AquaBounty Technologies, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. AquaBounty develops and commercializes AquAdvantage Salmon, which had U.S. FDA approval and Canadian approvals. The company said sales would remain modest and infrequent until its Indiana and Rollo Bay facilities reach full production.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Product revenue | $97,885 | $19,097 |
| Product costs | $81,613 | $16,232 |
| Gross profit and margin | $16,272; 16.6% | $2,865; 15.0% |
| Operating loss | $(2,755,693) | $(2,443,472) |
| Net loss | $(2,763,931) | $(2,449,787) |
| Basic and diluted loss per share | $(0.18) | $(0.21) |
| Cash used in operating activities | $(2,132,680) | $(2,467,077) |
Revenue increased 416%, but remained small relative to operating costs. The operating loss widened 13%, principally alongside higher general and administrative expense; R&D expense declined 32%. G&A rose 47% to $2.04 million, reflecting personnel and stock compensation, legal and travel costs, and excess capacity at the Indiana facility. Sales and marketing expense fell 12%.
Cash and cash equivalents were $7.63 million at quarter-end, versus $2.99 million at December 31, 2018. Current assets were $8.20 million and current liabilities $1.13 million. Total debt was $4.03 million, including $90,200 current debt; long-term lease obligations were $399,935. Cash increased by $4.64 million, supported by $7.23 million in financing cash flows, including the March equity offering. Capital expenditures were $456,436.
Changes, outlook, and risks
- On March 21, the company sold 3.35 million common shares, receiving $6.6 million net. Subsequent offerings and an overallotment in April raised a further $5.2 million and $696,000 net, respectively. Management reported gross debt and equity proceeds of $14.7 million since year-end, including warrant exercises.
- Management said available funds, including subsequent offering proceeds, were sufficient for planned requirements over the next 12 months, while anticipating a need for additional capital thereafter. The company may reduce or delay spending to preserve cash; future financing is not assured and equity financing could dilute shareholders.
- The 2018 annual report had disclosed substantial doubt about the company’s ability to continue as a going concern. Management said its mitigation plan had been implemented and its updated cash assessment supported the next 12 months; funding needs remain dependent on operations, construction, and other assumptions.
- Management expected sales to remain modest until the Indiana and Rollo Bay farms are in full production and stated it did not expect significant sales until 2020 at the earliest. It anticipated higher R&D spending as Rollo Bay development and pursuit of additional approvals continue.
- Rollo Bay construction in progress was $6.0 million, with a further $828,000 committed. The company also reported a new zero-interest C$500,000 ACOA loan for Rollo Bay renovations.
- A lawsuit challenging FDA approval of AquAdvantage Salmon remained pending after discovery, with substantive briefing to follow. Plaintiffs seek, among other remedies, to vacate the FDA approval; an adverse outcome could delay or restrict U.S. sales. The FDA lifted the import alert on March 8, 2019, following federal bioengineered-food labeling guidance.
- Key business risks include regulatory changes or challenges, commercial acceptance and production execution, funding requirements, and possible dilution. The filing also notes that Intrexon and affiliated entities were reported to control approximately 42% of outstanding shares through Randal J. Kirk, creating significant influence over corporate matters.
Important facts for investors to verify
- Whether Indiana and Rollo Bay reach planned production levels and on what timetable.
- Cash burn, committed construction spending, and the company’s need and ability to obtain future financing.
- Progress and potential effects of the FDA litigation and any changes to regulatory or labeling requirements.
- Sales mix, unit economics, and whether the reported gross margin can improve as production scales.
- Share dilution from recent offerings, outstanding warrants, and Intrexon-affiliated ownership and governance influence.