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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
☐ 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 registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
04-3156167
(I.R.S. Employer
Identification No.)
233 Ayer Road, Suite 4
Harvard, Massachusetts 01451
(978) 648-6000
(Address and telephone number of the registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
AQB
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
At June 30, 2023, the aggregate market value of the 3,806,404 shares of common stock held by non-affiliates of the registrant was approximately $27.0 million. At
March 29, 2024, the registrant had 3,857,444 shares of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 2024 (the “2024 Proxy Statement”), are incorporated by reference
into Part III of this Annual Report on Form 10‑K.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
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Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Exhibit and Financial Statement Schedules
Form 10-K Summary
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10‑K of AquaBounty Technologies, Inc. (“AquaBounty,” the “Company,” “we,” “us” or “our”), particularly the sections
titled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains
forward-looking statements. All statements other than present and historical facts and conditions contained in this Annual Report on Form 10‑K, including
statements regarding our future results of operations and financial position, business strategy, plans, and our objectives for future operations, are forward-
looking statements. When used in this Annual Report on Form 10‑K, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is
designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-
looking statements. These forward-looking statements include statements that are not historical facts, including statements regarding management’s
expectations for future financial and operational performance and operating expenditures, expected growth, and business outlook; the nature of and
progress toward our commercialization plan; the future introduction of our products to consumers; the countries in which we may obtain regulatory
approval and the progress toward such approvals; the volume of eggs or fish we may be able to produce; the timeline for our production of saleable fish;
the expected advantages of land-based systems over sea-cage production; the validity and impact of legal actions; the completion of renovations at our
farms; and the establishment of a larger-scale grow-out facility.
We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these expectations,
assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks,
uncertainties, and other factors, many of which are outside of our control, which could cause our actual results, performance, or achievements to differ
materially from any results, performance, or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include,
but are not limited to:
(cid:0) our history of net losses and the likelihood of future net losses;
(cid:0) our ability to continue as a going concern;
(cid:0) our ability to raise additional funds, in sufficient amounts on a timely basis, on acceptable terms, or at all;
(cid:0) our ability to raise substantial additional capital on acceptable terms, or at all, which is required to implement our business strategy as planned, or
at all;
(cid:0) our ability to attract and retain key personnel, including key management personnel;
(cid:0) our ability to retain and reengage key vendors and engage additional vendors, as needed;
(cid:0) our ability to obtain approvals and permits to construct and operate our farms without delay;
(cid:0) increases in interest rates;
(cid:0) delays and defects that may prevent the commencement of farm operations;
(cid:0) rising inflation rates;
(cid:0) our ability to finance our Ohio farm through the placement of municipal bonds, which may require restrictive debt covenants that could limit our
control over the farm’s operation and restrict our ability to utilize any cash that the farm generates;
(cid:0) our ability to manage our growth, which could adversely affect our business;
(cid:0) risks related to potential strategic acquisitions, investments or mergers;
(cid:0) high customer concentration, which exposes us to various risks faced by our major customers;
(cid:0) ethical, legal, and social concerns about genetically engineered products;
(cid:0) our ability to gain consumer acceptance of our genetically engineered Atlantic salmon (“GE Atlantic salmon” or “AquAdvantage salmon”)
product;
(cid:0) the quality and quantity of the salmon that we harvest;
(cid:0) a significant fish mortality event in our broodstock or our production facilities;
(cid:0) the loss of our GE Atlantic salmon broodstock;
(cid:0) disease outbreaks, which can increase the cost of production and/or reduce production harvests;
(cid:0) a shutdown, material damage to any of our farms, or lack of availability of power, fuel, oxygen, eggs, water, or other key components needed for
our operations;
(cid:0) our ability to efficiently and cost-effectively produce and sell salmon at large commercial scale;
(cid:0) any contamination of our products, which could subject us to product liability claims and product recalls;
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(cid:0) security breaches, cyber-attacks and other disruptions could compromise our information, expose us to fraud or liability, or interrupt our
operations;
(cid:0) our dependence on third parties for the processing, distribution, and sale of our products;
(cid:0) any write-downs of the value of our inventory;
(cid:0) business, political, or economic disruptions or global health concerns;
