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
or
o 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
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
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 | o | Accelerated filer | o | Non-accelerated filer | x | Smaller reporting company | x |
Emerging growth company | x |
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
At November 2, 2017,May 4, 2022, the registrant had 8,895,094 71,109,701 shares of common stock, par value $0.001 per share (“Common SharesShares”) outstanding.
AquaBounty Technologies, Inc. | ||||
FORM 10-Q | ||||
For the Quarterly Period Ended March 31, 2022 | ||||
TABLE OF CONTENTS | ||||
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19 | ||||
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 AquaBounty’s genetically engineered AquAdvantage salmon (“GE Atlantic salmon”) product;
the implementation and likelihood of achieving the business plan, future revenue, and operating results;
our plans for (including without limitation, projected costs, locations and third-party involvement) and the timing of the development of new farms and the output of those farms (including our Pioneer, Ohio farm);
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 evolving COVID-19 pandemic (the “COVID-19 pandemic”) 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 genetically engineered 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 Jumpstart Our Business Startups Act (the “JOBS Act”);
our estimates regarding expenses, inflation, future revenue, capital requirements, and needs for additional financing; and
other risks and uncertainties referenced under “Risk Factors” below and in any documents incorporated by reference herein.
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.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, | December 31, | ||||
2022 | 2021 | ||||
Assets | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 75,509,793 | $ | 88,454,988 | |
Marketable securities | 103,365,156 | 101,773,781 | |||
Inventory | 1,675,682 | 1,259,910 | |||
Prepaid expenses and other current assets | 1,695,159 | 1,536,484 | |||
Total current assets | 182,245,790 | 193,025,163 | |||
Property, plant and equipment, net | 37,828,165 | 33,815,119 | |||
Right of use assets, net | 269,426 | 284,320 | |||
Intangible assets, net | 228,417 | 231,842 | |||
Restricted cash | 1,000,000 | 1,000,000 | |||
Other assets | 75,957 | 79,548 | |||
Total assets | $ | 221,647,755 | $ | 228,435,992 | |
Liabilities and stockholders' equity | |||||
Current liabilities: | |||||
Accounts payable and accrued liabilities | $ | 2,913,028 | $ | 4,317,615 | |
Accrued employee compensation | 512,173 | 874,589 | |||
Current debt | 657,828 | 627,365 | |||
Other current liabilities | 67,497 | 66,269 | |||
Total current liabilities | 4,150,526 | 5,885,838 | |||
Long-term lease obligations | 206,734 | 224,058 | |||
Long-term debt, net | 8,419,290 | 8,523,333 | |||
Total liabilities | 12,776,550 | 14,633,229 | |||
Commitments and contingencies |
|
| |||
Stockholders' equity: | |||||
Common stock, $0.001 par value, 80,000,000 shares authorized at March 31, 2022 and | |||||
December 31, 2021; 71,109,701 and 71,025,738 shares outstanding at March 31, 2022 | |||||
and December 31, 2021, respectively | 71,110 | 71,026 | |||
Additional paid-in capital | 385,063,351 | 384,852,107 | |||
Accumulated other comprehensive loss | (286,748) | (255,588) | |||
Accumulated deficit | (175,976,508) | (170,864,782) | |||
Total stockholders' equity | 208,871,205 | 213,802,763 | |||
Total liabilities and stockholders' equity | $ | 221,647,755 | $ | 228,435,992 | |
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,717,821 | $ | 3,324,609 | ||||
| Certificate of deposit | 13,489 | 10,666 | ||||||
| Other receivables | 219,334 | 164,743 | ||||||
| Inventory | 78,499 | — | ||||||
| Prepaid expenses and other current assets | 245,242 | 72,983 | ||||||
| Total current assets | 5,274,385 | 3,573,001 | ||||||
| Property, plant and equipment, net | 19,478,853 | 1,723,707 | ||||||
| Definite-lived intangible assets, net | 188,421 | 198,698 | ||||||
| Indefinite-lived intangible assets | 191,800 | 191,800 | ||||||
| Other assets | 162,093 | 21,628 | ||||||
| Total assets | $ | 25,295,552 | $ | 5,708,834 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 1,602,396 | $ | 1,017,851 | ||||
| Current debt | 55,223 | 17,913 | ||||||
| Total current liabilities | 1,657,619 | 1,035,764 | ||||||
| Long-term debt | 3,059,990 | 2,645,015 | ||||||
| Total liabilities | 4,717,609 | 3,680,779 | ||||||
| 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 | ||||||
| Additional paid-in capital | 126,681,495 | 101,581,724 | ||||||
| Accumulated other comprehensive loss | (243,188 | ) | (286,272 | ) | ||||
| Accumulated deficit | (105,869,259 | ) | (99,273,861 | ) | ||||
| Total stockholders’ equity | 20,577,943 | 2,028,055 | ||||||
| Total liabilities and stockholders’ equity | $ | 25,295,552 | $ | 5,708,834 | ||||
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
AquaBounty Technologies, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended | |||||
2022 | 2021 | ||||
Revenues | |||||
Product revenues | $ | 962,881 | $ | 74,372 | |
Costs and expenses | |||||
Product costs | 3,275,690 | 1,554,655 | |||
Sales and marketing | 247,572 | 318,635 | |||
Research and development | 167,189 | 500,620 | |||
General and administrative | 2,376,236 | 1,785,510 | |||
Total costs and expenses | 6,066,687 | 4,159,420 | |||
Operating loss | (5,103,806) | (4,085,048) | |||
Other income (expense) | |||||
Interest expense | (75,288) | (78,804) | |||
Other income, net | 67,368 | 4,961 | |||
Total other income (expense) | (7,920) | (73,843) | |||
Net loss | $ | (5,111,726) | $ | (4,158,891) | |
Other comprehensive income (loss): | |||||
Foreign currency translation gain | 82,905 | 80,039 | |||
Unrealized loss on marketable securities | (114,065) | — | |||
Total other comprehensive income (loss) | (31,160) | 80,039 | |||
Comprehensive loss | $ | (5,142,886) | $ | (4,078,852) | |
Basic and diluted net loss per share | $ | (0.07) | $ | (0.06) | |
Weighted average number of Common Shares - | |||||
basic and diluted | 71,004,454 | 64,550,920 | |||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | ||||||||||||||||
| Product revenues | $ | — | $ | — | $ | 53,278 | $ | — | ||||||||
