080
2023	16,901		—		16,972		33,873
2024	—		—		17,481		17,481
Thereafter	—		—		619,880		619,880
Total Lease Payments	$	199,545	$	4,789	$	698,458	$	902,792

9. Stockholders’ equity

~~The~~Recent issuances

On February 12, 2020, the Company ~~is presently authorized~~completed a public offering of 10,350,000 Common Shares. Net proceeds to ~~issue up to 240~~the Company were $14.5 million ~~shares of stock, of which 40 million are authorized as preferred stock~~after deducting discounts, fees, and ~~200 million as common stock.~~expenses.

~~Common stock~~Warrants

The ~~holders of the common stock are entitled to one vote for each share held~~following table summarizes information about outstanding warrants 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.~~March 31, 2020:



	Number of warrant shares	Weighted average exercise price
Outstanding at December 31, 2019	1,662,304		$3.25
Outstanding at March 31, 2020	1,662,304		$3.25
Exercisable at March 31, 2020	1,662,304		$3.25

Share-based compensation

Restricted stock

The Company grants restricted common stock to the Chairman of the Board of Directors as part of his compensation package. Generally, the shares are fully vested upon the third anniversary of the grant date. Unvested shares can be canceled upon termination of the Chairman’s services.

A summary of the Company’s ~~unvested~~ shares of restricted stock as of ~~September 30, 2017,~~March 31, 2020, is as follows:


	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Unvested at December 31, 2016	4,169		$	7.72
Balance at December 31, 2019					39,900			$3.51
Granted	1,751		14.20		100,319		1.88
Vested	(2,378	)	8.09		(40,626	)	2.01
Unvested at September 30, 2017	3,542		$	10.68
Balance at March 31, 2020					99,593			$2.00

During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, the Company expensed ~~$19,235~~$84 thousand and ~~$13,165,~~$91 thousand, respectively, related to the ~~Chairman’s~~ restricted stock awards. At ~~September 30, 2017,~~March 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is ~~$37,817.~~$196 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately ~~2.4~~3.0 years.

Stock options

In 2006, the Company established its 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan provided for the issuance of incentive stock options to employees of the Company and non‑qualified stock options and awards of restricted stock to directors, officers, employees, and consultants of the Company. In accordance with its original terms, no further shares may be granted under the 2006 Plan subsequent to March 18, 2016. All outstanding awards under the 2006 Plan will continue until their individual termination dates.

In March 2016, the Company’s Board of Directors adopted the AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2006 Plan. The 2016 Plan provides for the issuance of incentive stock options, non‑qualified stock options, and awards of restricted and direct stock purchases to directors, officers, employees, and consultants of the Company. The aggregate number of shares of common stock that may be issued pursuant to awards granted under the 2016 Plan cannot exceed 450,000. The 2016 Plan was approved by the Company’s shareholders at its Annual Meeting on April 26, 2016.

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, 2016 185,591
$ 7.89
Issued 52,500
14.20
Exercised (8,334 ) 3.30
Expired (2,554 ) 19.50
Outstanding at September 30, 2017 227,203
$ 9.39
Exercisable at September 30, 2017 183,373
$ 8.28



	Number of options		Weighted average exercise price
Outstanding at December 31, 2019	573,925			$4.94
Issued	98,458		1.97
Expired	(14,835	)	11.62
Outstanding at March 31, 2020	657,548			$4.35
Exercisable at March 31, 2020	524,398			$4.93

Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested over one to three years and are exercisable for a term of ten years from the date of issuance.

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



	March 2020	January 2020
Expected volatility	102%	101%
Risk free interest rate	0.66%	1.67%
Expected dividend yield	0%	0%
Expected life (in years)	5	5

The weighted average fair value of stock options granted during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, was ~~$4.55. The intrinsic value of options exercised during the nine months ended September 30, 2017, was $43,420.~~ $1.48.

The total intrinsic value of all options outstanding was ~~$325,754~~$0 and ~~$602,773~~$1 thousand at ~~September 30, 2017,~~March 31, 2020, and December 31, ~~2016,~~2019, respectively. The total intrinsic value of exercisable options was ~~$325,310 and $597,872~~$0 at ~~September 30, 2017,~~March 31, 2020, and December 31, ~~2016,~~2019, respectively.

