Item 1. Financial Statements
AquaBounty Technologies, Inc.
Consolidated Balance Sheets
(Unaudited)
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As of
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June 30,
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December 31,
|
|
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2019
|
|
2018
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,400,795
|
|
|
$
|
2,990,196
|
|
Certificate of deposit
|
|
12,866
|
|
|
12,361
|
|
Other receivables
|
|
109,896
|
|
|
115,982
|
|
Inventory
|
|
210,345
|
|
|
76,109
|
|
Prepaid expenses and other current assets
|
|
555,946
|
|
|
315,969
|
|
Total current assets
|
|
11,289,848
|
|
|
3,510,617
|
|
|
|
|
|
|
Property, plant and equipment, net
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|
24,621,309
|
|
|
23,716,768
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|
Right of use assets, net
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|
426,735
|
|
|
—
|
|
Definite-lived intangible assets, net
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|
164,440
|
|
|
171,292
|
|
Indefinite-lived intangible assets
|
|
191,800
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|
|
191,800
|
|
Other assets
|
|
80,583
|
|
|
80,583
|
|
Total assets
|
|
$
|
36,774,715
|
|
|
$
|
27,671,060
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Liabilities and stockholders’ equity
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Current liabilities:
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|
|
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Accounts payable and accrued liabilities
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|
$
|
1,977,030
|
|
|
$
|
824,900
|
|
Other current liabilities
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|
68,432
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|
|
20,423
|
|
Current debt
|
|
139,274
|
|
|
71,613
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|
Total current liabilities
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|
2,184,736
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|
916,936
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|
|
|
|
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Long-term lease obligations
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|
384,507
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|
|
—
|
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Long-term debt
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4,487,004
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3,519,821
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Total liabilities
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7,056,247
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4,436,757
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Commitments and contingencies
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Stockholders’ equity:
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Common stock, $0.001 par value, 50,000,000 shares authorized;
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|
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21,598,555 (2018: 15,098,837) shares outstanding
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21,598
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|
|
15,099
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Additional paid-in capital
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155,803,946
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142,707,957
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Accumulated other comprehensive loss
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(401,846
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)
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(574,186
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)
|
Accumulated deficit
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(125,705,230
|
)
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(118,914,567
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)
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Total stockholders’ equity
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|
29,718,468
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23,234,303
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|
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Total liabilities and stockholders’ equity
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$
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36,774,715
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|
$
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27,671,060
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See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2019
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2018
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2019
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2018
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Revenues
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Product revenues
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$
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42,486
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$
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47,898
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$
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140,371
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$
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66,995
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Costs and expenses
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Product costs
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38,992
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47,287
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120,605
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|
63,519
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Sales and marketing
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103,390
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76,381
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175,381
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158,028
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Research and development
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813,449
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880,822
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1,476,930
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1,858,639
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General and administrative
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3,106,374
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1,827,991
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5,142,868
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3,214,864
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Total costs and expenses
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|
4,062,205
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|
|
2,832,481
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6,915,784
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5,295,050
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|
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Operating loss
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(4,019,719
|
)
|
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(2,784,583
|
)
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|
(6,775,413
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)
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|
(5,228,055
