AquaBounty Technologies, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. AquaBounty is a biotechnology and aquaculture company developing and commercializing AquAdvantage Salmon. The company reported its first product sales during the quarter.
Financial performance and position
| Metric | Q2 2017 | Six months 2017 | Comparison |
|---|---|---|---|
| Product revenue | $53,278 | $53,278 | None in comparable 2016 periods |
| Product costs | $50,777 | $50,777 | None in comparable 2016 periods |
| Gross profit | Approximately $3,000 | Approximately $3,000 | First sales; company says margin was limited because inventory had previously been valued at net realizable value |
| Operating loss | $2.09 million | $4.14 million | Up 5% and 10%, respectively |
| Net loss | $2.09 million | $4.15 million | Up 1% and 7%, respectively |
| Basic and diluted loss per share | $0.24 | $0.48 | Compared with $0.39 and $0.74, respectively, in 2016 |
Cash flow and liquidity: Cash and cash equivalents were $7.99 million at June 30, 2017, versus $3.32 million at December 31, 2016. For the first six months, operating cash use was $4.40 million, investing cash use was $16.19 million, and financing provided $25.26 million. Financing included approximately $25.0 million of net proceeds from a private placement to Intrexon. Management said available funds were insufficient for planned operations, capital spending, and working capital over the next 12 months, and expects to seek additional debt or equity financing; it did not believe substantial doubt existed about continuing as a going concern.
Debt and balance sheet: Total debt was $3.01 million, including $53,089 current and $2.95 million long-term. Total assets were $26.91 million, liabilities $3.96 million, and stockholders’ equity $22.95 million. The accumulated deficit was $103.42 million. Cash, cash equivalents, and certificates of deposit totaled about $8.00 million.
Material developments and outlook
- The company acquired the Bell Fish Company aquaculture facility in Albany, Indiana, for $14.2 million, including related expenses, and accounted for it as an asset purchase. It plans about $1.5 million in upgrades for U.S. production.
- Property, plant, and equipment purchases totaled $16.19 million in the first half, including the Indiana acquisition and Rollo Bay construction and renovation. Rollo Bay had $2.2 million of construction in process and a further $2.4 million committed to renovations.
- Management expects infrequent, small sales until the Indiana and Rollo Bay facilities are operational and fish mature. It anticipated modest revenue in 2017 and 2018 and more significant revenue when new facilities reach full production, expected in the second half of 2019. These are expectations, not assured results.
- Six-month G&A expense increased 29% to $2.07 million, primarily reflecting public-company listing, professional-fee, compensation, and tax costs. R&D decreased 4% to $1.66 million; sales and marketing decreased 7% to $411,198.
- At June 30, the company had 8,895,094 common shares outstanding, up from 6,463,936 at year-end, primarily reflecting the January private placement. A 1-for-30 reverse share split took effect in January 2017; share figures are restated.
Risks, contingencies, and other items
- A lawsuit challenging FDA approval of AquAdvantage Salmon was in discovery. Plaintiffs dispute FDA authority and allege inadequate analysis of ecological, environmental, and socioeconomic risks. The filing identifies potential legal costs and outcomes as factors affecting capital needs.
- Key risks include further regulatory approvals and permits, market acceptance, production and distribution capability, facility construction and upgrades, access to financing, and protection of intellectual property. The filing reported no material changes to the risk factors in the 2016 Form 10-K.
- Additional equity financing could dilute shareholders; debt could impose restrictive covenants. Other funding or commercial arrangements could require relinquishing valuable rights.
- In July 2017, the company extended its Maynard office lease through March 2023, with annual rent of approximately $60,000, increasing to $68,000 during the term.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Progress, costs, permits, and timelines for bringing the Indiana and Rollo Bay facilities into production, including the 2019 production expectation.
- Whether the company secures enough additional financing to fund its stated needs, and the resulting effects on dilution, debt, or shareholder rights.
- Updates and potential financial or commercial effects of the FDA approval lawsuit and any further regulatory requirements.
- Repeat sales, realized pricing, production costs, and customer acceptance; the initial sales were only $53,278 and management expected limited near-term volume.
- Cash use relative to plan, committed renovation spending, and the company’s ability to sustain operations while continuing to incur losses.