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, 20192020
or
[ ] 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)
Delaware04-3156167
(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 classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.001 per shareAQBThe 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit 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 filerAccelerated filerNon-accelerated filerSmaller reporting company
Large accelerated filer  ☐Accelerated filer  ☐
Non-accelerated filer  þ
Smaller reporting company  þ
Emerging growth companyþ
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 4, 2019,2, 2020, the registrant had 21,605,32244,960,806 shares of common stock, par value $0.001 per share (“Common Shares”) outstanding.




AquaBounty Technologies, Inc.
FORM 10-Q
For the Quarterly Period Ended September 30, 20192020
TABLE OF CONTENTS
Page




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 cost and 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 (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 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 ofAs of
 September 30, December 31,September 30,December 31,
 2019 201820202019
Assets    Assets
Current assets:    Current assets:
Cash and cash equivalents $6,412,921
 $2,990,196
Cash and cash equivalents$38,989,366 $2,798,744 
Certificate of deposit 12,712
 12,361
Other receivables 73,340
 115,982
Other receivables62,034 55,198 
Inventory 477,077
 76,109
Inventory2,869,470 1,232,049 
Prepaid expenses and other current assets 391,561
 315,969
Prepaid expenses and other current assets820,193 391,162 
Total current assets 7,367,611
 3,510,617
Total current assets42,741,063 4,477,153 
    
Property, plant and equipment, net 24,780,705
 23,716,768
Property, plant and equipment, net25,699,143 25,065,836 
Right of use assets, net 413,235
 
Right of use assets, net356,788399,477 
Definite-lived intangible assets, net 161,014
 171,292
Definite-lived intangible assets, net147,311 157,588 
Indefinite-lived intangible assets 191,800
 191,800
Indefinite-lived intangible assets101,661 101,661 
Restricted cashRestricted cash500,000 
Other assets 45,001
 80,583
Other assets50,213 32,024 
Total assets $32,959,366
 $27,671,060
Total assets$69,596,179 $30,233,739 
    
Liabilities and stockholders’ equity    Liabilities and stockholders’ equity
Current liabilities:    Current liabilities:
Accounts payable and accrued liabilities $1,102,621
 $824,900
Accounts payable and accrued liabilities$2,116,877 $1,462,809 
Other current liabilities 61,315
 20,423
Current lease liabilities and otherCurrent lease liabilities and other62,627 62,286 
Current debt 149,069
 71,613
Current debt152,501 163,155 
Total current liabilities 1,313,005
 916,936
Total current liabilities2,332,005 1,688,250 
    
Long-term lease obligations 368,739
 
Long-term lease obligations306,174 352,808 
Long-term debt 4,397,539
 3,519,821
Long-term debt, netLong-term debt, net8,425,552 4,432,052 
Total liabilities 6,079,283
 4,436,757
Total liabilities11,063,731 6,473,110 
    
Commitments and contingencies 

 

Commitments and contingencies
    
Stockholders’ equity:    Stockholders’ equity:
Common stock, $0.001 par value, 50,000,000 shares authorized;    Common stock, $0.001 par value, 50,000,000 shares authorized;
21,605,322 (2018: 15,098,837) shares outstanding 21,605
 15,099
44,916,926 (2019: 21,635,365) shares outstanding44,916,926 (2019: 21,635,365) shares outstanding44,917 21,635 
Additional paid-in capital 156,022,668
 142,707,957
Additional paid-in capital201,402,983 156,241,363 
Accumulated other comprehensive loss (440,738) (574,186)Accumulated other comprehensive loss(490,153)(360,160)
Accumulated deficit (128,723,452) (118,914,567)Accumulated deficit(142,425,299)(132,142,209)
Total stockholders’ equity 26,880,083
 23,234,303
Total stockholders’ equity58,532,448 23,760,629 
    
Total liabilities and stockholders’ equity $32,959,366
 $27,671,060
Total liabilities and stockholders’ equity$69,596,179 $30,233,739 
See accompanying notes to these unaudited interim consolidated financial statements.


1




AquaBounty Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2019 2018 2019 20182020201920202019
        
Revenues        Revenues
Product revenues $
 $10,938

$140,371

$77,933
Product revenues$67,763 $$77,466 $140,371 
        
Costs and expenses        Costs and expenses
Product costs 
 8,874
 120,605
 72,393
Production costsProduction costs1,355,939 846,306 3,238,689 2,649,674 
Sales and marketing 206,256
 64,971
 381,637
 222,999
Sales and marketing143,646 206,256 331,868 381,637 
Research and development 446,582
 804,758
 1,923,512
 2,663,397
Research and development458,462 446,582 1,662,879 1,923,512 
General and administrative 2,346,754
 1,852,362
 7,489,622
 5,067,226
General and administrative1,722,874 1,500,448 5,053,608 4,960,553 
Total costs and expenses 2,999,592
 2,730,965
 9,915,376
 8,026,015
Total costs and expenses3,680,921 2,999,592 10,287,044 9,915,376 
        
Operating loss (2,999,592) (2,720,027) (9,775,005) (7,948,082)Operating loss(3,613,158)(2,999,592)(10,209,578)(9,775,005)
        
Other income (expense)        Other income (expense)
Gain on disposal of equipment 
 
 8,548
 11,745
Interest expense (17,933) (5,169) (45,483) (15,854)Interest expense(38,335)(17,933)(73,527)(45,483)
Other income (expense), net (697) (1,832) 3,055
 (5,773)Other income (expense), net1,705 (697)15 11,603 
Total other income (expense) (18,630) (7,001) (33,880) (9,882)Total other income (expense)(36,630)(18,630)(73,512)(33,880)
        
Net loss $(3,018,222) $(2,727,028) $(9,808,885) $(7,957,964)Net loss$(3,649,788)$(3,018,222)$(10,283,090)$(9,808,885)
        
Other comprehensive income (loss):        Other comprehensive income (loss):
Foreign currency translation income (loss) (38,892) 84,711
 133,448
 (113,218)
Foreign currency translation gain (loss)Foreign currency translation gain (loss)86,491 (38,892)(129,993)133,448 
Total other comprehensive income (loss) (38,892) 84,711
 133,448
 (113,218)Total other comprehensive income (loss)86,491 (38,892)(129,993)133,448 
        
Comprehensive loss $(3,057,114) $(2,642,317) $(9,675,437) $(8,071,182)Comprehensive loss$(3,563,297)$(3,057,114)$(10,413,083)$(9,675,437)
        
        
Basic and diluted net loss per share $(0.14) $(0.21) $(0.50) $(0.64)Basic and diluted net loss per share$(0.09)$(0.14)$(0.31)$(0.50)
Weighted average number of common shares -        
Weighted average number of Common Shares -Weighted average number of Common Shares -
basic and diluted 21,604,072
 12,848,376
 19,556,607
 12,528,995
basic and diluted38,911,054 21,604,072 32,756,074 19,556,607 
        
See accompanying notes to these unaudited interim consolidated financial statements.


2




AquaBounty Technologies, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
Common stock issued and outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal
 Common stock issued and outstanding Par value Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total
Balance at December 31, 2017 8,895,094
 $8,895
 $126,718,186
 $(213,884) $(108,532,508) $17,980,689
Balance at December 31, 2018Balance at December 31, 201815,098,837$15,099 $142,707,957 $(574,186)$(118,914,567)$23,234,303 
Net loss         (2,449,787) (2,449,787)Net loss(2,763,932)(2,763,932)
Other comprehensive income (loss)       (112,118)   (112,118)Other comprehensive income (loss)87,552 87,552 
Issuance of common stock, net 3,692,307
 3,692
 10,612,356
     10,616,048
Issuance of common stock, net3,345,28233456,606,3106,609,655 
Exercise of warrants 76,981
 77
 250,111
     250,188
Exercise of warrants76,79777250,347250,424 
Share based compensation 11,151
 11
 48,534
     48,545
Share based compensation176,561 176 138,322138,498 
Balance at March 31, 2018 12,675,533
 $12,675
 $137,629,187
 $(326,002) $(110,982,295) $26,333,565
Balance at March 31, 2019Balance at March 31, 201918,697,477$18,697 $149,702,936 $(486,634)$(121,678,499)$27,556,500 
Net loss         (2,781,149) (2,781,149)Net loss(4,026,731)(4,026,731)
Other comprehensive income (loss)       (85,811)   (85,811)Other comprehensive income (loss)84,788 84,788 
Exercise of warrants 172,843
 173
 561,567
     561,740
Issuance of common stock, netIssuance of common stock, net2,901,07829015,782,7925,785,693 
Share based compensation 

 

 71,544
     71,544
Share based compensation


318,218318,218 
Balance at June 30, 2018 12,848,376
 $12,848
 $138,262,298
 $(411,813) $(113,763,444) $24,099,889
Balance at June 30, 2019Balance at June 30, 201921,598,555$21,598 $155,803,946 $(401,846)$(125,705,230)$29,718,468 
Net loss         (2,727,028) (2,727,028)Net loss$(3,018,222)$(3,018,222)
Other comprehensive income (loss)       84,711
   84,711
Other comprehensive income (loss)$(38,892)$(38,892)
Exercise of warrants for common stockExercise of warrants for common stock6,767$$21,986 $21,993 
Share based compensation     71,593
     71,593
Share based compensation$196,736 $196,736 
Balance at September 30, 2018 12,848,376
 $12,848
 $138,333,891
 $(327,102) $(116,490,472) $21,529,165
Balance at September 30, 2019Balance at September 30, 201921,605,322$21,605 $156,022,668 $(440,738)$(128,723,452)$26,880,083 

