Item 1. Financial Statements
AquaBounty Technologies, Inc.
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,749,746
|
|
|
$
|
2,798,744
|
|
Other receivables
|
|
82,873
|
|
|
55,198
|
|
Inventory
|
|
1,833,957
|
|
|
1,232,049
|
|
Prepaid expenses and other current assets
|
|
364,700
|
|
|
391,162
|
|
Total current assets
|
|
17,031,276
|
|
|
4,477,153
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
23,708,229
|
|
|
25,065,836
|
|
Right of use assets, net
|
|
385,519
|
|
|
399,477
|
|
Definite-lived intangible assets, net
|
|
154,162
|
|
|
157,588
|
|
Indefinite-lived intangible assets
|
|
101,661
|
|
|
101,661
|
|
Other assets
|
|
33,331
|
|
|
32,024
|
|
Total assets
|
|
$
|
41,414,178
|
|
|
$
|
30,233,739
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,834,685
|
|
|
$
|
1,462,809
|
|
Other current liabilities
|
|
62,939
|
|
|
62,286
|
|
Current debt
|
|
150,730
|
|
|
163,155
|
|
Total current liabilities
|
|
2,048,354
|
|
|
1,688,250
|
|
|
|
|
|
|
Long-term lease obligations
|
|
336,997
|
|
|
352,808
|
|
Long-term debt
|
|
4,032,744
|
|
|
4,432,052
|
|
Total liabilities
|
|
6,418,095
|
|
|
6,473,110
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock, $0.001 par value, 50,000,000 shares authorized;
|
|
|
|
|
32,085,684 (2019: 21,635,365) shares outstanding
|
|
32,086
|
|
|
21,635
|
|
Additional paid-in capital
|
|
170,957,969
|
|
|
156,241,363
|
|
Accumulated other comprehensive loss
|
|
(742,145
|
)
|
|
(360,160
|
)
|
Accumulated deficit
|
|
(135,251,827
|
)
|
|
(132,142,209
|
)
|
Total stockholders’ equity
|
|
34,996,083
|
|
|
23,760,629
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
41,414,178
|
|
|
$
|
30,233,739
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Revenues
|
|
|
|
|
Product revenues
|
|
$
|
6,753
|
|
|
$
|
97,885
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
Production costs
|
|
841,434
|
|
|
862,255
|
|
Sales and marketing
|
|
50,788
|
|
|
71,991
|
|
Research and development
|
|
568,762
|
|
|
663,481
|
|
General and administrative
|
|
1,637,190
|
|
|
1,255,851
|
|
Total costs and expenses
|
|
3,098,174
|
|
|
2,853,578
|
|
|
|
|
|
|
Operating loss
|
|
(3,091,421
|
)
|
|
(2,755,693
|
)
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
Interest expense
|
|
(17,045
|
)
|
|
(13,338
|
)
|
Other income (expense), net
|
|
(1,152
|
)
|
|
5,100
|
|
Total other income (expense)
|
|
(18,197
|
)
|
|
(8,238
|
)
|
|
|
|
|
|
Net loss
|
|
$
|
(3,109,618
|
)
|
|
$
|
(2,763,931
|
)
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
(381,985
|
)
|
|
87,551
|
|
Total other comprehensive income (loss)
|
|
(381,985
|
)
|
|
87,551
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(3,491,603
|
)
|
|
$
|
(2,676,380
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.18
|
)
|
Weighted average number of common shares -
|
|
|
|
|
basic and diluted
|
|
27,116,754
|
|
|
15,687,681
|
|
|
|
|
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and outstanding
|
|
Par value
|
|
Additional paid-in capital
|
|
Accumulated other comprehensive loss
|
|
Accumulated deficit
|
|
Total
|
Balance at December 31, 2018
|
|
15,098,837
|
|
|
$
|
15,099
|
|
|
$
|
142,707,957
|
|
|
$
|
(574,186
|
)
|
|
$
|
(118,914,567
|
)
|
|
$
|
23,234,303
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(2,763,931
|
)
|
|
(2,763,931
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
87,551
|
|
|
|
|
87,551
|
|
Issuance of common stock, net
|
|
3,345,282
|
|
|
3345
|
|
|
6,606,310
|
|
|
|
|
|
|
6,609,655
|
|
Exercise of warrants
|
|
76,797
|
|
|
77
|
|
|
250,347
|
|
|
|
|
|
|
250,424
|
|
Share based compensation
|
|