| Costs and expenses | ||||||||||||||||
| Product costs | — | — | 50,777 | — | ||||||||||||
| Sales and marketing | 195,947 | 209,556 | 607,145 | 650,075 | ||||||||||||
| Research and development | 860,903 | 974,980 | 2,517,242 | 2,705,978 | ||||||||||||
| General and administrative | 1,382,380 | 824,381 | 3,453,516 | 2,428,044 | ||||||||||||
| Total costs and expenses | 2,439,230 | 2,008,917 | 6,628,680 | 5,784,097 | ||||||||||||
| Operating loss | (2,439,230 | ) | (2,008,917 | ) | (6,575,402 | ) | (5,784,097 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Gain on disposal of equipment | — | — | — | 2,861 | ||||||||||||
| Interest expense | (5,597 | ) | (131,301 | ) | (16,130 | ) | (238,940 | ) | ||||||||
| Other income (expense), net | (1,392 | ) | (1,608 | ) | (3,866 | ) | (4,463 | ) | ||||||||
| Total other income (expense) | (6,989 | ) | (132,909 | ) | (19,996 | ) | (240,542 | ) | ||||||||
| Net loss | $ | (2,446,219 | ) | $ | (2,141,826 | ) | $ | (6,595,398 | ) | $ | (6,024,639 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation gain (loss) | 34,933 | 13,659 | 43,084 | (86,516 | ) | |||||||||||
| Total other comprehensive income (loss) | 34,933 | 13,659 | 43,084 | (86,516 | ) | |||||||||||
| Comprehensive loss | $ | (2,411,286 | ) | $ | (2,128,167 | ) | $ | (6,552,314 | ) | $ | (6,111,155 | ) | ||||
| Basic and diluted net loss per share | $ | (0.28 | ) | $ | (0.41 | ) | $ | (0.76 | ) | $ | (1.15 | ) | ||||
| Weighted average number of common shares - | ||||||||||||||||
| basic and diluted | 8,895,094 | 5,250,510 | 8,731,178 | 5,249,776 | ||||||||||||
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
AquaBounty Technologies, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | ||||||||||||
Balance at December 31, 2020 | 55,497,133 | $ | 55,497 | $ | 263,629,116 | $ | (267,258) | $ | (148,542,194) | $ | 114,875,161 | ||||||
Net loss | (4,158,891) | (4,158,891) | |||||||||||||||
Other comprehensive income (loss) | 80,039 | 80,039 | |||||||||||||||
Cashless exercise of options for common stock | 4,354 | 4 | (4) | — | |||||||||||||
Issuance of common stock, net of expenses | 14,950,000 | 14,950 | 119,105,487 | 119,120,437 | |||||||||||||
Exercise of warrants for common stock | 491,133 | 491 | 1,595,691 | 1,596,182 | |||||||||||||
Share based compensation | 40,525 | 41 | 129,674 | 129,715 | |||||||||||||
Balance at March 31, 2021 | 70,983,145 | $ | 70,983 | $ | 384,459,964 | $ | (187,219) | $ | (152,701,085) | $ | 231,642,643 | ||||||
Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | ||||||||||||
Balance at December 31, 2021 | 71,025,738 | $ | 71,026 | $ | 384,852,107 | $ | (255,588) | $ | (170,864,782) | $ | 213,802,763 | ||||||
Net loss | (5,111,726) | (5,111,726) | |||||||||||||||
Other comprehensive income (loss) | (31,160) | (31,160) | |||||||||||||||
Share based compensation | 83,963 | 84 | 211,244 | 211,328 | |||||||||||||
Balance at March 31, 2022 | 71,109,701 | $ | 71,110 | $ | 385,063,351 | $ | (286,748) | $ | (175,976,508) | $ | 208,871,205 | ||||||
| Common stock issued and outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total | ||||||||||||||||||
| Balance at December 31, 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 | ||||||||||
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
AquaBounty Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | |||||
2022 | 2021 | ||||
Operating activities | |||||
Net loss | $ | (5,111,726) | $ | (4,158,891) | |
Adjustment to reconcile net loss to net cash used in | |||||
operating activities: | |||||
Depreciation and amortization | 490,563 | 422,185 | |||
Share-based compensation | 211,328 | 129,715 | |||
Other non-cash charge | 4,251 | 4,203 | |||
Changes in operating assets and liabilities: | |||||
Inventory | (411,794) | (577,154) | |||
Prepaid expenses and other assets | (139,671) | (63,966) | |||
Accounts payable and accrued liabilities | (6,949) | (211,347) | |||
Accrued employee compensation | (362,416) | (63,139) | |||
Net cash used in operating activities | (5,326,414) | (4,518,394) | |||
Investing activities | |||||
Purchases and deposits on property, plant and equipment | (5,762,143) | (1,208,183) | |||
Purchases of marketable securities, net | (1,705,440) | — | |||
Other investing activities | — | (11,010) | |||
Net cash used in investing activities | (7,467,583) | (1,219,193) | |||
Financing activities | |||||
Proceeds from issuance of debt | — | 187,120 | |||
Repayment of term debt | (159,304) | (38,885) | |||
Proceeds from the issuance of common stock, net | — | 119,120,437 | |||
Proceeds from the exercise of stock options and warrants | — | 1,596,182 | |||
Net cash (used in) provided by financing activities | (159,304) | 120,864,854 | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 8,106 | 21,007 | |||
Net change in cash, cash equivalents and restricted cash | (12,945,195) | 115,148,274 | |||
Cash, cash equivalents and restricted cash at beginning of period | 89,454,988 | 96,251,160 | |||
Cash, cash equivalents and restricted cash at end of period | $ | 76,509,793 | $ | 211,399,434 | |
Reconciliation of cash, cash equivalents and restricted cash reported | |||||
in the consolidated balance sheet: | |||||
Cash and cash equivalents | $ | 75,509,793 | $ | 210,899,434 | |
Restricted cash | 1,000,000 | 500,000 | |||
Total cash, cash equivalents and restricted cash | $ | 76,509,793 | $ | 211,399,434 | |
Supplemental disclosure of cash flow information and | |||||
non-cash transactions: | |||||
Interest paid in cash | $ | 71,037 | $ | 73,685 | |
Property and equipment included in accounts payable and accrued liabilities | $ | 1,507,514 | $ | 82,068 | |
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (6,595,398 | ) | $ | (6,024,639 | ) | ||
| Adjustment to reconcile net loss to net cash used in | ||||||||
| operating activities: | ||||||||
| Depreciation and amortization | 137,229 | 109,207 | ||||||
| Share-based compensation | 85,443 | 166,478 | ||||||
| Gain on disposal of equipment | — | (2,861 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | (43,346 | ) | 13,174 | |||||
| Inventory | (78,499 | ) | — | |||||
| Prepaid expenses and other assets | (309,986 | ) | (27,313 | ) | ||||
| Accounts payable and accrued liabilities | 128,917 | 332,254 | ||||||
| Net cash used in operating activities | (6,675,640 | ) | (5,433,700 | ) | ||||
| Investing activities | ||||||||