The following table summarizes information about options outstanding and exercisable at ~~September 30, 2017:~~March 31, 2020:

Weighted average exercise price of outstanding options Number of options outstanding Weighted average remaining estimated life (in years) Number of options exercisable Weighted average exercise price of outstanding and exercisable options
$3.30 79,337
1.8 79,337

$3.60 800
4.8 800

$5.70 10,336
7.4 10,132

$6.90 29,038
3.7 28,296

$7.50 15,837
5.6 15,837

$9.60 8,300
7.9 8,300

$9.90 800
0.8 800

$10.50 1,600
5.8 1,600

$10.80 2,400
6.8 2,400

$14.20 52,500
9.6 9,616

$23.40 26,255
6.3 26,255

227,203
183,373
$8.28



Weighted average exercise price of outstanding options	Number of options outstanding	Weighted average remaining estimated life (in years)	Number of options exercisable	Weighted average exercise price of outstanding and exercisable options
$1.88 - $2.50	525,519	9.0	392,369
$3.30 - $6.90	37,139	2.3	37,139
$7.50 - $10.80	21,303	4.1	21,303
$14.20 - $23.40	73,587	6.1	73,587
	657,548		524,398	$4.93

Total share-based compensation on ~~stock-option grants~~stock options amounted to ~~$66,208~~$121 thousand and ~~$153,313~~$48 thousand for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. At ~~September 30, 2017,~~March 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was ~~$186,921.~~$204 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately ~~2.4~~3.0 years.

9.10. 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.

~~In July 2017, the Company extended the lease~~See Note 5 for ~~its office space in Maynard, Massachusetts. The new lease for 3,558 square feet of office space has a term of five years~~commitments related to our renovation and seven months, ending March 2023, with total annual rent payments of approximately$60 thousand increasing to $68 thousand during the term of the lease. The lease includes a period of free rent totaling$26,830, which is being amortized over the lease term. construction costs.

There have been no other material changes to the commitments and contingencies disclosed in our ~~annual report~~Annual Report on Form ~~10-K~~10‑K as of and for the year ended December 31, ~~2016.~~2019.

~~10. Related Party Collaboration Agreement~~11. Subsequent Events

In ~~February 2013,~~2018, the ~~Company entered into~~Canadian Subsidiary obtained a new loan from Finance PEI in the amount of C$2.0 million ($1.5 million). The loan has an ~~Exclusive Channel Collaboration agreement (“ECC”) with Intrexon pursuant to~~interest rate of 4% and is collateralized by a mortgage executed by the Canadian Subsidiary, which conveys a first security interest in all of its current and acquired assets. On April 23, 2020, the ~~Company will use Intrexon’s UltraVector and other technology platforms to develop and commercialize additional genetically modified traits in finfish for human consumption.~~

~~Total Intrexon service costs incurred~~Canadian Subsidiary received the final C$300 thousand ($212 thousand) of funds available under the terms of this agreement for the nine months ended September 30, 2017 and 2016, amounted to $447,382 and $717,141, respectively, and are included as a component of research and development expense in our Consolidated Statements of Operations and Comprehensive Loss. Included in accounts payable and accrued liabilities at September 30, 2017, and December 31, 2016, are amounts due to Intrexon under the ECC totaling $65,000 and $73,780, respectively.

loan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10‑Q and our Annual Report on Form ~~10-K~~10‑K for the year ended December 31, ~~2016,~~2019, which was filed on March ~~16, 2017.~~

This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. Our actual results may differ materially from those discussed below. The following discussion and analysis is intended to enhance the reader’s understanding of our business environment. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof.10, 2020.

Overview

We believe that we are a leader in the field of ~~biotechnology tools~~land-based aquaculture and the use of technology for improving ~~the~~its productivity ~~of aquaculture.~~and sustainability. Our lead product is the AquAdvantage Salmon, which received FDA approval in 2015 as the first ~~genetically modified~~bioengineered animal available for sale for human consumption. We ~~intend to commence~~have commenced commercial activities with operations in ~~markets~~the United States and Canada where we have received regulatory approval. ~~The first steps in our commercial plan~~

Recent Developments

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, SARS-CoV-2, as a pandemic, which continues to spread throughout the United States and worldwide. Because infections of this virus and incidences of the disease it causes, COVID-19, have been ~~implemented, including the following:~~

we received approval from the provincial regulatory authorities in Prince Edward Island for the construction of a broodstock facility to house our non-transgenic Atlantic salmon stock and a 250-metric-ton recirculating aquaculture system (“RAS”) facility to grow out our AquAdvantage Salmon;

~~we are continuing an active search in~~reported throughout both the United States and Canada, ~~for either an existing land-based RAS facility or a site on which to build a new facility for~~certain national, provincial, state, and local governmental authorities have issued proclamations and directives aimed at minimizing the ~~commercial production of AquAdvantage Salmon; and~~

~~we made our first sales of AquAdvantage Salmon from our farm site in Panama.~~

~~In addition, on June 22, 2017, we purchased certain assets~~spread of the ~~aquaculture facility of Bell Fish Company LLC, which we intend to use to grow out our AquAdvantage Salmon for sale~~virus. Additional, more restrictive proclamations and ~~consumption~~directives may be issued in the ~~United States.~~ future.