Common stock issued and outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal
 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
Balance at December 31, 2019Balance at December 31, 201921,635,365$21,635 $156,241,363 $(360,160)$(132,142,209)$23,760,629 
Net loss         (2,763,932) (2,763,932)Net loss(3,109,618)(3,109,618)
Other comprehensive income (loss)       87,552
   87,552
Other comprehensive income (loss)(381,985)(381,985)
Issuance of common stock, net 3,345,282
 3345
 6,606,310
     6,609,655
Issuance of common stock, net10,350,00010,35014,511,35414,521,704 
Exercise of warrants 76,797
 77
 250,347
     250,424
Share based compensation 176,561
 176
 138,322
     138,498
Share based compensation100,319 101 205,252205,353 
Balance at March 31, 2019 18,697,477
 $18,697
 $149,702,936
 $(486,634) $(121,678,499) $27,556,500
Balance at March 31, 2020Balance at March 31, 202032,085,684$32,086 $170,957,969 $(742,145)$(135,251,827)$34,996,083 
Net loss         (4,026,731) (4,026,731)Net loss(3,523,684)(3,523,684)
Other comprehensive income (loss)       84,788
   84,788
Other comprehensive income (loss)165,501 165,501 
Issuance of common stock, net 2,901,078
 2,901
 5,782,792
     5,785,693
Issuance of common stock, net20,000 20 40,580 40,600 
Share based compensation 

 

 318,218
     318,218
Share based compensation


103,891103,891 
Balance at June 30, 2019 21,598,555
 $21,598
 $155,803,946
 $(401,846) $(125,705,230) $29,718,468
Balance at June 30, 2020Balance at June 30, 202032,105,684$32,106 $171,102,440 $(576,644)$(138,775,511)$31,782,391 
Net loss         (3,018,222) (3,018,222)Net loss$(3,649,788)$(3,649,788)
Other comprehensive income (loss)       (38,892)
   (38,892)Other comprehensive income (loss)$86,491 $86,491 
Exercise of warrants 6,767
 7
 21,986
     21,993
Issuance of common stock, net of expensesIssuance of common stock, net of expenses12,650,000$12,650 $29,701,947 $29,714,597 
Exercise of warrants for common stockExercise of warrants for common stock161,242$161 $523,876 $524,037 
Share based compensation     196,736
     196,736
Share based compensation$74,720 $74,720 
Balance at September 30, 2019 21,605,322
 $21,605
 $156,022,668
 $(440,738) $(128,723,452) $26,880,083
Balance at September 30, 2020Balance at September 30, 202044,916,926$44,917 $201,402,983 $(490,153)$(142,425,299)$58,532,448 
See accompanying notes to these unaudited interim consolidated financial statements.


3




AquaBounty Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended
September 30,
Nine Months Ended September 30,
 2019 201820202019
    
Operating activities    Operating activities
Net loss $(9,808,885) $(7,957,964)Net loss$(10,283,090)$(9,808,885)
Adjustment to reconcile net loss to net cash used in    Adjustment to reconcile net loss to net cash used in
operating activities:    operating activities:
Depreciation and amortization 928,476
 557,718
Depreciation and amortization1,082,261 928,476 
Share-based compensation 653,452
 191,682
Share-based compensation383,964 653,452 
Gain on disposal of equipment (8,548) (11,745)Gain on disposal of equipment(1,816)(8,548)
Other non-cash chargesOther non-cash charges41,967 
Changes in operating assets and liabilities:    Changes in operating assets and liabilities:
Other receivables 45,880
 97,353
Other receivables(8,252)45,880 
Inventory (400,716) 97,897
Inventory(1,638,981)(400,716)
Prepaid expenses and other assets (43,404) 210,796
Prepaid expenses and other assets(527,913)(43,404)
Accounts payable and accrued liabilities 345,569
 (654,997)Accounts payable and accrued liabilities366,403 345,569 
Net cash used in operating activities (8,288,176) (7,469,260)Net cash used in operating activities(10,585,457)(8,288,176)
    
Investing activities    Investing activities
Purchase of property, plant and equipment (1,824,831) (3,375,306)Purchase of property, plant and equipment(2,640,039)(1,824,831)
Proceeds from sale of equipment 8,548
 21,758
Proceeds from sale of equipment99,816 8,548 
Proceeds from legal settlement, netProceeds from legal settlement, net1,014,008 
Other investing activities 12
 
Other investing activities(18,900)12 
Net cash used in investing activities (1,816,271) (3,353,548)Net cash used in investing activities(1,545,115)(1,816,271)
    
Financing activities    Financing activities
Proceeds from issuance of debt 900,767
 
Proceeds from issuance of debt4,221,130 900,767 
Payment of debt issuance costsPayment of debt issuance costs(91,620)
Repayment of term debt (57,001) (43,437)Repayment of term debt(49,862)(57,001)
Proceeds from the issuance of common stock and warrants, net 12,395,348
 10,616,048
Proceeds from the issuance of common stock, netProceeds from the issuance of common stock, net44,236,301 12,395,348 
Proceeds from the exercise of stock options and warrants, net 272,416
 811,928
Proceeds from the exercise of stock options and warrants, net524,037 272,416 
Net cash provided by financing activities 13,511,530
 11,384,539
Net cash provided by financing activities48,839,986 13,511,530 
    
Effect of exchange rate changes on cash and cash equivalents 15,642
 (23,921)
Net change in cash and cash equivalents 3,422,725
 537,810
Cash and cash equivalents at beginning of period 2,990,196
 492,861
Cash and cash equivalents at the end of period $6,412,921
 $1,030,671
Effect of exchange rate changes on cashEffect of exchange rate changes on cash(18,792)15,993 
Net change in cash, cash equivalents and restricted cashNet change in cash, cash equivalents and restricted cash36,690,622 3,423,076 
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period2,798,744 3,002,557 
Cash, cash equivalents and restricted cash at the end of periodCash, cash equivalents and restricted cash at the end of period$39,489,366 $6,425,633 
    
Supplemental disclosure of cash flow information and    Supplemental disclosure of cash flow information and
non-cash transactions:    non-cash transactions:
Interest paid in cash $45,483
 $15,854
Interest paid in cash$47,275 $45,483 
Property and equipment included in accounts payable and accrued liabilities $119,541
 $512,497
Property and equipment included in accounts payable and accrued liabilities$517,344 $119,541 
Acquisition of equipment under debt arrangement $
 $74,555
See accompanying notes to these unaudited interim consolidated financial statements.


4




AquaBounty Technologies, Inc.
Notes to the consolidated financial statements
For the nine months ended September 30, 20192020 and 20182019 (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‑raisedfarm-raised Atlantic salmon that exhibit growth rates that are substantially faster than traditionalconventional 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 Salmonsalmon product in the United States.
In 2016, the Parent obtained approval from Health Canada for the sale and consumption of its AquAdvantage Salmonsalmon product in Canada. Previously, in 2013, the Parent obtained approval from Environment Canada for the production of the product.
AQUA Bounty Canada Inc. (the “Canadian Subsidiary”) was incorporated in January 1994 for the purpose of establishing a commercial biotechnology laboratory to conduct research and development programs related to the Parent’s 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 farms in Indiana and Rollo Bay, the site in Panama was no longer needed for commercial trials. Operations at the site ceasedconcluded in May 2019.
AquaBounty Farms, Inc. (the “U.S. Subsidiary”) was incorporated in December 2014 in the State of Delaware for the purpose of conducting field trials and commercializing the 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 its aquaculture facility in Albany, Indiana.
AquaBounty Brasil Participações Ltda. (the “Brazil Subsidiary”) was incorporated in May 2015 for the purpose of conducting field trials and commercializing the 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 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-companyintercompany 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, 2018.2019. 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, 2019,2020, 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.
Going Concern Uncertainty and Management’s Plan
The accompanyingCertain balances in the 2019 financial statements have been prepared on a going concern basis, which contemplatesreclassified to conform with the realizationpresentation of assetsthe 2020 unaudited interim consolidated financial statements.
Liquidity Matters
The Company has experienced net losses and the satisfactionnegative cash flows from operations since its inception and has cumulative losses attributable to common stockholders of liabilities in the normal course$142.4 million as of business.
In the Company’s Annual Report on Form 10‑K for December 31, 2018, management stated that there was substantial doubt about the Company’s ability to continue as a going concern due to its limited capital resources, and the Company’s independent registered public accounting firm emphasized this matter in its report to the shareholders and the Board of Directors. At that time, management prepared a plan to mitigate this doubt, which included an equity raise that subsequently provided the Company with $12.4 million of net new funds in 2019.
September 30, 2020. At September 30, 2019,2020, the Company’s cash balance totaled $6.4$39.5 million. Management has evaluated the Company’sits cash resources in view of its planned spending for ongoingon-going operations, capital expenditures, and working capital and believes that its current cash balance, along with the expected revenues from its farms, will meet the Company’s cash requirements for at least the next twelve months from the filing date, and has determined that its current funds will be exhausted by June 30, 2020. As a result, there is substantial doubt abouttaking into consideration the Company’s ability to continue as a going concern within one year after the date that theseforeseeable financial statements are issued.

5



To mitigate this doubt, management plans to seek additional financing in the formimpact of equity or debt, partnerships,delays or other non-dilutive transactions to fundevents associated with the Company’s cash requirements. However, the Company may not be able to raise additional financing or to do so at terms that are acceptable. In this event, managementCOVID-19 pandemic. Management also has the abilitydiscretion to reduce expenditures, slow down orspending and delay capital spending, and divest assetsprojects if necessary, in order to ensurepreserve cash. Until such time, if ever, as the Company can generate positive operating cash flows, it may finance its cash will extendneeds 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 next twelve months.financial markets and, as a result, future funding sources may be more difficult to obtain, if at all.