176,561
|
|
|
176
|
|
|
138,322
|
|
|
|
|
|
|
138,498
|
|
Balance at March 31, 2019
|
|
18,697,477
|
|
|
$
|
18,697
|
|
|
$
|
149,702,936
|
|
|
$
|
(486,635
|
)
|
|
$
|
(121,678,498
|
)
|
|
$
|
27,556,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and outstanding
|
|
Par value
|
|
Additional paid-in capital
|
|
Accumulated other comprehensive loss
|
|
Accumulated deficit
|
|
Total
|
Balance at December 31, 2019
|
|
21,635,365
|
|
|
$
|
21,635
|
|
|
$
|
156,241,363
|
|
|
$
|
(360,160
|
)
|
|
$
|
(132,142,209
|
)
|
|
$
|
23,760,629
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(3,109,618
|
)
|
|
(3,109,618
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
(381,985
|
)
|
|
|
|
(381,985
|
)
|
Issuance of common stock, net
|
|
10,350,000
|
|
|
10350
|
|
|
14,511,354
|
|
|
|
|
|
|
14,521,704
|
|
Share based compensation
|
|
100,319
|
|
|
101
|
|
|
205,252
|
|
|
|
|
|
|
205,353
|
|
Balance at March 31, 2020
|
|
32,085,684
|
|
|
$
|
32,086
|
|
|
$
|
170,957,969
|
|
|
$
|
(742,145
|
)
|
|
$
|
(135,251,827
|
)
|
|
$
|
34,996,083
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Operating activities
|
|
|
|
|
Net loss
|
|
$
|
(3,109,618
|
)
|
|
$
|
(2,763,931
|
)
|
Adjustment to reconcile net loss to net cash used in
|
|
|
|
|
operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
347,859
|
|
|
285,308
|
|
Share-based compensation
|
|
205,353
|
|
|
138,498
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Other receivables
|
|
(33,978
|
)
|
|
(18,410
|
)
|
Inventory
|
|
(610,200
|
)
|
|
(83,158
|
)
|
Prepaid expenses and other assets
|
|
(73,944
|
)
|
|
55,504
|
|
Accounts payable and accrued liabilities
|
|
339,818
|
|
|
253,509
|
|
Net cash used in operating activities
|
|
(2,934,710
|
)
|
|
(2,132,680
|
)
|
|
|
|
|
|
Investing activities
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(691,351
|
)
|
|
(456,436
|
)
|
Proceeds from sale of asset held for sale
|
|
98,000
|
|
|
—
|
|
Proceeds from legal settlement, net
|
|
1,014,008
|
|
|
—
|
|
Other investing activities
|
|
(1,307
|
)
|
|
13
|
|
Net cash provided by (used in) investing activities
|
|
419,350
|
|
|
(456,423
|
)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Proceeds from issuance of debt
|
|
—
|
|
|
376,117
|
|
Repayment of term debt
|
|
(39,391
|
)
|
|
(9,619
|
)
|
Proceeds from the issuance of common stock, net
|
|
14,521,704
|
|
|
6,609,655
|
|
Proceeds from the exercise of stock options and warrants, net
|
|
—
|
|
|
250,424
|
|
Net cash provided by financing activities
|
|
14,482,313
|
|
|
7,226,577
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(15,951
|
)
|
|
2,951
|
|
Net change in cash and cash equivalents
|
|
11,951,002
|
|
|
4,640,425
|
|
Cash and cash equivalents at beginning of period
|
|
2,798,744
|
|
|
3,002,557
|
|
Cash and cash equivalents at the end of period
|
|
$
|
14,749,746
|
|
|
$
|
7,642,982
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information and
|
|
|
|
|
non-cash transactions:
|
|
|
|
|
Interest paid in cash
|
|
$
|
17,045
|
|
|
$
|
13,338
|
|
Property and equipment included in accounts payable and accrued liabilities
|
|
$
|
257,884
|
|
|
$
|
79,193
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Notes to the consolidated financial statements
For the three months ended March 31, 2020 and 2019 (unaudited)
1. Nature of business and organization
AquaBounty Technologies, Inc. (the “Parent” and, together with its subsidiaries, the “Company”) was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of farm‑raised Atlantic salmon that exhibit growth rates that are substantially faster than traditional salmon.