(cid:0) adverse developments affecting the financial services industry;
(cid:0) industry volatility, including fluctuations in commodity prices of salmon;
(cid:0) restrictions on Atlantic salmon farming in certain states;
(cid:0) agreements that require us to pay a significant portion of our future revenue to third parties;
(cid:0) our ability to receive additional government research grants and loans;
(cid:0) international business risks, including exchange rate fluctuations;
(cid:0) our ability to use net operating losses and other tax attributes, which may be subject to certain limitations;
(cid:0) our ability to maintain regulatory approvals for our GE Atlantic salmon and our farm sites and obtain new approvals for farm sites and the sale of
our products in other markets;
(cid:0) our ability to continue to comply with U.S Food and Drug Administration (“FDA”) regulations and foreign regulations;
(cid:0) significant regulations in the markets in which we intend to sell our products;
(cid:0) significant costs complying with environmental, health, and safety laws and regulations, and any failure to comply with these laws and
regulations;
(cid:0) increasing regulation, changes in existing regulations, and review of existing regulatory decisions;
(cid:0) lawsuits by non-governmental organizations and others who are opposed to the development or commercialization of genetically engineered
products;
(cid:0) risks related to the use of the term “genetically engineered,” which will need to be included as part of the acceptable market name for our GE
Atlantic salmon, and bioengineering disclosures provided in accordance with U.S. Department of Agriculture (“USDA”) regulations;
(cid:0) competitors and potential competitors may develop products and technologies that make ours obsolete or garner greater market share than ours;
(cid:0) any theft, misappropriation, or reverse engineering of our products could result in competing technologies or products;
(cid:0) our ability to protect our proprietary technologies and intellectual property rights;
(cid:0) our ability to enforce our intellectual property rights;
(cid:0) volatility in the price of our shares of common stock;
(cid:0) our ability to maintain our listing on the Nasdaq Stock Market LLC (“Nasdaq”);
(cid:0) our success in growing, or our perceived ability to grow, our GE Atlantic salmon successfully and profitably at commercial scale;
(cid:0) an active trading market for our common stock may not be sustained;
(cid:0) our status as a “smaller reporting company” and a “non-accelerated filer” may cause our shares of common stock to be less attractive to investors;
(cid:0) any issuance of preferred stock with terms that could dilute the voting power or reduce the value of our common stock;
(cid:0) provisions in our corporate documents and Delaware law could have the effect of delaying, deferring, or preventing a change in control of us;
(cid:0) our expectation of not paying cash dividends in the foreseeable future; and
(cid:0) other risks and uncertainties referenced under “Risk Factors” below and in any documents incorporated by reference herein.
We caution you that the foregoing list may not contain all of the risks to which the forward-looking statements made in this Annual Report on Form 10‑K
are subject. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue
reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the
forward-looking statements we make. We have included important factors in the cautionary statements, particularly in the section titled “Risk Factors,” that
could cause actual results or events
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to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures, or investments that we may make.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements
are made only as of the date of this Annual Report on Form 10‑K. We do not undertake and specifically decline any obligation to update any such
statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments unless required by federal
securities law. New risks emerge from time to time, and it is not possible for us to predict all such risks.
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Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business, including those described in the
“Risk Factors” section in Part I, Item 1A. of this Annual Report on Form 10-K. These risks and uncertainties include, but are not limited to, the following:
SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
(cid:0) We have a history of net losses and will likely incur future losses and may not achieve or maintain profitability.
(cid:0) There is substantial doubt about our ability to continue as a going concern.
(cid:0) Our current business plans include the need for substantial additional capital, and without it, we may not be able to implement our strategy as
planned or at all.
(cid:0) There can be no assurance that additional funds will be available on a timely basis, on acceptable terms, or at all, or that such funds, if raised,
would be sufficient to enable us to continue to implement our business strategy.
(cid:0) If we lose key personnel, including key management personnel, or are unable to attract and retain additional personnel, it could delay our
commercialization plans or harm our research and development efforts, and we may be unable to sell or develop our own products.
(cid:0) If we lose key vendors, including those necessary to complete the construction of our Ohio farm, or are unable to engage additional vendors, it
could delay our construction or commercialization plans.
(cid:0) We require approvals and permits to construct and operate our farms, and any delay or denial of those approvals or permits could potentially delay
or halt certain operations and commercial efforts.
