AquaBounty Technologies, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. AquaBounty is developing and commercializing AquAdvantage Salmon, which had received U.S. FDA approval and Canadian approvals. Commercial sales remained limited while the company built out production capacity.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $10,938 | $0 | $77,933 | $53,278 |
| Product costs | $8,874 | $0 | $72,393 | $50,777 |
| Gross profit / margin | $2,064 / 18.9% | — | $5,540 / 7.1% | $2,501 / 4.7% |
| Operating loss | $(2.72) million | $(2.44) million | $(7.95) million | $(6.58) million |
| Net loss | $(2.73) million | $(2.45) million | $(7.96) million | $(6.60) million |
| Net loss per share | $(0.21) | $(0.28) | $(0.64) | $(0.76) |
Q3 revenue was from non-transgenic Atlantic salmon fry; nine-month revenue included AquAdvantage Salmon and non-transgenic eggs and fry. Sales were still modest. The nine-month net loss increased 21%, principally as general and administrative costs rose 47% and research and development costs rose 6%; lower sales and marketing expense partly offset the increases. In Q3, general and administrative expense rose 34%, while sales and marketing and research and development expenses declined.
- Cash flow: Nine-month operating cash use was $7.47 million, investing cash use was $3.35 million, and financing provided $11.38 million. Cash increased $538,000 to $1.03 million at September 30.
- Liquidity: Current assets were $1.51 million and current liabilities $1.54 million. Management said available funds, including subsequent financing, were expected to be used during the first half of 2019, primarily due to higher working-capital needs.
- Debt: Total debt was $3.03 million, including $59,636 current and $2.97 million long term. Most debt was non-interest-bearing; $516,000 was interest-bearing at fixed rates.
- Capital and assets: Property, plant and equipment, net, was $24.00 million, up from $21.80 million at year-end 2017. Accumulated deficit was $116.49 million.
Business developments and outlook
The Indiana aquaculture facility was operational, with upgrades expected to continue through 2019. Rollo Bay construction continued: the grow-out building was expected to be completed by year-end 2018 and the broodstock building during 2019. Management expected sales to remain modest and infrequent until the Indiana and Rollo Bay facilities were operational and at capacity. It anticipated increased research and development spending as Rollo Bay development and regulatory work progressed; general and administrative costs were expected to decrease as Indiana production increased. No specific revenue or earnings guidance was provided.
After quarter-end, AquaBounty obtained a C$2.0 million (approximately $1.6 million) loan for Rollo Bay construction. On October 24, it raised net proceeds of $4.3 million through an offering associated with conversion of 2,250,461 warrants at $2.00 per share; Intrexon participated. The company also reported a January 2018 public offering that generated $10.6 million net and warrant exercises that provided $812,000 through September.
Risks, contingencies and notable items
- Management said additional financing would be needed and there was no assurance it could be obtained. If financing or other funding sources are insufficient, the company may exhaust resources and be unable to maintain planned operations. Management relied on spending reductions, delayed capital expenditures, asset sales, and financing plans in supporting its going-concern basis.
- A lawsuit challenging FDA approval of AquAdvantage Salmon was in discovery. Plaintiffs allege, among other matters, that the FDA lacked authority and did not adequately address environmental risks, including escape and potential effects on wild salmon.
- Key risks include regulatory approvals and permits, commercial acceptance, production and facility costs, and the ability to raise capital. The company disclosed no material updates to its previously reported risk factors.
- Rollo Bay construction included $5.6 million of costs in construction in process, with another $1.0 million committed; Indiana upgrades had $100,000 additionally committed. These projects and working-capital needs are significant cash requirements.
- Common shares outstanding were 12,848,376 at September 30 and 15,098,837 at November 1, reflecting subsequent share activity. Further equity financing could dilute existing holders.
Investor facts to verify
- Whether the subsequent $4.3 million equity proceeds and $1.6 million construction loan, together with available cash, adequately fund operations and planned capital spending.
- Whether Indiana and Rollo Bay construction, commissioning, and production ramp-up meet expected timelines and budgets.
- Whether commercial sales expand beyond the limited sales reported, and whether product revenue can cover production costs and operating expenses.
- Developments in the FDA approval litigation and any further regulatory approvals or market-access changes.
- The terms and potential dilution from warrant conversions, future financing, and the company’s debt obligations.