AquaBounty Technologies, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The company develops and commercializes genetically modified aquaculture products, principally AquAdvantage Salmon. Its first product sales occurred in June 2017.
Financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $53,000 | $0 |
| Product costs / gross profit | $51,000 / approximately $2,500 | — |
| Operating loss | $9.23 million | $8.07 million |
| Net loss | $9.26 million | $8.47 million |
| Basic and diluted loss per share | $1.06 | $1.60 |
| Cash used in operating activities | $9.10 million | $7.45 million |
| Cash used in investing activities | $19.05 million | $1.07 million |
| Cash and cash equivalents at year-end | $493,000 | $3.32 million |
| Total debt | $3.08 million | $2.66 million |
| Total assets / stockholders’ equity | $23.73 million / $17.98 million | $5.71 million / $2.03 million |
2017 operating loss widened 14% and net loss increased 9% year over year. General and administrative expense rose 34% to $5.06 million, while research and development expense was broadly flat at $3.37 million. The small initial sales generated approximately $2,500 of gross profit; a meaningful operating margin is not established. Year-end current assets of $1.39 million were below current liabilities of $2.72 million.
Investing outflows primarily funded the Indiana facility purchase and upgrades and construction at Rollo Bay. The company raised approximately $25.0 million from an equity placement with Intrexon in January 2017. After year-end, a January 2018 public offering generated approximately $10.6 million net proceeds; management said available funds, including the offering proceeds, were sufficient for the next 12 months. Management also expects to seek further financing. The company reported an accumulated deficit of $108.5 million and stated it expects continuing losses.
Business developments and comparison with prior period
- Revenue began in 2017 with sales of Panama-produced salmon shipped to customers in Canada; there was no product revenue in 2016.
- The company acquired the Bell Fish Company aquaculture facility in Albany, Indiana, for approximately $14.2 million, including related costs. It is upgrading the site toward planned annual capacity of 1,200 metric tons.
- Construction continued on a Rollo Bay, Prince Edward Island, facility planned for 250 metric tons annually, including a broodstock facility. The company reported $4.2 million of 2017 construction spending at Rollo Bay and an additional $0.9 million committed there.
- Capital spending drove the substantial increase in property and equipment, from $1.72 million net at year-end 2016 to $21.80 million at year-end 2017.
- G&A expense increased due to compensation, professional fees, corporate taxes, and Indiana facility maintenance and repair. Lower outside research and sales-related costs partly offset increases in other expense categories.
Outlook, risks, and contingencies
- Management expects modest revenue in 2018 and more significant revenue in the second half of 2019, after the Indiana and Rollo Bay facilities are operational and production fish mature. Timing depends on construction, facility approvals, and production execution; these are forward-looking expectations, not assured results.
- AquAdvantage Salmon has U.S. FDA and Canadian food approvals. However, the U.S. Import Alert restricting imports remains tied to final FDA labeling guidance, and the filing states there is no certainty when or whether the alert will be lifted. Each new U.S. production site also requires FDA approval and local permits.
- A coalition of NGOs’ lawsuit challenging the FDA approval remained in discovery. The company believes the claims lack merit; the outcome and related costs are uncertain.
- Key risks include ongoing losses and dependence on additional capital, regulatory delays, consumer resistance and potential labeling requirements for genetically modified food, facility construction and ramp-up risks, disease or loss of broodstock, and competition from established salmon producers.
- Intrexon is the controlling shareholder. Following the January 2018 offering, the filing reports Intrexon held approximately 53% of outstanding shares and could hold approximately 58% upon warrant exercise. Intrexon-related agreements include payments tied to gross profits on products developed under the collaboration and 50% of sublicense revenue.
- The company reported no off-balance-sheet arrangements. The financial statements received an unqualified audit opinion. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not provide an internal-control audit opinion because the company qualified as an emerging growth company.
Most important facts for investors to verify
- Current cash, cash burn, financing runway, and the timing and terms of any additional capital raises.
- Completion, FDA approval, operating readiness, and production capacity of the Indiana and Rollo Bay facilities; validate the expected late-2019 commercial harvest timeline.
- Status of the U.S. Import Alert and labeling guidance, approvals for each production site, and the outcome of the NGO litigation.
- Commercial sales volumes, pricing, product acceptance, and whether the initial sales economics can scale.
- Post-offering share count, warrant dilution, and the implications of Intrexon’s voting control and related-party arrangements.