(cid:0) Increases in interest rates have increased our expected borrowing costs and may also affect our ability to obtain working capital through
borrowings, such as bank credit lines and public or private sales of debt securities.
(cid:0) Delays and defects may prevent the commencement of farm operations.
(cid:0) Rising inflation rates could negatively impact our revenues and profitability.
(cid:0) The financing of our Ohio farm through the placement of municipal bonds may require restrictive debt covenants that could limit our control over
the farm’s operation and restrict our ability to utilize a portion of any cash that the farm generates.
(cid:0) We may encounter difficulties managing our growth, which could adversely affect our business.
(cid:0) We may pursue strategic acquisitions, investments or mergers that could have an adverse impact on our business if they are unsuccessful.
(cid:0) High customer concentration exposes us to various risks faced by our major customers and may subject us to significant fluctuations or declines in
revenues.
(cid:0) Ethical, legal, and social concerns about genetically engineered products could limit or prevent the use of our products and limit our revenues.
(cid:0) We may have limited success in gaining consumer acceptance of our products.
(cid:0) Our business is affected by the quality and quantity of the salmon that we harvest.
(cid:0) We may experience a significant fish mortality event in our broodstock or our production facilities that could impact the price of our common
stock.
(cid:0) The loss of our GE Atlantic salmon broodstock could result in the loss of our commercial technology.
(cid:0) Atlantic salmon farming is subject to disease outbreaks, which can increase the cost of production and/or reduce production harvests.
(cid:0) A shutdown, material damage to any of our farms, or lack of availability of power, fuel, oxygen, eggs, water, or other key components needed for
our operations, could result in our prematurely harvesting fish, a loss of a material percentage of our fish in production, and a delay in our
commercialization plans.
(cid:0) The successful development of our business depends on our ability to efficiently and cost-effectively produce and sell salmon at large commercial
scale.
(cid:0) If our products become contaminated, we may be subject to product liability claims and product recalls.
(cid:0) Security breaches, cyber-attacks and other disruptions could compromise our information, expose us to fraud or liability, or interrupt our
operations, which would cause our business and reputation to suffer.
(cid:0) We remain dependent on third parties for the processing, distribution, and sale of our products.
(cid:0) We may be required to write-down the value of our inventory if its net realizable value is less than its accumulated cost at the end of a reporting
period.
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(cid:0) Business, political, or economic disruptions or global health concerns could seriously harm our current or planned business and increase our costs
and expenses.
(cid:0) Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by
financial institutions or transactional counterparties, could adversely affect our business, financial condition or results of operations.
(cid:0) Industry volatility can affect our earnings, especially due to fluctuations in commodity prices of salmon.
(cid:0) Atlantic salmon farming is restricted in certain states.
(cid:0) We have entered into agreements that require us to pay a significant portion of our future revenue to third parties.
(cid:0) We have received government research grants and loans in the past, but such grants and loans may not be available in the future.
(cid:0) Our financial condition or results of operations may be adversely affected by international business risks, including exchange rate fluctuations.
(cid:0) Our ability to use net operating losses and other tax attributes to offset future taxable income may be subject to certain limitations.
(cid:0) Our ability to generate revenue to support our operations depends on maintaining regulatory approvals, and we or regulatory agencies approving
our products may be sued by non-governmental organizations and others.
(cid:0) We are and will be required to continue to comply with certain laws and regulations, including FDA, USDA, environmental, health, and safety and
foreign laws and regulations, and regulatory decisions.
(cid:0) We are subject to risks relating to our intellectual property rights.
(cid:0) The price of our shares of common stock is likely to be volatile, and an active trading market for our common stock may not be sustained.
(cid:0) We may not be able to maintain our listing on Nasdaq which could limit investors’ ability or willingness to make transactions in our securities and
subject us to additional trading restrictions.
(cid:0) We are a “smaller reporting company” and a “non-accelerated filer” and we cannot be certain if applicable scaled disclosure requirements will
make our shares of common stock less attractive to investors.
(cid:0) We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.
(cid:0) Provisions in our corporate documents and Delaware law could have the effect of delaying, deferring, or preventing a change in control of us, even
if that change may be considered beneficial by some of our stockholders.
(cid:0) We do not anticipate paying cash dividends in the foreseeable future.
