Item 1. Financial Statements
AquaBounty Technologies, Inc.
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,518,806
|
|
|
$
|
492,861
|
|
|
Certificate of deposit
|
|
12,820
|
|
|
13,422
|
|
|
Other receivables
|
|
101,328
|
|
|
183,926
|
|
|
Inventory
|
|
82,429
|
|
|
172,363
|
|
|
Prepaid expenses and other current assets
|
|
394,594
|
|
|
527,322
|
|
|
Total current assets
|
|
4,109,977
|
|
|
1,389,894
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
23,617,701
|
|
|
21,802,976
|
|
|
Definite-lived intangible assets, net
|
|
178,143
|
|
|
184,995
|
|
|
Indefinite-lived intangible assets
|
|
191,800
|
|
|
191,800
|
|
|
Other assets
|
|
162,093
|
|
|
162,093
|
|
|
Total assets
|
|
$
|
28,259,714
|
|
|
$
|
23,731,758
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,168,875
|
|
|
$
|
2,666,855
|
|
|
Current debt
|
|
58,377
|
|
|
49,794
|
|
|
Total current liabilities
|
|
1,227,252
|
|
|
2,716,649
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
2,932,573
|
|
|
3,034,420
|
|
|
Total liabilities
|
|
4,159,825
|
|
|
5,751,069
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Common stock, $0.001 par value, 50,000,000 shares authorized;
|
|
|
|
|
|
12,848,376 (2017: 8,895,094) shares outstanding
|
|
12,848
|
|
|
8,895
|
|
|
Additional paid-in capital
|
|
138,262,298
|
|
|
126,718,186
|
|
|
Accumulated other comprehensive loss
|
|
(411,813
|
)
|
|
(213,884
|
)
|
|
Accumulated deficit
|
|
(113,763,444
|
)
|
|
(108,532,508
|
)
|
|
Total stockholders’ equity
|
|
24,099,889
|
|
|
17,980,689
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
28,259,714
|
|
|
$
|
23,731,758
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
47,898
|
|
|
$
|
53,278
|
|
|
$
|
66,995
|
|
|
$
|
53,278
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
47,287
|
|
|
50,777
|
|
|
63,519
|
|
|
50,777
|
|
|
Sales and marketing
|
|
76,381
|
|
|
202,910
|
|
|
158,028
|
|
|
411,198
|
|
|
Research and development
|
|
880,822
|
|
|
936,317
|
|
|
1,858,639
|
|
|
1,656,339
|
|
|
General and administrative
|
|
1,827,991
|
|
|
950,348
|
|
|
3,214,864
|
|
|
2,071,136
|
|
|
Total costs and expenses
|
|
2,832,481
|
|
|
2,140,352
|
|
|
5,295,050
|
|
|
4,189,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(2,784,583
|
)
|
|
(2,087,074
|
)
|
|
(5,228,055
|
)
|
|
(4,136,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Gain on disposal of equipment
|
|
10,585
|
|
|
—
|
|
|
11,745
|
|
|
—
|
|
|
Interest expense
|
|
(5,283
|
)
|
|
(5,253
|
)
|
|
(10,685
|
)
|
|
(10,533
|
)
|
|
Other income (expense), net
|
|
(1,868
|
)
|
|
(1,109
|
)
|
|
(3,941
|
)
|
|
(2,474
|
)
|
|
Total other income (expense)
|
|
3,434
|
|
|
(6,362
|
)
|
|
(2,881
|
)
|
|
(13,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,781,149
|
)
|
|
$
|
(2,093,436
|
)
|
|
$
|
(5,230,936
|
)
|
|
$
|
(4,149,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation income (loss)
|
|
(85,811
|
)
|
|
22,437
|
|
|
(197,929
|
)
|
|
8,151
|
|
|
Total other comprehensive income (loss)
|
|
(85,811
|
)
|
|
22,437
|
|
|
(197,929
|
)
|
|
8,151
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(2,866,960
|
)
|
|
$
|
(2,070,999
|
)
|
|
$
|
(5,428,865
|
)
|
|
$
|
(4,141,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.22
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(0.48
|
)
|
|
Weighted average number of common shares -
|
|
|
|
|
|
|
|
|
|
basic and diluted
|
|
12,787,761
|
|
|
8,892,213
|
|
|
12,366,657
|
|
|
8,647,861
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
8,895,094
|
|
|
$
|
8,895
|
|
|
$
|
126,718,186
|
|
|
$
|
(213,884
|
)
|
|
$
|
(108,532,508
|
)
|
|
$
|
17,980,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(5,230,936
|
)
|
|
(5,230,936
|
)
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
(197,929
|
)
|
|
|
|
(197,929
|
)
|
|
Issuance of common stock and warrants, net of expenses
|
|
3,692,307
|
|
|
3,692
|
|
|
10,612,356
|
|
|
|
|
|
|
10,616,048
|
|
|
Exercise of warrants for common stock
|
|
249,824
|
|
|
250
|
|
|
811,678
|
|
|
|
|
|
|
811,928
|
|
|
Share based compensation
|
|
11,151
|
|
|
11
|
|
|
120,078
|
|
|
|
|
|
|
120,089
|
|
|
Balance at June 30, 2018
|
|
12,848,376
|
|
|
$
|
12,848
|
|
|
$
|
138,262,298
|
|
|
$
|
(411,813
|
)
|
|
$
|
(113,763,444
|
)
|
|
$
|
24,099,889
|
|
See accompanying notes to these unaudited interim consolidated financial statements.
AquaBounty Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Net loss
|
|
$
|
(5,230,936
|
)
|
|
$
|
(4,149,179
|
)
|
|
Adjustment to reconcile net loss to net cash used in
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
273,646
|
|
|
91,569
|
|
|
Share-based compensation
|
|
120,089
|
|
|
48,752
|
|
|
Gain on disposal of equipment
|
|
(11,745
|
)
|
|
—
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Other receivables
|
|
77,782
|
|
|
7,853
|
|
|
Inventory
|
|
88,656
|
|
|
(78,275
|
)
|
|
Prepaid expenses and other assets
|
|
131,486
|
|
|
(279,058
|
)
|
|
Accounts payable and accrued liabilities
|
|
(783,356
|
)
|
|
(38,702
|
)
|
|
Net cash used in operating activities
|
|
(5,334,378
|
)
|
|
(4,397,040
|
)
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(3,039,177
|
)
|
|
(16,193,926
|
)
|
|
Proceeds on sale of equipment
|
|
21,745
|
|
|
—
|
|
|
Net cash used in investing activities
|
|
(3,017,432
|
)
|
|
(16,193,926
|
)
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
—
|
|
|
256,807
|
|
|
Repayment of term debt
|
|
(28,870
|
)
|
|
(11,405
|
)
|
|
Proceeds from the issuance of common stock and warrants, net
|
|
10,616,048
|
|
|
24,989,257
|
|
|
Proceeds from the exercise of stock options and warrants
|
|
811,928
|
|
|
27,502
|
|
|
Net cash provided by financing activities
|
|
11,399,106
|
|
|
25,262,161
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(21,351
|
)
|
|
(4,422
|
)
|
|
Net change in cash and cash equivalents
|
|
3,025,945
|
|
|
4,666,773
|
|
|
Cash and cash equivalents at beginning of period
|
|
492,861
|
|
|
3,324,609
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
3,518,806
|
|
|
$
|
7,991,382
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information and
|
|
|
|
|
|
non-cash transactions:
|
|
|
|
|
|
Interest paid in cash
|
|
$
|
10,685
|
|
|
$
|
10,533
|
|
|
Property and equipment included in accounts payable and accrued liabilities
|
|
$
|
330,136
|
|
|
$
|
16,218
|
|
|
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, 2018 and 2017 (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.
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, 2017. 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, 2018
, 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.
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. Additionally, the new guidance has simplified accounting for sale and leaseback transactions. Lessor accounting is
largely unchanged. The ASU is effective for fiscal years beginning after December 15, 2018. Details of this ASU are still being clarified, so the Company is continuing its evaluation of the impact on its consolidated financial statements.
In February 2018, FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income” which provides guidance on the impact to comprehensive income from changes due to the 2017 Tax Cuts and Jobs Act. The Company is currently reviewing the guidance, which is effective for fiscal years beginning after December 15, 2018.
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.
Liquidity and Management’s Plan
At
June 30, 2018
, the Company’s cash balance totaled
$3.5 million
. Management has evaluated the Company’s cash resources as of August 1, 2018, in view of its planned spending for ongoing operations, capital expenditures, and working capital for the next twelve months and has determined that its current funds will be used by the end of December 2018 primarily due to increased working capital requirements. However, management believes that the Company can continue as a going concern.
Management’s assessment is based on its belief that it is probable that the Company will be able to raise additional equity or debt to fund its requirements. Additionally, management has the ability to manage expenditures, including the slowing down, delaying, or halting of construction projects at our farm sites, in order to slow down spending to conserve the Company’s cash if there is a delay in obtaining new funding. Therefore, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
3. Risks and uncertainties
The Company is subject to risks and uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in other countries with respect to approval and commercial sale of any of the Company’s proposed products; (iii) the commercial acceptance of any products approved for sale and the Company’s ability to manufacture, 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” in our Annual Report on Form 10‑K for the year ended December 31, 2017, which was filed on March 8, 2018, 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
$191,536
at
June 30, 2018
.
Financial instruments
The carrying amounts reported in the consolidated balance sheets for other receivables and accounts payable approximate fair value based on the short-term maturity of these instruments. The carrying value of term debt approximates its fair value, since it provides for market terms and interest rates.
4. Inventory
Major classifications of inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Feed
|
|
$
|
49,674
|
|
|
$
|
60,161
|
|
|
Eggs
|
|
9,429
|
|
|
73,967
|
|
|
Packaging
|
|
8,913
|
|
|
—
|
|
|
Fish in process
|
|
14,413
|
|
|
38,235
|
|
|
Total inventory
|
|
$
|
82,429
|
|
|
$
|
172,363
|
|
5. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Land
|
|
$
|
714,785
|
|
|
$
|
676,083
|
|
|
Building and improvements
|
|
9,316,101
|
|
|
9,187,160
|
|
|
Construction in process
|
|
5,562,148
|
|
|
5,119,961
|
|
|
Equipment
|
|
9,558,732
|
|
|
8,211,510
|
|
|
Office furniture and equipment
|
|
190,998
|
|
|
136,091
|
|
|
Vehicles
|
|
27,830
|
|
|
29,135
|
|
|
Total property and equipment
|
|
$
|
25,370,594
|
|
|
$
|
23,359,940
|
|
|
Less accumulated depreciation and amortization
|
|
(1,752,893
|
)
|
|
(1,556,964
|
)
|
|
Property, plant and equipment, net
|
|
$
|
23,617,701
|
|
|
$
|
21,802,976
|
|
Depreciation and amortization expense was
$266,794
and
$84,717
for the
six
months ended
June 30, 2018
and
2017
, respectively.
Included in construction in process is
$5.3 million
for renovation and new construction costs incurred at our Rollo Bay farm site. An additional
$1.1 million
has been committed. The grow-out building is expected to be completed by year end, and the broodstock building is expected to be completed during 2019.
On June 22, 2017, the Company purchased the aquaculture facility of Bell Fish Company LLC in Albany, Indiana, for
$14.2 million
, including legal and other expenses incurred. Through June 30, 2018, the Company has invested
$1.9 million
to upgrade the facility for use to grow out its AquAdvantage Salmon for harvest and sale in the United States. The Company currently has an additional
$0.4 million
committed to this project. This facility is now operational, although the Company expects that upgrades will continue through 2019.
6. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Accounts payable
|
|
$
|
526,228
|
|
|
$
|
1,089,919
|
|
|
Accrued payroll including vacation
|
|
257,281
|
|
|
364,368
|
|
|
Accrued professional fees and research costs
|
|
209,102
|
|
|
443,178
|
|
|
Accrued franchise and excise taxes
|
|
40,001
|
|
|
240,880
|
|
|
Accrued construction costs
|
|
99,901
|
|
|
509,950
|
|
|
Accrued other
|
|
36,362
|
|
|
18,560
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,168,875
|
|
|
$
|
2,666,855
|
|
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, 2018
|
|
December 31, 2017
|
|
ACOA AIF grant (C$2,871,919)
|
|
0%
|
|
Royalties
|
|
-
|
|
$
|
2,185,243
|
|
|
$
|
2,287,771
|
|
|
ACOA term loan (C$337,000)
|
|
0%
|
|
C$3,120
|
|
June 2026
|
|
225,562
|
|
|
251,056
|
|
|
Kubota Canada Ltd. (C$95,961)
|
|
0%
|
|
C$1,142
|
|
January 2025
|
|
68,670
|
|
|
—
|
|
|
Finance PEI term loan (C$717,093)
|
|
4%
|
|
C$4,333
|
|
July 2021
|
|
511,475
|
|
|
545,387
|
|
|
Total debt
|
|
|
|
|
|
|
|
$
|
2,990,950
|
|
|
$
|
3,084,214
|
|
|
less: current portion
|
|
|
|
|
|
|
|
(58,377
|
)
|
|
(49,794
|
)
|
|
Long-term debt
|
|
|
|
|
|
|
|
$
|
2,932,573
|
|
|
$
|
3,034,420
|
|
Estimated principal payments remaining on loan debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
AIF
|
|
ACOA
|
|
FPEI
|
|
Kubota
|
|
Total
|
|
2018
|
|
$
|
—
|
|
|
$
|
14,244
|
|
|
$
|
9,604
|
|
|
$
|
5,215
|
|
|
$
|
29,063
|
|
|
2019
|
|
—
|
|
|
28,488
|
|
|
19,851
|
|
|
10,431
|
|
|
58,770
|
|
|
2020
|
|
—
|
|
|
28,488
|
|
|
20,659
|
|
|
10,431
|
|
|
59,578
|
|
|
2021
|
|
—
|
|
|
28,488
|
|
|
461,361
|
|
|
10,431
|
|
|
500,280
|
|
|
2022
|
|
—
|
|
|
28,488
|
|
|
—
|
|
|
10,431
|
|
|
38,919
|
|
|
Thereafter
|
|
2,185,243
|
|
|
97,366
|
|
|
—
|
|
|
21,731
|
|
|
2,304,340
|
|
|
Total
|
|
$
|
2,185,243
|
|
|
$
|
225,562
|
|
|
$
|
511,475
|
|
|
$
|
68,670
|
|
|
$
|
2,990,950
|
|
Atlantic Canada Opportunities Agency (“ACOA”)
ACOA is a Canadian government agency that provides funding to support the development of businesses and promote employment in the Atlantic region of Canada.
In January 2009, the Canadian Subsidiary was awarded an Atlantic Innovation Fund (“AIF”) grant from ACOA to provide a contribution towards the funding of a research and development project. Contributions under the grant were made through 2014 and no further funds are available. Amounts claimed by the Canadian Subsidiary must be repaid in the form of a
10%
royalty on any products that are commercialized out of this research project until the loan is fully repaid. Revenue from the sale of AquAdvantage Salmon are not subject to the royalty, and the Company does not expect to commercialize products that would be subject to the royalty in the next five years.
In February 2016, the Canadian Subsidiary executed an agreement with ACOA to partially finance the renovations to the Rollo Bay farm site. All available funding under the agreement was disbursed through May 2017, and no further amounts are available. The loan is being repaid over a period of
nine
years.
Kubota Canada Ltd. (“Kubota”)
Kubota is a manufacturer of power equipment for the construction, agriculture, commercial, and residential industries. In January 2018, the Canadian Subsidiary financed the purchase of equipment through a lease with Kubota. The total amount financed was
$75,911
and is being repaid in monthly installments. The loan is secured by the underlying equipment.
Finance PEI (“FPEI”)
FPEI is a corporation of the Ministry of Economic Development and Tourism for Prince Edward Island, Canada, and administers business financing programs for the provincial government. In August 2016, the Canadian Subsidiary obtained a loan from FPEI to partially finance the purchase of the assets of the former Atlantic Sea Smolt plant in Rollo Bay West on Prince Edward Island. The loan is being repaid through monthly payments of principal and interest with a balloon payment for the balance due in July 2021. The loan 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.
The Company recognized interest expense of
$10,613
and
$10,523
for the
six
months ended
June 30, 2018
and
2017
, respectively, on its interest-bearing debt.
8. Stockholders’ equity
In May 2018, the Company’s shareholders approved a reduction in the number of authorized shares of stock from
240 million
to
55 million
, of which
5 million
are authorized as preferred stock and
50 million
as common stock.
Recent issuances
In January 2018, the Company completed a public offering of
3,692,307
Common Shares and warrants for
4,246,153
Common Shares. Net proceeds to the Company were
$10.6 million
after deducting discounts, fees, and expenses. Intrexon Corporation, the Company’s majority shareholder, participated in the offering, purchasing
1,538,461
Common Shares and warrants for
1,538,461
Common Shares for gross proceeds of
$5.0 million
.
As of June 30, 2018, the Company has issued
249,824
Common Shares in conjunction with the exercise of warrants, with total proceeds of
$811,928
.
Warrants
In connection with a public offering of Common Shares that was completed in January 2018, the Company issued warrants to purchase
4,246,153
Common Shares. Each warrant has an exercise price per share of
$3.25
, is immediately exercisable, and will expire five years from the date of issuance. The following table summarizes information about outstanding warrants at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
warrant shares
|
|
Weighted
average
exercise price
|
|
Outstanding at December 31, 2017
|
|
—
|
|
|
$
|
—
|
|
|
Issued
|
|
4,246,153
|
|
|
3.25
|
|
|
Exercised
|
|
(249,824
|
)
|
|
3.25
|
|
|
Outstanding at June 30, 2018
|
|
3,996,329
|
|
|
|
$3.25
|
|
|
Exercisable at June 30, 2018
|
|
3,996,329
|
|
|
|
$3.25
|
|
Share-based compensation
Restricted stock
A summary of the Company’s unvested shares of restricted stock as of
June 30, 2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
average grant
date fair value
|
|
Unvested at December 31, 2017
|
|
2,697
|
|
|
|
$11.37
|
|
|
Granted
|
|
11,151
|
|
|
2.50
|
|
|
Vested
|
|
(2,318
|
)
|
|
5.93
|
|
|
Unvested at June 30, 2018
|
|
11,530
|
|
|
|
$3.88
|
|
During the
six
months ended
June 30, 2018
and
2017
, the Company expensed
$13,664
and
$12,070
, respectively, related to the Chairman’s restricted stock awards. At
June 30, 2018
, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is
$44,649
. The period over which the unearned share-based compensation is expected to be earned is approximately
2.7
years.
Stock options
The Company’s option activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise price
|
|
Outstanding at December 31, 2017
|
|
227,203
|
|
|
|
$9.39
|
|
|
Issued
|
|
113,561
|
|
|
2.50
|
|
|
Expired
|
|
(800
|
)
|
|
9.90
|
|
|
Outstanding at June 30, 2018
|
|
339,964
|
|
|
|
$7.09
|
|
|
Exercisable at June 30, 2018
|
|
238,943
|
|
|
|
$7.76
|
|
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 weighted average fair value of stock options granted during the
six
months ended
June 30, 2018
, was
$1.65
. The total intrinsic value of all options outstanding was
$96,636
and
$17,454
at
June 30, 2018
, and
December 31, 2017
, respectively. The total intrinsic value of exercisable options was
$34,141
and
$17,454
at
June 30, 2018
, and
December 31, 2017
, respectively.
The following table summarizes information about options outstanding and exercisable at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
204,034
|
|
|
6.1
|
|
128,739
|
|
|
|
|
$6.90 - $9.60
|
|
53,175
|
|
|
4.2
|
|
53,175
|
|
|
|
|
$10.50 - $10.80
|
|
4,000
|
|
|
5.6
|
|
4,000
|
|
|
|
|
$14.20 - $23.40
|
|
78,755
|
|
|
7.7
|
|
53,029
|
|
|
|
|
|
|
339,964
|
|
|
|
|
238,943
|
|
|
$7.76
|
Total share-based compensation on stock-option grants amounted to
$106,425
and
$36,682
for the
six
months ended
June 30, 2018
and
2017
, respectively. At
June 30, 2018
, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was
$240,916
. The period over which the unearned share-based compensation is expected to be earned is approximately
1.7
years.
9. 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.
In May 2018, the Company extended its lease for its Panama farm site for an additional twelve months with total rent payments of
$180,000
.
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, 2017.
10. 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 genetically modified traits in finfish for human consumption.
Total Intrexon service costs incurred under the terms of this agreement for the
six
months ended
June 30, 2018
and
2017
, amounted to
$136,041
and
$315,116
, respectively, and are included as a component of research and development expense in our Consolidated Statements of Operations and Comprehensive Loss. Included in accounts payable and accrued liabilities at
June 30, 2018
, and
December 31, 2017
, are amounts due to Intrexon under the ECC totaling
$18,000
and
$135,301
, 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, 2017, which was filed on March 8, 2018.
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, 2017. 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 biotechnology tools for improving the productivity of aquaculture. Our lead product is the AquAdvantage Salmon, which received FDA approval in 2015 as the first genetically modified animal available for sale for human consumption. We intend to commence commercial activities with operations in markets where we have received regulatory approval. The first steps in our commercial plan have been implemented, including the following:
|
|
|
|
•
|
we received approval from the provincial regulatory authorities in Prince Edward Island for the construction of a broodstock facility to house our non-transgenic Atlantic salmon stock and a 250-metric-ton recirculating aquaculture system (“RAS”) facility to grow out our AquAdvantage Salmon, and both facilities are currently under construction;
|
|
|
|
|
•
|
we have completed our first sales of AquAdvantage Salmon to Canada from our farm site in Panama; and
|
|
|
|
|
▪
|
we purchased certain assets of the aquaculture facility of Bell Fish Company LLC, which we intend to use to grow out our AquAdvantage Salmon for sale and consumption in the United States.
|
We are also continuing an active search in both the United States and Canada for either an existing land-based RAS facility or a site on which to build a new facility for the commercial production of AquAdvantage Salmon.
Revenue
We generate product revenue primarily through the sales of our AquAdvantage Salmon. We may also sell excess non-transgenic salmon eggs and fry to local growers. We expect that our sales will be modest and infrequent until our grow-out facilities in Indiana and Rollo Bay are operational and at full capacity.
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 facilities 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.
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, 2018
, we had one employee dedicated to sales and marketing.
Research and Development Expenses
As of
June 30, 2018
, we employed twenty-three 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 and development functions;
|
|
|
|
|
•
|
fees paid to contract research organizations, Intrexon, and consultants who perform research for us;
|
|
|
|
|
•
|
costs related to laboratory supplies used in our research and development efforts;
|
|
|
|
|
•
|
costs related to the operation of our field trials; and
|
|
|
|
|
•
|
costs related to the grow-out of fish at the Panama site that are not capitalized in inventory.
|
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 costs for our Indiana facility. We had twenty employees in our general and administrative group at
June 30, 2018
.
Other Income (Expense)
Interest expense includes the interest on our outstanding loans. Other income (expense) includes bank charges, fees, and interest income.
Results of Operations
Comparison of the three months ended
June 30, 2018
, to the three months ended
June 30, 2017
.
The following table summarizes our results of operations for the three months ended
June 30, 2018
and 2017, 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
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Product revenue
|
|
$
|
48
|
|
|
$
|
53
|
|
|
$
|
(5
|
)
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
47
|
|
|
51
|
|
|
(4
|
)
|
|
(8
|
)%
|
|
Sales and marketing
|
|
76
|
|
|
203
|
|
|
(127
|
)
|
|
(63
|
)%
|
|
Research and development
|
|
881
|
|
|
936
|
|
|
(55
|
)
|
|
(6
|
)%
|
|
General and administrative
|
|
1,828
|
|
|
950
|
|
|
878
|
|
|
92
|
%
|
|
Operating loss
|
|
2,784
|
|
|
2,087
|
|
|
697
|
|
|
33
|
%
|
|
Total other (income) expense
|
|
(3
|
)
|
|
6
|
|
|
(9
|
)
|
|
(150
|
)%
|
|
Net loss
|
|
$
|
2,781
|
|
|
$
|
2,093
|
|
|
$
|
688
|
|
|
33
|
%
|
Product Revenue and Product Cost
Product revenue for the three months ended
June 30, 2018
, consisted of sales of AquAdvantage Salmon and sales of non-transgenic Atlantic salmon eggs and fry. We expect that our sales will be modest and infrequent until our grow-out facilities in Indiana and Rollo Bay are operational and at full capacity.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended
June 30, 2018
, were down from the corresponding period in 2017 due to lower personnel and travel costs. We expect that our sales and marketing expenses will be relatively flat until we increase our production of AquAdvantage Salmon.
Research and Development Expenses
Research and development expenses for the three months ended
June 30, 2018
, were down from the corresponding period in 2017 due to a reduction in outside contract services, which were partially offset by increased field trial costs. We expect that our research and development expenses will increase as we further develop our Rollo Bay farm site and as we continue to pursue regulatory approval for additional products and additional markets.
General and Administrative Expenses
General and administrative expenses for the three months ended
June 30, 2018
, were up significantly from the corresponding period in 2017 due primarily to pre-production costs at our Indiana site. We expect that our general and administrative expenses will decrease now that operations at the Indiana facility have commenced.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, interest income, and a net gain on the disposal of assets for the three months ended
June 30, 2018
and 2017.
Comparison of the six months ended
June 30, 2018
, to the six months ended
June 30, 2017
.
The following table summarizes our results of operations for the six months ended
June 30, 2018
and 2017, 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
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Product revenue
|
|
$
|
67
|
|
|
$
|
53
|
|
|
$
|
14
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
64
|
|
|
51
|
|
|
13
|
|
|
25
|
%
|
|
Sales and marketing
|
|
158
|
|
|
411
|
|
|
(253
|
)
|
|
(62
|
)%
|
|
Research and development
|
|
1,858
|
|
|
1,656
|
|
|
202
|
|
|
12
|
%
|
|
General and administrative
|
|
3,215
|
|
|
2,071
|
|
|
1,144
|
|
|
55
|
%
|
|
Operating loss
|
|
5,228
|
|
|
4,136
|
|
|
1,092
|
|
|
26
|
%
|
|
Total other (income) expense
|
|
3
|
|
|
13
|
|
|
(10
|
)
|
|
(77
|
)%
|
|
Net loss
|
|
$
|
5,231
|
|
|
$
|
4,149
|
|
|
$
|
1,082
|
|
|
26
|
%
|
Product Revenue and Product Cost
Product revenue for the
six
months ended
June 30, 2018
, consisted of sales of AquAdvantage Salmon and sales of non-transgenic Atlantic salmon eggs and fry. We expect that our sales will be modest and infrequent until our grow-out facilities in Indiana and Rollo Bay are operational and at full capacity.
Sales and Marketing Expenses
Sales and marketing expenses for the
six
months ended
June 30, 2018
, were down from the corresponding period in 2017 due to lower personnel and travel costs. We expect that our sales and marketing expenses will be relatively flat until we increase our production of AquAdvantage Salmon.
Research and Development Expenses
Research and development expenses for the
six
months ended
June 30, 2018
, were up from the corresponding period in 2017 due to increases in personnel, supplies, and facility costs related to the partial commencement of activities at our Rollo Bay site and increased field trial costs, which were partially offset by a reduction in outside contract services. We expect that our research and development expenses will continue to increase as we further develop our Rollo Bay farm site and as we 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, 2018
, were up significantly from the corresponding period in 2017 due to increases in personnel, supplies, and outside contractors primarily related to pre-production costs at our Indiana site, which were partially offset by a reduction in legal fees. We expect that our general and administrative expenses will decrease now that operations at the Indiana facility have commenced.
Total Other (Income) Expense
Total other (income) expense is comprised of interest on debt, bank charges, interest income, and a net gain on the disposal of assets for the
six
months ended
June 30, 2018
and 2017.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses from operations since our inception in 1991, and, as of
June 30, 2018
, we had an accumulated deficit of $114 million. On January 18, 2017, we completed a private placement of 2,421,073 Common Shares to Intrexon for proceeds of approximately $25 million. On January 17, 2018, we completed a public offering of 3,692,307 Common Shares and warrants to purchase 4,246,153 Common Shares for net proceeds of $10.6 million.
As of
June 30, 2018
, we had a cash balance of $
3.5 million
.
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,
|
|
Years Ended
December 31,
|
|
|
2018
|
|
2017
|
|
2017
|
|
2016
|
|
2015
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
$
|
(5,334
|
)
|
|
$
|
(4,397
|
)
|
|
$
|
(9,101
|
)
|
|
$
|
(7,449
|
)
|
|
$
|
(6,748
|
)
|
|
Investing activities
|
(3,018
|
)
|
|
(16,194
|
)
|
|
(19,046
|
)
|
|
(1,074
|
)
|
|
(105
|
)
|
|
Financing activities
|
11,399
|
|
|
25,262
|
|
|
25,238
|
|
|
10,541
|
|
|
3,044
|
|
|
Effect of exchange rate changes on cash
|
(21
|
)
|
|
(4
|
)
|
|
77
|
|
|
(7
|
)
|
|
(41
|
)
|
|
Net increase (decrease) in cash
|
$
|
3,026
|
|
|
$
|
4,667
|
|
|
$
|
(2,832
|
)
|
|
$
|
2,011
|
|
|
$
|
(3,850
|
)
|
Cash Flows from Operating Activities
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 charges of $382 thousand, and increased by working capital uses of $485 thousand. Net cash used in operating activities during the
six
months ended
June 30, 2017
, was primarily comprised of our $4.1 million net loss, offset by non-cash charges of $140 thousand, and increased by working capital uses of $388 thousand.
Spending on operations increased during the current period due to headcount additions, maintenance and repair costs for our Indiana farm site, and commencement of partial activities at our Rollo Bay site. The increase in cash used by working capital in the current period was due to a reduction in accounts payable and accrued liabilities, offset by reductions in inventory, prepaid expenses, and receivables.
Cash Flows from Investing Activities
During the
six
months ended
June 30, 2018
, we used $3.0 million for renovations to our Indiana farm site and for construction charges at our Rollo Bay site. During the same period in 2017, we used $16.2 million for construction at our Rollo Bay site and the purchase of the Indiana farm site.
Cash Flows from Financing Activities
During the
six
months ended
June 30, 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. During the same period in 2017, we received $25.0 million in proceeds from the issuance of Common Shares in a private placement, $257 thousand in proceeds from the issuance of term debt, and $28 thousand from the exercise of stock options. This was offset by $11 thousand in the repayment of debt.
Future Capital Requirements
We have evaluated our cash resources as of August 1, 2018, in view of our planned spending for ongoing operations, capital expenditures, and working capital for the next twelve months and have determined that our current funds will be used by the end of December 2018, primarily due to increased working capital requirements. We intend to devote a significant portion of our existing cash to our farm sites in Indiana and Rollo Bay and the continued investment in our research and development projects. We plan to seek additional financing in the form of debt or equity to fund our cash requirements.
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 site; 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 believes that the Company can continue as a going concern. Management’s assessment is based on its belief that it is probable that the Company will be able to raise additional equity or debt to fund its requirements. Additionally, management could reduce spending, including the slowing down, delaying, or halting of construction in process at our farm sites, to conserve the Company’s cash if there is a delay in obtaining new funding. Therefore, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, 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
June 30, 2018
, and December 31, 2017, we had $511 thousand and $545 thousand, 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, 2018
, 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.