| Purchase of property, plant and equipment | (17,235,184 | ) | (757,402 | ) | ||||
| Proceeds from sale of equipment | — | 23,844 | ||||||
| Payment of patent costs | — | (5,665 | ) | |||||
| Net cash used in investing activities | (17,235,184 | ) | (739,223 | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of debt | 256,807 | 547,142 | ||||||
| Repayment of term debt | (23,677 | ) | (1,866 | ) | ||||
| Proceeds from the issuance of convertible debt | — | 7,500,000 | ||||||
| Proceeds from the issuance of common stock, net | 24,989,257 | — | ||||||
| Proceeds from the exercise of stock options | 27,502 | — | ||||||
| Net cash provided by financing activities | 25,249,889 | 8,045,276 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 54,147 | (2,249 | ) | |||||
| Net change in cash and cash equivalents | 1,393,212 | 1,870,104 | ||||||
| Cash and cash equivalents at beginning of period | 3,324,609 | 1,313,421 | ||||||
| Cash and cash equivalents at the end of period | $ | 4,717,821 | $ | 3,183,525 | ||||
| Supplemental disclosure of cash flow information and | ||||||||
| non-cash transactions: | ||||||||
| Interest paid in cash | $ | 16,130 | $ | 1,440 | ||||
| Property and equipment included in accounts payable and accrued liabilities | $ | 472,283 | $ | — | ||||
See accompanying notes to these unauditedcondensed interim consolidated financial statements.
AquaBounty Technologies, Inc.
Notes to the condensed consolidated financial statements
(unaudited)
1. Nature of business and organization
AquaBounty Technologies, Inc. (the “Parent” and, together with its wholly owned subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of farm‑farm-raised Atlantic salmon that exhibit growth rates that are substantially faster than traditionalconventional salmon.
2. Basis of presentation
The unaudited interim condensed 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.subsidiaries. All inter-companyintercompany transactions and balances have been eliminated upon consolidation.
The unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited financial statements and related footnotesnotes for the year ended December 31, 2016.2021. The unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of September 30, 2017, and itsMarch 31, 2022, results of operations and cash flows for the interim periods presented, and are not necessarily indicative of results for subsequent interim periods or for the full year. The unaudited interim condensed consolidated financial statements do not include all of the information and footnotesnotes required by GAAP for complete financial statements, as allowed by the relevant SECU.S. Securities and Exchange Commission (“SEC”) rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.
Liquidity
The Company had $179.9 million in cash and cash equivalents, marketable securities and restricted cash as of March 31, 2022. While the Company implementedhas experienced net losses and negative cash flows from operations since inception, management believes that it has sufficient cash to meet the Company's requirements beyond the next twelve months from the filing date of these condensed consolidated financial statements. However, until such time as the Company reaches profitability, it may require additional financing to fund its operations and execute its business plan.
Inventories
Inventories are mainly comprised of feed, eggs, fish in process and finished goods. Fish in process inventory is measured based on the estimated biomass of fish on hand. The Company has established a 1-for-30 reverse splitstandard procedure to estimate the biomass of fish on hand using counting and sampling techniques. The Company measures inventory at the lower of cost or net realizable value (NRV). The NRV calculation contains various estimates and assumptions in regard to the calculation of the biomass, including expected yield, the market value of the biomass and estimated costs of completion and transportation. The Company considers fish that has been harvested and transported from its farm to be finished goods inventory.
Revenue recognition
The Company generates revenue from the sale of its outstanding common shares. All share balancesproducts. Revenue is recognized when the customer takes physical control of the goods, in an amount that reflects the unaudited interim consolidated financial statementstransaction price consideration that the Company expects to receive in exchange for the goods. Revenue excludes any sales tax collected and accompanying notes have been restated to reflect this change.includes any estimate of future credits.
During the period ended March 31, 2022, the Company recognized the following product revenue:
Quarter Ended March 31, 2022 | ||||||||
U.S. | Canada | Total | ||||||
GE Atlantic salmon | $ | 788,977 | $ | 131,860 | $ | 920,837 | ||
Non-GE Atlantic salmon fry | - | 41,807 | 41,807 | |||||
Other revenue | - | 237 | 237 | |||||
Total Revenue | $ | 788,977 | $ | 173,904 | $ | 962,881 | ||
During the period ended March 31, 2022, the Company had the following customer concentration of revenue:
Quarter Ended | ||||||||
March 31, 2022 | ||||||||
Customer A | 34% | |||||||
Customer B | 21% | |||||||
Customer C | 14% | |||||||
All other | 31% | |||||||
Total of all customers | 100% | |||||||
Net loss per share
Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss by the weighted average number of common sharesCommon Shares outstanding during the year. Basic net loss per share is based solely on the number of common sharesCommon Shares outstanding during the year. Common Shares outstanding exclude any issued, but unvested restricted shares. Fully diluted net loss per share includes the number of shares of common stockCommon Shares issuable upon the exercise of warrants and options with an exercise price less than the fair value of the common
The following table shows the impact of potentially dilutive securities outstanding:
March 31, 2022 | December 31, 2021 | |||||||
Shares issued and outstanding, excluding unvested restricted shares | 71,087,504 | 70,992,361 | ||||||
Reserve for issued stock options | 873,180 | 663,425 | ||||||
Reserve for issued warrants | 418,441 | 418,441 | ||||||
Reserve for issued but unvested restricted shares | 184,645 | 65,100 | ||||||
Fully diluted shares | 72,563,770 | 72,139,327 | ||||||
Accounting Pronouncements
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.
