PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited statements show increased revenue and costs, leading to a larger net loss and significant capital investment Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $118,888,889 | $88,454,988 | | Marketable securities | $29,354,888 | $101,773,781 | | Total current assets | $154,609,571 | $193,025,163 | | Property, plant and equipment, net | $63,978,895 | $33,815,119 | | **Total assets** | **$220,139,761** | **$228,435,992** | | **Liabilities & Equity** | | | | Total current liabilities | $8,407,224 | $5,885,838 | | Total liabilities | $16,727,586 | $14,633,229 | | Total stockholders' equity | $203,412,175 | $213,802,763 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Product revenues | $1,069,706 | $227,393 | $2,032,587 | $301,765 | | Total costs and expenses | $6,640,245 | $5,406,808 | $12,706,932 | $9,566,228 | | Operating loss | ($5,570,539) | ($5,179,415) | ($10,674,345) | ($9,264,463) | | Net loss | ($5,536,042) | ($5,230,737) | ($10,647,768) | ($9,389,628) | | Basic and diluted net loss per share | ($0.08) | ($0.07) | ($0.15) | ($0.14) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($11,256,408) | ($10,457,833) | | Net cash provided by (used in) investing activities | $41,966,420 | ($74,151,566) | | Net cash (used in) provided by financing activities | ($274,724) | $121,171,061 | | Net change in cash, cash equivalents and restricted cash | $30,433,901 | $36,594,191 | - The company began selling its GE Atlantic salmon in the United States, Canada, and Brazil after receiving regulatory approvals[26](index=26&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses higher revenue from salmon sales offset by rising costs, and the significant capital needed for the new Ohio farm [Results of Operations](index=16&type=section&id=Results%20of%20Operations) Revenue grew significantly due to higher harvest volumes, but increased production costs and inventory charges widened net losses Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product Revenue | $1.07M | $0.23M | +$0.84M | +371% | | GE Salmon Harvest (mt) | 129 | 69 | +60 | +87% | | Product Costs | $3.25M | $1.85M | +$1.40M | +76% | | Net Loss | ($5.54M) | ($5.23M) | +$0.31M | +6% | H1 2022 vs H1 2021 Performance | Metric | H1 2022 | H1 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product Revenue | $2.03M | $0.30M | +$1.73M | +573% | | GE Salmon Harvest (mt) | 262 | 69 | +193 | +280% | | Product Costs | $6.53M | $3.40M | +$3.13M | +92% | | Net Loss | ($10.65M) | ($9.39M) | +$1.26M | +13% | - Production costs were higher than the net realizable value of the salmon produced, resulting in inventory value charges of **$2.0 million for Q2 2022** and **$4.1 million for H1 2022**[83](index=83&type=chunk)[90](index=90&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) The company has sufficient liquidity for the next year but requires substantial additional financing for its Ohio farm construction - The company's plans include the construction of a 10,000 metric ton salmon farm in Ohio, with a current estimated cost **exceeding $320 million**[103](index=103&type=chunk) - Management believes its cash position of **$149.2 million** is sufficient for more than twelve months but requires additional financing to execute its business plan[29](index=29&type=chunk)[103](index=103&type=chunk) - Cash from investing activities was **$42.0 million** in H1 2022, primarily from the net sale of marketable securities to fund construction and equipment purchases[97](index=97&type=chunk)[99](index=99&type=chunk) - Financing activities in H1 2021 provided **$121.2 million** from a public stock offering, whereas H1 2022 financing activities used **$0.3 million**[97](index=97&type=chunk)[101](index=101&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks involve interest rates on debt and foreign currency fluctuations from its Canadian operations - The company's primary market risk exposures are **interest rate risk** on debt and **foreign currency exchange risk** from its Canadian operations[115](index=115&type=chunk) - Most of the company's existing interest-bearing debt is at **fixed rates**, mitigating immediate risk from rate changes[116](index=116&type=chunk) [Item 4. Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were **effective**[118](index=118&type=chunk) - No changes occurred during the fiscal quarter that materially affected the company's internal control over financial reporting[120](index=120&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any legal proceedings that would materially impact its business or financial condition - The company is **not party to any material legal proceedings**[122](index=122&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) Key risks include the need for substantial capital for the Ohio farm, compounded by rising inflation and interest rates - The company's business plan requires substantial additional capital, particularly for the Ohio farm, which is estimated to cost **over $320 million**[124](index=124&type=chunk)[125](index=125&type=chunk) - The company **does not have the financial resources to fully fund the Ohio farm** and will need to raise funds through debt financing[126](index=126&type=chunk) - Due to inflationary pressures, the company has **slowed its planned timeline for pursuing debt financing** to re-estimate construction costs[125](index=125&type=chunk) - Rising inflation poses a risk to profitability if cost increases cannot be passed on to customers or if consumer spending declines[133](index=133&type=chunk)[134](index=134&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the reporting period - None[136](index=136&type=chunk) [Item 3. Defaults Upon Senior Securities](index=25&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the reporting period - None[137](index=137&type=chunk) [Item 4. Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable as the company is not engaged in mining operations - Not applicable[137](index=137&type=chunk) [Item 5. Other Information](index=25&type=section&id=Item%205.%20Other%20Information) No other material information was required to be reported during the period - None[137](index=137&type=chunk) [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including required CEO and CFO certifications under the Sarbanes-Oxley Act - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[140](index=140&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _____________________ Commission File Number: 001-36426 AquaBounty Technologies, Inc. (Exact name of the registrant as specified in its char ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _____________________ | --- | --- | |-------------------------------------------------------------------------|---------------------------------- ...

[Cover Page and Filer Information](index=1&type=section&id=Cover%20Page) This section identifies AquaBounty Technologies, Inc. as a non-accelerated filer and details its common stock outstanding - AquaBounty Technologies, Inc. is classified as a non-accelerated filer, a smaller reporting company, and an emerging growth company[3](index=3&type=chunk) - As of May 4, 2020, the registrant had **32,085,684 shares of common stock outstanding**[3](index=3&type=chunk) [Table of Contents](index=2&type=section&id=TABLE%20OF%20CONTENTS) This section provides an organized listing of all chapters and sections within the report [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines the inherent risks and uncertainties associated with future-oriented statements in the report - This report contains forward-looking statements concerning future financial and operational performance, business strategy, commercialization plans, regulatory approvals, production timelines, and the potential impact of the COVID-19 pandemic[6](index=6&type=chunk) - Key risks highlighted include the anticipated benefits of AquAdvantage Salmon, execution of the business plan, development of new farms, research projects, market entry, competitive position, operating results, cash position, ability to raise capital, the impact of COVID-19, intellectual property protection, regulatory changes, market acceptance, and personnel retention[6](index=6&type=chunk) [Part I. Financial Information](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited interim consolidated financial statements and related disclosures [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited interim consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, with explanatory notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights | Metric | March 31, 2020 | December 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $14,749,746 | $2,798,744 | +$11,951,002 | | Total current assets | $17,031,276 | $4,477,153 | +$12,554,123 | | Total assets | $41,414,178 | $30,233,739 | +$11,180,439 | | Total current liabilities | $2,048,354 | $1,688,250 | +$360,104 | | Total liabilities | $6,418,095 | $6,473,110 | -$55,015 | | Total stockholders' equity | $34,996,083 | $23,760,629 | +$11,235,454 | [Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section details the company's revenues, expenses, and net loss over specific reporting periods Consolidated Statements of Operations and Comprehensive Loss Highlights | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | | Product revenues | $6,753 | $97,885 | -$91,132 (-93%) | | Total costs and expenses | $3,098,174 | $2,853,578 | +$244,596 (+8.6%) | | Operating loss | $(3,091,421) | $(2,755,693) | -$(335,728) (-12.2%) | | Net loss | $(3,109,618) | $(2,763,931) | -$(345,687) (-12.5%) | | Comprehensive loss | $(3,491,603) | $(2,676,380) | -$(815,223) (-30.4%) | | Basic and diluted net loss per share | $(0.11) | $(0.18) | +$0.07 | | Weighted average common shares outstanding | 27,116,754 | 15,687,681 | +11,429,073 | [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section tracks the changes in the company's equity components over the reporting period Changes in Stockholders' Equity Highlights | Metric | Balance at Dec 31, 2019 | Net Loss | Other Comprehensive Loss | Issuance of Common Stock, net | Share-based Compensation | Balance at Mar 31, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common stock, par value | $21,635 | - | - | $10,350 | $101 | $32,086 | | Additional paid-in capital | $156,241,363 | - | - | $14,511,354 | $205,252 | $170,957,969 | | Accumulated other comprehensive loss | $(360,160) | - | $(381,985) | - | - | $(742,145) | | Accumulated deficit | $(132,142,209) | $(3,109,618) | - | - | - | $(135,251,827) | | Total stockholders' equity | $23,760,629 | $(3,109,618) | $(381,985) | $14,521,704 | $205,353 | $34,996,083 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,934,710) | $(2,132,680) | | Net cash provided by (used in) investing activities | $419,350 | $(456,423) | | Net cash provided by financing activities | $14,482,313 | $7,226,577 | | Net change in cash and cash equivalents | $11,951,002 | $4,640,425 | | Cash and cash equivalents at end of period | $14,749,746 | $7,642,982 | [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20consolidated%20financial%20statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Note 1. Nature of Business and Organization](index=9&type=section&id=1.%20Nature%20of%20business%20and%20organization) This note describes the company's founding, core business, key product approvals, and subsidiary operations - AquaBounty Technologies, Inc. was incorporated in 1991, focusing on research and development of antifreeze proteins, and later obtained exclusive licensing rights for a gene construct to create faster-growing AquAdvantage Salmon[17](index=17&type=chunk) - The company received FDA approval in 2015 for AquAdvantage Salmon in the US and Health Canada approval in 2016 for sale and consumption in Canada[17](index=17&type=chunk) - Key subsidiaries include AQUA Bounty Canada Inc., AquaBounty Farms, Inc., AquaBounty Farms Indiana LLC, and AquaBounty Brasil Participações Ltda., with operations in Panama ceasing in May 2019[17](index=17&type=chunk) [Note 2. Basis of Presentation](index=9&type=section&id=2.%20Basis%20of%20presentation) This note explains the accounting principles used for financial statement preparation and the company's going concern considerations - The unaudited interim consolidated financial statements are prepared in conformity with GAAP, including all wholly-owned subsidiaries, and reflect normal recurring adjustments[18](index=18&type=chunk) - The Company has experienced net losses and negative cash flows since inception, with cumulative losses of **$135 million** and a cash balance of **$14.7 million** as of March 31, 2020[19](index=19&type=chunk) - Management believes current cash resources will meet requirements for at least the next twelve months, but future funding may be needed through equity, debt, or strategic alliances, with the COVID-19 pandemic introducing uncertainty to funding sources[19](index=19&type=chunk) [Net Loss Per Share](index=10&type=section&id=Net%20loss%20per%20share) This note details the calculation of basic and diluted net loss per share - Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding; all potential common shares are considered anti-dilutive due to net losses[20](index=20&type=chunk) [Accounting Pronouncements](index=10&type=section&id=Accounting%20Pronouncements) This note addresses the impact of recently issued accounting standards on the company's financial reporting - Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition[21](index=21&type=chunk) [Note 3. Risks and Uncertainties](index=10&type=section&id=3.%20Risks%20and%20uncertainties) This note discusses the risks and uncertainties, including the impact of the COVID-19 pandemic, on the company's operations - The COVID-19 pandemic introduces a novel and difficult-to-predict risk, though company operations have not been adversely affected to date, with biosecurity and farm site modifications implemented[22](index=22&type=chunk) - The Company continues to monitor potential impacts on commercial plans, including supply chain and transportation[22](index=22&type=chunk) [Concentration of Credit Risk](index=10&type=section&id=Concentration%20of%20credit%20risk) This note describes the company's exposure to credit risk and foreign currency exchange risk - Credit risk primarily stems from cash and cash equivalents, minimized by investing in short-term maturities from highly rated financial institutions[23](index=23&type=chunk) - Cash balances in Canadian bank accounts, totaling **$240 thousand** at March 31, 2020, are subject to foreign currency exchange risk, mitigated by limiting these balances[23](index=23&type=chunk) [Note 4. Inventory](index=10&type=section&id=4.