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)
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|
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Other income (expense)
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Gain on disposal of equipment
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|
8,548
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|
10,585
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|
8,548
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|
11,745
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|
Interest expense
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|
(14,212
|
)
|
|
(5,283
|
)
|
|
(27,550
|
)
|
|
(10,685
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)
|
Other income (expense), net
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|
(1,348
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)
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|
(1,868
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)
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|
3,752
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(3,941
|
)
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Total other income (expense)
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(7,012
|
)
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|
3,434
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(15,250
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)
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(2,881
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)
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|
|
|
|
|
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Net loss
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$
|
(4,026,731
|
)
|
|
$
|
(2,781,149
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)
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$
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(6,790,663
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)
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|
$
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(5,230,936
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)
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Other comprehensive income (loss):
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Foreign currency translation income (loss)
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84,788
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(85,811
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)
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|
172,340
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(197,929
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)
|
Total other comprehensive income (loss)
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|
84,788
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|
|
(85,811
|
)
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|
172,340
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(197,929
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)
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Comprehensive loss
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$
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(3,941,943
|
)
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$
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(2,866,960
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)
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$
|
(6,618,323
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)
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|
$
|
(5,428,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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Basic and diluted net loss per share
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$
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(0.19
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.42
|
)
|
Weighted average number of common shares -
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basic and diluted
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21,313,055
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|
12,787,761
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18,515,907
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12,366,657
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|
|
|
|
|
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See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
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Common stock issued and outstanding
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Par value
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Additional paid-in capital
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Accumulated other comprehensive loss
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Accumulated deficit
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Total
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Balance at December 31, 2017
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|
8,895,094
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|
|
$
|
8,895
|
|
|
$
|
126,718,186
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|
|
$
|
(213,884
|
)
|
|
$
|
(108,532,508
|
)
|
|
$
|
17,980,689
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|
Net loss
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|
|
(2,449,787
|
)
|
|
(2,449,787
|
)
|
Other comprehensive income (loss)
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|
|
|
|
|
|
(112,118
|
)
|
|
|
|
(112,118
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)
|
Issuance of common stock, net of expenses
|
|
3,692,307
|
|
|
3,692
|
|
|
10,612,356
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|
|
|
|
|
|
10,616,048
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|
Exercise of warrants for common stock
|
|
76,891
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|
|
77
|
|
|
250,111
|
|
|
|
|
|
|
250,188
|
|
Share based compensation
|
|
11,151
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|
|
11
|
|
|
48,534
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|
|
|
|
|
|
48,545
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|
Balance at March 31, 2018
|
|
12,675,443
|
|
|
$
|
12,675
|
|
|
$
|
137,629,187
|
|
|
$
|
(326,002
|
)
|
|
$
|
(110,982,295
|
)
|
|
$
|
26,333,565
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(2,781,149
|
)
|
|
(2,781,149
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
(85,811
|
)
|
|
|
|
(85,811
|
)
|
Exercise of warrants for common stock
|
|
172,843
|
|
|
173
|
|
|
561,567
|
|
|
|
|
|
|
561,740
|
|
Share based compensation
|
|
|
|
|
|
|
|
71,544
|
|
|
|
|
|
|
71,544
|
|
Balance at June 30, 2018
|
|
12,848,286
|
|
|
$
|
12,848
|
|
|
$
|
138,262,298
|
|
|
$
|
(411,813
|
)
|
|
$
|
(113,763,444
|
)
|
|
$
|
24,099,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and outstanding
|
|
Par value
|
|
Additional paid-in capital
|
|
Accumulated other comprehensive loss
|
|
Accumulated deficit
|
|
Total
|
Balance at December 31, 2018
|
|
15,098,837
|
|
|
$
|
15,099
|
|
|
$
|
142,707,957
|
|
|
$
|
(574,186
|
)
|
|
$
|
(118,914,567
|
)
|
|
$
|
23,234,303
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(2,763,932
|
)
|
|
(2,763,932
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
87,552
|
|
|
|
|
87,552
|
|
Issuance of common stock, net of expenses
|
|
3,345,282
|
|
|
3345
|
|
|
6,606,310
|
|
|
|
|
|
|
6,609,655
|
|
Exercise of warrants for common stock
|
|
76,797
|
|
|
77
|
|
|
250,347
|
|
|
|
|
|
|
250,424
|
|
Share based compensation
|
|
176,561
|
|
|
176
|
|
|
138,322
|
|
|
|
|
|
|
138,498
|
|
Balance at March 31, 2019
|
|
18,697,477
|
|
|
$