3. Risks and uncertainties
The Company is subject to risks and uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in other countries with respect to approval and commercial sale of any of the Company’s proposed products; (iii) the commercial acceptance of any products approved for sale and the Company’s ability to manufacture,produce, distribute, and sell for a profit any products approved for sale; (iv) the Company’s ability to obtain the necessary patents and proprietary rights to effectively protect its technologies; and (v) the outcome of any collaborations or alliances entered into by the Company.
COVID-19
Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, several variants of the virus continue to spread. Local governmental authorities in the United States and Canada have issued, and continue to update, directives aimed at minimizing the spread of the virus and the Company continues to monitor its status. The ultimate impact of the evolving COVID-19 pandemic on the Company’s operations will depend on future developments, which cannot be predicted with confidence, and the Company cannot predict the extent or impact of the extended period of continued business interruption and reduced operations caused by the COVID-19 pandemic or any additional preventative or protective measures
taken in response. In connection with the COVID-19 pandemic, management continues to make modifications to biosecurity procedures and employee welfare practices at the Company’s farm sites to adapt to local requirements and to provide a safe work environment.
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.marketable securities. This risk is minimizedmitigated by the Company’s policy of investing in financial instrumentsmaintaining all balances with short-term maturities issued by highly rated financial institutions.institutions, investing cash equivalents with maturities of less than 90 days, and investing marketable securities with maturities of less than 180 days. The Company’s cash balances may at times exceed insurance limitations. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign currency exchange risk, which is mitigatedminimized by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled $85,005$147 thousand and $224 thousand at September 30, 2017.
4. Marketable Securities
Marketable securities are classified as available-for-sale. The following tables summarize the amortized cost, gross unrealized gains and losses, and the fair value based on the short-term maturityas of these instruments. As of September 30, 2017, the carrying value of term debt approximates its fair value since it provides for market termsMarch 31, 2022 and interest rates.December 31, 2021:
Amortized | Unrealized | Unrealized | Market | ||||||||
Cost | Gains | Losses | Value | ||||||||
December 31, 2021 | |||||||||||
Government bonds | $ | 28,453,161 | $ | 82 | $ | (18,255) | $ | 28,434,988 | |||
Corporate bonds | 29,874,696 | - | (21,928) | 29,852,768 | |||||||
Commercial paper | 43,486,025 | - | - | 43,486,025 | |||||||
Marketable securities | $ | 101,813,882 | $ | 82 | $ | (40,183) | $ | 101,773,781 | |||
March 31, 2022 | |||||||||||
Government bonds | $ | 37,488,888 | $ | 33 | $ | (86,090) | $ | 37,402,831 | |||
Corporate bonds | 26,549,151 | 15 | (68,035) | 26,481,132 | |||||||
Commercial paper | 39,481,194 | - | - | 39,481,194 | |||||||
Marketable securities | $ | 103,519,232 | $ | 48 | $ | (154,125) | $ | 103,365,156 | |||
5. Inventory
Major classifications of inventory are summarized as follows:
March 31, 2022 | December 31, 2021 | ||||
Feed, net | $ | 306,635 | 162,047 | ||
Eggs and fry | 97,939 | — | |||
Fish in process | 1,209,012 | 926,360 | |||
Finished goods | 62,096 | 171,503 | |||
Inventory, net | $ | 1,675,682 | 1,259,910 | ||
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Feed | $ | 36,403 | $ | — | ||||
| Fish in process | 42,096 | — | ||||||
| Total inventory | $ | 78,499 | $ | — | ||||
6. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows:
March 31, 2022 | December 31, 2021 | ||||
Land | $ | 730,345 | $ | 725,799 | |
Building and improvements | 15,712,641 | 15,580,385 | |||
Construction in process | 12,286,984 | 8,119,575 | |||
Equipment | 16,220,935 | 15,981,408 | |||
Office furniture and equipment | 242,102 | 240,939 | |||
Vehicles | 36,837 | 36,280 | |||
Total property and equipment | $ | 45,229,844 | $ | 40,684,386 | |
Less accumulated depreciation and amortization | (7,401,679) | (6,869,267) | |||
Property, plant and equipment, net | $ | 37,828,165 | $ | 33,815,119 | |
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Land | $ | 665,733 | $ | 157,107 | ||||
| Building and improvements | 8,618,289 | 1,436,814 | ||||||
| Construction in process | 3,731,112 | 277,352 | ||||||
| Equipment | 7,873,930 | 1,037,549 | ||||||
| Office furniture and equipment | 81,521 | 78,780 | ||||||
| Vehicles | 29,311 | 27,201 | ||||||
| Total property and equipment | $ | 20,999,896 | $ | 3,014,803 | ||||
| Less accumulated depreciation and amortization | (1,521,043 | ) | (1,291,096 | ) | ||||
| Property, plant and equipment, net | $ | 19,478,853 | $ | 1,723,707 | ||||
Depreciation and amortization expense was $126,951$484 thousand and $99,196$416 thousand, for the nine monthsthree-month period ended September 30, 2017March 31, 2022 and 2016,2021, respectively.
Included asin construction in process is $3.7$2.1 million for renovation and new construction costs incurred at ourrelated to the Rollo Bay farm site. The Company currently has an additional $2.1 million committedsite and improvements to these renovations.
