AquaBounty Technologies, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. AquaBounty is developing and commercializing AquAdvantage Salmon, a genetically modified Atlantic salmon approved by the U.S. FDA in 2015 and by Health Canada for sale and consumption in 2016. The company made its first product sales in June 2017.
Key financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Product revenue | $0 | $0 | $53,278 | $0 |
| Product costs | $0 | $0 | $50,777 | $0 |
| Gross profit | — | — | $2,501 | — |
| Operating loss | $(2.44) million | $(2.01) million | $(6.58) million | $(5.78) million |
| Net loss | $(2.45) million | $(2.14) million | $(6.60) million | $(6.02) million |
| Net loss per share | $(0.28) | $(0.41) | $(0.76) | $(1.15) |
| Cash used in operations | — | — | $(6.68) million | $(5.43) million |
The first sales were a small batch harvested at the Panama farm and shipped to customers in Canada. Management reported approximately $3,000 gross margin on those sales, noting the inventory had previously been valued at net realizable value. Sales are expected to remain infrequent and low-volume until the Indiana and Rollo Bay facilities are operational and fish mature, expected in the second half of 2019.
Financial position and funding
- Cash and cash equivalents were $4.72 million at September 30, 2017, versus $3.32 million at December 31, 2016. Current assets were $5.27 million and current liabilities $1.66 million.
- Total debt was $3.12 million, of which $55,223 was current. Most debt was non-interest-bearing Canadian government funding; interest-bearing debt was fixed-rate.
- Property, plant and equipment, net, increased to $19.48 million from $1.72 million at year-end 2016, reflecting significant facility investment. Nine-month capital spending was $17.24 million.
- Financing provided $25.25 million in the first nine months, primarily from a January 2017 private placement of common shares to majority shareholder Intrexon, generating approximately $25.0 million net. Shares outstanding rose to 8,895,094 from 6,463,936 at year-end 2016.
- Management said available funds were expected to be used by the end of December 2017, based on planned operating, capital and working-capital needs. It expects to seek additional equity or debt and said spending could be slowed if funding is delayed. The statements are prepared on a going-concern basis; management’s assessment depends on obtaining further financing.
Changes, outlook and key risks
- Nine-month net loss increased by $571,000 year over year. General and administrative costs rose $1.03 million to $3.45 million, driven by compensation, professional fees, corporate taxes, and Indiana facility maintenance and repairs. Lower research and development and sales and marketing costs partly offset the increase.
- On June 22, AquaBounty acquired the Albany, Indiana aquaculture facility assets for $14.2 million, accounted for as an asset purchase. The facility was idle for repairs and upgrades; the company planned approximately $5.0 million of additional upgrades. Rollo Bay renovations included $3.7 million of construction in process, with a further $2.1 million committed.
- Management expects sales and marketing and research and development spending to rise with commercialization and site development; general and administrative expenses may also increase with public-company compliance costs. The filing gives no formal revenue or earnings guidance.
- A lawsuit challenging FDA approval of AquAdvantage Salmon was in discovery. The plaintiffs allege the FDA lacked authority and failed to adequately address environmental risks, including potential impacts on wild salmon.
- Potential U.S. labeling requirements for bioengineered foods, and proposed legislation specific to AquAdvantage Salmon, could affect consumer acceptance, trigger additional review of FDA approval, or delay commercialization. The company also cited regulatory, market-acceptance, production, intellectual-property, and financing risks.
Important facts for investors to verify
- Whether AquaBounty secures financing before its projected cash runway ends, and the resulting dilution, cost, or financing terms.
- Progress, cost and timing of Indiana upgrades and Rollo Bay construction, including the stated 2019 production timeline.
- Commercial harvest and sales volume, customer acceptance, and whether product economics support positive margins at scale.
- Developments in the FDA-approval litigation and U.S. labeling or other regulatory requirements.
- Execution against the going-concern funding assumptions and ongoing cash burn.