|
18,697
|
|
|
$
|
149,702,936
|
|
|
$
|
(486,634
|
)
|
|
$
|
(121,678,499
|
)
|
|
$
|
27,556,500
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(4,026,731
|
)
|
|
(4,026,731
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
84,788
|
|
|
|
|
84,788
|
|
Issuance of common stock, net of expenses
|
|
2,901,078
|
|
|
2,901
|
|
|
5,782,792
|
|
|
|
|
|
|
5,785,693
|
|
Share based compensation
|
|
|
|
|
|
|
|
318,218
|
|
|
|
|
|
|
318,218
|
|
Balance at June 30, 2019
|
|
21,598,555
|
|
|
$
|
21,598
|
|
|
$
|
155,803,946
|
|
|
$
|
(401,846
|
)
|
|
$
|
(125,705,230
|
)
|
|
$
|
29,718,468
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Operating activities
|
|
|
|
|
Net loss
|
|
$
|
(6,790,663
|
)
|
|
$
|
(5,230,936
|
)
|
Adjustment to reconcile net loss to net cash used in
|
|
|
|
|
operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
576,596
|
|
|
273,646
|
|
Share-based compensation
|
|
456,716
|
|
|
120,089
|
|
Gain on disposal of equipment
|
|
(8,548
|
)
|
|
(11,745
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
Other receivables
|
|
10,454
|
|
|
77,782
|
|
Inventory
|
|
(134,137
|
)
|
|
88,656
|
|
Prepaid expenses and other assets
|
|
(238,820
|
)
|
|
131,486
|
|
Accounts payable and accrued liabilities
|
|
922,237
|
|
|
(783,356
|
)
|
Net cash used in operating activities
|
|
(5,206,165
|
)
|
|
(5,334,378
|
)
|
|
|
|
|
|
Investing activities
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(925,617
|
)
|
|
(3,039,177
|
)
|
Proceeds on sale of equipment
|
|
8,548
|
|
|
21,745
|
|
Net cash used in investing activities
|
|
(917,069
|
)
|
|
(3,017,432
|
)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Proceeds from issuance of debt
|
|
900,767
|
|
|
—
|
|
Repayment of term debt
|
|
(27,837
|
)
|
|
(28,870
|
)
|
Proceeds from the issuance of common stock and warrants, net
|
|
12,395,348
|
|
|
10,616,048
|
|
Proceeds from the exercise of stock options and warrants, net
|
|
250,424
|
|
|
811,928
|
|
Net cash provided by financing activities
|
|
13,518,702
|
|
|
11,399,106
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
15,131
|
|
|
(21,351
|
)
|
Net change in cash and cash equivalents
|
|
7,410,599
|
|
|
3,025,945
|
|
Cash and cash equivalents at beginning of period
|
|
2,990,196
|
|
|
492,861
|
|
Cash and cash equivalents at the end of period
|
|
$
|
10,400,795
|
|
|
$
|
3,518,806
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information and
|
|
|
|
|
non-cash transactions:
|
|
|
|
|
Interest paid in cash
|
|
$
|
27,550
|
|
|
$
|
10,685
|
|
Property and equipment included in accounts payable and accrued liabilities
|
|
$
|
422,808
|
|
|
$
|
330,136
|
|
Acquisition of equipment under debt arrangement
|
|
$
|
—
|
|
|
$
|
75,124
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Notes to the consolidated financial statements
For the six months ended June 30, 2019 and 2018 (unaudited)
1. Nature of business and organization
AquaBounty Technologies, Inc. (the “Parent” and, together with its subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of farm‑raised Atlantic salmon that exhibit growth rates that are substantially faster than traditional salmon.
In 2015, the Parent obtained approval from the US Food and Drug Administration (the “FDA”) for the production, sale, and consumption of its AquAdvantage Salmon product in the United States.
In 2016, the Parent obtained approval from Health Canada for the sale and consumption of its AquAdvantage 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 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. All inter-company 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
. 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
June 30, 2019
, 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.
Liquidity and Management’s Plan
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 was implemented during the current period.
At
June 30, 2019
, the Company’s cash balance totaled
$10.4 million
. We have evaluated our cash resources in view of our planned spending for ongoing operations, capital expenditures, and working capital for the next twelve months from the filing date and have determined that, while our current funds are sufficient for our cash requirements during that period, we anticipate the need to raise additional capital to fund our subsequent cash requirements and any additional projects. Accordingly, we plan to seek additional financing in the form of equity or debt, partnerships or other non-dilutive transactions to fund our cash requirements and any additional projects.
Management’s assessment is based primarily on its ability and past experience in managing expenditures in order to conserve the Company’s cash. Management has the ability to reduce expenditures and slow down or delay capital spending in order to ensure its cash will extend through the next twelve months.
Net loss per share
Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss by the weighted average number of common shares outstanding during the 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 issuable upon the exercise of warrants and options with an exercise price less than the fair value of the common stock. Since the Company is reporting a net loss for all periods presented, all potential common shares are considered anti‑dilutive and are excluded from the calculation of diluted net loss per share.
Accounting Pronouncements
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. We adopted the ASU January 1, 2019, and, based on our current portfolio of leases, approximately
$427 thousand
and
$445 thousand
of lease assets and liabilities, respectively, are recognized on our balance sheet at
June 30, 2019
, primarily relating to real estate.
Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition.
3. Risks and uncertainties
The Company is subject to risks and uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in other countries with respect to approval and commercial sale of any of the Company’s proposed products; (iii) the commercial acceptance of any products approved for sale and the Company’s ability to 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‑K 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.
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. This risk is minimized by the Company’s policy of investing in financial instruments with short-term maturities issued by highly rated financial institutions. The Company’s cash balances may at times exceed insurance limitations. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign currency exchange risk, which is mitigated by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled
$192,946
at
June 30, 2019
.
4. Inventory
Major classifications of inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Feed
|
|
$
|
92,964
|
|
|
$
|
24,288
|
|
Eggs
|
|
28,261
|
|
|
—
|
|
Packaging
|
|
—
|
|
|
8,913
|
|
Fish in process
|
|
89,120
|
|
|
42,908
|
|
Total inventory
|
|
$
|
210,345
|
|
|
$
|
76,109
|
|
5. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Land
|
|
$
|
716,858
|
|
|
$
|
704,567
|
|
Building and improvements
|
|
9,722,264
|
|
|
9,244,737
|
|
Construction in process
|
|
6,966,164
|
|
|
6,091,265
|
|
Equipment
|
|
9,879,790
|
|
|
9,713,030
|
|
Office furniture and equipment
|
|
201,594
|
|
|
192,606
|
|
Vehicles
|
|
27,929
|
|
|
26,832
|
|
Total property and equipment
|
|
$
|
27,514,599
|
|
|
$
|
25,973,037
|
|
Less accumulated depreciation and amortization
|
|
(2,893,290
|
)
|
|
(2,256,269
|
)
|
Property, plant and equipment, net
|
|
$
|
24,621,309
|
|
|
$
|
23,716,768
|
|
Included in construction in process is
$6.6 million
for construction costs incurred at our Rollo Bay farm site. An additional
$685 thousand
has been committed.
6. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Accounts payable
|
|
$
|
1,095,940
|
|
|
$
|
366,917
|
|
Accrued compensation
|
|
557,302
|
|
|
223,481
|
|
Accrued professional fees and research costs
|
|
206,107
|
|
|
185,992
|
|
Accrued franchise and excise taxes
|
|
69,666
|
|
|
23,678
|
|
Accrued construction costs
|
|
40,615
|
|
|
13,716
|
|
Accrued other
|
|
7,400
|
|
|
11,116
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,977,030
|
|
|
$
|
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
|
|
June 30, 2019
|
|
December 31, 2018
|
ACOA AIF grant (C$2,871,919)
|
|
0%
|
|
Royalties
|
|
-
|
|
$
|
2,192,997
|
|
|
$
|
2,106,840
|
|
ACOA term loan (C$337,000)
|
|
0%
|
|
C$3,120
|
|
June 2026
|
|
197,772
|
|
|
203,735
|
|
ACOA term loan (C$500,000)
|
|
0%
|
|
C$4,630
|
|
November 2028
|
|
381,800
|
|
|
—
|
|
Kubota Canada Ltd. (C$95,961)
|
|
0%
|
|
C$1,142
|
|
January 2025
|
|
58,446
|
|
|
61,178
|
|
Finance PEI term loan (C$2,717,093)
|
|
4%
|
|
C$16,313
|
|
November 2023
|
|
1,795,263
|
|
|
1,219,681
|
|
Total debt
|
|
|
|
|
|
|
|
$
|
4,626,278
|
|
|
$
|
3,591,434
|
|
less: current portion
|
|
|
|
|
|
|
|
(139,274
|
)
|
|
(71,613
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
$
|
4,487,004
|
|
|
$
|
3,519,821
|
|
Estimated principal payments remaining on loan debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
AIF
|
|
ACOA
|
|
FPEI
|
|
Kubota
|
|
Total
|
2019
|
|
$
|
—
|
|
|
$
|
14,295
|
|
|
$
|
39,059
|
|
|
$
|
5,234
|
|
|
$
|
58,588
|
|
2020
|
|
—
|
|
|
71,015
|
|
|
80,695
|
|
|
10,468
|
|
|
162,178
|
|
2021
|
|
—
|
|
|
71,015
|
|
|
83,988
|
|
|
10,468
|
|
|
165,471
|
|
2022
|
|
—
|
|
|
71,015
|
|
|
87,410
|
|
|
10,468
|
|
|
168,893
|
|
2023
|
|
—
|
|
|
71,015
|
|
|
1,504,111
|
|
|
10,468
|
|
|
1,585,594
|
|
Thereafter
|
|
2,192,997
|
|
|
281,217
|
|
|
—
|
|
|
11,340
|
|
|
2,485,554
|
|
Total
|
|
$
|
2,192,997
|
|
|
$
|
579,572
|
|
|
$
|
1,795,263
|
|
|
$
|
58,446
|
|
|
$
|
4,626,278
|
|
On March 7, 2019, the Canadian Subsidiary received C
$500 thousand
under a credit facility with the Atlantic Canada Opportunities Agency (“ACOA”). The proceeds of the loan are to be used to partially finance the construction at the Rollo Bay site. The loan will be repaid over a term of nine years and has a zero percent interest rate.
In 2018, the Canadian Subsidiary obtained a new loan from Finance PEI (“FPEI”), which incorporated the existing loan and provides 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
) will be drawn down during the third quarter of 2019 and 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. The loan is guaranteed by the Parent.
Other than these loans, there have been no material changes to the Company’s debt arrangements as disclosed in our annual report on Form 10‑K for the year ended December 31, 2018.
The Company recognized interest expense of
$26,531
and
$10,613
for the
six
months ended
June 30, 2019
and
2018
, respectively, on its interest-bearing debt.
8. Leases
The Company leases certain facilities, property, and equipment under noncancelable operating leases. A determination is made if an arrangement is a lease at its inception, and leases with an initial term of twelve months or less are not recorded on the balance sheet.