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Accounts payable | $ | 490,840 | $ | 161,768 | ||||
| Accrued payroll including vacation | 316,588 | 242,436 | ||||||
| Accrued professional fees | 211,232 | 500,430 | ||||||
| Accrued research and development costs | 65,000 | 87,751 | ||||||
| Accrued taxes | 126,990 | 22,994 | ||||||
| Accrued construction costs | 387,038 | — | ||||||
| Accrued other | 4,708 | 2,472 | ||||||
| Accounts payable and accrued liabilities | $ | 1,602,396 | $ | 1,017,851 | ||||
7. Debt
The current material terms and conditions of debt outstanding are as follows:
Interest | Monthly | Maturity | March 31, 2022 | December 31, 2021 | ||||||||
ACOA AIF Grant | 0% | Royalties | - | $ | 2,296,099 | $ | 2,261,349 | |||||
ACOA term loan #1 | 0% | C$3,120 | Feb 2027 | 147,204 | 152,346 | |||||||
ACOA term loan #2 | 0% | C$4,630 | Sep 2029 | 333,120 | 339,015 | |||||||
ACOA term loan #3 | 0% | C$6,945 | Dec 2025 | 199,875 | 196,850 | |||||||
Kubota Canada Ltd | 0% | C$1,142 | Jan 2025 | 31,054 | 33,283 | |||||||
DFO term loan | 0% | C$2,091 | Aug 2032 | 411,935 | 405,700 | |||||||
PEI Finance term loan | 4% | C$16,313 | Nov 2023 | 1,957,755 | 1,947,510 | |||||||
First Farmers Bank & Trust term loan | 5.375% | $56,832 | Oct 2028 | 3,764,506 | 3,883,325 | |||||||
Total debt | $ | 9,141,548 | $ | 9,219,378 | ||||||||
less: debt issuance costs | (64,430) | (68,680) | ||||||||||
less: current portion | (657,828) | (627,365) | ||||||||||
Long-term debt, net | $ | 8,419,290 | $ | 8,523,333 | ||||||||
| Interest rate | Monthly repayment | Maturity date | September 30, 2017 | December 31, 2016 | ||||||||||
| ACOA AIF grant (C$2,871,919) | 0% | Royalties | - | $ | 2,301,556 | $ | 2,135,846 | |||||||
| ACOA term loan (C$337,000) | 0% | C$3,120 | June 2026 | 260,071 | — | |||||||||
| Finance PEI term loan (C$717,093) | 4% | C$4,333 | July 2021 | 553,586 | 527,082 | |||||||||
| Total debt | $ | 3,115,213 | $ | 2,662,928 | ||||||||||
| less: current portion | (55,223 | ) | (17,913 | ) | ||||||||||
| Long-term debt | $ | 3,059,990 | $ | 2,645,015 | ||||||||||
Estimated principal payments remaining on loan debt are as follows (1):follows:
Total | ||
2022 (remainder of the year) | $ | 486,634 |
2023 | 2,595,928 | |
2024 | 732,581 | |
2025 | 752,978 | |
2026 | 717,174 | |
Thereafter | 3,856,253 | |
Total | $ | 9,141,548 |
| Year | Total | ||
| 2017 | $ | 12,414 | |
| 2018 | 60,094 | ||
| 2019 | 60,912 | ||
| 2020 | 349,662 | ||
| 2021 | 2,499,578 | ||
| Thereafter | 132,553 | ||
| Total | $ | 3,115,213 | |
In January 2009,September 2020, the Canadian Subsidiary was awardedentered into a grant from ACOAContribution Agreement with the Department of Fisheries and Ocean's Atlantic Fisheries Fund, whereby it is eligible 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 byreceive up to C$1.9 million ($1.4 million) to finance new equipment for its Rollo Bay farm (the “DFO Term Loan”). On April 6, 2022, the Canadian Subsidiary borrowed an additional C$53,456 ($42,241) under the DFO Term Loan. Borrowings are interest free and monthly repayments commence in March 2023, with maturity in August 2032. All funding requests must be repaid insubmitted by August 22, 2022.
In August 2020, the form ofIndiana Subsidiary entered into a 10% royalty on any products that are commercialized out of this research project until theterm loan is fully repaid. The Company expects to make its first repayment in 2018.
The Company recognized interest expense of $16,112$75 thousand and $238,931$79 thousand for the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively, on its interest-bearing debt. Interest
8. Leases
Lease expense in 2016 included $237,500 for the convertible debt facility with Intrexon Corporation (“Intrexon”), its majority shareholder.
The table below summarizes the Company’s lease obligations and remaining payments at March 31, 2022 and December 31, 2021:
March 31, 2022 | December 31, 2021 | ||||
Lease Liability | Lease Liability | ||||
Total leases | $ | 274,231 | $ | 290,327 | |
Less: current portion | (67,497) | (66,269) | |||
Long-term leases | $ | 206,734 | $ | $ 224,058 | |
Remaining payments under leases are as follows:
Year | Amount | |||
2022 (remainder of the year) | $ | 50,173 | ||
2023 | 20,831 | |||
2024 | 4,495 | |||
2025 | 4,340 | |||
2026 | 4,215 | |||
Thereafter | 190,177 | |||
Total lease payments | $ | 274,231 | ||
9. Stockholders’ equity
Recent issuances
On February 8, 2021, the Company is presently authorized to issue up to 240 million sharescompleted a public offering of stock,14,950,000 Common Shares for net proceeds of approximately $119.1 million.
Warrants
At March 31, 2022 and December 31, 2021, there were 418,441 warrants outstanding at an exercise price of $3.25, all of which 40 million are authorized as preferred stock and 200 million as common stock.
Share-based compensation
At March 31, 2022, the Company in the event of liquidation are subject to the preferential rights of any outstanding preferred shares.
Restricted stock
A summary of the Company’s unvested shares of restricted stock as of September 30, 2017,Common Shares for the three months ended March 31, 2022, is as follows:
Shares | Weighted | |||
Unvested at December 31, 2021 | 65,100 | $ | 4.10 | |
Granted | 240,777 | 1.52 | ||
Vested | (121,232) | 2.14 | ||
Forfeited | — | — | ||
Unvested at March 31, 2022 | 184,645 | $ | 2.03 | |
| Shares | Weighted average grant date fair value | ||||||
| Unvested at December 31, 2016 | 4,169 | $ | 7.72 | ||||
| Granted | 1,751 | 14.20 | |||||
| Vested | (2,378 | ) | 8.09 | ||||
| Unvested at September 30, 2017 | 3,542 | $ | 10.68 | ||||
During the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, the Company expensed $19,235$168 thousand and $13,165,$107 thousand, respectively related to the Chairman’s restricted stock awards. At September 30, 2017,March 31, 2022, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $37,817.$347 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.42 years.
Stock options
The Company’s option activity under the 2006 Plan and the 2016 Plan is summarized as follows:
Number of | Weighted | |||
Outstanding at December 31, 2021 | 663,425 | $ | 4.31 | |
Issued | 209,755 | 1.55 | ||
Exercised | — | — | ||
Forfeited | — | — | ||
Expired | — | — | ||
Outstanding at March 31, 2022 | 873,180 | $ | 3.65 | |
Exercisable at March 31, 2022 | 624,075 | $ | 4.31 | |
| 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 | ||||
Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested daily over one to three years and are exercisable for a term of ten years from the date of issuance.