%20Inventory) This note provides a detailed breakdown of the company's inventory categories and their values Inventory Breakdown | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Feed | $250,459 | $251,778 | | Eggs | $52,920 | $55,887 | | Fish in process | $1,530,578 | $924,384 | | **Total inventory** | **$1,833,957** | **$1,232,049** | [Note 5. Property, Plant and Equipment](index=10&type=section&id=5.%20Property,%20plant%20and%20equipment) This note details the company's property, plant, and equipment, including construction in process and related transactions Property, Plant and Equipment, Net | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total property and equipment | $27,445,810 | $28,627,477 | | Less: accumulated depreciation and amortization | $(3,737,581) | $(3,561,641) | | **Property, plant and equipment, net** | **$23,708,229** | **$25,065,836** | - Construction in process includes **$1.7 million** for the Rollo Bay farm site, with an additional **$236 thousand** committed[26](index=26&type=chunk) - The Company sold reclassified feed mill equipment for **$98,000** and settled a legal claim for **$1.0 million**, reducing the carrying value of acquired equipment[26](index=26&type=chunk) [Note 6. Accounts Payable and Accrued Liabilities](index=11&type=section&id=6.%20Accounts%20payable%20and%20accrued%20liabilities) This note provides a breakdown of the company's accounts payable and various accrued liabilities Accounts Payable and Accrued Liabilities | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Accounts payable | $1,233,052 | $809,444 | | Accrued payroll including vacation | $365,564 | $236,489 | | Accrued professional fees and contract services | $196,098 | $346,349 | | Accrued construction costs | $20,946 | $0 | | Accrued taxes and other | $19,025 | $70,527 | | **Total accounts payable and accrued liabilities** | **$1,834,685** | **$1,462,809** | [Note 7. Debt](index=11&type=section&id=7.%20Debt) This note details the company's outstanding debt obligations, including loan types, interest rates, and maturity dates Debt Outstanding | Loan Type | Interest Rate | Maturity Date | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | ACOA AIF grant | 0% | - | $2,026,426 | $2,206,208 | | ACOA term loan (C$337,000) | 0% | June 2026 | $162,937 | $184,583 | | ACOA term loan (C$500,000) | 0% | Nov 2028 | $342,999 | $384,100 | | Kubota Canada Ltd. | 0% | Jan 2025 | $46,752 | $53,533 | | Finance PEI term loan | 4% | Nov 2023 | $1,604,360 | $1,766,783 | | **Total debt** | | | **$4,183,474** | **$4,595,207** | | Less: current portion | | | $(150,730) | $(163,155) | | **Long-term debt** | | | **$4,032,744** | **$4,432,052** | - Estimated principal payments on loan debt total **$4,183,474**, with a significant portion (**$2,026,426**) for the AIF grant due thereafter[29](index=29&type=chunk) - In response to COVID-19, the Atlantic Canada Opportunities Agency deferred all government payments for three months starting April 1, 2020[29](index=29&type=chunk) [Note 8. Leases](index=12&type=section&id=8.%20Leases) This note outlines the company's lease obligations, including remaining payments and lease liabilities Lease Obligations and Remaining Payments | Lease Type | End Date | Remaining Years | Remaining Payments (Mar 31, 2020) | Lease Liability (Mar 31, 2020) | | :--- | :--- | :--- | :--- | :--- | | Maynard Office Lease | Mar 2023 | 3.0 | $199,545 | $173,646 | | Indiana Auto Lease | Feb 2021 | 0.9 | $4,789 | $4,389 | | Indiana Well Lease | Dec 2048 | 28.8 | $698,458 | $221,901 | | **Total leases** | | | **$902,792** | **$399,936** | | Less: current portion | | | $(85,519) | $(62,939) | | **Long-term leases** | | | **$817,273** | **$336,997** | - Lease expense for the three months ended March 31, 2020, was **$20 thousand**, down from **$65 thousand** in 2019, with a weighted average remaining lease term of **22.9 years**[30](index=30&type=chunk) [Note 9. Stockholders' Equity](index=12&type=section&id=9.