AquaBounty Technologies, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. AquaBounty is developing and commercializing land-based aquaculture, with AquAdvantage Salmon as its lead product. The product had U.S. FDA and Canadian approvals; the company reported commercial activities in both countries.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Product revenue | $6,753 | $97,885; down 93% |
| Total costs and expenses | $3.10 million | $2.85 million |
| Operating loss | $3.09 million | $2.76 million |
| Net loss | $3.11 million | $2.76 million |
| Basic and diluted loss per share | $0.11 | $0.18 |
| Net cash used in operations | $2.93 million | $2.13 million |
| Cash and cash equivalents, quarter-end | $14.75 million | $2.80 million at Dec. 31, 2019 |
| Total debt, quarter-end | $4.18 million | $4.60 million at Dec. 31, 2019 |
Revenue consisted primarily of conventional Atlantic salmon fry. The filing does not provide a clear gross margin measure; production costs were reported as operating expenses. Cash provided by financing was $14.48 million, mainly from a February public offering that yielded $14.5 million net proceeds after costs. Investing activities provided $0.42 million net, including $1.0 million in legal-settlement proceeds and $98,000 from equipment sales, partly offset by $691,000 of capital spending. Cash increased by $11.95 million during the quarter.
At March 31, total assets were $41.41 million, current assets $17.03 million, current liabilities $2.05 million, and stockholders’ equity $35.00 million. Inventory rose to $1.83 million from $1.23 million at year-end, including $1.53 million of fish in process. Long-term debt was $4.03 million; the company also reported $0.34 million of long-term lease obligations.
Material changes and operating developments
- General and administrative expense increased 30% to $1.64 million, attributed to higher personnel and compensation, share-based compensation, consulting, and legal fees related to the FDA challenge.
- Research and development expense fell 14% to $569,000, mainly due to lower field-trial costs following the Panama demonstration farm closure, partly offset by higher contract-service fees.
- Production costs declined 2% to $841,000; lower costs associated with product revenue were partly offset by costs of increasing fish biomass at Indiana and Rollo Bay.
- The February offering issued 10.35 million shares. Shares outstanding were 32.09 million at March 31, versus 21.64 million at December 31, 2019.
- Rollo Bay construction in process was $1.7 million, with a further $236,000 committed. The company received the final C$300,000 (approximately $212,000) available under a Finance PEI loan on April 23, 2020.
Outlook, risks, and contingencies
Management expected sales from the Indiana and Rollo Bay farms to begin in June and December 2020, respectively, and anticipated modest, infrequent sales until harvests began. It expected sales and marketing expense to increase with sales, and R&D expense to rise as broodstock capacity, field trials, and regulatory work expanded. Management stated that available cash was expected to fund requirements for at least 12 months from the filing date, accounting for foreseeable COVID-19 effects. The company has incurred recurring losses and negative operating cash flows since inception and may need additional financing; future equity financing could dilute shareholders.
COVID-19 had not adversely affected operations through the quarter, but its future effect was uncertain. The company described worker-separation and safety measures and noted potential disruption to production, shipments, suppliers, demand, regulatory processes, and access to capital. It could not reasonably estimate the financial impact.
A lawsuit challenging FDA approval of AquAdvantage Salmon was proceeding on substantive briefing after discovery. Plaintiffs allege, among other matters, that FDA lacked authority and failed to address environmental and ecological risks. The company intervened to protect its interests. No other material changes to previously disclosed commitments and contingencies were reported. ACOA deferred government payments for three months beginning April 1, 2020.
Other stated risks include maintaining existing and obtaining additional regulatory approvals, scaling farm operations and achieving market acceptance, and reliance on future financing. The filing also disclosed significant affiliated ownership: related parties associated with Randal J. Kirk reported control over approximately 44.4% of outstanding shares.
Important facts for investors to verify
- Whether the projected Indiana and Rollo Bay harvest and sales start dates were achieved, and the resulting production volumes and sales economics.
- Cash burn, capital spending, and financing needs relative to management’s stated 12-month liquidity outlook.
- COVID-19 effects on farm operations, suppliers, transportation, demand, and funding access.
- Progress and outcome of the FDA-approval litigation, and any resulting regulatory or commercialization changes.
- Additional dilution and changes in share count, including the effects of future equity or convertible financing.