The ~~facility and related assets acquired from Bell Fish Company LLC provide one input into the Company's process for growing its product, and, accordingly, the purchase~~ultimate impact of the ~~facility was accounted~~COVID-19 virus pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 virus outbreak, new information which may emerge concerning the severity of the COVID-19 virus pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in an extended period of continued business disruption and reduced operations. Our current preventative and protective measures include, but are not limited to, segregating farm workers to specific locations, rotating shifts, and monitoring worker temperatures upon arrival at our facilities. To the extent possible, work-from-home is utilized for employees that do not have fish care responsibilities. Any resulting financial impact cannot be reasonably estimated at this time but may have a material adverse impact on our business, financial condition, and results of operations.

We remain focused on maintaining a strong balance sheet, liquidity, and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective relating to the COVID-19 virus. Management expects that all of its operations, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 virus outbreak on our business and the duration for which it may have an ~~asset purchase rather than the acquisition of a “business,” consistent with ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business.”~~impact cannot be determined at this time.

Revenue

We generate product revenue through the sales of our AquAdvantage Salmon. ~~Revenue is recognized when the Company identifies the performance obligation~~We also sell conventional Atlantic salmon, salmon eggs, fry, and byproducts. We expect that our sales will be modest and infrequent until our Indiana and Rollo Bay farm sites commence harvesting our fish in ~~the contract, determines the transaction price, allocates the transaction price to the performance obligations,~~June and ~~recognizes revenue upon completion~~December of the performance obligation. Sales orders contain a single deliverable, AquAdvantage Salmon, and revenue is recognized upon delivery. During June 2017, the Company completed its first sales of AquAdvantage Salmon.2020, respectively.

In the future, we believe that our revenue will depend upon the number of countries in which we have received regulatory approval for the sale of our products, the number and capacity of grow-out ~~facilities~~farms we have in operation, and the market acceptance we achieve.

~~Cost of Products~~Production Costs

~~Cost of products includes~~Production costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs; an application of overhead; and the cost to process and ship our ~~fish~~products to customers. A portion of production costs are absorbed into inventory as fish in process to the extent that these costs do not exceed the net realizable value of the fish in process. As our farms in Indiana and Rollo Bay ramp up their production activity, the costs that are not absorbed into inventory are classified as other production costs. As of March 31, 2020, we had thirty-seven employees engaged in production activities.

Sales and Marketing Expenses

Our sales and marketing expenses currently include ~~personnel costs, travel, and~~ consulting fees for market-related activities. As of ~~September 30, 2017,~~March 31, 2020, we had ~~three~~no employees dedicated to sales and marketing.

Research and Development Expenses

As of ~~September 30, 2017,~~March 31, 2020, we employed ~~nineteen~~eighteen scientists and technicians at our facilities on Prince Edward Island to oversee our broodstock of AquAdvantage Salmon, as well as the lines of fish we maintain for research and development purposes. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:

salaries and related overhead expenses for personnel in research, development functions, and ~~development functions;~~brood-stock husbandry;

fees paid to contract research organizations ~~Intrexon,~~ and consultants who perform research for us;

costs related to laboratory supplies used in our research and development efforts; and

costs related to the operation of our field ~~trials; and~~

~~costs related to the grow-out of fish at the Panama site that are not capitalized in inventory.~~trials.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for employees in executive, corporate, and finance functions. Other significant general and administrative expenses include corporate governance and public ~~market maintenance,~~company costs, regulatory compliance, rent and utilities, insurance, and legal ~~services, along with the maintenance and repair costs for our Indiana facility.~~service. We had thirteen employees in our general and administrative group at ~~September 30, 2017.~~March 31, 2020.

Other Income (Expense)

Interest expense includes the interest on our outstanding loans. Other income (expense) includes bank charges, fees, interest income, and ~~interest income.~~miscellaneous gains or losses on asset disposals.

Results of Operations

Comparison of the three months ended ~~September 30, 2017,~~March 31, 2020, to the three months ended ~~September 30, 2016.~~March 31, 2019.