%20Stockholders'%20equity) This note details changes in stockholders' equity, including public offerings, warrants, restricted stock, and stock options - On February 12, 2020, the Company completed a public offering of **10,350,000 Common Shares**, generating net proceeds of **$14.5 million**[33](index=33&type=chunk) Outstanding Warrants | Metric | Number of warrant shares | Weighted average exercise price | | :--- | :--- | :--- | | Outstanding at Dec 31, 2019 | 1,662,304 | $3.25 | | Outstanding at Mar 31, 2020 | 1,662,304 | $3.25 | | Exercisable at Mar 31, 2020 | 1,662,304 | $3.25 | Restricted Stock Activity | Metric | Shares | Weighted average grant date fair value | | :--- | :--- | :--- | | Balance at Dec 31, 2019 | 39,900 | $3.51 | | Granted | 100,319 | $1.88 | | Vested | (40,626) | $2.01 | | Balance at Mar 31, 2020 | 99,593 | $2.00 | - Share-based compensation expense for restricted stock was **$84 thousand** for Q1 2020, with **$196 thousand** unearned compensation remaining[36](index=36&type=chunk) Stock Option Activity | Metric | Number of options | Weighted average exercise price | | :--- | :--- | :--- | | Outstanding at Dec 31, 2019 | 573,925 | $4.94 | | Issued | 98,458 | $1.97 | | Expired | (14,835) | $11.62 | | Outstanding at Mar 31, 2020 | 657,548 | $4.35 | | Exercisable at Mar 31, 2020 | 524,398 | $4.93 | - Total share-based compensation on stock options amounted to **$121 thousand** for the three months ended March 31, 2020, with **$204 thousand** of unearned share-based compensation remaining[39](index=39&type=chunk) [Note 10. Commitments and Contingencies](index=14&type=section&id=10.%20Commitments%20and%20contingencies) This note addresses the company's contingent liabilities and commitments, noting no material changes since the last annual report - The Company accrues contingent liabilities when probable and estimable, with no material changes to commitments and contingencies since the 2019 Annual Report on Form 10-K, aside from construction costs mentioned in Note 5[40](index=40&type=chunk)[41](index=41&type=chunk) [Note 11. Subsequent Events](index=15&type=section&id=11.%20Subsequent%20Events) This note reports significant events occurring after the balance sheet date, such as loan disbursements - On April 23, 2020, the Canadian Subsidiary received the final **C$300 thousand** (**$212 thousand**) from a **C$2.0 million** loan obtained from Finance PEI in 2018[42](index=42&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key drivers, cash flow changes, and future capital requirements [Overview](index=16&type=section&id=Overview) This section introduces AquaBounty Technologies as a leader in land-based aquaculture with its FDA-approved AquAdvantage Salmon - AquaBounty Technologies is a leader in land-based aquaculture, with AquAdvantage Salmon as its FDA-approved lead bioengineered product for human consumption, and has commenced commercial activities in the US and Canada[45](index=45&type=chunk) [Recent Developments](index=16&type=section&id=Recent%20Developments) This section discusses the significant uncertainties introduced by the COVID-19 pandemic and management's response - The COVID-19 pandemic has introduced significant uncertainty, with potential material adverse impacts on business, financial condition, and operations, despite current preventative measures like segregating farm workers and remote work[46](index=46&type=chunk) - Management is focused on maintaining a strong balance sheet and liquidity while monitoring developments, expecting all operations to be impacted to some degree[46](index=46&type=chunk) [Revenue](index=16&type=section&id=Revenue) This section outlines the sources of product revenue and factors influencing future revenue growth - Product revenue is generated from AquAdvantage Salmon sales, conventional Atlantic salmon, salmon eggs, fry, and byproducts, with modest and infrequent sales expected until Indiana and Rollo Bay farms commence harvesting in June and December 2020, respectively[47](index=47&type=chunk) - Future revenue growth depends on regulatory approvals in new countries, grow-out farm capacity, and market acceptance[47](index=47&type=chunk) [Production Costs](index=16&type=section&id=Production%20Costs) This section describes the components of production costs and the company's employee count in production activities - Production costs include labor, feed, oxygen, other direct costs, and overhead for growing, processing, and shipping fish, with a portion absorbed into inventory[48](index=48&type=chunk) - As of March 31, 2020, the company had **thirty-seven employees** engaged in production activities[48](index=48&type=chunk) [Sales and Marketing Expenses](index=16&type=section&id=Sales%20and%20Marketing%20Expenses) This section details current sales and marketing expenses and anticipates future increases with fish sales - Current sales and marketing expenses are primarily consulting fees for market-related activities, with no dedicated employees as of March 31, 2020, but are expected to increase with the commencement of fish sales[49](index=49&type=chunk)[55](index=55&type=chunk) [Research and Development Expenses](index=17&type=section&id=Research%20and%20Development%20Expenses) This