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.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For operating leases, expense is recognized on a straight-line basis over the lease term.
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.
Lease expense for the
six
months ended
June 30, 2019
, amounted to
$99,946
. The weighted average remaining lease term of the Company’s operating leases was
22.7
years as of
June 30, 2019
. Lease payments included in operating cash flows totaled
$101,095
for the
six
months ended
June 30, 2019
.
The table below summarizes the Company’s lease obligations and remaining payments at June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
January 1, 2019
|
|
Lease Type
|
End Date
|
Remaining Years
|
Remaining Payments
|
Lease Liability
|
|
Remaining Payments
|
Lease Liability
|
Maynard Office Lease
|
Operating
|
Mar 2023
|
3.75
|
$
|
247,281
|
|
$
|
210,957
|
|
|
$
|
278,414
|
|
$
|
234,685
|
|
Panama Farm Lease
|
Operating
|
Apr 2019
|
—
|
—
|
|
—
|
|
|
60,000
|
|
59,013
|
|
Indiana Auto Lease
|
Operating
|
Feb 2021
|
1.67
|
8,420
|
|
7,757
|
|
|
10,842
|
|
9,897
|
|
Indiana Well Lease
|
Operating
|
Dec 2048
|
29.53
|
709,880
|
|
226,041
|
|
|
717,420
|
|
228,844
|
|
Total leases
|
|
|
|
$
|
965,581
|
|
$
|
444,755
|
|
|
$
|
1,066,676
|
|
$
|
532,439
|
|
Less: current portion
|
|
|
|
(83,896
|
)
|
(60,248
|
)
|
|
(142,780
|
)
|
(117,345
|
)
|
Long-term leases
|
|
|
|
$
|
881,685
|
|
$
|
384,507
|
|
|
$
|
923,896
|
|
$
|
415,094
|
|
Remaining payments under leases are as follows at June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Office
|
Auto
|
Well
|
Amount
|
2019
|
|
$
|
31,726
|
|
$
|
2,421
|
|
$
|
7,540
|
|
$
|
41,687
|
|
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
|
|
16,900
|
|
—
|
|
16,972
|
|
33,872
|
|
Thereafter
|
|
—
|
|
—
|
|
637,360
|
|
637,360
|
|
Total Lease Payments
|
|
$
|
247,281
|
|
$
|
8,420
|
|
$
|
709,880
|
|
$
|
965,581
|
|
9. Stockholders’ equity
Recent issuances
On March 21, 2019, the Company completed a public offering of
3,345,282
Common Shares. Net proceeds to the Company were
$6.6 million
after deducting discounts, fees, and expenses.
On April 5, 2019, the Company completed a public offering of
2,554,590
Common Shares. Net proceeds to the Company were
$5.2 million
after deducting discounts, fees, and expenses.
On April 17, 2019, the Company issued
346,488
Common Shares in conjunction with the overallotment exercise by the Company’s investment banker. Net proceeds to the Company were
$696 thousand
after deducting discounts, fees, and expenses.
Warrants
The following table summarizes information about outstanding warrants at
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
Number of
warrant shares
|
|
Weighted
average
exercise price
|
Outstanding at December 31, 2018
|
|
1,745,868
|
|
|
|
$3.25
|
|
Exercised
|
|
(76,797
|
)
|
|
3.25
|
|
Outstanding at June 30, 2019
|
|
1,669,071
|
|
|
|
$3.25
|
|
Exercisable at June 30, 2019
|
|
1,669,071
|
|
|
|
$3.25
|
|
During the six months ended
June 30, 2019
, the Company issued
76,797
Common Shares at
$3.25
per share in conjunction with the exercise of warrants, with total proceeds of
$250 thousand
.
Share-based compensation
Restricted stock
A summary of the Company’s shares of restricted stock as of
June 30, 2019
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
average grant
date fair value
|
Balance at December 31, 2018
|
|
8,867
|
|
|
|
$3.51
|
|
Granted
|
|
176,561
|
|
|
2.13
|
|
Vested
|
|
(83,640
|
)
|
|
2.20
|
|
Balance at June 30, 2019
|
|
101,788
|
|
|
|
$2.20
|
|
During the
six
months ended
June 30, 2019
and
2018
, the Company expensed
$184,316
and
$13,664
, respectively, related to the restricted stock awards. At
June 30, 2019
, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is
$223,017
. The period over which the unearned share-based compensation is expected to be earned is approximately
2.8
years.
Stock options
The Company’s option activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise price
|
Outstanding at December 31, 2018
|
|
339,964
|
|
|
|
$7.09
|
|
Issued
|
|
278,500
|
|
|
2.21
|
|
Expired
|
|
(668
|
)
|
|
10.88
|
|
Outstanding at June 30, 2019
|
|
617,796
|
|
|
|
$4.88
|
|
Exercisable at June 30, 2019
|
|
420,959
|
|
|
|
$5.97
|
|
Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested over
one
to
three
years and are exercisable for a term of
ten
years from the date of issuance.