The following table summarizes our results of operations for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):


	Three Months Ended September 30,				Dollar Change			% Change			Three Months End March 31,					Dollar Change			% Change
	2017		2016					% Change		2020			2019			Dollar Change			% Change
	(unaudited)				Dollar Change							(unaudited)
Product revenue	$	—	$	—	$	—		—	%		$	7		$	98	$	(91	)	(93	)%

Operating expenses:
Product costs	—		—		—			—	%
Production costs											841			862		(21		)	(2	)%
Sales and marketing	196		210		(14		)	(7	)%		51			72		(21		)	(29	)%
Research and development	861		975		(114		)	(12	)%		569			664		(95		)	(14	)%
General and administrative	1,382		824		558			68	%		1,637			1,256		381			30	%
Operating loss	2,439		2,009		430			21	%		3,091			2,756		335			12	%
Total other (income) expense	7		133		(126		)	(95	)%		18			8		10			125	%
Net loss	$	2,446	$	2,142	$	304		14	%		$	3,109		$	2,764	$	345		12	%

Product Revenue

Product revenue for the three months ended March 31, 2020 consisted primarily of conventional Atlantic salmon fry. Sales of our fish are anticipated to commence from our Indiana and Rollo Bay farm sites in June and December of 2020, respectively,

Production Costs

Production costs for the three months ended March 31, 2020, were down from the corresponding period in 2019, due to lower cost related to product revenue, offset by production cost increases related to increasing fish biomass at the Indiana and Rollo Bay farms as they continue their ramp-up.

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended ~~September 30, 2017,~~March 31, 2020, were down from the corresponding period in ~~2016~~2019 due to ~~lower travel and outside services costs.~~a decrease in personnel, offset by an increase in charges related to the commencement of marketing activities for our salmon. We expect that our sales and marketing expenses will increase as we ~~move forward with~~commence sales of our ~~commercialization plans for AquAdvantage Salmon.~~fish.

Research and Development Expenses

Research and development expenses for the three months ended ~~September 30, 2017,~~March 31, 2020, were down from the corresponding period in ~~2016~~2019 due to ~~a reduction~~lower field trial costs, primarily related to the closing of our demonstration farm in Panama, offset by an increase in outside contract ~~research expenses and an allocation of cost to inventory, which were partially offset by increased compensation, as we continued to expand our internal research group.~~service fees. We expect that our research and development expenses will increase as we ~~further develop~~expand our ~~Rollo Bay farm site~~broodstock capacity, commence new field trials, and ~~as we~~ continue to pursue regulatory approval for additional ~~products.~~products and additional markets.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~September 30, 2017,~~March 31, 2020, were up significantly ~~versus~~from the corresponding period in ~~2016~~2019 due to ~~increased~~increases in personnel and associated compensation, stock compensation charges, ~~higher professional~~outside consulting fees, ~~corporate taxes,~~ and regulatory legal fees associated with the ~~costs for maintenance and repairs of our Indiana site, which were partially offset by a reduction in~~FDA legal fees. We expect that our general and administrative expenses will continue to increase as we incur increased costs to comply with corporate governance and reporting and other requirements applicable to U.S. public companies.challenge.

Total Other (Income) Expense

Total other (income) expense is comprised of interest on debt, bank charges, and interest income for the three months ended ~~September 30, 2017,~~March 31, 2020 and ~~interest on the convertible debt with Intrexon, interest on debt, bank charges, and interest income for the three months ended September 30, 2016.~~

~~Comparison of the nine months ended September 30, 2017, to the nine months ended September 30, 2016.~~

The following table summarizes our results of operations for the nine months ended September 30, 2017 and 2016, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):

Nine Months Ended
September 30,

Dollar
Change

%
Change
2017 2016
(unaudited)
Product revenue $ 53
$ —
$ 53
— %

Operating expenses:
Product costs 51
—
51
— %
Sales and marketing 607
650
(43 ) (7 )%
Research and development 2,517
2,706
(189 ) (7 )%
General and administrative 3,453
2,428
1,025
42 %
Operating loss 6,575
5,784
791
14 %
Total other (income) expense 20
241
(221 ) (92 )%
Net loss $ 6,595
$ 6,025
$ 570
9 %

~~Product Revenue and Gross Margin~~

The first sales of AquAdvantage Salmon were recognized during the nine months ended September 30, 2017. Regulatory approval for the harvest and export of our fish from our Panama farm site was received during the current period, and a batch of fish was sold and shipped to customers in Canada.

Gross margin on product sales was $3 thousand, as the inventory had been previously valued at NRV on our balance sheet. We expect that sales of our fish will be infrequent and of small quantities until our Indiana and Rollo Bay facilities are operational and the fish in those facilities have matured, which is expected in the second half of 2019.

~~Sales and Marketing Expenses~~

~~Sales and marketing expenses for the nine months ended September 30, 2017, were down from the corresponding period in 2016 due to lower travel and outside service costs.~~

~~Research and Development Expenses~~

Research and development expenses for the nine months ended September 30, 2017, were down from the corresponding period in 2016 due to a reduction in outside contract research expenses and an allocation of cost to inventory, which were partly offset by an increase in compensation.