5


Inventories
Inventories are mainly comprised of feed, eggs, fish in process and packaging materials. Inventories are measured 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 and transportation.
Fish in process inventory is a biological asset that is measured based on the estimated biomass of fish on hand. The Company has
established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques.
Revenue recognition
The accompanying consolidated financial statements do not include any adjustments that might result fromCompany records revenue on the outcomesale of a product when all revenue recognition criteria are fulfilled, including identifying the above uncertainty.contract with a customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations in the contract; and recognizing revenue when (or as) the Company satisfies a performance obligation. The Company evaluates customer credit risk in order to conclude it is “probable” it will collect the amount of consideration due in exchange for the goods or services.
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 period. Basic net loss is based solely on the number of Common Shares outstanding during the period. Fully diluted net loss per share includes the number of shares of common stockCommon Shares potentially issuable upon the exercise of warrants and options with an exercise price less than the fair value of the common stock.Common Shares. Since the Company is reporting a net loss for all periods presented, all potential common sharesCommon Shares are considered anti‑dilutiveanti-dilutive and are excluded from the calculation of diluted net loss per share.
Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016‑02, “Leases,” which requires a lessee to recognize lease liabilities for the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and right-of-use assets, representing the lessee’s right to use, or control the use of, specified assets for the lease term. The ASU is effective for fiscal years beginning after December 15, 2018.
The Company adopted FASB ASU 2016-02 for lease accounting on January 1, 2019 and recognized a lease liability of $532 thousand and a corresponding right-of-use asset of $512 thousand. Management calculated the lease liability based on the net present value of the remaining lease payments on the date of adoption using a weighted average discount rate of 8%. As most of the Company’s leases did not provide an implicit interest rate, management used an estimated incremental borrowing rate. The adoption did not result in any cumulative-effect adjustment to beginning retained earnings.
The Company leases certain facilities, property, and equipment under noncancelable operating leases. A determination is made if an arrangement is a lease at its inception, and leases with an initial term of twelve months or less are not recorded on the balance sheet.
Lease terms may include options to extend or terminate the lease when it is reasonably certain thatAt September 30, 2020, the Company will exercise that option. For operating leases, expense is recognized on a straight-line basis over the lease term.had 2,164,610 potentially dilutive securities outstanding, consisting of 1,501,062 warrants and 663,548 stock options.
The Company has agreements with lease (e.g., minimum rent payments) and non-lease components (e.g., maintenance), which are generally accounted for separately. The Company has not elected the practical expedient to account for lease and non-lease components as one lease component.Accounting Pronouncements
Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition.
3. Risks and uncertainties
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 farm 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 subjecthas experienced delays in capital projects due to risks and uncertainties commonthe pandemic, including a delay in the biotechnologycompletion of its processing facility at the Indiana farm. The delay in the completion of this project is expected to continue into the fourth quarter of 2020 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 bodiesCompany is therefore utilizing third party alternatives for fish processing in other countries with respectthe interim. The Company has also seen a reduction in the market price for Atlantic salmon due to approval and commercial sale of any ofthe pandemic’s impact on demand in the food service sector. This has had a negative impact on the Company’s proposed products; (iii)revenue and inventory value in the commercial acceptance of any products approved for salecurrent quarter and the Company’s abilityis likely 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. In addition, as disclosed in “Item 1A. Risk Factors,” below, and in “Item 1A. Risk Factors” in our Annual Report on Form 10‑Kcontinue for the year ended December 31, 2018, which was filed on March 7, 2019, there are a number of other risks and uncertainties that may have a material effect on the operating results of our business and our financial condition.near-term.
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.restricted cash. 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, cash equivalents and restricted 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 $242,324$133 thousand at September 30, 2019.

2020.

6




4. Inventory
Major classifications of inventory are summarized as follows:
September 30,December 31,
20202019
Feed$221,300 $251,778 
Eggs and fry41,151 55,887 
Packaging3,105 
Fish in process2,603,914 924,384 
Total inventory$2,869,470 $1,232,049 
  September 30, December 31,
  2019 2018
Feed $120,639
 $24,288
Eggs 65,325
 
Packaging 
 8,913
Fish in process 291,113
 42,908
Total inventory $477,077
 $76,109

5. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows:
September 30,December 31,
20202019
Land$711,073 $718,586 
Building and improvements13,717,24313,297,489
Construction in process2,257,9132,105,873
Equipment13,369,66512,275,619
Office furniture and equipment200,862201,813
Vehicles27,36528,097
Total property and equipment$30,284,121 $28,627,477 
Less accumulated depreciation and amortization(4,584,978)(3,561,641)
Property, plant and equipment, net$25,699,143 $25,065,836 
  September 30, December 31,
  2019 2018
Land $713,703
 $704,567
Building and improvements 13,119,001
 9,244,737
Construction in process 2,010,705
 6,091,265
Equipment 11,930,465
 9,713,030
Office furniture and equipment 201,194
 192,606
Vehicles 27,621
 26,832
Total property and equipment $28,002,689
 $25,973,037
Less accumulated depreciation and amortization (3,221,984) (2,256,269)
Property, plant and equipment, net $24,780,705
 $23,716,768
During the quarter ended September 30, 2019, a significant portion of the Rollo Bay facility was placed in service. As a result, the Company transferred $5.2 million of construction in process to building and improvements and equipment and commenced deprecation of these assets. RemainingIncluded in construction in process is $1.7$1.9 million for construction costsrelated to complete the Rollo Bay farm site and another $374site. An additional $185 thousand has been committed.
Included in construction in process is $407 thousand for construction related to the Indiana farm site. An additional $1.3 million has been committed.
In December 2019, the Company reclassified certain feed mill equipment at the Indiana farm as held for sale, a component of prepaid expenses and other current assets, and adjusted the carrying value to fair value less estimated selling costs. During the first quarter of 2020, the equipment was sold, resulting in proceeds of $98 thousand. NaN gain or loss was recognized upon the sale of the equipment.
In March 2020, the Company settled an outstanding legal claim against a third party resulting in net proceeds of $1.0 million. The proceeds received reduced the carrying value of the acquired equipment. Depreciation on these items has been 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,
20202019
Accounts payable$983,709 $809,444 
Accrued payroll including vacation414,228 236,489
Accrued professional fees and contract services295,272 346,349
Accrued construction costs277,268 
Accrued taxes and other146,400 70,527
Accounts payable and accrued liabilities$2,116,877 $1,462,809 

7
  September 30, December 31,
  2019 2018
Accounts payable $373,775
 $366,917
Accrued compensation 279,607
 223,481
Accrued professional fees and research costs 289,885
 185,992
Accrued franchise and excise taxes 91,665
 23,678
Accrued construction costs 67,171
 13,716
Accrued other 518
 11,116
Accounts payable and accrued liabilities $1,102,621
 $824,900

7




7. Debt
The current material terms and conditions of debt outstanding are as follows:
Original loan amount Interest
rate
 Monthly
repayment
 Maturity
date
 September 30, 2019 December 31, 2018Original loan amountInterest
rate
Monthly
repayment
Maturity
date
September 30, 2020December 31, 2019
ACOA AIF grant (C$2,871,919) 0% Royalties - $2,168,873
 $2,106,840
ACOA AIF grant (C$2,871,919)0%Royalties-$2,148,770 $2,206,208 
ACOA term loan (C$337,000) 0% C$3,120 June 2026 188,528
 203,735
ACOA term loan (C$337,000)0%C$3,120June 2026172,774 184,583 
ACOA term loan (C$500,000) 0% C$4,630 November 2028 377,600
 
ACOA term loan (C$500,000)0%C$4,630November 2028363,708 384,100 
Kubota Canada Ltd. (C$95,961) 0% C$1,142 January 2025 55,215
 61,178
Kubota Canada Ltd. (C$95,961)0%C$1,142January 202544,446 53,533 
Finance PEI term loan (C$2,717,093) 4% C$16,313 November 2023 1,756,392
 1,219,681
Finance PEI term loan (C$2,717,093)4%C$16,313November 20231,938,608 1,766,783 
First Farmers Bank &Trust ($4,000,000)First Farmers Bank &Trust ($4,000,000)5.375%$56,832October 20284,000,000 
Total debt $4,546,608
 $3,591,434
Total debt$8,668,306 $4,595,207 
less: debt issuance costsless: debt issuance costs(90,253)
less: current portion (149,069) (71,613)less: current portion(152,501)(163,155)
Long-term debt $4,397,539
 $3,519,821
Long-term debt$8,425,552 $4,432,052 
Estimated principal payments remaining on loan debt are as follows:
YearAIFACOAFPEIKubotaFFBTTotal
2020$$17,396 $17,982 $2,564 $$37,942 
202169,583 73,337 10,257 116,675 269,852 
202269,583 76,325 10,257 482,306 638,471 
202369,582 1,770,964 10,256 509,256 2,360,058 
202469,582 10,257 537,276 617,115 
Thereafter2,148,770 240,756 855 2,354,487 4,744,868 
Total$2,148,770 $536,482 $1,938,608 $44,446 $4,000,000 $8,668,306 
Year AIF ACOA FPEI Kubota Total
2019 $
 $7,069
 $19,507
 $2,588
 $29,164
2020 
 70,234
 79,808
 10,353
 160,395
2021 
 70,234
 83,064
 10,353
 163,651
2022 
 70,234
 86,448
 10,353
 167,035
2023 
 70,234
 1,487,565
 10,353
 1,568,152
Thereafter 2,168,873
 278,123
 