The fair values of stock option grants to employees and members of the Board of Directors during 2022 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:
2022 | ||
Expected volatility | 103% | |
Risk free interest rate | 2.10% | |
Expected dividend yield | 0% | |
Expected life (in years) | 5 |
The weighted average fair value of stock options granted during the ninethree months ended September 30, 2017,March 31, 2022 was $4.55. The intrinsic value of options exercised during the nine months ended September 30, 2017, was $43,420. $1.12.
The total intrinsic value of all options outstanding was $325,754$73 thousand and $602,773$18 thousand at September 30, 2017,March 31, 2022, and December 31, 2016,2021, respectively. The total intrinsic value of exercisable options was $325,310$1 thousand and $597,872$11 thousand at September 30, 2017,March 31, 2022 and December 31, 2016,2021, respectively.
The following table summarizes information about options outstanding and exercisable at September 30, 2017:March 31, 2022:
Weighted | Number of | Weighted | Number of | ||||
$1.52 - $2.50 | 732,288 | 7.9 | 503,779 | ||||
$5.44 - $6.72 | 55,402 | 8.2 | 34,789 | ||||
$7.50 - $10.80 | 16,403 | 2.1 | 16,403 | ||||
$14.20 - $23.40 | 69,087 | 4.0 | 69,087 | ||||
873,180 | 624,058 |
| 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 | ||||||||
Total share-based compensation on stock-option grantsstock options amounted to $66,208$43 thousand and $153,313$22 thousand for the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. At September 30, 2017,March 31, 2022, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was $186,921.$374 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.42 years.
10. Commitments and contingencies
The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
The Company is subject to legal proceedings and claims arising in the normal course of business. The Company records estimated losses from these legal proceedings and claims when it determines that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Litigation is subject to many factors that are difficult to predict so that there can be no assurance, in the event of a material unfavorable result in one or more claims, the Company extended the lease for its office space in Maynard, Massachusetts. The new lease for 3,558 square feet of office space has a term of five years 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.will not incur material costs. There have been no other material changes to the commitments and contingencies disclosed in our annual reportthe Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021.
11. Income Taxes
The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2022 as the Company entered intoincurred losses for the three months ended March 31, 2022 and is forecasting additional losses through the remainder of the year ending December 31, 2022, resulting in an Exclusive Channel Collaboration agreement (“ECC”) with Intrexon pursuantestimated net loss for both financial statement and tax purposes for the year ending December 31, 2022. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method.
Due to whichthe Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will use Intrexon’s UltraVectorgenerate future income of a sufficient amount and other technology platformsnature to develop and commercialize additional genetically modified traits in finfish for human consumption.
As of Operations and Comprehensive Loss. Included in accounts payable and accrued liabilities at September 30, 2017, and DecemberMarch 31, 2016, are amounts due to Intrexon under2022, the ECC totaling $65,000 and $73,780, respectively.
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‑Q10-Q and our Annual Report on Form 10-K for the year ended December 31, 2016,2021, which was filed on March 16, 2017.
Overview
We believe that we are a leader in the fieldland-based aquaculture, leveraging decades of biotechnology tools fortechnology expertise to deliver innovative solutions that address food insecurity and climate change issues, while improving the productivityefficiency, sustainability and profitability. We provide fresh Atlantic salmon to nearby markets by raising our fish in carefully monitored land-based fish farms through a safe, secure and sustainable process. Our land-based Recirculating Aquaculture System farms, located in Indiana, United States and Prince Edward Island, Canada, are close to key consumption markets and are designed to prevent disease and to include multiple levels of aquaculture.fish containment to protect wild fish populations. We are raising nutritious salmon that is free of antibiotics and other contaminants and provides a solution with a reduced carbon footprint and no risk of pollution to marine ecosystems as compared to traditional sea-cage farming. Our lead product is the AquAdvantage Salmon,our GE Atlantic salmon, which received FDA approval in 2015 as the first genetically modifiedengineered animal available for sale for human consumption. We intend to commencecommenced commercial activities in 2021 with operations in marketsthe United States and Canada where we have received regulatory approval. The first stepsWe are actively engaged in genetic, genomic, fish health and fish nutrition research, which drive continuous improvement in our commercial planoperations and may lead to new, disruptive technologies and products that could further expand our competitive offerings.
COVID-19
Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have been implemented, includingbecome more readily available, several variants of the following:
The ultimate impact of the evolving COVID-19 pandemic on our operations will depend on future developments, which cannot be predicted with confidence, and we cannot predict the extent or a site on whichimpact of the extended period of continued business interruption and reduced operations caused by the COVID-19 pandemic or any additional preventative or protective measures taken in response. In connection with the COVID-19 pandemic, we continue to build a new facility for the commercial production of AquAdvantage Salmon;make modifications to our biosecurity procedures and
Due to the pandemic, we have experienced delays and cost increases in Panama.
Revenue
We currently generate product revenue through the sales of our AquAdvantage Salmon. Revenue is recognized when the Company identifies the performance obligationGE Atlantic salmon, conventional Atlantic salmon eggs and fry, and salmon byproducts. We expect revenues to grow modestly in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion 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.
Production Costs
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 fishproducts to customers.
Sales and Marketing Expenses
Our sales and marketing expenses currently include personnelsalaries and related costs travel,for our sales personnel and consulting fees for market-related activities. As of September 30, 2017,March 31, 2022 and 2021, we had threetwo and one employees, respectively dedicated to sales and marketing. We expect our sales and marketing expenses to increase as our production output and revenues grow.
Research and Development Expenses
As of September 30, 2017,March 31, 2022 and 2021, we employed nineteentwenty-two and fifteen scientists and technicians, respectively at our facilities on Prince Edward Island to oversee our broodstock of AquAdvantage Salmon,GE Atlantic 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;
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;
costs related to the operation ofoperating our field trials; and
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,affairs, rent and utilities, insurance, and legal services, along with the maintenance and repair costs for our Indiana facility.services. We had thirteen and fifteen employees in our general and administrative group at September 30, 2017.