The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” and
in the other information set forth in this Annual Report on Form 10-K, including our financial statements and the related notes, as well as in other
documents that we file with the U.S. Securities and Exchange Commission, or the SEC.
Where You Can Find More Information
We file with the Securities and Exchange Commission (the “SEC”) periodic reports and other information, including our Annual Report on Form 10‑K,
Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an internet site at www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers that file, as we do, electronically with the SEC.
All of these documents are available free of charge on our website, www.aquabounty.com, and will be provided free of charge to stockholders requesting a
copy by writing to: Corporate Secretary, AquaBounty Technologies, Inc., 233 Ayer Road, Suite 4, Harvard, Massachusetts 01451, Telephone: (978) 648-
6000. We use our website as a channel for routine distribution of important information, including news releases, analyst presentations, and financial
information. In addition, our website allows investors and other interested persons to sign up to automatically receive e-mail alerts when we post news
releases and financial information on our website. The information contained on, or accessible from, our website or in any other report or document we file
with or furnish to the SEC is intended to be inactive textual references only, and is not incorporated by reference into this Annual Report on Form 10‑K.
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Item 1. Business
Overview
Company Update
Part I
AquaBounty has been pursuing a growth strategy that includes the construction of large-scale recirculating aquaculture system farms for producing our GE
Atlantic salmon. Our farm in Pioneer, Ohio is under construction and roughly 30% complete, but construction activities have been paused. To fund the
construction cost, we were using cash on hand, which would be supplemented by a municipal bond financing. However, during the initial two years of
construction, the cost estimate for the farm increased substantially and eventually exceeded our ability to complete the proposed financing. Consequently,
the Company requires new financing to provide liquidity for working capital and to fund the construction of our farm in Pioneer, Ohio. To meet this need,
we have engaged an investment bank to pursue a range of funding and strategic alternatives, including the recently announced sale process for our Indiana
farm, potential debt financing secured by our unencumbered assets, and potential joint venture partnerships or other strategic transactions.
Feed a growing world by developing and deploying new aquaculture technologies.
AquaBounty was incorporated in December 1991 in the State of Delaware for the purpose of conducting research and development of the commercial
viability of a group of proteins commonly known as antifreeze proteins. In 1996, we obtained the exclusive licensing rights for a gene construct (transgene)
used to create a breed of farm-raised Atlantic salmon that exhibits growth rates that are substantially faster than conventional salmon.
At AquaBounty, our Purpose is to “Feed a growing world by transforming aquaculture through the use of technology, creating a safe, secure and
sustainable future.” We demonstrate our care for our people, our environment and our fish through our EPIC Values which include: “Excellence, Passion,
Innovation and Collaboration.” We believe we are a leader in the field of land-based aquaculture and the use of technology for improving its productivity
and sustainability. Our objective is to ensure the availability of high-quality seafood to meet growing global consumer demand, while addressing critical
production constraints in one of the most popular farmed species.
Aquaculture is the farming of aquatic organisms such as fish, shellfish, crustaceans, and aquatic plants. It involves cultivating freshwater or saltwater
species under controlled conditions, as an alternative to the commercial harvesting of wild species of aquatic organisms. According to the Food and
Agriculture Organization of the United Nations (“FAO”), aquaculture was a $265 billion industry in 2020, and we are targeting the $22 billion salmon
farming segment of that industry.
We believe that AquaBounty has four core competencies that provide us with a competitive advantage over other land-based salmon farmers: our
proprietary genetically engineered Atlantic salmon (“GE Atlantic salmon” or “AquAdvantage salmon”), our experience operating land-based farms, our
vertical integration, and our expertise in biotechnology.
Our GE Atlantic salmon is based upon proprietary salmon genetics and grows to harvest size faster, while consuming less feed, than conventional Atlantic
salmon. With our salmon, we can produce more output at a lower cost in a land-based farm than with conventional salmon. Our GE Atlantic salmon was
approved for production, sale, and consumption in the United States on November 19, 2015 by the FDA. This was followed by an approval from Health
Canada for the production, sale, and consumption of our salmon in Canada on May 19, 2016 and an approval from the National Biosafety Technical
Commission for the sale and consumption of our salmon in Brazil on May 12, 2021. Consequently, we have received approvals for our GE Atlantic salmon
from what we believe are three of the most respected and rigorous regulatory agencies in the world.
