AquaBounty Technologies, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. AquaBounty develops and commercializes AquAdvantage Salmon, which had U.S. FDA approval and Canadian sale and consumption approval. The company was still building and upgrading production facilities; its first-quarter revenue was from non-transgenic salmon eggs, not AquAdvantage Salmon.
Financial results and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $19,097 | $0 |
| Product costs | $16,232 | $0 |
| Operating loss | $2.44 million | $2.05 million |
| Net loss | $2.45 million; $0.21 per share | $2.06 million; $0.24 per share |
| Operating cash used | $2.47 million | $2.50 million |
| Capital expenditures / investing cash used | $2.03 million | $0.46 million |
| Cash and cash equivalents at quarter-end | $6.84 million | $0.49 million at Dec. 31, 2017 |
| Total debt | $3.06 million | $3.08 million at Dec. 31, 2017 |
| Total assets / stockholders’ equity | $31.49 million / $26.33 million | $23.73 million / $17.98 million at Dec. 31, 2017 |
No positive operating margin was reported: product revenue remained very small relative to operating costs. The filing does not provide a clear gross-margin measure. Accumulated deficit was $111.0 million. Cash increased primarily due to a January public offering and warrant exercises, not operating cash generation.
Changes versus the prior-year quarter
- Revenue began to appear, at $19,097, from sales of non-transgenic Atlantic salmon eggs; management said sales would remain modest and infrequent until grow-out facilities are operational and at capacity.
- Net loss increased by about $394,000 (19%). Research and development rose 36% to $978,000, and general and administrative expense rose 24% to $1.39 million. Sales and marketing expense fell 61% to $82,000.
- Operating cash use was slightly lower, but investing cash use rose substantially as construction and renovation spending increased.
- Cash at quarter-end was higher than at year-end 2017 following $10.6 million of net proceeds from the January 2018 share-and-warrant offering and $250,188 from warrant exercises. The offering issued 3,692,307 shares and warrants to purchase 4,246,153 shares.
Outlook, liquidity, and material matters
- Runway and funding: Management estimated, using cash resources assessed as of May 1, 2018, that available funds would be used by the end of December 2018, primarily because of increased working-capital needs. Management planned to seek additional debt or equity financing and stated it believed the company could continue as a going concern. If funding is delayed, it could slow, delay, or halt farm-site construction; without additional funds, it warned it could exhaust resources and be unable to maintain planned operations.
- Facility plans: At Rollo Bay, $5.4 million of construction-in-process related to renovation and new construction, with another $1.2 million committed. The grow-out building was expected to be complete by year-end 2018 and the broodstock building in Q1 2019. At the Indiana facility, $1.5 million of renovation costs had been incurred and $0.8 million committed; it was expected to enter service in Q3 2018, with upgrades continuing through 2019.
- Spending outlook: Management expected R&D costs to continue rising as Rollo Bay work and regulatory efforts expanded, and G&A costs to rise until Indiana grow-out operations began. Sales and marketing expense was expected to remain relatively flat until production increased.
- Regulatory and litigation risk: A 2016 lawsuit challenging the FDA’s authority and approval process for AquAdvantage Salmon remained in discovery. The company identified regulatory decisions, commercial acceptance, production capability, intellectual-property protection, and collaborations as material risks.
- Debt and commitments: Most debt was non-interest-bearing; $526,000 was interest-bearing at fixed rates. Construction commitments and facility completion costs remain relevant to funding needs. The company reported no other material changes to previously disclosed contingencies.
- Other reported item: Foreign-currency translation loss was $112,118 for the quarter. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the company secured financing after the filing and how that affected its stated December 2018 cash-runway estimate and potential dilution.
- Actual completion, cost, and operational readiness of the Indiana and Rollo Bay facilities compared with the stated schedules and commitments.
- Progress toward commercial AquAdvantage Salmon sales, production capacity, regulatory approvals, and market acceptance; Q1 revenue was only from non-transgenic eggs.
- Developments and potential financial or operational effects of the ongoing FDA approval lawsuit.
- Cash burn, working-capital needs, and construction spending relative to available cash and the company’s going-concern assumptions.