In 2015, the Parent obtained approval from the US Food and Drug Administration (the “FDA”) for the production, sale, and consumption of its AquAdvantage 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. The entities are collectively referred to herein as the “Company.” All 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, 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 March 31, 2020, and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The unaudited interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements, as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.
Certain balances in the 2019 Financial Statements have been reclassified to conform with the presentation of the 2020 unaudited interim consolidated financial statements.
Liquidity Matters
The Company has experienced net losses and negative cash flows from operations since its inception and has cumulative losses attributable to common stockholders of $135 million as of March 31, 2020. At March 31, 2020, the Company’s cash balance totaled $14.7 million. Management has evaluated its cash resources in view of its planned spending for on-going operations, capital expenditures, and working capital and believes that its cash resources will meet the Company’s cash requirements for at least the next twelve months from the filing date, taking into consideration the foreseeable financial impact of delays or other events associated with the COVID-19 virus pandemic. Until such time, if ever, as the Company can generate positive operating cash flows, it may finance its cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. The current COVID-19 pandemic has introduced uncertainty into the financial markets and, as a result, future funding sources may be more difficult to obtain, if at all.
Net loss per share
Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss by the weighted average number of common shares outstanding during the 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 potentially issuable upon the exercise of warrants and options with an exercise price less than the fair value of the common stock. Since the Company is reporting a net loss for all periods presented, all potential common shares are considered anti‑dilutive and are excluded from the calculation of diluted net loss per share.
Accounting Pronouncements
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 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 continues to monitor the broader environment for potential impacts to its commercial plans, including those in the supply chain and the transportation industry.
Concentration of credit risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. This risk is minimized by the Company’s policy of investing in financial instruments with short-term maturities issued by highly rated financial institutions. The Company’s cash balances may at times exceed insurance limitations. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign currency exchange risk, which is mitigated by the Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled $240 thousand at March 31, 2020.
4. Inventory
Major classifications of inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Feed
|
|
$
|
250,459
|
|
|
$
|
251,778
|
|
Eggs
|
|
52,920
|
|
|
55,887
|
|
Fish in process
|
|
1,530,578
|
|
|
924,384
|
|
Total inventory
|
|
$
|
1,833,957
|
|
|
$
|
1,232,049
|
|
5. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Land
|
|
$
|
695,070
|
|
|
$
|
718,586
|
|
Building and improvements
|
|
13,189,326
|
|
|
13,297,489
|
|
Construction in process
|
|
2,143,920
|
|
|
2,105,873
|
|
Equipment
|
|
11,192,849
|
|
|
12,275,619
|
|
Office furniture and equipment
|
|
198,838
|
|
|
201,813
|
|
Vehicles
|
|
25,807
|
|
|
28,097
|
|
Total property and equipment
|
|
$
|
27,445,810
|
|
|
$
|
28,627,477
|
|
Less accumulated depreciation and amortization
|
|
(3,737,581
|
)
|
|
(3,561,641
|
)
|
Property, plant and equipment, net
|
|
$
|
23,708,229
|
|
|
$
|
25,065,836
|
|
Included in construction in process is $1.7 million for construction related to the Rollo Bay farm site. An additional $236 thousand 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 the carrying value to fair value less estimated selling costs. During the first quarter of 2020, the equipment was sold, resulting in proceeds of $98,000. No gain or loss was recognized upon the sales 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 is being recalculated prospectively over their remaining useful lives.
6. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Accounts payable
|
|
$
|
1,233,052
|
|
|
$
|
809,444
|
|
Accrued payroll including vacation
|
|
365,564
|
|
|
236,489
|
|
Accrued professional fees and contract services
|
|
196,098
|
|
|
346,349
|
|
Accrued construction costs
|
|
20,946
|
|
|
—
|
|
Accrued taxes and other
|
|
19,025
|
|
|
70,527
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,834,685
|
|
|
$
|
1,462,809
|
|
7. Debt
The current material terms and conditions of debt outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original loan amount
|
|
Interest
rate
|
|
Monthly
repayment
|
|
Maturity
date
|
|
March 31, 2020
|
|
December 31, 2019
|
ACOA AIF grant (C$2,871,919)
|
|
0%
|
|
Royalties
|
|
-
|
|
$
|
2,026,426
|
|
|
$
|
2,206,208
|
|
ACOA term loan (C$337,000)
|
|
0%
|
|
C$3,120
|
|
June 2026
|
|
162,937
|
|
|
184,583
|
|
ACOA term loan (C$500,000)
|
|
0%
|
|
C$4,630
|
|
November 2028
|
|
342,999
|
|
|
384,100
|
|
Kubota Canada Ltd. (C$95,961)
|
|
0%
|
|
C$1,142
|
|
January 2025
|
|
46,752
|
|
|
53,533
|
|
Finance PEI term loan (C$2,717,093)
|
|
4%
|
|
C$16,313
|
|
November 2023
|
|
1,604,360
|
|
|
1,766,783
|
|
Total debt
|
|
|
|
|
|
|
|
$
|
4,183,474
|
|
|
$
|
4,595,207
|
|
less: current portion
|
|
|
|
|
|
|
|
(150,730
|
)
|
|
(163,155
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
$
|
4,032,744
|
|
|
$
|
4,432,052
|
|
Estimated principal payments remaining on loan debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
AIF
|
|
ACOA
|
|
FPEI
|
|
Kubota
|
|
Total
|
2020
|
|
$
|
—
|
|
|
$
|
49,215
|
|
|
$
|
56,116
|
|
|
$
|
7,255
|
|
|
$
|
112,586
|
|
2021
|
|
—
|
|
|
65,621
|
|
|
77,609
|
|
|
9,673
|
|
|
152,903
|
|
2022
|
|
—
|
|
|
65,621
|
|
|
80,771
|
|
|
9,673
|
|
|
156,065
|
|
2023
|
|
—
|
|
|
65,621
|
|
|
1,389,864
|
|
|
9,673
|
|
|
1,465,158
|
|
2024
|
|
—
|
|
|
65,621
|
|
|
—
|
|
|
9,673
|
|
|
75,294
|
|
Thereafter
|
|
2,026,426
|
|
|
194,237
|
|
|
—
|
|
|
805
|
|
|
2,221,468
|
|
Total
|
|
$
|
2,026,426
|
|
|
$
|
505,936
|
|
|
$
|
1,604,360
|
|
|
$
|
46,752
|
|
|
$
|
4,183,474
|
|
In response to the COVID-19 pandemic, the Company was informed by Atlantic Canada Opportunities Agency on March 19, 2020, that all payments to the government would be deferred for three months, commencing April 1, 2020.
The Company recognized interest expense of $17 thousand and $12 thousand for the three months ended March 31, 2020 and 2019, respectively, on its interest-bearing debt.
8. Leases
Lease expense for the three months ended March 31, 2020 and 2019, amounted to $20 thousand and $65 thousand, respectively. The weighted average remaining lease term of the Company’s operating leases was 22.9 years as of March 31, 2020. Lease payments included in operating cash flows totaled $21 thousand and $66 thousand for the three months ended March 31, 2020 and 2019, respectively.
The table below summarizes the Company’s lease obligations and remaining payments at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Lease Type
|
End Date
|
Remaining Years
|
Remaining Payments
|
Lease Liability
|
|
Remaining Payments
|
Lease Liability
|
Maynard Office Lease
|
Operating
|
Mar 2023
|
3.0
|
$
|
199,545
|
|
$
|
173,646
|
|
|
$
|
215,556
|
|
$
|
186,323
|
|
Indiana Auto Lease
|
Operating
|
Feb 2021
|
0.9
|
4,789
|
|
4,389
|
|
|
5,999
|
|
5,533
|
|
Indiana Well Lease
|
Operating
|
Dec 2048
|
28.8
|
698,458
|
|
221,901
|
|
|
702,341
|
|
223,238
|
|
Total leases
|
|
|
|
$
|
902,792
|
|
$
|
399,936
|
|
|
$
|
923,896
|
|
$
|
415,094
|
|
Less: current portion
|
|
|
|
(85,519
|
)
|
(62,939
|
)
|
|
(85,011
|
)
|
(62,286
|
)
|
Long-term leases
|
|
|
|
$
|
817,273
|
|
$
|
336,997
|
|
|
$
|
838,885
|
|
$
|
352,808
|
|
Remaining payments under leases are as follows at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Office
|
Auto
|
Well
|
Amount
|
2020
|
|
$
|
48,626
|
|
$
|
3,632
|
|
$
|
11,649
|
|
$
|
63,907
|
|
2021
|
|
66,416
|
|
1,157
|
|
15,998
|
|
83,571
|
|
2022
|
|
67,602
|
|
—
|
|
16,478
|
|
84,080
|
|
2023
|
|
16,901
|
|
—
|
|
16,972
|
|
33,873
|
|
2024
|
|
—
|
|
—
|
|
17,481
|
|
17,481
|
|
Thereafter
|
|
—
|
|
—
|
|
619,880
|
|
619,880
|
|
Total Lease Payments
|
|
$
|
199,545
|
|
$
|
4,789
|
|
$
|
698,458
|
|
$
|
902,792
|
|
9. Stockholders’ equity
Recent issuances
On February 12, 2020, the Company completed a public offering of 10,350,000 Common Shares. Net proceeds to the Company were $14.5 million after deducting discounts, fees, and expenses.