~~General and Administrative Expenses~~

General and administrative expenses for the nine months ended September 30, 2017, were significantly higher than the corresponding period in 2016 due to increased compensation charges and higher professional fees, corporate taxes, and the costs of maintenance and repair of the Indiana site, which were partially offset by a reduction in stock compensation charges and legal fees.

~~Total Other (Income) Expense~~

Total other (income) expense is comprised of interest on debt, bank charges, and interest income for the nine months ended September 30, 2017. Total other (income) expense is comprised of interest on the convertible debt with Intrexon, gains on asset disposals, bank charges, and interest income for the nine months ended September 30, 2016.

~~Liquidity and Capital Resources~~

~~Sources of Liquidity~~

We have incurred losses from operations since our inception in 1991, and, as of September 30, 2017, we had an accumulated deficit of $105.9 million. On February 22, 2016, we entered into a convertible debt facility with Intrexon (the

“Debt Facility”). Advances under the Debt Facility carried an interest rate of 10% per year and had a maturity date of March 1, 2017. The entire $10 million (plus accrued interest) under the Debt Facility was converted into 1,212,908 shares of AquaBounty common stock on December 16, 2016. On January 18, 2017, we completed a private placement of 2,421,073 shares of our common stock to Intrexon for proceeds of approximately $25 million. As of September 30, 2017, we had a cash balance of $4.7 million.

Cash Flows

The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):


	Nine Months Ended September 30,						Years Ended December 31,									Three Months Ended March 31,
	2017			2016			2016			2015			2014			2020			2019
	(unaudited)															(unaudited)
Net cash provided by (used in):
Operating activities	$	(6,676	)	$	(5,434	)	$	(7,449	)	$	(6,748	)	$	(6,561	)	$	(2,935	)	$	(2,133	)
Investing activities	(17,235		)	(739		)	(1,074		)	(105		)	(152		)	420			(456		)
Financing activities	25,250			8,045			10,541			3,044			10,024			14,482			7,226
Effect of exchange rate changes on cash	54			(2		)	(7		)	(41		)	(23		)	(16		)	3
Net increase (decrease) in cash	$	1,393		$	1,870		$	2,011		$	(3,850	)	$	3,288		$	11,951		$	4,640

Cash Flows from Operating Activities

Net cash used in operating activities during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, was primarily comprised of our ~~$6.6~~$3.1 million net loss, offset by non-cash depreciation and stock compensation charges of ~~$223~~$553 thousand, and increased by working capital uses of ~~$303~~$378 thousand. Net cash used in operating activities during the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2019, was primarily comprised of our ~~$6.0~~$2.8 million net loss, offset by non-cash depreciation and stock compensation charges of ~~$273~~$424 thousand, and decreased by working capital sources of ~~$318~~$207 thousand.

Spending on operations increased during the current period due to personnel and associated compensation, legal and outside consulting fee increases, ~~maintenance~~ and ~~repair costs for~~production activities at our Rollo Bay and Indiana farm ~~site,~~sites; offset by decreases in field trials and ~~higher charges for professional fees and corporate taxes.~~costs related to our demonstration farm in Panama. The increase in cash used by working capital in the current period was due primarily to ~~the establishment of inventory and~~ an increase in inventory, receivables, and prepaid expenses, offset by an increase in accounts payable and accrued liabilities.

Cash Flows from Investing Activities

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, we used ~~$14.2 million~~$691 thousand for ~~the purchase of certain assets of Bell Fish Company LLC~~renovations to our Indiana farm site and ~~$3.0 million~~ for construction charges at our Rollo Bay farm site. During the same period in 2016, we used $700 thousand for the purchase of certain assets of Atlantic Sea Smolt Ltd., $57 thousand for property and equipment purchases, and $6 thousand for patent charges. Thissite, this was offset by ~~$24~~$98 thousand in proceeds from the sale of ~~existing assets.~~equipment and $1.0 million in net proceeds from a legal settlement. During the same period in 2019, we used $456 thousand for renovations to our Indiana farm site and for construction charges at our Rollo Bay site.

Cash Flows from Financing Activities

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, we received approximately ~~$25.0~~$14.5 million in net proceeds from the issuance of ~~our common stock~~Common Shares in a ~~private placement of shares, $257 thousand in proceeds from the issuance of term debt, and $28 thousand in proceeds from the exercise of employee stock options.~~public offering. This was offset by ~~$24~~$39 thousand in the repayment of debt. During the same period in ~~2016,~~2019, we received ~~$7.5~~approximately $6.6 million in net proceeds from the issuance of ~~convertible debt and $547~~Common Shares in a public offering, $250 thousand ~~in proceeds~~ from the ~~issuance~~exercise of ~~term~~warrants, and $376 thousand from new debt. This was offset by $2$10 thousand in the repayment of debt.

