AquaBounty Technologies, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. AquaBounty develops and commercializes land-based aquaculture, with AquAdvantage Salmon as its lead product. The company had U.S. and Canadian regulatory approvals and was preparing its Indiana and Rollo Bay farms for commercial harvesting.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Product revenue | $0 | $10,938 | $140,371 | $77,933 |
| Product costs | $0 | $8,874 | $120,605 | $72,393 |
| Operating loss | $(2,999,592) | $(2,720,027) | $(9,775,005) | $(7,948,082) |
| Net loss | $(3,018,222) | $(2,727,028) | $(9,808,885) | $(7,957,964) |
| Basic and diluted loss per share | $(0.14) | $(0.21) | $(0.50) | $(0.64) |
Nine-month product revenue less product costs was $19,766, a calculated gross margin of approximately 14%. The filing reports operating losses and does not present a separate gross-margin measure. Cash used in operating activities was $8.29 million for the nine months, versus $7.47 million in 2018; capital expenditures drove investing cash use of $1.82 million, versus $3.35 million. Financing provided $13.51 million, primarily from equity offerings.
At September 30, 2019, cash and cash equivalents were $6.41 million; current assets were $7.37 million and current liabilities $1.31 million. Total debt was $4.55 million, including $149,069 current debt; long-term lease obligations were $368,739. Total assets were $32.96 million and stockholders’ equity $26.88 million.
Changes and notable items
- Q3 revenue fell to zero from $10,938. Nine-month revenue increased 79% year over year, but remained small and consisted primarily of salmon, eggs, and byproducts.
- Nine-month net loss widened 23%. General and administrative expense rose 48% to $7.49 million, while research and development expense declined 28% to $1.92 million, partly due to closure of the Panama demonstration farm. Q3 G&A increased 27%; R&D declined 45%.
- Cash increased from $2.99 million at year-end 2018, supported by $12.4 million net proceeds from 2019 public offerings. Common shares outstanding increased from 15.10 million at December 31, 2018 to 21.61 million at September 30, 2019.
- A significant portion of the Rollo Bay facility entered service during Q3; $5.2 million was transferred from construction in progress and depreciation commenced. The company reported $1.7 million of remaining construction in progress and a further $374,000 committed.
- Management recognized $134,258 in share-based compensation related to accelerated vesting and an option-term change for the former CEO.
Outlook, liquidity, and risks
Management expected modest and infrequent sales until harvesting at the Indiana and Rollo Bay grow-out farms, then expected in mid-2020. It anticipated increased sales and marketing spending as production expanded and increased R&D spending for broodstock capacity, field trials, and regulatory approvals. The filing provides no numerical revenue or earnings guidance.
Management stated that available funds were expected to be exhausted by June 30, 2020, and disclosed substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. It planned to seek equity or debt financing, partnerships, or other non-dilutive funding; it also could reduce spending, delay capital projects, or divest assets. The filing cautions that financing may not be available on acceptable terms and that failure to obtain funds could prevent planned operations from continuing.
A lawsuit challenging the FDA’s approval of AquAdvantage Salmon remained ongoing, with substantive briefing pending after discovery. The company said plaintiffs could seek to halt U.S. imports or sales. Regulatory changes, consumer acceptance, commercialization execution, and the need for further approvals are additional risks. The filing also noted proposed legislation that, if enacted, could restrict interstate commerce in genetically engineered salmon. TS AquaCulture was reported to own approximately 38.1% of shares, with related holdings bringing reported control by Randal J. Kirk to approximately 42.0%, giving him significant influence over corporate matters.
Investor facts to verify
- Whether AquaBounty secured sufficient financing to address the disclosed cash shortfall and going-concern uncertainty.
- Whether the Indiana and Rollo Bay facilities achieved planned production and mid-2020 harvest timing, and whether sales scaled as expected.
- The status and potential impact of the FDA-approval litigation and any regulatory or legislative developments affecting sales.
- How operating cash burn, construction commitments, debt repayments, and further equity issuance affected liquidity and dilution.
- Whether consumer and market acceptance supported profitable commercialization; the filing reported continuing losses and only limited product revenue.