The fair values of stock option grants to employees and members of the Board of Directors during 2019 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
March 2019
|
|
April 2019
|
|
June 2019
|
Expected volatility
|
|
89%
|
|
94%
|
|
96%
|
Risk free interest rate
|
|
2.53%
|
|
2.28%
|
|
1.85%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected life (in years)
|
|
5
|
|
5
|
|
5
|
The weighted average fair value of stock options granted during the
six
months ended
June 30, 2019
, was $
2.21
.
The total intrinsic value of all options outstanding was
$303,780
and
$0
at
June 30, 2019
, and
December 31, 2018
, respectively. The total intrinsic value of exercisable options was
$139,305
and
$0
at
June 30, 2019
, and
December 31, 2018
, respectively.
The following table summarizes information about options outstanding and exercisable at
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
482,367
|
|
|
7.9
|
|
291,229
|
|
|
|
$6.90 - $9.60
|
|
52,841
|
|
|
3.2
|
|
52,841
|
|
|
|
$10.50 - $10.80
|
|
4,000
|
|
|
4.6
|
|
4,000
|
|
|
|
$14.20 - $23.40
|
|
78,588
|
|
|
6.7
|
|
72,889
|
|
|
|
|
|
617,796
|
|
|
|
|
420,959
|
|
|
$5.97
|
Total share-based compensation on stock options amounted to
$272,401
and
$106,425
for the
six
months ended
June 30, 2019
and
2018
, respectively. At
June 30, 2019
, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was
$331,829
. The period over which the unearned share-based compensation is expected to be earned is approximately
1.0
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 as of and for the year ended December 31, 2018.
11. Related Party Collaboration Agreement
In February 2013, the Company entered into an Exclusive Channel Collaboration agreement (“ECC”) with Intrexon pursuant to which the Company will use Intrexon’s UltraVector and other technology platforms 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
six
months ended
June 30, 2019
and
2018
, amounted to
$15,734
and
$136,041
, 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
June 30, 2019
and
2018
, service costs incurred amounted to
$4,924
and
$44,893
, respectively. Included in accounts payable and accrued liabilities at
June 30, 2019
, and
December 31, 2018
, are amounts due to Intrexon under the ECC totaling
$2,594
and
$800
, respectively.
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 and our Annual Report on Form 10‑K for the year ended December 31, 2018, 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.
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, 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.
Revenue
We 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 our grow-out farms in Indiana and Rollo Bay are in full production, which is expected in mid-2020.
In the future, we believe that our revenue will depend upon the number of countries in which we have received regulatory approval for the sale of our products, the number and capacity of grow-out farms we have in operation, and the market acceptance we achieve.
Cost of Products
Cost of products includes 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. As of June 30, 2019, we had 21 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
June 30, 2019
, we had two employees dedicated to sales and marketing.
Research and Development Expenses
As of
June 30, 2019
, we employed twenty-eight scientists and technicians at our facilities on Prince Edward Island to oversee our broodstock of AquAdvantage Salmon, as well as the lines of fish we maintain for research and development purposes. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
|
|
•
|
salaries and related overhead expenses for personnel in research, development functions, and 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, 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. We had eleven employees in our general and administrative group at
June 30, 2019
.
Other Income (Expense)
Interest expense includes the interest on our outstanding loans. Other income (expense) includes bank charges, fees, gain on disposal of equipment, and interest income.
Results of Operations
Comparison of the three months ended
June 30, 2019
, to the three months ended
June 30, 2018
.
The following table summarizes our results of operations for the three months ended
June 30, 2019
and 2018, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Dollar
Change
|
|
%
Change
|
|
|
2019
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
Product revenue
|
|
$
|
42
|
|
|
$
|
48
|
|
|
$
|
(6
|
)
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Product costs
|
|
39
|
|
|
47
|
|
|
(8
|
)
|
|
(17
|
)%
|
Sales and marketing
|
|
103
|
|
|
76
|
|
|
27
|
|
|
36
|
%
|
Research and development
|
|
814
|
|
|
881
|
|
|
(67
|
)
|
|
(8
|
)%
|
General and administrative
|
|
3,106
|
|
|
1,828
|
|
|
1,278
|
|
|
70
|
%
|
Operating loss
|
|
4,020
|
|
|
2,784
|
|
|
1,236
|
|
|
44
|
%
|
Total other (income) expense
|
|
7
|
|
|
(3
|
)
|
|
10
|
|
|
(333
|
)%
|
Net loss
|
|
$
|
4,027
|
|
|
$
|
2,781
|
|
|
$
|
1,246
|
|
|
45
|
%
|
Product Revenue and Product Cost
Product revenue for the three months ended
June 30, 2019
, consisted primarily of sales of AquAdvantage Salmon and conventional Atlantic salmon and byproducts. We expect that our sales will be modest and infrequent until our grow-out farms in Indiana and Rollo Bay commence harvesting in mid-2020.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended
June 30, 2019
, were up from the corresponding period in 2018 due to increased personnel and consulting expenses, offset by lower travel costs. We expect that our sales and marketing expenses will increase as we increase our production at our farm sites.