Future Capital Requirements

~~We have evaluated our~~As discussed in Note 1 to the financial statements, the Company has experienced net losses and negative cash flows from operations since its inception and has cumulative losses attributable to common stockholders of $135 million and a cash balance of $14.7 million as of March 31, 2020. Management believes its cash resources ~~in view of our planned spending~~will meet the Company’s cash requirements for ~~ongoing operations, capital expenditures, and working capital for~~at least the next twelve months ~~and have determined that our current funds will be used by~~from the end of December 2017. We intend to devote a significant portion of our existing cash to our farm sites in Indiana and Rollo Bay and the continued investment in our research and development projects. We plan to seek additional financing in the form of debt or equity to fund our cash requirements.

We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

~~the timing of additional regulatory approvals and permits for AquAdvantage Salmon, if any;~~

~~the cost to complete construction activities at our Rollo Bay site;~~

~~the cost to upgrade the equipment at our Indiana site; and~~

~~the timing of costs related to the FDA legal challenge.~~filing date.

Until such time, if ever, as we can generate positive operating cash flows, we may finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of holders of our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through government or other third-party funding; marketing and distribution arrangements; or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or to grant licenses on terms that may not be favorable to us.

~~Management believes that~~

The current COVID-19 pandemic has introduced uncertainty and volatility into the ~~Company can continue~~financial markets and as a ~~going concern. Management’s assessment is based on its belief that the Company will~~result sources of future funding may be ~~able~~more difficult to ~~raise additional equity or debt to fund its requirements. Additionally, management could slow down spending to conserve the Company’s cash~~obtain, if there is a delay in obtaining new funding. Therefore, the accompanying 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. However, ifat all.

If we are unable to generate additional funds in the future through financings, sales of our products, government grants, loans, or from other sources or transactions, we will exhaust our resources and will be unable to maintain our currently planned operations. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

~~During the nine months ended September 30, 2017, the Company adopted the following critical accounting policy:~~

~~Business Combinations: Clarifying the Definition of a Business~~

The Company has adopted ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business.” The revised guidance changes the definition of a business to assist entities with evaluating whether a set of transferred assets and activities is a business. During the quarter ended June 30, 2017, the Company acquired certain assets of Bell Fish Company LLC in Albany, Indiana, for $14.2 million, including legal and other expenses incurred. Management concluded, based on its analysis of the assets acquired, that the facility and related assets would provide one input into the Company’s process for growing its product, and, accordingly, the acquisition was accounted for as an asset purchase.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following sections provide quantitative information on our exposure to interest rate risk and foreign currency exchange risk. We make use of sensitivity analyses, which are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.

Interest Rate Risk

Our primary exposure to market risk is interest rate risk associated with debt financing that we utilize from time to time to fund operations or specific projects. The interest on this debt is usually determined based on a fixed rate and is contractually set in advance. At ~~September 30, 2017,~~March 31, 2020, and December 31, ~~2016,~~2019, we had ~~$814 thousand~~$1.6 million and ~~$527 thousand,~~$1.8 million, respectively, in interest-bearing debt instruments on our consolidated balance sheet. All of our interest-bearing debt is at fixed rates.

Foreign Currency Exchange Risk

Our functional currency is the U.S. Dollar. The functional currency of our Canadian subsidiary is the Canadian Dollar, and the functional currency of our Panama, U.S., and Brazil subsidiaries is the U.S. 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 loss within shareholders’ equity (deficit).

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules ~~13a-15(e)~~13a‑15(e) and ~~15d-15(e)~~15d‑15(e) under the Exchange Act) as of the end of the period covered by this Form ~~10-Q.~~10‑Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended ~~September 30, 2017,~~March 31, 2020, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

~~Management’s Report on~~Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(g) and 15d‑15(f)) that occurred during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

1614

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Lawsuit Against the FDA Approval of ~~NADA~~AquAdvantage Salmon

On March 30, 2016, a coalition of non-governmental organizations filed a complaint in the United States District Court for the Northern District of California against the FDA, the United States Fish and Wildlife Service, and related individuals for their roles in the approval of AquAdvantage Salmon. Subsequently, the Fish and Wildlife Service was dismissed from the case, and we joined the case as an intervenor to protect our interests. The coalition, including the ~~Centre~~Center for Food Safety and Friends of the Earth, claims that the FDA had no statutory authority to regulate ~~genetically modified~~bioengineered animals, and, if it did, that the agency failed to analyze and implement measures to mitigate ecological, environmental, and socioeconomic risks that could impact wild salmon and the environment, including the risk that AquAdvantage Salmon could escape and threaten endangered wild salmon stocks. ~~This lawsuit is currently in the~~The discovery phase of ~~litigation.~~litigation is now complete, and the case is moving forward on substantive briefing.