We farm our GE Atlantic salmon in land-based, recirculating aquaculture systems (“RAS”), which allow land-based fish farms to be established close to
major demand centers in a profitable and environmentally sustainable manner. We have over 25 years of experience growing salmon in RAS farms, which
are bio-secure, so we do not need to use vaccines or antibiotics to protect our fish. We control and optimize their living environment to promote their
general health. By locating our farms near to major food markets, we reduce our transportation costs and carbon footprint.
We are vertically integrated and maintain our own broodstock hatchery, which produces the eggs that we grow-out to harvest size in our production farms.
This hatchery also produces non-GE eggs for external sales.
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We have our own research and development team with expertise in biology, chemistry and RAS operations. This allows us to continuously focus on
improving the breeding, genetics and health of our fish and improving the efficiency of our farm operations.
We currently operate two salmon farms: a refurbished production grow-out farm in Indiana and a broodstock farm on Prince Edward Island, Canada. Our
plans include completing the construction of a 10,000 metric ton production grow-out farm in Pioneer, Ohio and expanding our egg production and sales.
In February 2024, we announced our plan to sell our Indiana farm operations to provide needed liquidity, while focusing on financing alternatives
necessary to resume construction on the Ohio farm. We are also pursuing regulatory approval for our GE Atlantic salmon in Israel, with the goal of entering
that market with a local partner in the form of a joint venture or licensing arrangement. Additionally, we plan to utilize our expertise in biotechnology and
RAS operations to enter complimentary areas of the aquaculture industry, with an initial focus on shrimp.
Our strategy is to continually strengthen our core capabilities, scale our business and pursue growth opportunities.
Reverse Stock Split
On October 12, 2023, the stockholders of the Company approved a reverse stock split of the Company’s common stock, and the Board of Directors
approved a split ratio of 1-for-20. The reverse stock split was implemented on October 16, 2023. In conjunction with the reverse stock split, the number of
shares of common stock authorized for issuance was reduced from 150 million to 75 million. All share and per share information in this Annual Report on
Form 10-K have been adjusted to reflect this change.
Market Drivers
Population Growth Drives Demand for Food Protein
According to FAO, global population is projected to reach 9.7 billion people by 2050, or roughly 20% growth over the next 26 years. In addition to the
increased demand for food from the rising population, increased incomes and urbanization from a growing middle class will drive increased demand for
protein food sources. According to FAO, global fish consumption has been growing faster than all other animal protein foods.
Traditional Fisheries Cannot Meet the Demand
The increased demand for fish protein cannot be satisfied from traditional capture fisheries. FAO research indicates that 25% of all major marine fisheries
are subjected to severe overfishing, while an additional 52% are fully exploited. Total production from global capture fisheries has been relatively stable
since the late-1980s, with catches generally fluctuating between 86 million metric tons and 96 million metric tons per year, with 90 million metric tons
recorded in 2020, the last year for which data is available from FAO. In contrast, over the same period, aquaculture fish production has grown from 14
million metric tons to a level of 88 million metric tons in 2020 and now accounts for 49% of global fish production. Feeding the growing population and
meeting the demand for fish protein will require aquaculture production to nearly double by 2050. The chart below depicts the projected gap between
supply and demand over the projected period.
Salmon Farming
Source: FAO – The State of World Fisheries and Aquaculture 2022 for actual data
through 2020. Company estimates based on FAO growth projections.
Atlantic salmon farming is a major industry in the cold-water countries of the northern and southern hemispheres. According to Kontali, global Atlantic
salmon aquaculture harvests grew by approximately 5% annually between 2017 and 2022, reaching 2.9
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million metric tons with a value of $22 billion. We believe that the aquaculture industry – and in particular salmon farming – is poised for significant
growth in the coming years, as the global population continues to expand and consumers seek out high-quality proteins.
Below is a break-down by major producing country for the time period 2017 through 2022 from Kontali.