section outlines the components of R&D expenses and the number of personnel involved - R&D expenses primarily consist of salaries for personnel overseeing broodstock and research, fees for contract research organizations, laboratory supplies, and field trial operations[50](index=50&type=chunk)[51](index=51&type=chunk) - As of March 31, 2020, **eighteen scientists and technicians** were employed for R&D[50](index=50&type=chunk) [General and Administrative Expenses](index=17&type=section&id=General%20and%20Administrative%20Expenses) This section details G&A expenses, including salaries, corporate governance, and public company costs, along with employee count - G&A expenses include salaries for executive, corporate, and finance functions, corporate governance, public company costs, regulatory compliance, rent, utilities, insurance, and legal services[51](index=51&type=chunk) - The company had **thirteen employees** in its general and administrative group at March 31, 2020[51](index=51&type=chunk) [Other Income (Expense)](index=17&type=section&id=Other%20Income%20(Expense)) This section describes the components of other income and expense, such as interest and miscellaneous gains or losses - Other income (expense) comprises interest on outstanding loans, bank charges, fees, interest income, and miscellaneous gains or losses on asset disposals[52](index=52&type=chunk) [Results of Operations Summary](index=17&type=section&id=Results%20of%20Operations) This section provides a summary table of key financial results for the reporting period, comparing current and prior year performance Key Financial Results (Q1 2020 vs. Q1 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $7 | $98 | $(91) | (93)% | | Production costs | $841 | $862 | $(21) | (2)% | | Sales and marketing | $51 | $72 | $(21) | (29)% | | Research and development | $569 | $664 | $(95) | (14)% | | General and administrative | $1,637 | $1,256 | $381 | 30% | | Operating loss | $(3,091) | $(2,756) | $(335) | 12% | | Total other (income) expense | $18 | $8 | $10 | 125% | | Net loss | $(3,109) | $(2,764) | $(345) | 12% | [Product Revenue Analysis](index=17&type=section&id=Product%20Revenue_MD%26A) This section analyzes product revenue sources and anticipated sales timelines for AquAdvantage Salmon - Product revenue for Q1 2020 primarily consisted of conventional Atlantic salmon fry, with sales of AquAdvantage Salmon from Indiana and Rollo Bay farms anticipated to begin in June and December 2020, respectively[54](index=54&type=chunk) [Production Costs Analysis](index=17&type=section&id=Production%20Costs_MD%26A) This section analyzes the year-over-year changes in production costs, attributing them to revenue-related costs and farm ramp-up - Production costs decreased year-over-year due to lower costs related to product revenue, partially offset by increased costs from growing fish biomass at the Indiana and Rollo Bay farms during their ramp-up[54](index=54&type=chunk) [Sales and Marketing Expenses Analysis](index=17&type=section&id=Sales%20and%20Marketing%20Expenses_MD%26A) This section analyzes the changes in sales and marketing expenses, noting reductions in personnel offset by increased marketing activities - Sales and marketing expenses decreased year-over-year due to a reduction in personnel, but this was partially offset by increased charges for commencing marketing activities for salmon, with further increases expected as sales begin[55](index=55&type=chunk) [Research and Development Expenses Analysis](index=17&type=section&id=Research%20and%20Development%20Expenses_MD%26A) This section analyzes R&D expense changes, attributing decreases to farm closure and increases to contract services and future expansion - R&D expenses decreased year-over-year primarily due to lower field trial costs from the closing of the Panama demonstration farm, though this was partially offset by an increase in outside contract service fees[56](index=56&type=chunk) - R&D expenses are expected to increase as the company expands broodstock capacity, commences new field trials, and pursues regulatory approval for additional products and markets[56](index=56&type=chunk) [General and Administrative Expenses Analysis](index=17&type=section&id=General%20and%20Administrative%20Expenses_MD%26A) This section analyzes the significant increase in G&A expenses due to higher personnel, compensation, consulting, and legal fees - General and administrative expenses significantly increased year-over-year due to higher personnel and associated compensation, stock compensation charges, outside consulting fees, and regulatory legal fees related to the FDA legal challenge[57](index=57&type=chunk) [Total Other (Income) Expense Analysis](index=18&type=section&id=Total%20Other%20(Income)%20Expense_MD%26A) This