Warrants
The following table summarizes information about outstanding warrants at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Number of
warrant shares
|
|
Weighted
average
exercise price
|
Outstanding at December 31, 2019
|
|
1,662,304
|
|
|
|
$3.25
|
|
Outstanding at March 31, 2020
|
|
1,662,304
|
|
|
|
$3.25
|
|
Exercisable at March 31, 2020
|
|
1,662,304
|
|
|
|
$3.25
|
|
Share-based compensation
Restricted stock
A summary of the Company’s shares of restricted stock as of March 31, 2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
average grant
date fair value
|
Balance at December 31, 2019
|
|
39,900
|
|
|
|
$3.51
|
|
Granted
|
|
100,319
|
|
|
1.88
|
|
Vested
|
|
(40,626
|
)
|
|
2.01
|
|
Balance at March 31, 2020
|
|
99,593
|
|
|
|
$2.00
|
|
During the three months ended March 31, 2020 and 2019, the Company expensed $84 thousand and $91 thousand, respectively, related to the restricted stock awards. At March 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $196 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 3.0 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
|
|
98,458
|
|
|
1.97
|
|
Expired
|
|
(14,835
|
)
|
|
11.62
|
|
Outstanding at March 31, 2020
|
|
657,548
|
|
|
|
$4.35
|
|
Exercisable at March 31, 2020
|
|
524,398
|
|
|
|
$4.93
|
|
Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested over one to three years and are exercisable for a term of ten years from the date of issuance.
The fair values of stock option grants to employees and members of the Board of Directors during 2020 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:
|
|
|
|
|
|
|
|
March 2020
|
|
January 2020
|
Expected volatility
|
|
102%
|
|
101%
|
Risk free interest rate
|
|
0.66%
|
|
1.67%
|
Expected dividend yield
|
|
0%
|
|
0%
|
Expected life (in years)
|
|
5
|
|
5
|
The weighted average fair value of stock options granted during the three months ended March 31, 2020, was $1.48.
The total intrinsic value of all options outstanding was $0 and $1 thousand at March 31, 2020, and December 31, 2019, respectively. The total intrinsic value of exercisable options was $0 at March 31, 2020, and December 31, 2019, respectively.
The following table summarizes information about options outstanding and exercisable at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price of outstanding options
|
|
Number of options outstanding
|
|
Weighted average remaining estimated life (in years)
|
|
Number of options exercisable
|
|
Weighted average exercise price of outstanding and exercisable options
|
$1.88 - $2.50
|
|
525,519
|
|
|
9.0
|
|
392,369
|
|
|
|
$3.30 - $6.90
|
|
37,139
|
|
|
2.3
|
|
37,139
|
|
|
|
$7.50 - $10.80
|
|
21,303
|
|
|
4.1
|
|
21,303
|
|
|
|
$14.20 - $23.40
|
|
73,587
|
|
|
6.1
|
|
73,587
|
|
|
|
|
|
657,548
|
|
|
|
|
524,398
|
|
|
$4.93
|
Total share-based compensation on stock options amounted to $121 thousand and $48 thousand for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was $204 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 3.0 years.
10. Commitments and contingencies
The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
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, 2019.
11. Subsequent Events
In 2018, the Canadian Subsidiary obtained a new loan from Finance PEI in the amount of C$2.0 million ($1.5 million). 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 April 23, 2020, the Canadian Subsidiary received the final C$300 thousand ($212 thousand) of funds available under the loan.
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, 2019, which was filed on March 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, 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.
Recent Developments
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, SARS-CoV-2, as a pandemic, which continues to spread throughout the United States and worldwide. Because infections of this virus and incidences of the disease it causes, COVID-19, have been 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 virus pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 virus outbreak, new information which may emerge concerning the severity of the COVID-19 virus pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in an extended period of continued business disruption and reduced operations. Our current preventative and protective measures include, but are not limited to, segregating farm workers to specific locations, rotating shifts, and monitoring worker temperatures upon arrival at our facilities. To the extent possible, work-from-home is utilized for employees that do not have fish care responsibilities. Any resulting financial impact cannot be reasonably estimated at this time but may have a material adverse impact on our business, financial condition, and results of operations.
We remain focused on maintaining a strong balance sheet, liquidity, and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective relating to the COVID-19 virus. Management expects that all of its operations, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 virus outbreak on our business and the duration for which it may have an impact cannot be determined at this time.
Revenue
We generate product revenue 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 Indiana and Rollo Bay farm sites commence harvesting our fish in June and December of 2020, respectively.
In the future, we believe that our revenue will depend upon the number of countries in which we have received regulatory approval for the sale of our products, the number and capacity of grow-out farms we have in operation, and the market acceptance we achieve.
Production Costs
Production costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs; an application of overhead; and the cost to process and ship our products to customers. A portion of production costs are absorbed into inventory as fish in process to the extent that these costs do not exceed the net realizable value of the fish in process. As our farms in Indiana and Rollo Bay ramp up their production activity, the costs that are not absorbed into inventory are classified as other production costs. As of March 31, 2020, we had thirty-seven employees engaged in production activities.
Sales and Marketing Expenses
Our sales and marketing expenses currently include consulting fees for market-related activities. As of March 31, 2020, we had no employees dedicated to sales and marketing.
Research and Development Expenses
As of March 31, 2020, we employed eighteen scientists and technicians at our facilities on Prince Edward Island to oversee our broodstock of AquAdvantage Salmon, as well as the lines of fish we maintain for research and development purposes. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
|
|
•
|
salaries and related overhead expenses for personnel in research, development functions, and brood-stock husbandry;
|
|
|
•
|
fees paid to contract research organizations 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 company costs, regulatory compliance, rent and utilities, insurance, and legal service. We had thirteen employees in our general and administrative group at March 31, 2020.
Other Income (Expense)
Interest expense includes the interest on our outstanding loans. Other income (expense) includes bank charges, fees, interest income, and miscellaneous gains or losses on asset disposals.
Results of Operations
Comparison of the three months ended March 31, 2020, to the three months ended March 31, 2019.
The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months End March 31,
|
|
Dollar
Change
|
|
%
Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(unaudited)
|
|
|
|
|
Product revenue
|
|
$
|
7
|
|
|
$
|
98
|
|
|
$
|
(91
|
)
|
|
(93
|
)%
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Production costs
|
|
841
|
|
|
862
|
|
|
(21
|
)
|
|
(2
|
)%
|
Sales and marketing
|
|
51
|
|
|
72
|
|
|
(21
|
)
|
|
(29
|
)%
|
Research and development
|
|
569
|
|
|
664
|
|
|
(95
|
)
|
|
(14
|
)%
|
General and administrative
|
|
1,637
|
|
|
1,256
|
|
|
381
|
|
|
30
|
%
|
Operating loss
|
|
3,091
|
|
|
2,756
|
|
|
335
|
|
|
12
|
%
|
Total other (income) expense
|
|
18
|
|
|
8
|
|
|
10
|
|
|
125
|
%
|
Net loss
|
|
$
|
3,109
|
|
|
$
|
2,764
|
|
|
$
|
345
|
|
|
12
|
%
|
Product Revenue
Product revenue for the three months ended March 31, 2020 consisted primarily of conventional Atlantic salmon fry. Sales of our fish are anticipated to commence from our Indiana and Rollo Bay farm sites in June and December of 2020, respectively,
Production Costs
Production costs for the three months ended March 31, 2020, were down from the corresponding period in 2019, due to lower cost related to product revenue, offset by production cost increases related to increasing fish biomass at the Indiana and Rollo Bay farms as they continue their ramp-up.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended March 31, 2020, were down from the corresponding period in 2019 due to a decrease in personnel, offset by an increase in charges related to the commencement of marketing activities for our salmon. We expect that our sales and marketing expenses will increase as we commence sales of our fish.
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2020, were down from the corresponding period in 2019 due to lower field trial costs, primarily related to the closing of our demonstration farm in Panama, offset by an increase in outside contract service fees. We expect that our research and development expenses will increase as we expand our broodstock capacity, commence new field trials, and continue to pursue regulatory approval for additional products and additional markets.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2020, were up significantly from the corresponding period in 2019 due to increases in personnel and associated compensation, stock compensation charges, outside consulting fees, and regulatory legal fees associated with the FDA legal challenge.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, and interest income for the three months ended March 31, 2020 and 2019.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(unaudited)
|
Net cash provided by (used in):
|
|
|
|
Operating activities
|
$
|
(2,935
|
)
|
|
$
|
(2,133
|
)
|
Investing activities
|
420
|
|
|
(456
|
)
|
Financing activities
|
14,482
|
|
|
7,226
|
|
Effect of exchange rate changes on cash
|
(16
|
)
|
|
3
|
|
Net increase (decrease) in cash
|
$
|
11,951
|
|
|
$
|
4,640
|
|
Cash Flows from Operating Activities
Net cash used in operating activities during the three months ended March 31, 2020, was primarily comprised of our $3.1 million net loss, offset by non-cash depreciation and stock compensation charges of $553 thousand, and increased by working capital uses of $378 thousand. Net cash used in operating activities during the three months ended March 31, 2019, was primarily comprised of our $2.8 million net loss, offset by non-cash depreciation and stock compensation charges of $424 thousand, and decreased by working capital sources of $207 thousand.
Spending on operations increased during the current period due to personnel and associated compensation, legal and outside consulting fee increases, and production activities at our Rollo Bay and Indiana farm sites; offset by decreases in field trials and costs related to our demonstration farm in Panama. The increase in cash used by working capital in the current period was due primarily to an increase in inventory, receivables, and prepaid expenses, offset by an increase in accounts payable and accrued liabilities.
Cash Flows from Investing Activities
During the three months ended March 31, 2020, we used $691 thousand for renovations to our Indiana farm site and for construction charges at our Rollo Bay site, this was offset by $98 thousand in proceeds from the sale of equipment and $1.0 million in net proceeds from a legal settlement. During the same period in 2019, we used $456 thousand for renovations to our Indiana farm site and for construction charges at our Rollo Bay site.
Cash Flows from Financing Activities
During the three months ended March 31, 2020, we received approximately $14.5 million in net proceeds from the issuance of Common Shares in a public offering. This was offset by $39 thousand in the repayment of debt. During the same period in 2019, we received approximately $6.6 million in net proceeds from the issuance of Common Shares in a public offering, $250 thousand from the exercise of warrants, and $376 thousand from new debt. This was offset by $10 thousand in the repayment of debt.
Future Capital Requirements
As discussed in Note 1 to the financial statements, the Company has experienced net losses and negative cash flows from operations since its inception and has cumulative losses attributable to common stockholders of $135 million and a cash balance of $14.7 million as of March 31, 2020. Management believes its cash resources will meet the Company’s cash requirements for at least the next twelve months from the filing date.
Until such time, if ever, as we can generate positive operating cash flows, we may finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of holders of our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through government or other third-party funding; marketing and distribution arrangements; or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or to grant licenses on terms that may not be favorable to us.
The current COVID-19 pandemic has introduced uncertainty and volatility into the financial markets and as a result sources of future funding may be more difficult to obtain, if at all.
If we are unable to generate additional funds in the future through financings, sales of our products, government grants, loans, or from other sources or transactions, we will exhaust our resources and will be unable to maintain our currently planned operations. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following sections provide quantitative information on our exposure to interest rate risk and foreign currency exchange risk. We make use of sensitivity analyses, which are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.
Interest Rate Risk
Our primary exposure to market risk is interest rate risk associated with debt financing that we utilize from time to time to fund operations or specific projects. The interest on this debt is usually determined based on a fixed rate and is contractually set in advance. At March 31, 2020, and December 31, 2019, we had $1.6 million and $1.8 million, respectively, in interest-bearing debt instruments on our consolidated balance sheet. All of our interest-bearing debt is at fixed rates.
Foreign Currency Exchange Risk
Our functional currency is the U.S. Dollar. The functional currency of our Canadian subsidiary is the Canadian Dollar, and the functional currency of our Panama, U.S., and Brazil subsidiaries is the U.S. Dollar. For the Canadian Subsidiary, assets and liabilities are translated at the exchange rates in effect at the balance sheet date, equity accounts are translated at the historical exchange rate, and the income statement accounts are translated at the average rate for each period during the year. Net translation gains or losses are adjusted directly to a separate component of other comprehensive loss within shareholders’ equity (deficit).
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a‑15(e) 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 March 31, 2020, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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.