AquaBounty Technologies, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. 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 ramping up its Indiana and Rollo Bay farms.
Financial results and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Product revenue | $2,950 | $42,486 | $9,703 | $140,371 |
| Operating loss | $(3.50) million | $(4.02) million | $(6.60) million | $(6.78) million |
| Net loss | $(3.52) million | $(4.03) million | $(6.63) million | $(6.79) million |
| Net loss per share | $(0.11) | $(0.19) | $(0.22) | $(0.37) |
- At June 30, cash and cash equivalents were $10.02 million; current assets were $13.26 million and current liabilities were $1.97 million.
- Six-month operating cash use was $6.97 million, investing cash use was $0.49 million, and financing provided $14.70 million. Cash increased by $7.22 million from year-end 2019.
- Total debt was $4.56 million at June 30, including $4.42 million long-term debt; fixed-rate interest-bearing debt was approximately $1.9 million. Lease liabilities were $0.38 million.
- Total assets were $38.50 million and stockholders’ equity was $31.78 million. The accumulated deficit was $138.78 million.
Changes and operating developments
- Revenue fell 93% year over year in both Q2 and the first half. Q2 revenue was conventional Atlantic salmon eggs; first-half 2020 revenue included conventional salmon fry and eggs, while first-half 2019 included AquAdvantage salmon sold from the Panama demonstration farm.
- Q2 production costs increased 11% to $1.04 million as fish biomass grew at Indiana and Rollo Bay. They included a $316,000 inventory write-down reflecting lower salmon market prices. First-half production costs rose 4% to $1.88 million.
- Q2 R&D declined 22% to $636,000, primarily on lower field-trial and personnel costs; G&A declined 23% to $1.69 million, including lower compensation, FDA-litigation legal fees, and travel. Management expected R&D and sales and marketing spending to rise as operations and commercialization expand.
- Cash from the February public offering was $14.52 million net, in exchange for 10.35 million shares. This materially increased shares outstanding; the company reported 32.11 million shares at quarter-end.
- Inventory increased to $2.49 million from $1.23 million at year-end, largely reflecting fish in process. Capital spending included Indiana renovations and Rollo Bay construction; $1.8 million of construction in process related to Rollo Bay, with an additional $307,000 committed.
Outlook, risks, and unusual items
- Management expected sales from Indiana to begin in Q3 2020 and from Rollo Bay in Q4 2020, while cautioning that near-term sales would be modest and infrequent as distribution is built. These are forward-looking expectations, not reported results.
- Management said June-quarter cash, a subsequent loan, and expected Indiana-farm revenues should fund requirements for at least 12 months from the filing date. The company had sustained losses and negative operating cash flow and may need additional financing; future funding availability was uncertain.
- COVID-19 had not adversely affected farm operations through the reporting period, but delayed Indiana processing-facility completion into Q3, prompting consideration of third-party processing. Lower food-service demand reduced Atlantic salmon market prices and could affect forecasts if sustained. The broader financial and operating impact remained uncertain.
- On July 31, 2020, after quarter-end, the Indiana subsidiary received a $4.0 million secured loan. It bears 5.3% interest for five years, then resets to the U.S. Treasury five-year rate plus 5%; it requires interest-only payments for 15 months followed by monthly payments of about $57,000. It is subject to covenants, collateral and a parent guarantee, and requires a $500,000 minimum cash balance with the lender.
- A $1.0 million net legal-settlement receipt in March reduced the carrying value of acquired equipment and was classified in investing cash flows. A lawsuit challenging FDA approval of AquAdvantage salmon remained pending; the court had ruled FDA had statutory authority, with substantive briefing on the approval challenge continuing.
- Key risks include market acceptance and opposition to bioengineered products, regulatory approvals and potential delays, scaling commercial production, reliance on third parties for processing and distribution, farm interruption or fish loss, COVID-19 disruption, financing needs, and the FDA litigation. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Investor verification points
- Verify progress and timing of Indiana and Rollo Bay production, harvests, processing capacity, and actual commercial sales against management’s Q3/Q4 2020 expectations.
- Monitor salmon prices, inventory valuation and fish biomass, particularly the $316,000 write-down and the increase in fish-in-process inventory.
- Review cash burn, future capital needs, and compliance with the July 2020 loan’s covenants and minimum-cash requirement; assess whether expected sales support the stated liquidity runway.
- Track the FDA approval litigation, any additional regulatory requirements, and the commercial effect of consumer or retailer resistance to bioengineered salmon.
- Assess dilution and governance implications of the public offering and significant affiliate ownership; the filing states that affiliates controlled approximately 44.4% of outstanding shares.