 11,215
 2,458,211
Total $2,168,873
 $566,128
 $1,756,392
 $55,215
 $4,546,608
On March 7, 2019,In response to the Canadian Subsidiary received C$500 thousand under a credit facility withCOVID-19 pandemic, the Company was informed by Atlantic Canada Opportunities Agency (“ACOA”). The proceeds of(ACOA) on March 19, 2020, that all payments to the loan areCanadian government would be deferred for three months, commencing April 1, 2020. On June 15, 2020, the Company was informed that payments would be deferred an additional three months, recommencing October 1, 2020. On October 14, 2020, the Company was informed that payments would continue to be used to partially finance the construction at the Rollo Bay site. Thedeferred until further notice. A revised loan will be repaid over a term of nine years andamortization schedule has a zero percent interest rate.not yet been received from ACOA.
In 2018, the Canadian Subsidiary obtained a new loan from Finance PEI (“FPEI”), which incorporated(FPEI) in the existing loan and providesamount of C$2.0 million ($1.5 million) of additional funds. As of December 31, 2018, C$1.0 million ($734 thousand) had been drawn down. On May 17, 2019, an additional C$700 thousand ($535 thousand) had been drawn down. The final C$300 thousand ($230 thousand) is anticipated to be drawn down during the fourth quarter of 2019. Payments commenced in June 2019.. The loan has an interest rate of 4% and is collateralized by a mortgage executed by the Canadian Subsidiary, which conveys a first security interest in all of its current and acquired assets. On March 24, 2020, the Company was informed by FPEI that all payments would be deferred for three months due to the pandemic. On April 23, 2020, the Canadian Subsidiary received the final C$300 thousand ($221 thousand) of funds available under the loan. Payments on the loan recommenced on August 1, 2020.
On July 31, 2020, the Company’s Indiana Subsidiary obtained a $4.0 million loan from First Farmers Bank and Trust. Net proceeds were $3.9 million after deducting $90 thousand in loan settlement costs. The loan bears interest at a rate of 5.375% for the first five years. On July 31, 2025 the interest rate resets to the then US Treasury 5-year maturities rate plus 5% and remains fixed at that rate through maturity on October 1, 2028. The note requires interest only payments for the first 13 months, followed by monthly principal and interest payments of approximately $57 thousand through maturity. Proceeds from the loan may be used for the purpose of performing equipment upgrades, purchasing equipment and other improvements to the Indiana farm. The Company must comply with certain financial and non-financial covenants. The loan is guaranteedalso subject to certain prepayment penalties and is secured by the assets of the Indiana subsidiary and a guarantee by the Parent.
Other than these loans, there have been no material changes The loan agreement requires the Company to maintain a $500 thousand minimum cash balance with the Company’s debt arrangementsbank throughout the loan term. This amount is reflected as disclosed in our annual reportrestricted cash on Form 10‑K for the year ended December 31, 2018.balance sheet.
The Company recognized interest expense of $44,415$73 thousand and $15,782$44 thousand for the nine months ended September 30, 20192020 and 2018,2019, respectively, on its interest-bearing debt.
8. Leases
Lease expense for the nine months ended September 30, 2020 and 2019, amounted to $102,385.$60 thousand and $102 thousand, respectively. The weighted average remaining lease term of the Company’s operating leases was 22.823 years as of September 30, 2019.2020. Lease payments included in operating cash flows totaled $121,788$63 thousand and $122 thousand for the nine months ended September 30, 2019.

2020 and 2019, respectively.

8




The table below summarizes the Company’s lease obligations and remaining payments at September 30, 2019:2020:
 September 30, 2019 January 1, 2019September 30, 2020December 31, 2019
Lease TypeEnd DateRemaining YearsRemaining PaymentsLease Liability Remaining PaymentsLease LiabilityLease TypeEnd DateRemaining YearsRemaining PaymentsLease LiabilityRemaining PaymentsLease Liability
Maynard Office LeaseOperatingMar 20233.5$231,568
$198,758
 $278,414
$234,685
Maynard Office LeaseOperatingMar 20232.5$167,374 $147,541 $215,556 $186,323 
Panama Farm LeaseOperatingApr 20190

 60,000
59,013
Indiana Auto LeaseOperatingFeb 20211.47,210
6,656
 10,842
9,897
Indiana Auto LeaseOperatingFeb 20210.42,368 2,034 5,999 5,533 
Indiana Well LeaseOperatingDec 204829.3706,110
224,640
 717,420
228,844
Indiana Well LeaseOperatingDec 204828.3690,691 219,226 702,341 223,238 
Total leases 
$944,888
$430,054
 $1,066,676
$532,439
Total leases$860,433 $368,801 $923,896 $415,094 
Less: current portion (84,453)(61,315) (142,780)(117,345)Less: current portion(84,220)(62,627)(85,011)(62,286)
Long-term leases $860,435
$368,739
 $923,896
$415,094
Long-term leases$776,213 $306,174 $838,885 $352,808 
Remaining payments under leases are as follows at September 30, 2019:2020:
YearOfficeAutoWellTotal
2020$16,456 $1,211 $3,883 $21,550 
202166,416 1,157 15,998 83,571 
202267,602 16,478 84,080 
202316,900 16,972 33,872 
202417,481 17,481 
Thereafter619,879 619,879 
Total Lease Payments$167,374 $2,368 $690,691 $860,433 
Year OfficeAutoWellAmount
2019 $16,011
$1,211
$3,770
$20,992
2020 64,637
4,842
15,532
85,011
2021 66,416
1,157
15,998
83,571
2022 67,602

16,478
84,080
2023 16,902

16,972
33,874
Thereafter 

637,360
637,360
Total Lease Payments $231,568
$7,210
$706,110
$944,888
9. Stockholders’ equity
Recent issuances
On March 21, 2019,February 12, 2020, the Company completed a public offering of 3,345,28210,350,000 Common Shares. Net proceeds to the Company were $6.6$14.5 million after deducting discounts, fees, and expenses. TS Biotechnology Holdings, which is managed by Third Security and is controlled by Randal J. Kirk, our largest shareholder, participated in this offering, purchasing 5,175,000 Common Shares for a total of approximately $7.8 million in gross proceeds.
On April 5, 2019,May 6, 2020, the Company issued 20,000 restricted common shares to a consultant. The Company recorded a charge of $41 thousand in conjunction with the share issuance.
On August 7, 2020, the Company completed a public offering of 2,554,59011,000,000 Common Shares. Net proceeds to the Company were $5.2$25.8 million after deducting discounts, fees, and expenses. TS Biotechnology Holdings, which is managed by Third Security and is controlled by Randal J. Kirk, our largest shareholder, participated in this offering, purchasing 4,000,000 Common Shares for a total of approximately $10 million in gross proceeds.
On AprilAugust 17, 2019,2020, the Company issued 346,4881,650,000 Common Shares in conjunction with the overallotment exercise by the Company’s investment banker.underwriters in the August 7, 2020 offering. Net proceeds to the Company were $696 thousand$3.9 million after deducting discounts, fees, and expenses.
Warrants
The following table summarizes information about outstanding warrants at September 30, 2019:2020:
  
Number of
warrant shares
 
Weighted
average
exercise price
Outstanding at December 31, 2018 1,745,868
 
$3.25
Exercised (83,564) 3.25
Outstanding at September 30, 2019 1,662,304
 
$3.25
Exercisable at September 30, 2019 1,662,304
 
$3.25
Number of
warrant shares
Weighted average
exercise price
Outstanding at December 31, 20191,662,304 $3.25 
Exercised(161,242)3.25
Outstanding at September 30, 20201,501,062$3.25 
Exercisable at September 30, 20201,501,062$3.25 
During the nine months ended September 30, 2019,2020, the Company issued 83,564161,242 Common Shares at $3.25 per share in conjunction with the exercise of warrants, with total proceeds of $272$524 thousand.


9




Share-based compensation
At September 30, 2020, the Company has reserved 1,658,315 shares of common stock issuable upon the exercise of outstanding stock options and future issuances under its 2006 and 2016 Equity Incentive Plans.
Restricted stock
A summary of the Company’s shares of restricted stock as of September 30, 2019,2020, is as follows:
SharesWeighted
average grant
date fair value
 Shares 
Weighted
average grant
date fair value
Balance at December 31, 2018 8,867
 
$3.51
Balance at December 31, 2019Balance at December 31, 201939,900 $2.31 
Granted 176,561
 2.13
Granted100,319 1.88 
Vested (127,133) 2.19
Vested(61,894)2.10 
Balance at September 30, 2019 58,295
 
$2.21
Balance at September 30, 2020Balance at September 30, 202078,325 $1.92 
During the nine months ended September 30, 20192020 and 2018,2019, the Company expensed $279,026$160 thousand and $20,421,$279 thousand, respectively, related to the restricted stock awards. At September 30, 2019,2020, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $128,307.$121 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2.5 years.
Stock options
The Company’s option activity is summarized as follows:
Number of
options
Weighted average
exercise price
Outstanding at December 31, 2019573,925 $4.94 
Issued104,458 1.99 
Expired(14,835)11.62 
Outstanding at September 30, 2020663,548 $4.33 
Exercisable at September 30, 2020587,738 $4.64 
  
Number of
options
 
Weighted
average
exercise price
Outstanding at December 31, 2018 339,964
 
$7.09
Issued 278,500
 2.21
Expired (79,539) 3.41
Outstanding at September 30, 2019 538,925
 