Other than as set forth above, we are not party to any legal proceedings the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our future business, consolidated results of operations, cash flows, or financial position. We may, from time to time, be subject to legal proceedings and claims arising from the normal course of business activities.

Item 1A. Risk Factors

As disclosed in ~~"Item~~“Item 1A. Risk ~~Factors"~~Factors” in our Annual Report on Form ~~10-K~~10‑K for the year ended December 31, ~~2016,~~2019, which was filed on March ~~16, 2017,~~10, 2020, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. ~~There are no material additional updates or changes to our~~The following risk factors ~~since the filing of~~are either new or have changed materially from those set forth in our Annual Report on Form ~~10-K~~10‑K for the year ended December 31, ~~2016, except for material changes~~2019. You should carefully review the risks involved and those described in our Annual Report on Form 10‑K and in other reports we file with the Securities and Exchange Commission in evaluating our business.

Risks Relating to our Business

Business, political, or economic disruptions or global health concerns could seriously harm our current or planned business and increase our costs and expenses.

Broad-based business or economic disruptions, political instability, or global health concerns could adversely affect our current or planned production, sale, distribution, research and development, and expansion. For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread around the globe, resulting in extended shutdowns of businesses and a significant negative impact on the world economy. Global health concerns like the coronavirus pandemic could in themselves result in social, economic, and labor instability in the ~~following risk factors:~~

~~We may~~countries in which we or the third parties with whom we engage operate. The COVID-19 virus pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to ~~label our AquAdvantage Salmon at~~ the ~~retail level as containing a genetically modified organism, which could negatively impact consumer acceptance.~~

~~Until the recent passage~~spread of the ~~National Sea Grant College Program Reauthorization~~COVID-19 virus, we have closed our executive offices, with our administrative employees continuing their work remotely, and limited the number of staff in ~~July 2016, which contained~~any given farm site. As a result of the ~~National Bioengineered Food Disclosure Standard,~~COVID-19 pandemic, we may experience disruptions that could severely impact our business, including disruptions or ~~Labeling Act,~~restrictions on our ~~AquAdvantage Salmon did not need~~ability to travel, pursue partnerships and other business transactions, conduct production activities, and make shipments, as well as be ~~labeled~~impacted by the temporary closure of the facilities of suppliers. While we have taken steps to address the impact of the coronavirus on our operations, and we believe that our suppliers and potential customers continue to operate in all material respects, we cannot presently predict the scope and severity of any additional business shutdowns or disruptions or the impact on consumer demand. If we or any of the third parties with whom we engage, including suppliers, distributors, service providers, regulators, and overseas business partners, experience additional or continued shutdowns or other disruptions, or consumer demand is materially reduced, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, our anticipated revenues could decrease, and our costs and expenses could rise as ~~containing~~ a ~~genetically modified organism, because it had been deemed~~result of our efforts to be “substantially equivalent” to the traditional product. However, because several states either passed or considered new laws specifying varying requirements for labeling products sold at the retail level that contain genetically modified ingredients, the United States Congress passed the Labeling Act to establish a national standard for package labeling for foods containing genetically modified ingredients. The United States Department of Agriculture has until July 2018 to implement this new law. address such disruptions.

In addition, the trading prices for our common stock and the stock of other biotechnology companies have been highly volatile as a ~~bill was introduced~~result of the COVID-19 virus pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. The COVID-19 virus pandemic continues to rapidly evolve, and the extent to which it may impact our business and planned programs will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease; the duration of the pandemic; travel restrictions and other actions to contain the pandemic or address its impact, such as social distancing and quarantines or lock-downs in the United States Senate in July 2017 that could, if it became law, require labeling specific to AquAdvantage Salmon, rather than applicable to all genetically modified foods. Labeling requirements could cause consumers to viewand

other countries; business closures or business disruptions; and the ~~label as either a warning or as an indication that AquAdvantage Salmon is inferior to traditional Atlantic salmon, which could negatively impact consumer acceptance~~effectiveness of ~~our product.~~

~~We may become subject to increasing regulation, changes in existing regulations, and review of existing regulatory decisions.~~

Regulations pertaining to genetically modified animals are still developing and could change from their present state. In addition, new legislation could require new regulatory frameworks, changes in existing regulation, or re-evaluation of prior regulatory decisions. For example, in July 2017, a bill was introducedactions taken in the United States ~~Senate that could, if it became law, require labeling unique~~and other countries to contain and address the disease.