Other Income (Expense)
Interest expense includes the interest on our outstanding loans.loans and the amortization of debt issuance costs. Other income (expense) includes bank charges, fees, interest income, miscellaneous gains or losses on asset disposals and interest income.
Results of Operations
Comparison of the three months ended September 30, 2017,March 31, 2022, to the three months ended September 30, 2016.
The following table summarizes our results of operations for the three months ended September 30, 2017March 31, 2022 and 2016,2021, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
Three Months Ended March 31, | Dollar | % | |||||||
2022 | 2021 | Change | Change | ||||||
(unaudited) | |||||||||
Product revenue | $ | 963 | $ | 74 | 889 | 1,201% | |||
Operating expenses: | |||||||||
Product costs | 3,276 | 1,555 | 1,721 | 111% | |||||
Sales and marketing | 248 | 319 | (71) | (22)% | |||||
Research and development | 167 | 500 | (333) | (67)% | |||||
General and administrative | 2,376 | 1,785 | 591 | 33% | |||||
Operating loss | 5,104 | 4,085 | 1,019 | 25% | |||||
Total other expense | 8 | 74 | (66) | (89)% | |||||
Net loss | $ | 5,112 | $ | 4,159 | 953 | 23% | |||
Product Revenue
Product revenue for the three months ended March 31, 2022 consisted of our GE Atlantic salmon and conventional Atlantic salmon fry. Product revenue for the three months ended March 31, 2021 consisted of conventional Atlantic salmon fry and eggs. The increase in revenue is due to the harvesting and sale of our GE Atlantic salmon, which commenced in June 2021. We expect revenues for the remainder of 2022 to slowly grow as we increase our harvesting capability at our Indiana and Rollo Bay farm sites.
Production Costs
Production costs for the three months ended March 31, 2022, were up from the corresponding period in 2021, due to production cost increases related to harvesting at the Indiana and Rollo Bay farms. Increases included headcount additions, feed costs and other direct supplies, as well as the costs for processing and transportation to bring our product to market.
Three Months Ended September 30, | Dollar Change | % Change | |||||||||||||
| 2017 | 2016 | ||||||||||||||
| (unaudited) | |||||||||||||||
| Product revenue | $ | — | $ | — | $ | — | — | % | |||||||
| Operating expenses: | |||||||||||||||
| Product costs | — | — | — | — | % | ||||||||||
| Sales and marketing | 196 | 210 | (14 | ) | (7 | )% | |||||||||
| Research and development | 861 | 975 | (114 | ) | (12 | )% | |||||||||
| General and administrative | 1,382 | 824 | 558 | 68 | % | ||||||||||
| Operating loss | 2,439 | 2,009 | 430 | 21 | % | ||||||||||
| Total other (income) expense | 7 | 133 | (126 | ) | (95 | )% | |||||||||
| Net loss | $ | 2,446 | $ | 2,142 | $ | 304 | 14 | % | |||||||
Since our production costs were higher than the net realizable value of the salmon produced, the current period includes an inventory value charge of $2.1 million based on the market price for salmon, our production yields and external processing and transportation costs. For the corresponding period in 2021, the inventory value charge was $1.5 million.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended September 30, 2017,March 31, 2022, were down from the corresponding period in 20162021 due to lowerdecreases in donations, promotional expenses, and fees payable to outside consultants, offset by an increase in head count and travel and outside services costs. We expect thatrelated to marketing activities for our sales and marketing expenses will increase as we move forward with our commercialization plans for AquAdvantage Salmon.
Research and Development Expenses
Research and development expenses for the three months ended September 30, 2017,March 31, 2022, were down from the corresponding period in 20162021 due to a reductiondecrease in outside contract research expensesservice fees and field trials, and by an allocation ofincrease in broodstock cost transferred to inventory, which were partially offset by increased compensation, as we continued to expand our internal research group. We expect that our research and development expenses will increase as we further develop our Rollo Bay farm site and as we continue to pursue regulatory approvalproduction costs for additional products.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2017,March 31, 2022, were up significantly versusfrom the corresponding period in 20162021 due to increasedan increase in recruitment, insurance costs, auditing fees, stock compensation, charges, higher professional fees, corporate taxes, and the costs for maintenance and repairs of our Indiana site, which were partiallytravel, offset by a reductiondecrease in legal fees. We expect that our generalfees, outside consulting and administrative expenses will continue to increase as we incur increased costs to comply with corporate governanceadvisory fees, and reporting and other requirements applicable to U.S. public companies.
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, 2022 and interest on the convertible debt with Intrexon, interest on debt, bank charges, and interest income for the three months ended September 30, 2016.
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 | % | |||||||
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Three Months Ended March 31, | Dollar | % | |||||||
2022 | 2021 | Change | Change | ||||||
Net cash provided by (used in): | |||||||||
Operating activities | $ | (5,326) | $ | (4,518) | (808) | 18% | |||
Investing activities | (7,468) | (1,219) | (6,249) | 513% | |||||
Financing activities | (159) | 120,865 | (121,024) | (100)% | |||||
Effect of exchange rate changes on cash | 8 | 21 | (13) | (62)% | |||||
Net (decrease) increase in cash | $ | (12,945) | $ | 115,149 | (128,094) | (111)% | |||
Nine Months Ended September 30, | Years Ended December 31, | ||||||||||||||||||
| 2017 | 2016 | 2016 | 2015 | 2014 | |||||||||||||||
| (unaudited) | |||||||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||||
| Operating activities | $ | (6,676 | ) | $ | (5,434 | ) | $ | (7,449 | ) | $ | (6,748 | ) | $ | (6,561 | ) | ||||
| Investing activities | (17,235 | ) | (739 | ) | (1,074 | ) | (105 | ) | (152 | ) | |||||||||
| Financing activities | 25,250 | 8,045 | 10,541 | 3,044 | 10,024 | ||||||||||||||
| Effect of exchange rate changes on cash | 54 | (2 | ) | (7 | ) | (41 | ) | (23 | ) | ||||||||||
| Net increase (decrease) in cash | $ | 1,393 | $ | 1,870 | $ | 2,011 | $ | (3,850 | ) | $ | 3,288 | ||||||||
Cash Flows from Operating Activities
Net cash used in operating activities during the ninethree months ended September 30, 2017,March 31, 2022 was primarily comprised of our $6.6$5.1 million net loss, offset by non-cash depreciation and stock compensation charges of $223$702 thousand and increased by working capital uses of $303$921 thousand. Net cash used in operating activities during the ninethree months ended September 30, 2016,March 31, 2021 was primarily comprised of our $6.0$4.1 million net loss, offset by non-cash depreciation and stock compensation charges of $273$552 thousand and increased by working capital sourcesuses of $318$911 thousand.