Research and Development Expenses
Research and development expenses for the three months ended
June 30, 2019
, were down from the corresponding period in 2018 due to lower outside contract service and field trial costs, offset by increased personnel. We expect that our research and development expenses will increase as we expand our broodstock capacity and continue to pursue regulatory approval for additional products and additional markets.
General and Administrative Expenses
General and administrative expenses for the three months ended
June 30, 2019
, were up significantly from the corresponding period in 2018 due to increases in personnel costs, stock compensation charges related to the hiring of our new CEO and the retirement of our previous CEO, regulatory legal fees, travel costs, and excess capacity charges at the Indiana farm as it continues its start-up.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, a gain on disposal of equipment, and interest income for the three months ended
June 30, 2019
and 2018.
Comparison of the
six
months ended
June 30, 2019
, to the six months ended
June 30, 2018
.
The following table summarizes our results of operations for the
six
months ended
June 30, 2019
and 2018, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
Dollar
Change
|
|
%
Change
|
|
|
2019
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
Product revenue
|
|
$
|
140
|
|
|
$
|
67
|
|
|
$
|
73
|
|
|
109
|
%
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Product costs
|
|
121
|
|
|
64
|
|
|
57
|
|
|
89
|
%
|
Sales and marketing
|
|
175
|
|
|
158
|
|
|
17
|
|
|
11
|
%
|
Research and development
|
|
1,477
|
|
|
1,859
|
|
|
(382
|
)
|
|
(21
|
)%
|
General and administrative
|
|
5,143
|
|
|
3,214
|
|
|
1,929
|
|
|
60
|
%
|
Operating loss
|
|
6,776
|
|
|
5,228
|
|
|
1,548
|
|
|
30
|
%
|
Total other (income) expense
|
|
15
|
|
|
3
|
|
|
12
|
|
|
400
|
%
|
Net loss
|
|
$
|
6,791
|
|
|
$
|
5,231
|
|
|
$
|
1,560
|
|
|
30
|
%
|
Product Revenue and Product Cost
Product revenue for the
six
months ended
June 30, 2019
, consisted primarily of sales of AquAdvantage Salmon and conventional Atlantic salmon eggs and byproducts. We expect that our sales will be modest and infrequent until our grow-out farms in Indiana and Rollo Bay commence harvesting in mid-2020.
Sales and Marketing Expenses
Sales and marketing expenses for the
six
months ended
June 30, 2019
, were up from the corresponding period in 2018 due to increased personnel and consulting expenses, offset by lower travel costs. We expect that our sales and marketing expenses will increase as we increase our production at our farm sites.
Research and Development Expenses
Research and development expenses for the
six
months ended
June 30, 2019
, were down from the corresponding period in 2018 due to lower outside contract service and field trial costs, offset by increased personnel costs. We expect that our research and development expenses will increase as we expand our broodstock capacity and continue to pursue regulatory approval for additional products and additional markets.
General and Administrative Expenses
General and administrative expenses for the
six
months ended
June 30, 2019
, were up significantly from the corresponding period in 2018 due to increases in personnel costs, stock compensation charges related to the hiring of our new CEO and the retirement of our previous CEO, regulatory legal fees, travel costs, and excess capacity charges at the Indiana farm as it continues its start-up.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, and interest income for the
six
months ended
June 30, 2019
. Total other (income) expense is comprised of interest on debt, bank charges, a gain on disposal of equipment, and interest income for the
six
months ended
June 30, 2018
.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
(unaudited)
|
Net cash provided by (used in):
|
|
|
|
Operating activities
|
$
|
(5,206
|
)
|
|
$
|
(5,334
|
)
|
Investing activities
|
(917
|
)
|
|
(3,018
|
)
|
Financing activities
|
13,519
|
|
|
11,399
|
|
Effect of exchange rate changes on cash
|
15
|
|
|
(21
|
)
|
Net increase (decrease) in cash
|
$
|
7,411
|
|
|
$
|
3,026
|
|
Cash Flows from Operating Activities
Net cash used in operating activities during the
six
months ended
June 30, 2019
, was primarily comprised of our $6.8 million net loss, offset by non-cash depreciation and stock compensation charges of $1.0 million, and by working capital sources of $560 thousand. Net cash used in operating activities during the
six
months ended
June 30, 2018
, was primarily comprised of our $5.2 million net loss, offset by non-cash depreciation and stock compensation charges of $382 thousand, and increased by working capital uses of $485 thousand.