Our ability to generate revenue to support our operations depends on maintaining regulatory approvals for AquAdvantage Salmon ~~as well as re-examination of~~and our farm sites and obtaining new approvals for farm sites and the environmental assessments used by the FDA’s 2015 approval of the NADA for AquAdvantage Salmon. Such legislatively imposed review of a completed regulatory process could result in new restrictions on, or delays in, commercializationsale of our ~~product~~products in other markets, the receipt of which is uncertain.

As a bioengineered animal for human consumption, AquAdvantage Salmon required approval from the FDA in the United ~~States. We~~States and the Ministers of Health and Environment in Canada before it could be produced, sold, or consumed in those countries. Our FDA approval covers the production of our eggs in our hatchery in Canada and the grow-out of our eggs in our facilities in Indiana and Rollo Bay. FDA approvals will be needed for each additional facility we plan to operate. Additionally, we will require local regulatory approvals in other countries in which we hope to operate. There is no guarantee that we will receive or be able to maintain regulatory approvals from the FDA or other regulatory bodies or that there will not be a significant delay before approval. There is also no guarantee that any approvals granted will not be subject to ~~increasing~~onerous obligations in relation to matters such as production or ~~more onerous~~labeling, or that any regulator will not require additional data prior to approval, which may be costly and time-consuming to acquire.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels and statutory, regulatory, ~~hurdles~~and policy changes. Average review times at the agency have fluctuated in recent years as ~~we attempt~~a result. In addition, government funding of other agencies on which our operations may rely is subject to ~~commercialize~~the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new applications to be reviewed and/or approved by necessary government agencies, which would adversely affect our ~~product,~~business. For example, over the last several years the U.S. government has shut down several times, and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. Separately, in response to the COVID-19 virus pandemic, on March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products through April 2020. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 virus pandemic. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could ~~require us to incur significant additional capital and operating expenditures and other costs in complying with these laws and regulations. Our regulatory burdens~~have a material adverse effect on our business. Future shutdowns could also ~~increase if AquAdvantage Salmon~~affect other government agencies, such as the SEC, which may also impact our business by delaying review of our public filings, to the extent such review is necessary, and our ability to access the public markets.

Risks Relating to our Common Stock

The significant share ownership position of certain affiliates allows them to influence corporate matters.

Based solely on a Schedule 13D/A filed on February 18, 2020, by Randal J. Kirk; Third Security; TS AquaCulture LLC (“TS AquaCulture”); and TS Biotechnology Holdings, LLC (“TS Biotechnology”), TS AquaCulture owns 8,239,199 shares of our common stock, or approximately 25.7% of our outstanding shares, and TS Biotechnology owns 5,175,000 shares of our common stock, or approximately 16.2% of our outstanding shares. In addition, entities controlled by Mr. Kirk, including Third Security and its affiliates other than TS AquaCulture and TS Biotechnology, currently hold 837,554 shares of our common stock, or approximately 2.6% of our outstanding shares. TS AquaCulture and TS Biotechnology are ~~found, or believed,~~managed by Third Security, and TS AquaCulture is successor-in-interest to ~~grow to a larger final size~~Precigen under the Relationship Agreement. See “Related-Party Transactions, Policies, and Procedures-Relationship Agreement with TS AquaCulture.” Further, Alana D. Czypinski, who joined the Company’s Board of Directors, married Randal J. Kirk in March 2020 and has reported that she owns 2,159 shares of our common stock in her own name, which is less than ~~traditional Atlantic salmon.~~one percent of our outstanding shares. Based on these holdings, Mr. Kirk, Third Security’s Chief Executive Officer and Senior Managing Director, and Ms. Czypinski have each reported control over approximately 44.4% of our outstanding shares. Mr. Kirk and Ms. Czypinski each disclaim beneficial ownership of the shares owned directly by the other, and Ms. Czypinski disclaims beneficial ownership of the shares deemed beneficially owned by Mr. Kirk, other than those that she owns directly.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

1817

Item 6. Exhibits

EXHIBIT INDEX



Exhibit Number		Exhibit Description

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.

1918

Signatures

Pursuant to the requirements 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.

~~November 2, 2017~~May 5, 2020		/s/ ~~Ronald L. Stotish~~Sylvia Wulf
		~~Ronald L. Stotish~~Sylvia Wulf
		President, Chief Executive Officer, and Director (Principal Executive Officer)

~~November 2, 2017~~May 5, 2020		/s/ David A. Frank
		David A. Frank
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

2019



	Number of options		Weighted average exercise price
Outstanding at December 31, 2016	185,591		$	7.89
Issued	52,500		14.20
Exercised	(8,334	)	3.30
Expired	(2,554	)	19.50
Outstanding at September 30, 2017	227,203		$	9.39
Exercisable at September 30, 2017	183,373		$	8.28