AquaBounty Technologies, Inc.

Notes to the consolidated financial statements

For the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)

1. Nature of business and organization

AquaBounty Technologies, Inc. (the “Parent” and, together with its subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of ~~farm‑raised~~farm-raised Atlantic salmon that exhibit growth rates that are substantially faster than ~~traditional~~conventional 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 ~~Salmon~~salmon product in the United States.

In 2016, the Parent obtained approval from Health Canada for the sale and consumption of its AquAdvantage ~~Salmon~~salmon 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 ~~ceased~~concluded 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-company~~intercompany transactions and balances have been eliminated upon consolidation.

The unaudited interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited financial statements and related footnotes for the year ended December 31, ~~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 accompanying~~Certain balances in the 2019 financial statements have been ~~prepared on a going concern basis, which contemplates~~reclassified to conform with the ~~realization~~presentation of ~~assets~~the 2020 unaudited interim consolidated financial statements.

Liquidity Matters

The Company has experienced net losses and ~~the satisfaction~~negative 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’s~~its cash resources in view of its planned spending for ~~ongoing~~on-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 about~~taking into consideration the ~~Company’s ability to continue as a going concern within one year after the date that these~~foreseeable financial ~~statements are issued.~~

~~To mitigate this doubt, management plans to seek additional financing in the form~~impact of ~~equity or debt, partnerships,~~delays or other ~~non-dilutive transactions to fund~~events 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, management~~COVID-19 pandemic. Management also has the ~~ability~~discretion to reduce ~~expenditures, slow down or~~spending and delay capital ~~spending, and divest assets~~projects if necessary, in order to ~~ensure~~preserve cash. Until such time, if ever, as the Company can generate positive operating cash flows, it may finance its cash ~~will extend~~needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. The current COVID-19 pandemic has introduced uncertainty into the ~~next twelve months.~~financial markets and, as a result, future funding sources may be more difficult to obtain, if at all.

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 from~~Company records revenue on the ~~outcome~~sale 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 shares~~Common 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 stock~~Common 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 shares~~Common Shares are considered ~~anti‑dilutive~~anti-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 that~~At 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 subject~~has experienced delays in capital projects due to ~~risks and uncertainties common~~the pandemic, including a delay in the ~~biotechnology~~completion 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 bodies~~Company is therefore utilizing third party alternatives for fish processing in ~~other countries with respect~~the interim. The Company has also seen a reduction in the market price for Atlantic salmon due to ~~approval and commercial sale of any of~~the 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 sale~~current quarter and ~~the Company’s ability~~is 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.

4. Inventory

Major classifications of inventory are summarized as follows:


	September 30,		December 31,
	2020		2019
Feed	$	221,300	$	251,778
Eggs and fry	41,151		55,887
Packaging	3,105		0
Fish in process	2,603,914		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,
	2020		2019
Land	$	711,073	$	718,586
Building and improvements	13,717,243		13,297,489
Construction in process	2,257,913		2,105,873
Equipment	13,369,665		12,275,619
Office furniture and equipment	200,862		201,813
Vehicles	27,365		28,097
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 ~~costs~~related to ~~complete~~ the Rollo Bay farm ~~site and another $374~~site. 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,
	2020		2019
Accounts payable	$	983,709	$	809,444
Accrued payroll including vacation	414,228		236,489
Accrued professional fees and contract services	295,272		346,349
Accrued construction costs	277,268		0
Accrued taxes and other	146,400		70,527
Accounts payable and accrued liabilities	$	2,116,877	$	1,462,809

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. 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, 2018			Original loan amount	Interest rate	Monthly repayment	Maturity date	September 30, 2020		December 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$3,120	June 2026	172,774		184,583
ACOA term loan (C$500,000)	0%	C$4,630	November 2028	377,600			—			ACOA term loan (C$500,000)	0%	C$4,630	November 2028	363,708		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$1,142	January 2025	44,446		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$16,313	November 2023	1,938,608		1,766,783
First Farmers Bank &Trust ($4,000,000)										First Farmers Bank &Trust ($4,000,000)	5.375%	$56,832	October 2028	4,000,000		0
Total debt				$	4,546,608		$	3,591,434		Total debt				$	8,668,306	$	4,595,207
less: debt issuance costs										less: debt issuance costs				(90,253)		0
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:


Year	AIF		ACOA		FPEI		Kubota		FFBT		Total
2020	$	0	$	17,396	$	17,982	$	2,564	$	0	$	37,942
2021	0		69,583		73,337		10,257		116,675		269,852
2022	0		69,583		76,325		10,257		482,306		638,471
2023	0		69,582		1,770,964		10,256		509,256		2,360,058
2024	0		69,582		0		10,257		537,276		617,115
Thereafter	2,148,770		240,756		0		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 with~~COVID-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 are~~Canadian 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. The~~deferred until further notice. A revised loan ~~will be repaid over a term of nine years and~~amortization 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 provides~~amount 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 ~~guaranteed~~also 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 arrangements~~bank throughout the loan term. This amount is reflected as ~~disclosed in our annual report~~restricted 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, ~~2019~~2020 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 ~~22.8~~23 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.

The table below summarizes the Company’s lease obligations and remaining payments at September 30, ~~2019:~~2020:


				September 30, 2019						January 1, 2019										September 30, 2020				December 31, 2019
	Lease Type	End Date	Remaining Years	Remaining Payments			Lease Liability			Remaining Payments			Lease Liability				Lease Type	End Date	Remaining Years	Remaining Payments		Lease Liability		Remaining Payments		Lease Liability
Maynard Office Lease	Operating	Mar 2023	3.5	$	231,568		$	198,758		$	278,414		$	234,685		Maynard Office Lease	Operating	Mar 2023	2.5	$	167,374	$	147,541	$	215,556	$	186,323
Panama Farm Lease	Operating	Apr 2019	0	—			—			60,000			59,013
Indiana Auto Lease	Operating	Feb 2021	1.4	7,210			6,656			10,842			9,897			Indiana Auto Lease	Operating	Feb 2021	0.4	2,368		2,034		5,999		5,533
Indiana Well Lease	Operating	Dec 2048	29.3	706,110			224,640			717,420			228,844			Indiana Well Lease	Operating	Dec 2048	28.3	690,691		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:


Year	Office		Auto		Well		Total
2020	$	16,456	$	1,211	$	3,883	$	21,550
2021	66,416		1,157		15,998		83,571
2022	67,602		0		16,478		84,080
2023	16,900		0		16,972		33,872
2024	0		0		17,481		17,481
Thereafter	0		0		619,879		619,879
Total Lease Payments	$	167,374	$	2,368	$	690,691	$	860,433

Year Office Auto Well Amount
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 ~~3,345,282~~10,350,000 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 ~~2,554,590~~11,000,000 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 ~~April~~August 17, ~~2019,~~2020, the Company issued ~~346,488~~1,650,000 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, 2019	1,662,304	$3.25

Exercised	(161,242)	3.25

Outstanding at September 30, 2020	1,501,062	$3.25
Exercisable at September 30, 2020	1,501,062	$3.25

During the nine months ended September 30, ~~2019,~~2020, the Company issued ~~83,564~~161,242 Common Shares at $3.25 per share in conjunction with the exercise of warrants, with total proceeds of ~~$272~~$524 thousand.

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:


						Shares	Weighted 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, 2019					Balance at December 31, 2019	39,900	$2.31
Granted	176,561		2.13		Granted	100,319	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, 2020					Balance at September 30, 2020	78,325	$1.92

During the nine months ended September 30, ~~2019~~2020 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, 2019	573,925	$4.94
Issued	104,458	1.99

Expired	(14,835)	11.62
Outstanding at September 30, 2020	663,548	$4.33
Exercisable at September 30, 2020	587,738	$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 ~~2019~~2020 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:


	March 2019	April 2019	June 2019		May 2020	March 2020	January 2020
Expected volatility	89%	94%	96%	Expected volatility	104%	102%	101%
Risk free interest rate	2.53%	2.28%	1.85%	Risk free interest rate	0.31%	0.66%	1.67%
Expected dividend yield	0%	0%	0%	Expected dividend yield	0%	0%	0%
Expected life (in years)	5	5	5	Expected life (in years)	5	5	5

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


Weighted average exercise price of outstanding options	Number of options outstanding	Weighted average remaining estimated life (in years)	Number of options exercisable	Weighted average exercise price of outstanding and exercisable options
$1.88 - $2.50	531,519	8.5	455,709
$3.30 - $6.90	37,139	1.8	37,139
$7.50 - $10.80	21,303	3.6	21,303
$14.20 - $23.40	73,587	5.6	73,587
	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, ~~2019~~2020 and ~~2018,~~2019, respectively. At September 30, ~~2019,~~2020, the balance of unearned share-based compensation to be

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 ~~0.8~~2.7 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 date Number of options Previous Accelerated Incremental Total
1/11/2011 16,667 $ 109,769
$ —
$ 11,782
$ 121,551
1/20/2014 6,667 120,712
—
7,621
128,333
2/27/2018 60,606 99,738
—
12,313
112,051
4/21/2017 20,000 70,346
20,736
13,485
104,567
4/30/2019 50,000 13,453
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‑K~~10-K as of and for the year ended December 31, ~~2018.~~2019.

11. ~~Related Party Collaboration Agreement~~Subsequent 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 into~~has filed a preliminary Proxy Statement for a special Shareholder Meeting to seek approval for an ~~Exclusive Channel Collaboration agreement (“ECC”) with Intrexon Corporation (“Intrexon”) pursuant~~increase in the number of authorized shares of common stock from 50 million to ~~which the Company will use Intrexon’s UltraVector and other technology platforms~~80 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.

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‑Q~~10-Q and our Annual Report on Form ~~10‑K~~10-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 ~~until~~in the near-term as we slowly build our ~~grow-out farms in~~sales 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 Products~~Production Costs

~~Cost of products includes~~Production costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs; an application of overhead; and the cost to process and ship our 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-seven~~forty-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 ~~two~~no employees dedicated to sales and marketing.

Research and Development Expenses

As of September 30, ~~2019,~~2020, we employed ~~twenty-one~~seventeen 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 ~~eleven~~thirteen 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, ~~gain~~interest income, and miscellaneous gains or losses on ~~disposal of equipment, and interest income.~~

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, ~~2019~~2020 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								2020			2019
	(unaudited)													(unaudited)
Product revenue	$	—	$	11	$	(11	)	(100	)%	Product revenue		$	68		$	—	$	68	100	%

Operating expenses:										Operating expenses:
Product costs	—		9		(9		)	(100	)%
Production costs										Production costs		1,356			846		510		60	%
Sales and marketing	206		65		141			217	%	Sales and marketing		144			206		(62)		(30)	%
Research and development	446		805		(359		)	(45	)%	Research and development		458			447		11		2	%
General and administrative	2,347		1,852		495			27	%	General and administrative		1,723			1,500		223		15	%
Operating loss	2,999		2,720		279			10	%	Operating loss		3,613			2,999		614		20	%
Total other (income) expense	19		7		12			171	%	Total other (income) expense		37			19		18		95	%
Net loss	$	3,018	$	2,727	$	291		11	%	Net loss		$	3,650		$	3,018	$	632	21	%

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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

On March 30, 2016, a coalition of non-governmental organizations filed a complaint in the United States District Court for the Northern District of California against the FDA, the United States Fish and Wildlife Service, and related individuals for their roles in the approval of AquAdvantage ~~Salmon.~~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 ~~Salmon~~salmon could escape and threaten endangered wild salmon stocks. The ~~discovery phase~~court 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‑K~~10-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‑K~~10-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‑K~~10-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 capital~~Ethical, 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 half~~past pressured a number of ~~2020~~retail food outlets and grocery chains to ~~fund~~publicly 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 ~~unable~~not able to ~~generate additional funds through financings, sales~~overcome 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 from~~measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other ~~sources or transactions, we would exhaust our resources~~goods and ~~be unable~~services, 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

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 financing~~the pandemic in the form of ~~debt or equity~~significantly lower than expected sales and a reduction in the value of our inventory. In response to ~~fund~~the COVID-19 pandemic, we have provided our ~~cash requirements for~~administrative 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 ~~may~~have also ~~cut operating costs or delay capital spend in order~~implemented 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 able~~react 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 indication~~any outbreak of the ~~amount~~virus.

As a result of ~~proceeds~~the 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 ~~realize~~travel, 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 that~~food companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we ~~will become profitable.~~

~~We will need substantial additional~~may face difficulties raising capital ~~in the future in order to fund our business.~~

~~We do not expect significant~~through 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 depressing~~or such sales may be on unfavorable terms. The COVID-19 pandemic continues to rapidly evolve, and the ~~market price of shares of~~extent to which it may impact our ~~common stock through dilution of earnings per share or otherwise.~~

~~The amount~~business and ~~timing of the expenditures needed to achieve our development and commercialization~~planned programs will depend on ~~numerous factors, some of~~future developments, which are ~~outside our control. Changes in our plans could result~~highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease; the duration of the pandemic; travel restrictions and other actions to contain the pandemic or address its impact, such as social distancing and quarantines or lock-downs in the ~~need for additional funds. The~~

~~primary factor impacting~~United States, Canada, and other countries; business closures or business disruptions; and the ~~amount and timing~~effectiveness 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 additional~~maintaining 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 ~~Salmon~~salmon 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 ~~Albany~~Indiana 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, ~~approving~~such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. Separately, in response to the COVID-19 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 ~~products~~public 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 ~~sued~~vulnerable to attacks by ~~non-governmental organizations~~hackers or breached due to employee error or malfeasance. A breach of our security could compromise our networks, and the information stored there could be

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 ~~who~~involved 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 ~~opposed~~forced to ~~the development~~grant 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 development~~those 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.

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

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’s~~The 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 ~~Intrexon~~Precigen under the Relationship Agreement. See “Related-Party Transactions, Policies, and Procedures-Relationship Agreement ~~entered into by AquaBounty~~with TS AquaCulture.” Further, Alana D. Czypinski, a member of the Company’s Board of Directors, is married to Randal J. Kirk and ~~Intrexon dated as~~has 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, ~~has~~and 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 Board~~the 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.

2021

Item 6. Exhibits

EXHIBIT INDEX



Exhibit Number						Exhibit Description
10.1 *†						Loan and Security Agreement by and between AquaBounty Farms Indiana LLC and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.2*						Term Note granted by AquaBounty Farms Indiana LLC in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.3*						Mortgage, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement granted by AquaBounty Technologies, Inc. in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.4*						Guarantor Security Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.5*						Unconditional and Continuing Secured Guaranty Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.6*						Collateral Access Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.7*						Unconditional and Continuing Guaranty Agreement by and between AquaBounty Farms, Inc. and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
10.8*						Environmental Indemnity Agreement by and among AquaBounty Technologies, Inc., AquaBounty Farms Indiana LLC, and First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36426) filed on August 6, 2020).
31.1						Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* 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.

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, 2020		~~AQUABOUNTY TECHNOLOGIES, INC.~~

~~November 5, 2019~~	/s/ Sylvia Wulf
		Sylvia Wulf
		President, Chief Executive Officer, and Director (Principal Executive Officer)

November ~~5, 2019~~3, 2020		/s/ David A. Frank
		David A. Frank
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)



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



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


	As of							As of
	September 30,			December 31,				September 30,		December 31,
	2019			2018				2020		2019
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 receivables	62,034		55,198
Inventory	477,077			76,109			Inventory	2,869,470		1,232,049
Prepaid expenses and other current assets	391,561			315,969			Prepaid expenses and other current assets	820,193		391,162
Total current assets	7,367,611			3,510,617			Total current assets	42,741,063		4,477,153

Property, plant and equipment, net	24,780,705			23,716,768			Property, plant and equipment, net	25,699,143		25,065,836
Right of use assets, net	413,235			—			Right of use assets, net	356,788		399,477
Definite-lived intangible assets, net	161,014			171,292			Definite-lived intangible assets, net	147,311		157,588
Indefinite-lived intangible assets	191,800			191,800			Indefinite-lived intangible assets	101,661		101,661
Restricted cash							Restricted cash	500,000		0
Other assets	45,001			80,583			Other assets	50,213		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 other							Current lease liabilities and other	62,627		62,286
Current debt	149,069			71,613			Current debt	152,501		163,155
Total current liabilities	1,313,005			916,936			Total current liabilities	2,332,005		1,688,250

Long-term lease obligations	368,739			—			Long-term lease obligations	306,174		352,808
Long-term debt	4,397,539			3,519,821
Long-term debt, net							Long-term debt, net	8,425,552		4,432,052
Total liabilities	6,079,283			4,436,757			Total liabilities	11,063,731		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 outstanding							44,916,926 (2019: 21,635,365) shares outstanding	44,917		21,635
Additional paid-in capital	156,022,668			142,707,957			Additional paid-in capital	201,402,983		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’ equity	58,532,448		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


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018				2020		2019		2020		2019

Revenues													Revenues
Product revenues	$	—		$	10,938		$	140,371		$	77,933		Product revenues	$	67,763	$	0	$	77,466	$	140,371

Costs and expenses													Costs and expenses
Product costs	—			8,874			120,605			72,393
Production costs													Production costs	1,355,939		846,306		3,238,689		2,649,674
Sales and marketing	206,256			64,971			381,637			222,999			Sales and marketing	143,646		206,256		331,868		381,637
Research and development	446,582			804,758			1,923,512			2,663,397			Research and development	458,462		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 administrative	1,722,874		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 expenses	3,680,921		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), net	1,705		(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 diluted	38,911,054		21,604,072		32,756,074		19,556,607


																Common stock issued and outstanding	Par value		Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total
	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, 2018															Balance at December 31, 2018	15,098,837	$	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, net	3,345,282	3345		6,606,310						6,609,655
Exercise of warrants	76,981	77		250,111								250,188			Exercise of warrants	76,797	77		250,347						250,424
Share based compensation	11,151	11		48,534								48,545			Share based compensation	176,561	176		138,322						138,498
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, 2019															Balance at March 31, 2019	18,697,477	$	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, net															Issuance of common stock, net	2,901,078	2901		5,782,792						5,785,693
Share based compensation				71,544								71,544			Share based compensation				318,218						318,218
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, 2019															Balance at June 30, 2019	21,598,555	$	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 stock															Exercise of warrants for common stock	6,767	$	7	$	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, 2019															Balance at September 30, 2019	21,605,322	$	21,605	$	156,022,668	$	(440,738)	$	(128,723,452)	$	26,880,083


AquaBounty Technologies, Inc.
FORM 10-Q
For the Quarterly Period Ended September 30, ~~2019~~2020

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1821
Item 3.	Defaults Upon Senior Securities	2021
Item 4.	Mine Safety Disclosures	2021
Item 5.	Other Information	2021
Item 6.	Exhibits	2122
Signatures		2223


	Nine Months Ended September 30,							Nine Months Ended September 30,
	2019			2018				2020		2019

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 amortization	1,082,261		928,476
Share-based compensation	653,452			191,682			Share-based compensation	383,964		653,452
Gain on disposal of equipment	(8,548		)	(11,745		)	Gain on disposal of equipment	(1,816)		(8,548)
Other non-cash charges							Other non-cash charges	41,967		0
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 liabilities	366,403		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 equipment	99,816		8,548
Proceeds from legal settlement, net							Proceeds from legal settlement, net	1,014,008		0
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 debt	4,221,130		900,767
Payment of debt issuance costs							Payment of debt issuance costs	(91,620)		0
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, net							Proceeds from the issuance of common stock, net	44,236,301		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, net	524,037		272,416
Net cash provided by financing activities	13,511,530			11,384,539			Net cash provided by financing activities	48,839,986		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 cash							Effect of exchange rate changes on cash	(18,792)		15,993
Net change in cash, cash equivalents and restricted cash							Net change in cash, cash equivalents and restricted cash	36,690,622		3,423,076
Cash, cash equivalents and restricted cash at beginning of period							Cash, cash equivalents and restricted cash at beginning of period	2,798,744		3,002,557
Cash, cash equivalents and restricted cash at the end of period							Cash, 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



	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



		Expense
Grant date	Number of options	Previous		Accelerated		Incremental		Total
1/11/2011	16,667	$	109,769	$	—	$	11,782	$	121,551
1/20/2014	6,667	120,712		—		7,621		128,333
2/27/2018	60,606	99,738		—		12,313		112,051
4/21/2017	20,000	70,346		20,736		13,485		104,567
4/30/2019	50,000	13,453		67,047		1,274		81,774
	153,940	$	414,018	$	87,783	$	46,475	$	548,276