$5.11
Exercisable at September 30, 2019 401,847
 
$5.99
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 20192020 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:
 March 2019 April 2019 June 2019May 2020March 2020January 2020
Expected volatility 89% 94% 96%Expected volatility104%102%101%
Risk free interest rate 2.53% 2.28% 1.85%Risk free interest rate0.31%0.66%1.67%
Expected dividend yield 0% 0% 0%Expected dividend yield0%0%0%
Expected life (in years) 5 5 5Expected life (in years)555
The weighted average fair value of stock options granted during the nine months ended September 30, 2019,2020, was $2.21.$1.49.
The total intrinsic value of all options outstanding was $80,305$1.2 million and $0$1 thousand at September 30, 2019,2020, and December 31, 2018,2019, respectively. The total intrinsic value of exercisable options was $41,492 and $0$1 million at September 30, 2019,2020, and $1 thousand at December 31, 2018,2019, respectively.
The following table summarizes information about options outstanding and exercisable at September 30, 2019:2020:
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
$2.50 - $5.70 403,663
 9.1 270,120
  
$6.90 - $9.60 52,841
 3.0 52,841
  
$10.50 - $10.80 4,000
 4.4 4,000
  
$14.20 - $23.40 78,421
 6.5 74,886
  
  538,925
   401,847
 $5.99

10



Weighted average exercise price of outstanding optionsNumber of options outstandingWeighted average remaining estimated life (in years)Number of options exercisableWeighted average exercise price of outstanding and exercisable options
$1.88 - $2.50531,519 8.5455,709 
$3.30 - $6.9037,139 1.837,139 
$7.50 - $10.8021,303 3.621,303 
$14.20 - $23.4073,587 5.673,587 
663,548 587,738 $4.64
Total share-based compensation on stock options amounted to $374,426$224 thousand and $171,261$374 thousand for the nine months ended September 30, 20192020 and 2018,2019, respectively. At September 30, 2019,2020, the balance of unearned share-based compensation to be

10


expensed in future periods related to unvested share-based awards was $229,807.$111 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 0.82.7 years.
During the period ended June 30, 2019, the Company recognized share based compensation of $134,258 related to the accelerated vesting and exercisable term change for options to purchase an aggregate of 153,940 shares for the Company’s former CEO, who retired June 30, 2019. Each option granted was revalued as of June 30, 2019, using the following Black-Scholes values to determine the incremental charges for the option modification: expected volatility of 97%, risk free interest rate of 1.71% to 1.92%, expected dividend yield of 0.0%, and expected life of 1.5 to 5 years.
The following table summarizes the expense related to the options revalued at June 30, 2019:
  Expense
Grant dateNumber of optionsPreviousAcceleratedIncrementalTotal
1/11/201116,667$109,769
$
$11,782
$121,551
1/20/20146,667120,712

7,621
128,333
2/27/201860,60699,738

12,313
112,051
4/21/201720,00070,346
20,736
13,485
104,567
4/30/201950,00013,453
67,047
1,274
81,774
 153,940$414,018
$87,783
$46,475
$548,276
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.
See Note 5 for commitments related to our renovation and construction costs.
There have been no other material changes to the commitments and contingencies disclosed in our Annual Report on Form 10‑K10-K as of and for the year ended December 31, 2018.2019.
11. Related Party Collaboration AgreementSubsequent Events
In February 2013,Department of Fisheries and Oceans Loan
The Canadian Subsidiary has been approved for a loan from the Department of Fisheries and Oceans in Canada. The loan amount is for C$1.9 million ($1.4 million), the interest rate is 0% and monthly repayments of C$16,865 ($12,650) will commence in March 2023 for a term of 9.5 years. Proceeds will be used to complete construction on the Canadian Subsidiary’s broodstock facility at its Rollo Bay site.
Special Shareholder Meeting
The Company entered intohas filed a preliminary Proxy Statement for a special Shareholder Meeting to seek approval for an Exclusive Channel Collaboration agreement (“ECC”) with Intrexon Corporation (“Intrexon”) pursuantincrease in the number of authorized shares of common stock from 50 million to which the Company will use Intrexon’s UltraVector and other technology platforms80 million shares. The Special Shareholder Meeting is to develop and commercialize additional bioengineered traits in finfish for human consumption.
Total Intrexon service costs incurred under the terms of this agreement for the nine months ended September 30, 2019 and 2018, amounted to $18,550 and $190,195, respectively, and are included as a component of research and development expense in our Consolidated Statements of Operations and Comprehensive Loss. For the three months ended September 30, 2019 and 2018, service costs incurred amounted to $2,816 and $54,154, respectively. Included in accounts payable and accrued liabilities at September 30, 2019, and December 31, 2018, are amounts due to Intrexon under the ECC totaling $1,000 and $800, respectively.

be held on November 19, 2020.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following “Management’s Discussion and Analysis of Financial Condition and Results of 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‑K10-K for the year ended December 31, 2018,2019, which was filed on March 7, 2019.
This discussion and analysis also contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 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, 2018, and in this Quarterly Report on Form 10-Q. 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. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events, or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.10, 2020.
Overview
We believe that we are a leader in the field of land-based aquaculture and the use of technology for improving its productivity and sustainability. Our lead product is the AquAdvantage Salmon,salmon, which received FDA approval in 2015 as the first bioengineered animal available for sale for human consumption. We have commenced commercial activities with operations in the United States and Canada where we have received regulatory approval.
COVID-19
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 reported throughout both the United States and Canada, certain national, provincial, state, and local governmental authorities have issued proclamations and directives aimed at minimizing the spread of the virus. Additional, more restrictive proclamations and directives may be issued in the future.
The ultimate impact of the COVID-19 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 pandemic, new information which may emerge concerning the severity of the COVID-19 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.
To date, our farm operations have not been adversely affected by the pandemic, although we have made modifications to biosecurity procedures and our farm sites to adapt to local requirements and to provide a safe work environment.
We have experienced delays in capital projects due to the pandemic, including a delay in the completion of the processing facility at the Indiana farm. The delay in the completion of this project is expected to continue into the fourth quarter of 2020 and we are therefore utilizing third party alternatives for fish processing in the interim. We have also seen a reduction in the market price for Atlantic salmon due to the pandemic’s impact on demand in the food service sector. This has had a negative impact on our revenue and inventory value and is likely to continue for the near-term.
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 pandemic. 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 pandemic on our business and the duration for which it may have an impact cannot be determined at this time.
Revenue
We currently generate product revenue primarily through the sales of our AquAdvantage Salmon. We also sell conventional Atlantic salmon, salmon eggs, fry, and byproducts. We expect that our sales will be modest and infrequent untilin the near-term as we slowly build our grow-out farms insales and distribution supply chain for our Indiana and Rollo Bay commence harvesting, which is expected in mid-2020.farm sites and as we deal with the supply chain disruption from the COVID-19 pandemic.
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,AquAdvantage salmon, the number and capacity of grow-out farms we have in operation, and the market acceptance we achieve.
Cost of ProductsProduction Costs
Cost of products includesProduction 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 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 September 30, 2019,2020, we had twenty-sevenforty-one 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, 2019,2020, we had twono employees dedicated to sales and marketing.

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Research and Development Expenses
As of September 30, 2019,2020, we employed twenty-oneseventeen scientists and technicians at our facilities on Prince Edward Island to oversee our broodstock of AquAdvantage Salmon,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 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.
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 pre-production and capacity utilization costs for our Rollo Bay and Indiana farms, respectively.service. We had eleventhirteen employees in our general and administrative group at September 30, 2019.2020.
Other Income (Expense)
Interest expense includes the interest on our outstanding loans.loans and amortization of debt issuance costs. Other income (expense) includes bank charges, fees, gaininterest income, and miscellaneous gains or losses on disposal of equipment, and interest income.

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asset disposals.
Results of Operations
Comparison of the three months ended September 30, 2019,2020, to the three months ended September 30, 2018.2019.
The following table summarizes our results of operations for the three months ended September 30, 20192020 and 2018,2019, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
 Three Months End September 30, 
Dollar
Change
 
%
Change
Three Months Ended September 30,Dollar
Change
%
Change
 2019 2018 20202019
 (unaudited)    (unaudited)
Product revenue $
 $11
 $(11) (100)%Product revenue$68 $— $68 100 %
        
Operating expenses:        Operating expenses:
Product costs 
 9
 (9) (100)%
Production costsProduction costs1,356 846 510 60 %
Sales and marketing 206
 65
 141
 217 %Sales and marketing144 206 (62)(30)%
Research and development 446
 805
 (359) (45)%Research and development458 447 11 %
General and administrative 2,347
 1,852
 495
 27 %General and administrative1,723 1,500 223 15 %
Operating loss 2,999
 2,720
 279
 10 %Operating loss3,613 2,999 614 20 %
Total other (income) expense 19
 7
 12
 171 %Total other (income) expense37 19 18 95 %
Net loss $3,018
 $2,727
 $291
 11 %Net loss$3,650 $3,018 $632 21 %
Product Revenue
Product revenue for the three months ended September 30, 2020 consisted of conventional Atlantic salmon and Product Cost
eggs. There was no product revenue for the three months ended September 30, 2019. We expect that our sales will be modest in the near-term as we build our customer base while dealing with the production and infrequent until our grow-out farmsmarket disruption from the COVID-19 pandemic.
Production Costs
Production costs for the three months ended September 30, 2020, were up from the corresponding period in 2019, due to production cost increases related to increasing fish biomass at the Indiana and Rollo Bay commence harvestingfarms as they continue their ramp-up.
Costs for the current period also include a $403 thousand charge to reduce the value of fish in mid-2020.process inventory at the Indiana farm to reflect the reduction in the Net Realizable Value due to a reduction in the market price and demand for conventional Atlantic salmon.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended September 30, 2019,2020, were updown from the corresponding period in 20182019 due to increaseda decrease in personnel, and consulting expenses, travel costs, and compensationoffset 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 increase sales of our production at our farm sites.fish.