section analyzes the components of total other income and expense for the reporting periods - Total other (income) expense for Q1 2020 and Q1 2019 was primarily composed of interest on debt, bank charges, and interest income[58](index=58&type=chunk) [Cash Flows Analysis](index=18&type=section&id=Cash%20Flows_MD%26A) This section provides a summary of cash flows from operating, investing, and financing activities Cash Flow Summary (Q1 2020 vs. Q1 2019) | Activity | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,935) | $(2,133) | | Net cash provided by (used in) investing activities | $420 | $(456) | | Net cash provided by financing activities | $14,482 | $7,226 | | Net increase (decrease) in cash | $11,951 | $4,640 | [Cash Flows from Operating Activities](index=18&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section analyzes the changes in net cash used in operating activities, driven by net loss and working capital - Net cash used in operating activities increased to **$2.9 million** in Q1 2020 (from **$2.1 million** in Q1 2019), driven by a **$3.1 million** net loss, partially offset by non-cash depreciation and stock compensation, and increased working capital uses[58](index=58&type=chunk) - Increased spending on operations was due to personnel, legal, consulting fees, and production activities at Indiana and Rollo Bay farms, offset by decreases in field trials and Panama farm costs[58](index=58&type=chunk) [Cash Flows from Investing Activities](index=18&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section analyzes cash flows from investing activities, including equipment sales, legal settlements, and farm construction - In Q1 2020, investing activities provided **$419 thousand** cash, primarily from **$98 thousand** in equipment sale proceeds and **$1.0 million** from a legal settlement, offsetting **$691 thousand** used for farm renovations and construction[59](index=59&type=chunk) - In Q1 2019, **$456 thousand** was used for Indiana farm renovations and Rollo Bay construction[59](index=59&type=chunk) [Cash Flows from Financing Activities](index=18&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This section analyzes cash flows from financing activities, including public offerings, stock issuance, and debt transactions - In Q1 2020, financing activities provided **$14.5 million**, mainly from a public offering of Common Shares, offset by **$39 thousand** in debt repayment[59](index=59&type=chunk) - In Q1 2019, financing activities provided **$7.2 million**, including **$6.6 million** from common stock issuance, **$250 thousand** from warrant exercise, and **$376 thousand** from new debt, offset by **$10 thousand** in debt repayment[59](index=59&type=chunk) [Future Capital Requirements](index=18&type=section&id=Future%20Capital%20Requirements) This section discusses the company's cumulative losses, current cash position, and potential future funding needs and sources - The Company has cumulative losses of **$135 million** and a cash balance of **$14.7 million** as of March 31, 2020, but management believes current cash resources will cover needs for at least the next twelve months[60](index=60&type=chunk) - Future funding may involve equity offerings (leading to dilution), debt financings (with restrictive covenants), or strategic alliances (potentially relinquishing rights), with the COVID-19 pandemic adding uncertainty to funding availability[60](index=60&type=chunk)[61](index=61&type=chunk) [Critical Accounting Policies and Estimates](index=20&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section explains that financial statements are prepared under GAAP, requiring management estimates and assumptions - The consolidated financial statements are prepared under GAAP, requiring management to make estimates and assumptions that affect reported asset/liability amounts and disclosures, which are evaluated on an ongoing basis[62](index=62&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=20&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, specifically interest rate and foreign currency exchange risks [Interest Rate Risk](index=20&type=section&id=Interest%20Rate%20Risk) This section discusses the company's exposure to interest rate risk, primarily from fixed-rate debt financing - The primary market risk exposure is interest rate risk associated with debt financing, which is typically at fixed rates[64](index=64&type=chunk) - As of March 31, 2020, and December 31, 2019, the company had **$1.6 million** and **$1.8 million**, respectively, in interest-bearing debt instruments, all at fixed rates[64](index=64&type=chunk) [Foreign Currency Exchange Risk](index=20&type=section&id=Foreign%20Currency%20Exchange%20Risk) This section explains the company's exposure to foreign currency exchange risk and its accounting treatment - The Company's functional currency is the U.S. Dollar, while its Canadian subsidiary's functional currency is the Canadian Dollar[65](index=65&type=chunk) - Assets and liabilities of the Canadian Subsidiary are translated at balance sheet date exchange rates, equity at historical rates, and income statement accounts at average rates, with net translation gains or losses adjusted to other comprehensive loss[65](index=65&type=chunk) [Item 4. Controls and Procedures](index=20&type=section&id=Item%204.%20Controls%20and%20Procedures) This section outlines the company's assessment of its disclosure controls and procedures and reports on internal control changes [Disclosure Controls and Procedures](index=20&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2020 - Management, with CEO and CFO participation, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2020, for timely recording, processing, summarizing, and reporting required information[66](index=66&type=chunk) [Changes in Internal Control Over Financial Reporting](index=20&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during the fiscal quarter - There were no changes in internal control over financial reporting during the fiscal quarter ended March 31, 2020, that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[67](index=67&type=chunk) [Part II. Other Information](index=21&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other relevant information [Item 1. Legal Proceedings](index=21&type=section&id=Item%201.%20Legal%20Proceedings) This section details a significant legal proceeding challenging the FDA's approval of AquAdvantage Salmon - A lawsuit was filed on March 30, 2016, against the FDA by a coalition of NGOs challenging the approval of AquAdvantage Salmon, claiming lack of statutory authority and failure to mitigate ecological, environmental, and socioeconomic risks[69](index=69&type=chunk) - The Company joined the case as an intervenor, and the discovery phase is complete, with the case proceeding to substantive briefing[69](index=69&type=chunk) [Item 1A. Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) This section updates and highlights new or materially changed risk factors, including global health concerns and regulatory dependencies [Risks Relating to Our Business](index=21&type=section&id=Risks%20Relating%20to%20our%20Business) This section discusses business-related risks, including the impact of global health concerns and regulatory approval dependencies - Global health concerns, such as the COVID-19 pandemic, pose serious risks to production, sales, distribution, R&D, and expansion, potentially causing business disruptions, supply chain issues, and reduced consumer demand[71](index=71&type=chunk) - The company's ability to generate revenue is dependent on maintaining existing regulatory approvals for AquAdvantage Salmon and farm sites, and obtaining new approvals, which is uncertain and can be affected by government budget, policy changes, and agency disruptions (e.g., FDA inspections postponed due to COVID-19)[73](index=73&type=chunk) [Risks Relating to Our Common Stock](index=22&type=section&id=Risks%20Relating%20to%20our%20Common%20Stock) This section addresses risks associated with common stock ownership, particularly the influence of significant affiliates - Certain affiliates, including Randal J. Kirk and entities managed by Third Security, hold a significant share ownership position (approximately **44.4% combined**), allowing them to influence corporate matters[74](index=74&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=22&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities or use of proceeds to report during the period - There were no unregistered sales of equity securities or use of proceeds to report during the period[75](index=75&type=chunk) [Item 3. Defaults Upon Senior Securities](index=22&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the period[75](index=75&type=chunk) [Item 4. Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the Company[75](index=75&type=chunk) [Item 5. Other Information](index=23&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report for the current period - There is no other information to report in this section[76](index=76&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, primarily Sarbanes-Oxley Act certifications - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[78](index=78&type=chunk) [Signatures](index=25&type=section&id=Signatures) This section provides the official signatures and dates for the report's authorization - The report was signed on May 5, 2020, by Sylvia Wulf (President, CEO, and Director) and David A. Frank (CFO and Treasurer)[80](index=80&type=chunk)