Spending on operations increased during the current period due to headcount additions; legal, tax, and travel cost increases; and production activities at our Rollo Bay and Indiana farm sites. The increase in cash provided by working capital in the current period was due primarily to an increase in accounts payable and accrued liabilities and a decrease in receivables, offset by an increase in inventory and prepaid items.
Cash Flows from Investing Activities
During the
six
months ended
June 30, 2019
, we used $926 thousand for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $9 thousand in proceeds from the sale of equipment. During the same period in 2018, we used $3.0 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, offset by $22 thousand in proceeds from the sale of equipment.
Cash Flows from Financing Activities
During the
six
months ended
June 30, 2019
, we received approximately $12.4 million in net proceeds from the issuance of Common Shares in a public offering and $250 thousand from the exercise of warrants. In addition, we received $901 thousand in proceeds from issuance of debt. This was offset by $28 thousand in the repayment of debt. During the same period in 2018, we received approximately $10.6 million in net proceeds from the issuance of Common Shares and warrants in a public offering and $812 thousand from the exercise of warrants. This was offset by $29 thousand in the repayment of debt.
Future Capital Requirements
In the Company’s Annual Report on Form 10‑K for December 31, 2018, management stated that there was substantial doubt about the Company’s ability to continue as a going concern due to its limited capital resources, and the Company’s independent registered public accounting firm emphasized this matter in its report to the shareholders and the Board of Directors. At that time, management prepared a plan to mitigate this doubt, which was implemented during the current period.
Through public offerings of our Common Shares on March 21, 2019, April 5, 2019, and April 17, 2019, the exercise of warrants to purchase our Common Shares, and draw-downs from debt funding sources, we have received net proceeds of $13.5 million from debt and equity sources since December 31, 2018. As of June 30, 2019, we had a cash balance of $10.4 million. We intend to devote a significant portion of our current cash balance to fund working capital costs associated with growing the first batches of fish at our Indiana and Rollo Bay farm sites and other general corporate purposes. We have evaluated our cash resources in view of our planned spending for ongoing operations, capital expenditures, and working capital for the next twelve months from the filing date and have determined that, while our current funds are sufficient for our cash requirements during that period, we anticipate the need to raise additional capital to fund our subsequent cash requirements and any additional projects. Accordingly, we plan to seek additional financing in the form of equity or debt, partnerships or other non-dilutive transactions to fund our cash requirements and any additional projects.
We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
|
|
•
|
the timing of additional regulatory approvals and permits for AquAdvantage Salmon, if any;
|
|
|
•
|
the cost to complete construction activities at our Rollo Bay site;
|
|
|
•
|
the cost to raise fish at our Indiana and Rollo Bay sites; and
|
|
|
•
|
the timing of costs related to the FDA legal challenge (see “Legal Proceedings,” below).
|
Until such time, if ever, as we can generate positive operating cash flows, we may finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of holders of our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If
we raise additional funds through government or other third-party funding; marketing and distribution arrangements; or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or to grant licenses on terms that may not be favorable to us.
Management’s assessment is based primarily on its ability and past experience in managing expenditures in order to conserve the Company’s cash. Management has the ability to reduce expenditures and slow down or delay capital spending in order to ensure its cash will extend through the next twelve months.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following sections provide quantitative information on our exposure to interest rate risk and foreign currency exchange risk. We make use of sensitivity analyses, which are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.
Interest Rate Risk
Our primary exposure to market risk is interest rate risk associated with debt financing that we utilize from time to time to fund operations or specific projects. The interest on this debt is usually determined based on a fixed rate and is contractually set in advance. At
June 30, 2019
, and December 31, 2018, we had $1.8 million and $1.2 million, respectively, in interest-bearing debt instruments on our consolidated balance sheet. All of our interest-bearing debt is at fixed rates.
Foreign Currency Exchange Risk
Our functional currency is the U.S. Dollar. The functional currency of our Canadian subsidiary is the Canadian Dollar, and the functional currency of our Panama, U.S., and Brazil subsidiaries is the U.S. Dollar. For the Canadian Subsidiary, assets and liabilities are translated at the exchange rates in effect at the balance sheet date, equity accounts are translated at the historical exchange rate, and the income statement accounts are translated at the average rate for each period during the year. Net translation gains or losses are adjusted directly to a separate component of other comprehensive loss within shareholders’ equity (deficit).
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the period covered by this Form 10‑Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended
June 30, 2019
, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(g) and 15d‑15(f)) that occurred during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.