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Research and Development Expenses
Research and development expenses for the three months ended September 30, 2019,2020, were downslightly up from the corresponding period in 20182019 due to lowerincreased personnel costs, offset by a decrease in outside contract service fees, travel expenses, and field trial costs, primarily related to the closing of our demonstration farm in Panama.fees. We expect that our research and development expenses will increase as we expand our broodstock capacity, commence new field trials, and continue to pursue regulatory approval for additional products and additional markets.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2019,2020, were up significantly from the corresponding period in 20182019 due to increasesan increase in stockpersonnel associated compensation, charges and travel costs associated with headcount additions to our management team, regulatory legal fees associated with the FDA legal challenge, and excess capacity charges atcorporate costs, offset by decreases in travel and stock compensation charges. We expect that our general and administrative expenses will fluctuate based on our legal fees associated with the Indiana and Rollo Bay farms as they continue their start-up.FDA legal challenge.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, gain on disposal of equipment and interest income for the three months ended September 30, 20192020, and 2018.

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interest on debt, bank charges, and interest income for the three months ended September 30, 2019.
Comparison of the nine months ended September 30, 2019,2020, to the nine months ended September 30, 2018.2019.
The following table summarizes our results of operations for the nine months ended September 30, 20192020 and 2018,2019, 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
Nine Months Ended September 30,Dollar
Change
%
Change
 2019 2018 20202019
 (unaudited)    (unaudited)
Product revenue $140
 $78
 $62
 79 %Product revenue$77 $140 $(63)(45)%
        
Operating expenses:        Operating expenses:
Product costs 121
 72
 49
 68 %
Production costsProduction costs3,239 2,650 589 22 %
Sales and marketing 382
 223
 159
 71 %Sales and marketing332 382 (50)(13)%
Research and development 1,923
 2,664
 (741) (28)%Research and development1,663 1,923 (260)(14)%
General and administrative 7,489
 5,067
 2,422
 48 %General and administrative5,053 4,960 93 %
Operating loss 9,775
 7,948
 1,827
 23 %Operating loss10,210 9,775 435 %
Total other (income) expense 34
 10
 24
 240 %Total other (income) expense74 34 40 118 %
Net loss $9,809
 $7,958
 $1,851
 23 %Net loss$10,284 $9,809 $475 %
Product Revenue and Product Cost
Product revenue for the nine months ended September 30, 2019,2020 consisted primarily of sales of AquAdvantage Salmon and conventional Atlantic salmon, eggsfry and byproducts. We expect thateggs. For the comparative period in 2019, revenue included the sale of AquAdvantage salmon from our sales will be modest and infrequent until our grow-out farmsPanama demonstration farm.
Production Costs
Production costs for the nine months ended September 30, 2020, were up from the corresponding period in 2019, due to production cost increases related to increasing fish biomass at the Indiana and Rollo Bay commence harvestingfarms as they continue their ramp-up.
Costs for the current period also include a $719 thousand charge to reduce the value of the fish in mid-2020.process inventory at the Indiana farm to reflect the reduction in the Net Realizable Value due to a reduction in the market price and demand for Atlantic salmon due to the impact of COVID-19 on the food service industry.
Sales and Marketing Expenses
Sales and marketing expenses for the nine months ended September 30, 2019,2020, were updown from the corresponding period in 20182019 due to increaseda decrease in personnel and consulting expenses, travel costs, and compensationcost, 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 increase our production at our farm sites.
Research and Development Expenses
Research and development expenses for the nine months ended September 30, 2019,2020, were down from the corresponding period in 20182019 due to lower personnel costs, outside contract service fees, travel expenses, and field trial costs, primarily related to the closing of our demonstration farm in Panama. We expect that our researchPanama, and development expenses willlower personnel costs, offset by an increase as we expand our broodstock capacity, commence new field trials and continue to pursue regulatory approval for additional products and additional markets.in outside contract service fees.

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General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2019,2020, were up significantlyslightly from the corresponding period in 20182019 due to increasesan increase in personnel costs, stock compensation charges related to the hiring of our new CEO and the retirement of our previous CEO, travel costs associated with headcount additions to our management team, regulatory legal fees associated with the FDA legal challenge, and excess capacity charges at the Indianaoutside consulting fees, offset by a decrease in travel and Rollo Bay farms as they continue their start-up.stock compensation charges.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges a gain on disposal of equipment and interest income for the nine months ended September 30, 20192020, and 2018.

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interest on debt, bank charges, and interest income for the nine months ended September 30, 2019.
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,Nine Months Ended September 30,
2019 201820202019
(unaudited)(unaudited)
Net cash provided by (used in):   Net cash provided by (used in):
Operating activities$(8,288) $(7,469)Operating activities$(10,585)$(8,288)
Investing activities(1,816) (3,354)Investing activities(1,545)(1,816)
Financing activities13,511
 11,385
Financing activities48,840 13,511 
Effect of exchange rate changes on cash16
 (24)Effect of exchange rate changes on cash(19)16 
Net increase (decrease) in cash$3,423
 $538
Net increase (decrease) in cash$36,691 $3,423 
Cash Flows from Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2020, was primarily comprised of our $10.3 million net loss, offset by non-cash depreciation and stock compensation charges of $1.5 million, and increased by working capital uses of $1.8 million. Net cash used in operating activities during the nine months ended September 30, 2019, was primarily comprised of our $9.8 million net loss, offset by non-cash depreciation and stock compensation charges of $1.6 million, and increased by working capital uses of $53 thousand. Net cash used in operating activities during the nine months ended September 30, 2018, was primarily comprised of our $8.0 million net loss, offset by non-cash depreciation and stock compensation charges of $738 thousand, and increased by working capital uses of $249$61 thousand.
Spending on operations increased during the current period due to headcount additions; legal, tax, and travel cost increases; andincreases in production activities at our Rollo Bay and Indiana farm sites. The increasesites, offset by lower field trial costs related to our demonstration farm in cashPanama and travel. Cash used by working capital increased in the current period and was due primarily to an increase in inventory and prepaid items,expenses, offset by an increase in accounts payable and accrued liabilities and a decrease in receivables.liabilities.
Cash Flows from Investing Activities
During the nine months ended September 30, 2020, we used $2.6 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $100 thousand in proceeds from the sale of equipment and $1 million in net proceeds from a legal settlement. During the same period in 2019, we used $1.8 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $9 thousand in proceeds from the sale of equipment. During the same period in 2018, we used $3.4 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $22 thousand in proceeds from the sale of equipment.
Cash Flows from Financing Activities
During the nine months ended September 30, 2020, we received approximately $44 million in net proceeds from the issuance of Common Shares in two public offerings, $524 thousand from the exercise of warrants, and $4.2 million from new debt. This was offset by $50 thousand in the repayment of debt. During the same period in 2019, we received approximately $12.4 million in net proceeds from the issuance of Common Shares in a public offering, and $272 thousand from the exercise of warrants. In addition, we receivedwarrants, and $901 thousand in proceeds from issuance ofnew debt. This was offset by $57 thousand in the repayment of debt. During the same period in 2018, we received approximately $10.6 million in net proceeds from the issuance of Common Shares and warrants in a public offering and $812 thousand from the exercise of warrants. This was offset by $43 thousand in the repayment of debt.
Future Capital Requirements
In the Company’s Annual Report on Form 10‑K for December 31, 2018, management stated that there was substantial doubt about the Company’s ability to continue as a going concern due to its limited capital resources, and the Company’s independent registered public accounting firm emphasized this matter in its report to the shareholders and the Board of Directors. At that time, management prepared a plan to mitigate this doubt, which included an equity raise that subsequently provided the Company with $12.4 million of net new funds in 2019.
As discussed in Note 12 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 $129$142.4 million and a cash balance of $6.4$39.5 million as of September 30, 2019.2020. Management has evaluatedbelieves its current cash balance, along with the expected revenues from its farms will meet the Company’s cash resources in view of its planned spendingrequirements for ongoing operations, capital expenditures, and working capital forat least the next twelve months from the filing date and has determined that its current funds will be exhausted by June 30, 2020. As a result, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.
date. Management plans to seek additional financing in the form of equity or debt, partnerships, or other non-dilutive transactions to fund the Company’s cash requirements. However, the Company may not be able to raise additional financing or to do so at terms that are acceptable. In this event, managementalso has the abilitydiscretion to reduce expenditures, slow down orspending and delay capital spending, and divest assetsprojects if necessary, in order to ensure its cash will extend through the next twelve months.

15



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.preserve cash.
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

15


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.
The current COVID-19 pandemic has introduced uncertainty and volatility into the financial markets and as a result sources of future funding may be more difficult to obtain, if at 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.
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, 2019,2020, and December 31, 2018,2019, we had $1.8$5.8 million and $1.2$1.8 million, respectively, in interest-bearing debt instruments on our consolidated balance sheet. All of our interest-bearing debt is at fixed rates.rates for the next five years, at which point one outstanding loan will have a one-time rate reset for the remainder of its term.
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, 2019,2020, 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.


16




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)13a-15(g) and 15d‑15(f)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.


17




PART II. OTHER INFORMATION
Item 1.  Legal Proceedings
Lawsuit Against the FDA Approval of NADAAquAdvantage 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.salmon. Subsequently, the Fish and Wildlife Service was dismissed from the case.case, and we joined the case as an intervenor to protect our interests. The coalition, including the Center for Food Safety and Friends of the Earth, claims that the FDA had no statutory authority to regulate 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 Salmonsalmon could escape and threaten endangered wild salmon stocks. The discovery phasecourt issued an initial ruling that the FDA has statutory authority to regulate bioengineered animals. The substantive briefing on the specific challenge to the FDA’s approval of litigation is now complete,the original AquAdvantage salmon NADA has been completed and oral arguments on this part of the case is moving forward on substantive briefing.concluded in August 2020. We are waiting for a ruling from the court.
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 1A. Risk Factors” in our Annual Report on Form 10‑K10-K for the year ended December 31, 2018,2019, which was filed on March 7, 2019,10, 2020, and our Quarterly Report on Form 10-Q, for the quarter ended June 30, 2020, which was filed on August 6, 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. The following risk factors are either new or have changed materially from those set forth in our Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019. You should carefully review the risks involved and those described in our Annual Report on Form 10‑K10-K, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and in other reports we file with the Securities and Exchange Commission in evaluating our business.
Risks Relating to our Business
We must raise additional capitalEthical, legal, and social concerns about bioengineered products and perceived environmental impacts could lead to legal challenges, limit or prevent the use of our products, and limit our revenues.
Our technologies include the use of bioengineering. Public perception about the safety and environmental hazards of, and ethical concerns over, bioengineered products could influence public acceptance of our technologies and products. Activist groups opposing the bioengineering of organisms have in the first halfpast pressured a number of 2020retail food outlets and grocery chains to fundpublicly state that they will not carry bioengineered Atlantic salmon, and they could file lawsuits to prevent the production and sale of our operations in order to continue as a going concern.
Currently, we do not have sufficient capital to continue our operations after the first six months of 2020.products. If we are unablenot able to generate additional funds through financings, salesovercome the ethical, legal, and social concerns relating to bioengineering, products using our technologies may not be accepted in the marketplace, and demand for our products could fall short of what we expect. These concerns could also result in increased expenses, regulatory scrutiny, delays, or other impediments to implementation of our business plan.
The subject of bioengineered products has received negative publicity, which has aroused public debate. This adverse publicity could lead to lawsuits against the production, distribution, and sale of bioengineered products; greater regulation of those products; and trade restrictions on their importation. Further, there is a concern that products produced using our technologies could be perceived to cause adverse events, which could also lead to negative publicity.
Business, political, or economic disruptions or global health concerns, such as the COVID-19 pandemic, 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, the COVID-19 pandemic has continued to spread, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours.
Global health concerns like the coronavirus pandemic could in themselves result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. The COVID-19 pandemic and government grants, loans, or frommeasures 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 sources or transactions, we would exhaust our resourcesgoods and be unableservices, including salmon in the institutional sales chain that includes restaurants, has fallen, with a resulting drop in the prices for those goods and services. We have been impacted by the

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reduction in food service demand for salmon due to maintain our currently planned operations and continue as a going concern. We therefore plan to seek additional financingthe pandemic in the form of debt or equitysignificantly lower than expected sales and a reduction in the value of our inventory. In response to fundthe COVID-19 pandemic, we have provided our cash requirements foradministrative employees with the next twelve months.option to work remotely, and we have limited the number of staff in any given area of our farm sites. We mayhave also cut operating costs or delay capital spend in orderimplemented policies and procedures at our farms to preserve available cash. There can be no assurance that we will be successful in securing additional financing, and, if we do not, we would not be ablereact to continue as a going concern, and our stockholders would likely lose most or all of their investment in us. You should not rely on our consolidated balance sheet as an indicationany outbreak of the amountvirus.
As a result of proceedsthe COVID-19 pandemic, we may experience disruptions that would be available to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation. Our consolidated financial statements included in this Quarterly Reportcould severely impact our business, including disruptions or restrictions on Form 10-Q have been prepared assuming that we will continue as a going concern and do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern.
We have a history of net losses and will likely incur future losses and may not achieve or maintain profitability.
Although we were established in 1991, we did not start to develop our current product portfolio until 1996. In the period since incorporation to September 30, 2019, we have incurred net losses of approximately $129 million. These losses reflect our personnel, research and development, and marketing costs. We have constructed a 250-metric-ton annual capacity production facility in Rollo Bay, and in 2017 we acquired a facility in Albany, Indiana, which has undergone renovations to increase its annual capacity to 1,200 metric tons. We expect more significant revenues in 2020 once our new facilities are in full production. However, our ability to realizetravel, obtain regulatory approvals from the FDA and other regulators, pursue partnerships and other business transactions, conduct production activities, and make shipments, as well as be 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 the ordinary course in all material respects, we cannot presently predict the scope and severity of any additional business shutdowns or disruptions or the future 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 remains 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 a result of our efforts to address such disruptions.
In addition, the trading prices for our common stock and the timing thereof are not certain,stock of other biotechnology and achieving revenues does not assure thatfood companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we will become profitable.
We will need substantial additionalmay face difficulties raising capital in the future in order to fund our business.
We do not expect significantthrough sales until 2020, at the earliest, and to date we have not generated any profit and expect to incur losses for the foreseeable future and may never become profitable. Therefore, based on our current business plan, we anticipate a need to raise further funds. Any issuance of shares of our common stock could have an effect of depressingor such sales may be on unfavorable terms. The COVID-19 pandemic continues to rapidly evolve, and the market price of shares ofextent to which it may impact our common stock through dilution of earnings per share or otherwise.
The amountbusiness and timing of the expenditures needed to achieve our development and commercializationplanned programs will depend on numerous factors, some offuture developments, which are outside our control. Changes in our plans could resulthighly 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 need for additional funds. The

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primary factor impactingUnited States, Canada, and other countries; business closures or business disruptions; and the amount and timingeffectiveness of any additional expenditure is the timing of further stocking of AquAdvantage Salmon in our two production facilities in Rollo Bay and Indiana. Until these two sites reach full capacity, we will have only modest revenues to cover net losses, which were $10.4 million and $9.3 million in 2018 and 2017, respectively.
While we await the completion of the first harvests from our two production facilities, we plan to evaluate additional commercialization alternatives for our product through the channels we determine to be most advantageous to the Company. Such efforts may involve engaging in partnerships or joint ventures or licensing the technology to salmon growers. If we elect to grow out the fish ourselves, we would need to investactions taken in the construction or purchase of additional land-based recirculating aquaculture system facilities. These facilities have estimated construction costs of between $10-$17 million for each 1,000 metric tons of output.United States, Canada, and other countries to contain and address the disease.
Our ability to generate revenue to support our operations depends on obtaining additionalmaintaining regulatory approvals for AquAdvantage Salmon,salmon and our farm sites and obtaining new approvals for farm sites and the sale of our products in other markets, the receipt of which is uncertain, and the maintenance of existing approvals.uncertain.
As a bioengineered animal for human consumption, AquAdvantage Salmonsalmon required approval from the FDA in the United 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 AlbanyIndiana and Rollo Bay. FDA approvals will be needed for each additional facility we plan to bring on line.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 onerous obligations in relation to matters such as production or labeling, or that any regulator will not require additional data prior to approval, which may be costly and time-consuming to acquire.
We 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, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other agencies on which our operations may rely is subject to 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 business. For example, over the last several years the U.S. government has shut down several times, and certain regulatory agencies, approvingsuch as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. Separately, in response to the COVID-19 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 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 have a material adverse effect on our business. Future shutdowns could also affect other government agencies, such as the SEC, which may also impact our business by delaying review of our productspublic filings, to the extent such review is necessary, and our ability to access the public markets.
Security breaches and other disruptions could compromise our information, expose us to fraud or liability, or interrupt our operations, which would cause our business and reputation to suffer.
In the ordinary course of our business, we use our servers and networks to store sensitive data, including our proprietary business and financial information; general business information regarding our customers, suppliers, and business partners; and personally identifiable information of our employees. The secure storage and maintenance of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be suedvulnerable to attacks by non-governmental organizationshackers or breached due to employee error or malfeasance. A breach of our security could compromise our networks, and the information stored there could be

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accessed, manipulated, publicly disclosed, lost, or stolen. Any such access, manipulation, disclosure, or loss of information could result in errors in our records, fraudulent use of our financial information or theft of assets, legal claims or proceedings, liability under laws that protect the privacy of personal information, theft of our intellectual property, or damage to our reputation. In addition, our systems could be the subject of denial of service or other interference, which could disrupt our operations and commercial transactions. Any of the foregoing could adversely affect our business, revenues, and competitive position.
If our technologies or products are stolen, misappropriated, or reverse engineered, or we find it necessary to grant interests in our technologies to third parties, others could use the technologies to produce competing technologies or products or could limit our ability to fully realize the value of those technologies.
Third parties, including our collaborators, contractors, and others whoinvolved in our business often have access to, and may require that we grant interests in, our technologies. If our technologies or products were stolen, misappropriated, or reverse engineered, or if we are opposedforced to the developmentgrant broad interests in our technologies, they could be used by other parties that may be able to reproduce our technologies or products using our technologies for their own commercial gain. If this were to occur, it would be difficult for us to challenge this type of use, especially in countries with limited intellectual property protection. In addition, third parties granted interests in our technologies could seek to prevent or limit our use or commercialization of bioengineered products.
There are many organizations in the United States and elsewhere that are fundamentally opposed to the developmentthose technologies based on claims of bioengineered products. These groups have a history of bringing legal action against companies attempting to bring new biotechnology products to market. On December 23, 2013, an application was filed by two NGOs with the Canadian Federal Court seeking judicial review to declare invalid the decision by the Canadian Minister of the Environment to publish in the Canadian Gazette a Significant New Activity Notice (“SNAN”) with respect to AquAdvantage Salmon. Though the Canadian Federal Court dismissed this challenge, the petitioners filed an appeal of the ruling, which was subsequently dismissed by the Canadian Federal Court of Appeal on October 21, 2016.
In the United States, a coalition of NGOs filed a complaint on March 30, 2016, against the FDA, the United States Fish and Wildlife Service, and related individuals for their roles in the approval of AquAdvantage Salmon, claiming that the FDA had no statutory authority to regulate 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. Among other things, the claimants are seeking a judgment that the FDA decision to approve AquAdvantage Salmon is not authorized by the FFDCA, that an injunction be issued requiring the FDA to withdraw its assertion of jurisdiction over bioengineered animals, that the FDA decision to approve AquAdvantage Salmon and its EA and FONSI determinations be declared in violation of the FFDCA, and that the decision to approve the AquAdvantage Salmon NADA be vacated.
Though we believe this legal action lacks merit, it is currently ongoing and may take considerable time to resolve, and plaintiffs may seek to have importation or sale of AquAdvantage Salmon in the United States put on hold until such resolution. We may be subject to future litigation brought by one or more of these organizations in their attempt to block the development or sale of our product. In addition, animal rights groups and various other organizations and individuals have attempted to stop bioengineering activities by pressing for legislation and additional regulation in these areas. To the extent the actions of these organizations are successful, commercialization of our product may be restricted, and our business may be adversely affected. Such actions, even if unsuccessful, may distract management from its operational priorities and may cause us to incur significant costs.
We may become subject to increasing regulation, changes in existing regulations, and review of existing regulatory decisions.
Regulations pertaining to bioengineered 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, despite the FDA’s final determination that AquAdvantage Salmon may be sold without being labeled as a bioengineered product, a provision added to the 2016 Omnibus Appropriations Act required the FDA to issue final guidance for such labeling. The FDA was therefore obligated to maintain an Import Alert starting in January 2016 that prohibited import of AquAdvantage Salmon until such guidance was finalized or the provision was no longer effective. On March 8, 2019, several months after the USDA promulgated its final rule establishing a national standard for the labeling of bioengineered foods, including AquAdvantage Salmon, the FDA lifted the Import Alert. However, in September 2019, an appropriations bill was introduced in the Senate that would, if adopted into law, prohibit the introduction into interstate commerce of any food containing genetically engineered salmon until a consumer study of the efficacy of that national labeling standard for informing consumers of the genetically engineered content of salmon products was transmitted to Congress.

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Similarly, in July 2017, a bill was introduced in the United States Senate that could have, had it become law, required labeling unique to, as well as re-examination of the environmental assessments used by the FDA in its 2015 approval of the NADA for, AquAdvantage Salmon. While this bill was reintroduced in January 2019 without the requirement for re-examination of those environmental assessments, any such legislatively imposed review of a completed regulatory process could result in new restrictions on, or delays in, commercialization of our product in the United States. We could be subject to increasing or more onerous regulatory hurdles as we attempt to commercialize our product, 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 could also increase if AquAdvantage Salmon are found, or believed, to grow to a larger final size than conventional Atlantic salmon.partial ownership.
If we lose key personnel, including key management personnel, or are unable to attract, train, and retain additional personnel, it could delay our commercialization plans, limit our production capacity, or harm our research and development efforts, and we may be unable to sell or develop our own products.
Our success depends substantially on the efforts and abilities or our officers and other key employees. The loss of any key members of our management, or the failure to attract or retain other key employees who possess the requisite expertise for the conduct of our business, could prevent us from developing and commercializing our products and executing on our business strategy. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among aquaculture, biotechnology, and other technology-based businesses, or due to the unavailability of personnel with the particular qualifications or experience necessary for our business. For production positions, effective training will be needed for new hires due to the overall lack of industry experience in land-based aquaculture in North America. If we are not able to attract, train, and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that could adversely affect our ability to meet the demands of our customers in a timely fashion, adequately staff existing or new production facilities, or support our internal research and development programs. In particular, our production facilities require individuals experienced or trained in RAS-based aquaculture, and our product development programs are dependent on our ability to attract and retain highly skilled scientists. Competition for experienced production staff, scientists, and other technical personnel from numerous companies and academic and other research institutions may limit our ability to attract and retain such personnel on acceptable terms.
A shutdown of or damage to any of our farms could result in our prematurely harvesting fish, a loss of a material percentage of our fish in production, a delay in our commercialization plans, and a negative impact on our results of operations.
At present, we only have farms in Albany, Indiana, and Prince Edward Island, Canada. As an interruption in the oxygen supply, water quality systems, or other critical infrastructure of an aquaculture facility for more than a short period of time can lead to the loss of a large number of fish, any shutdown of or damage to either of our farms—for example, due to natural disaster, reduction in water supply, interruption in services beyond our backup capacity, or human interference—could require us to prematurely harvest some or all of the fish at that farm or could result in a loss of a material percentage of our fish in production. Shutdown or significant damage could also result in delays in our commercialization plans, an inability to meet customer demand, an increase in costs, and a negative impact on our results of operations.
The successful development of our business depends on our ability to efficiently and cost-effectively produce and sell salmon at large commercial scale.
Although we have over two decades of experience in successfully raising Atlantic salmon in land-based systems, we have only begun to produce them at commercial scale. Our business plans depend on our ability to increase our production capacity through the development of larger farms. We have limited experience constructing, ramping up, and managing such large, commercial-scale facilities, and we may not have anticipated all of the factors that could affect our production, harvest, sale, and delivery of salmon at such a scale. For example, our salmon may not perform as expected when raised at very large commercial scale, we may encounter operational challenges for which we are unable to identify a workable solution, control deficiencies may surface, our vendors may experience capacity constraints, or our production cost and timeline projections may prove to be inaccurate. Any of these could decrease process efficiency, create delays, and increase our costs. We are also subject to volatility in market demand and prices, such as the disruption to the salmon market and the resulting reduction in market prices for salmon caused by the COVID-19 pandemic.
We remain dependent on third parties for the processing, distribution, and sale of our products.
At present, we rely on third parties to process our fish, deliver them to seafood vendors, and ultimately sell them to consumers. While we carefully select processors or other intermediaries in the supply chain, any failure on their part to maintain quality standards or

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proper food handling processes could subject us to product liability claims, product recalls, increased scrutiny from regulators, and loss of consumer confidence in the safety and quality of our products. Seafood vendors may reject our products due to their particular product or volume requirements, extract pricing concessions that reduce our margins, or fail to adequately promote and sell our products. Our reliance on third parties could therefore result in a reduction in our revenues, an increase in our costs, delays in commercialization, additional regulatory requirements, or negative public opinion that could impact future sales and growth.
Risks Relating to our Common Stock
TS AquaCulture LLC’sThe significant share ownership position of certain affiliates allows itthem to influence corporate matters.
Based solely on a Schedule 13D/A filed on October 31, 2019,August 13, 2020, by Randal J. Kirk (“Mr. Kirk”),Kirk; Third Security, LLC (“Third Security”),Security; TS AquaCulture LLC (“TS AquaCulture”),; and Intrexon, as of issuance,TS Biotechnology Holdings, LLC (“TS Biotechnology”), TS AquaCulture owns 8,239,199 shares of our common stock, or approximately 38.1%18.3% of our outstanding shares, and TS Biotechnology owns 9,175,000 shares of our common stock, or approximately 20.4% 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 3.9%1.9% of our outstanding shares. TS AquaCulture isand TS Biotechnology are managed by Third Security, and TS AquaCulture is successor-in-interest to IntrexonPrecigen under the Relationship Agreement. See “Related-Party Transactions, Policies, and Procedures-Relationship Agreement entered into by AquaBountywith TS AquaCulture.” Further, Alana D. Czypinski, a member of the Company’s Board of Directors, is married to Randal J. Kirk and Intrexon dated ashas reported that she owns 3,249 shares of December 5, 2012 (the “Relationship Agreement”).our common stock, which includes 1,090 shares of common stock underlying outstanding stock options that are or will be immediately exercisable within 60 days of September 30, 2020 in her own name, which is less than one percent of our outstanding shares. Based on these holdings, Mr. Kirk, Intrexon’s Chairman and Chief Executive Officer and Third Security’s Chief Executive Officer and Senior Managing Director, hasand Ms. Czypinski have each reported control over approximately 42.0%40.6% of our outstanding shares. Given this,Mr. Kirk and our grant to TS AquaCulture, as successor-in-interest to Intrexon under the Relationship Agreement, of certain rights to nominate members of our Board of Directors that are intended to ensure that TS AquaCulture-nominated Board members represent a percentage of our Board that is proportionate to TS AquaCulture’s percentageMs. Czypinski each disclaim beneficial ownership of our common stock, TS AquaCulture will be able to significantly influence who serves on our Boardthe shares owned directly by the other, and Ms. Czypinski disclaims beneficial ownership of Directors and the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the outcome of any proposed merger or consolidation of our company. TS AquaCulture’s interests may not be consistent withshares deemed beneficially owned by Mr. Kirk, other than those of our other shareholders. Furthermore, TS AquaCulture’s significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our common stock.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.


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Item 6. Exhibits
EXHIBIT INDEX
Exhibit NumberExhibit Description

*    Previously filed
† Schedules, exhibits, and similar supporting attachments or agreements to the Loan and Security Agreement are omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.
+ 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.
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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 3, 2020AQUABOUNTY TECHNOLOGIES, INC.
November 5, 2019/s/ Sylvia Wulf
Sylvia Wulf
President, Chief Executive Officer, and Director (Principal Executive Officer)
November 5, 20193, 2020/s/ David A. Frank
David A. Frank
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)


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