Spending on operations increased duringin the current period due to compensation increases maintenancein production activities at our Rollo Bay and repair costs for our Indiana farm site, and higher charges for professional fees and corporate taxes. The increase in cashsites. Cash used by working capital increased in the current period and was due to the establishment of inventory and an increase in inventory and prepaid expenses offset by an increaseand a decrease in accounts payable and accrued liabilities.
Cash Flows from Investing Activities
During the ninethree months ended September 30, 2017,March 31, 2022, we used $14.2$5.8 million for construction activities at our farm sites and the purchase of certain assets of Bell Fish Company LLCequipment, and $3.0$1.7 million for construction charges at our Rollo Bay farm site.on marketable securities purchases. During the same period in 2016,2021, we used $700 thousand$1.2 million for the purchase of certain assets of Atlantic Sea Smolt Ltd., $57 thousandconstruction charges and for property and equipment purchases, and $6$11 thousand on capitalized software.
We expect expenditures on capital projects to increase in future periods as we continue construction of our Ohio farm. We currently estimate the construction costs to be in the range of $290 million to $320 million, including a reserve for patent charges. This was offset by $24 thousand potential contingencies of $30 million. We expect to finance this project cost through a combination of cash on hand and future issuances of debt. Estimating the cost and timing for the completion of this new and complex capital project is inherently difficult and subject to change based on a number of factors, including design changes, fluctuating costs of materials, labor shortages, the impact of the COVID-19 pandemic, construction delays, dependence on contractors, financing costs, customer requirements and unexpected complications. For more information, see “Our business plans include the need for substantial additional capital and without it we may not be able to implement our strategy as planned or at all” in proceeds fromour Annual Report on Form 10-K for the sale of existing assets.
Cash Flows from Financing Activities
During the ninethree months ended September 30, 2017,March 31, 2022, we made a $159 thousand debt repayment. During the same period in 2021, we received approximately $25.0$119.1 million in net proceeds from the issuance of ourshares of common stock in a private placement of shares, $257 thousand in proceeds from the issuance of term debt, and $28 thousand in proceedspublic equity offering, $1.6 million from the exercise of employee stock options. This was offset by $24warrants, and $187 thousand in the repayment of debt. During the same period in 2016, we received $7.5 million in proceeds from the issuance of convertible debt and $547 thousand in proceeds from the issuance of termnew debt. This was offset by $2$39 thousand in the repayment of debt.
Future Capital Requirements
We had $179.9 million of cash and cash equivalents, marketable securities and restricted cash as of March 31, 2022. While we have evaluatedexperienced net losses and negative cash flows from operations since inception, we believe that we have sufficient cash to meet our cash resources in view of our planned spendingrequirements for ongoing operations, capital expenditures, and working capital forat least the next twelve months and have determined that our current funds will be used byfrom the endfiling date. During the balance of December 2017. We intend2022, we expect to devote a significant portionuse approximately $104 million 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.
In 2020, we entered into a term loan agreement with First Farmers Bank and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
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.
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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.
There have been no material changes to these estimates, or the ninepolicies related to them, during the three months ended September 30, 2017,March 31, 2022. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Emerging Growth Company adoptedand Smaller Reporting Company Status
We qualify as an emerging growth company (“EGC”), as defined in the following critical accounting policy:
We may take advantage of these exemptions until December 31, 2022 or such earlier time that we are no longer an emerging growth company. We would cease to be an EGC earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates or we issue more than $1.0 billion of non-convertible debt securities over a three-year period. For so long as we remain an EGC, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs. We may choose to take advantage of some, but not all, of the assets acquired,available exemptions.
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an EGC. Therefore, the reported results of operations contained in our consolidated financial statements may not be directly comparable to those of other public companies.
We are also a “smaller reporting company,” meaning that the facilitymarket value of our stock held by non-affiliates is less than $700 million and related assets would provide one input intoour annual revenue was less than $100 million during the Company’s process for growing its product,most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and accordingly, the acquisition was accounted formarket value of our stock held by non-affiliates is less than $700 million.
If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, 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, 2022, and December 31, 2016,2021, we had $814 thousand$5.7 million and $527 thousand,$5.8 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 accumulated other comprehensive loss within shareholders’ equity (deficit).equity.
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) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 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, 2022, 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.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 for the year ended December 31, 2016,2021, which was filed on March 16, 2017,10, 2022, there are a number of risksrisk factors that could affect our business, financial condition, 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 risk factors sinceoperations. You should carefully review the filing ofrisks described in our Annual Report on Form 10-K forand our Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes, and in other reports we file with the year ended December 31, 2016, except for material changesSecurities and Exchange Commission, in evaluating our business. We cannot assure you that any of the events discussed in the following risk factors:
This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below, elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements” for information relating to increasing regulation, changes in existing regulations, and review of existing regulatory decisions.
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
Item 6. Exhibits
EXHIBIT INDEX
Exhibit Number | Exhibit Description | |
32.1+ | ||
101.INS | XBRL instance document. | |
101.SCH | XBRL taxonomy extension schema document. | |
101.CAL | XBRL taxonomy extension calculation linkbase document. | |
101.LAB | XBRL taxonomy label linkbase document. | |
101.PRE | XBRL taxonomy extension presentation linkbase document. | |
101.DEF | XBRL taxonomy extension definition linkbase document. | |
104 | Cover Page Interactive Data File-the cover page interactive data file does not appear in the Interactive Data File because the XBRL tags are embedded within the Inline XBRL document. | |
+ The certification furnished in Exhibit 32.1 hereto is deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.
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. | ||
May 5, 2022 | /s/ | |
Sylvia Wulf | ||
President, Chief Executive Officer, and Director (Principal Executive Officer) | ||
May 5, 2022 | /s/ David A. Frank | |
David A. Frank | ||
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |