AquaBounty Technologies, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Unless noted, amounts are U.S. dollars. This annual filing also provides fourth-quarter results.
Business context
AquaBounty develops land-based recirculating aquaculture systems (RAS) and genetically engineered AquAdvantage Atlantic salmon. The product is approved for production and sale in the United States and Canada. At year-end, the company operated a 1,200-metric-ton Indiana farm and a 250-metric-ton demonstration facility on Prince Edward Island; reported total farm biomass was 636 metric tons. Its first Indiana harvests in 2020 were conventional salmon, and 2020 product revenue came from conventional salmon, eggs, and fry.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Product revenue | $127,663 | $186,738 | Down 32% |
| Production costs | $6.68 million | $3.57 million | Up 87% |
| Operating loss | $16.25 million | $13.18 million | Loss widened 23% |
| Net loss | $16.40 million | $13.23 million | Loss widened 24% |
| Net loss per share, basic and diluted | $0.45 | $0.66 | Loss per share narrowed |
| Cash used in operating activities | $14.29 million | $11.25 million | Use increased |
| Cash used in investing activities | $3.24 million | $2.46 million | Use increased |
| Cash provided by financing activities | $111.00 million | $13.48 million | Primarily equity proceeds |
At December 31, 2020, cash and cash equivalents were $95.75 million, plus $0.50 million of restricted cash. Total assets were $125.78 million, total liabilities $10.90 million, and stockholders’ equity $114.88 million. Balance-sheet current debt was $0.26 million and long-term debt $8.53 million; the company reported $8.87 million of debt before unamortized issuance costs. Accumulated deficit was $148.54 million. Management said available cash was expected to fund requirements for at least 12 months from the filing date.
During 2020, the company raised about $104.6 million net from common-stock offerings and $2.3 million from warrant exercises. On February 8, 2021, it raised a further $119.2 million net through an offering of 14.95 million shares. Shares outstanding increased from 55.50 million at year-end to 70.94 million as of March 5, 2021.
Changes, unusual items, and management outlook
- Lower revenue reflected weak salmon demand and pricing, particularly from COVID-19 disruption to food service. The processing facility at Indiana was delayed six months and became operational in November 2020.
- Production costs included a $1.53 million write-down of conventional salmon biomass, which the company planned to donate to local charities in early 2021 to free capacity for AquAdvantage fish. The filing also describes approximately $900,000 of additional fish-in-process valuation charges related to lower market-price expectations.
- Fourth-quarter 2020 revenue was $50,197, operating loss was $6.04 million, and net loss was $6.12 million. Fourth-quarter revenue was $46,367 in 2019; net loss was $3.42 million.
- Management planned to begin AquAdvantage salmon sales in 2021, but expected revenue to remain modest and infrequent through at least the first half of the year. It said the pandemic’s financial effects could continue through at least that period.
- The company was selecting a site and finalizing design and cost for a planned 10,000-metric-ton U.S. farm estimated at $140–$175 million. It targeted construction commencement in the first half of 2021 and operations in 2023, with a longer-term target of at least 50,000 metric tons of annual production within seven to ten years. These are plans, not assured outcomes.
- Egg production capacity on Prince Edward Island exceeded 10 million eyed eggs annually; the company planned to expand capacity to 30 million over 12–18 months and sell excess conventional eggs and fry.
- A U.S. court remanded the FDA’s environmental assessment for further work on NEPA and Endangered Species Act assessments in November 2020. The court denied plaintiffs’ motion to alter the judgment in February 2021. The filing said the decisions had no current impact on existing Canadian egg production or Indiana salmon production, but further regulatory or legal developments remain a risk.
Risks and contingencies
The company has a long history of losses, has not demonstrated profitable production at commercial scale, and expects continued losses. Expansion requires substantial capital and may lead to further equity dilution or debt. Other significant risks include consumer resistance to genetically engineered food and required labeling; obtaining and maintaining site-specific and international regulatory approvals; construction delays and cost overruns; salmon-price and demand volatility; disease, fish quality, inventory valuation, farm interruptions, and dependence on third parties for processing and distribution. COVID-19 effects on demand, pricing, projects, and supply chains remained uncertain.
The first new farm alone is estimated to cost more than year-end cash, and the filing does not establish that its financing or construction plan is finalized. Contractual obligations totaled $9.71 million, including loans, a royalty-based grant obligation, and leases. The company reported compliance with covenants on its $4.0 million First Farmers Bank loan, which requires a $500,000 minimum cash balance. No off-balance-sheet arrangements were reported.
The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because the company qualified for emerging-growth-company exemptions.
Important facts for investors to verify
- Whether AquAdvantage salmon sales began as planned in 2021, and the realized volume, price, margins, and repeat customer demand.
- Whether fish biomass, quality, processing capacity, and inventory carrying values support planned commercial-scale production.
- Progress on selecting, permitting, financing, and constructing the proposed 10,000-metric-ton farm, including expected total project cost and timing.
- Cash burn and liquidity after the February 2021 share offering, planned capital spending, debt service, and the extent of future financing or dilution needs.
- Developments in the FDA environmental review and any related litigation, regulatory approvals, or labeling requirements.
- Recovery in salmon demand and prices after COVID-19 disruption, and the effect of the conventional-salmon donation and related inventory write-downs.