Worldwide Harvest of Atlantic Salmon in thousands of metric tons (whole fish equivalent)
,
Area
Norway
Chile
United Kingdom
North America
Faroe Islands
Other areas
Volume-Worldwide
2017
2018
2019
2020
2021
2022
1,208
564
177
159
80
105
2,293
1,253
660
152
165
72
101
2,403
1,333
690
191
159
87
118
2,578
1,370
779
178
157
81
148
2,713
1,534
718
199
161
106
178
2,896
1,517
753
165
152
100
180
2,867
Source: Kontali, Salmon World 2023
Limitations of Conventional Sea-Cage Salmon Farming
Conventional salmon aquaculture takes place in large cages (sea-cages) in coastal waterways exposed to currents, which can bring a variety of pathogens in
contact with the farmed salmon. The presence of pathogens in an uncontrolled environment such as this is a universally accepted fact in human and animal
health. Such disease agents in these uncontrolled water currents can result in infection and spread of infection within the captive population. The risks and
outcomes of conventional, open sea-cage systems are well established, including the susceptibility to extreme weather conditions, and are often evidenced
by outbreaks of a variety of bacterial and viral diseases, as well as water fouling and contamination due to algal blooms and similar events. This risk of
disease has led to the widespread use of antibiotics, vaccines, and other pharmacological agents.
The most prevalent disease and health management issues are infectious salmon anemia (“ISA”) and sea lice. ISA is a viral disease in Atlantic salmon, and
outbreaks have occurred in virtually every major salmon farming geography since 1984, including a major event in Chile in 2008 that impacted the
country’s production for three years. There is currently no effective treatment for the disease, and the salmon farming industry relies on health management
practices to mitigate its impact. Sea lice are marine parasites that occur naturally and attach to the skin of Atlantic salmon. Even a few sea lice can increase
the likelihood of secondary infections and mortality, and the presence of significant numbers is likely to have adverse effects on fish health and aesthetic
appearance. The cost of managing sea lice in sea-cage farming environments can be significant. Other viral diseases, such as salmonid rickettsial
septicemia (“SRS”), continue to present significant challenges, while new emerging diseases caused by viruses, including heart and skeletal muscle
inflammation (“HSMI”) and cardio myopathy syndrome (“CMS”), are on the rise.
Another limitation of the conventional salmon production system is that the farms are not located near the ultimate consumers, and thus, an additional
carbon footprint is created in transporting the fish from its production to its consumption location.
We believe we offer a better, more sustainable alternative to conventional salmon production.
AquaBounty Solution
Land-Based RAS Production
The closed, contained, land-based production systems using RAS technology that we use for the grow-out of our fish are less susceptible to the disease-
related pressures of conventional salmon farming, because this type of culture system is isolated from the environment. RAS facilities employ sophisticated
water treatment technology, including the use of ozone, salt treatment and ultraviolet radiation to kill potential bacterial, fungal, or viral pathogens which
might enter the system. In addition, incoming water is similarly filtered and treated prior to entering the system, and water quality is regularly measured as
part of the standard procedures. The fish in RAS facilities are generally not vaccinated against typical fish diseases, and no antibiotics, pesticides, or
pharmacological agents are typically required. RAS facilities employ effective biosecurity to prevent disease by reducing or eliminating the introduction of
pathogens and continuously treating the water to assure optimal fish health. RAS production allows our fish to be raised in optimized conditions with total
control of the water coming in and going out of the system, while recirculating greater than 95% of the water used. Further, stocking our RAS farms with
disease-free eggs from our own hatchery results in a much higher degree of biosecurity and protection from disease.
In addition to biosecurity measures to optimize fish health, our farms feature multiple layers of containment designed to prevent escapes. We have been
growing fish in RAS facilities for over two decades, and we have never experienced an escape. The multiple layers of containment redundancy, coupled
with the fact that our salmon are sterile female fish, pose a much-needed solution to raising
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fresh, healthy seafood in a manner that prevents harming native fish populations. The method of land-based fish farming that we employ has been
promoted by many environmental non-governmental organizations (“NGOs”), and it does not pose a threat to wild salmon populations.
We have significant experience in operating land-based RAS facilities. Our operating practices and procedures have been developed and honed over two
decades and are geared towards meeting stringent regulatory requirements. Our experience operating land-based RAS salmon farms enables us to protect
both the fish and the environment.
Our GE Atlantic Salmon
Source: Innovasea
Our GE Atlantic salmon program began over 30 years ago and is based upon a single, specific molecular modification in our salmon that results in more
rapid growth during early development. The result is a genetically engineered Atlantic salmon that can grow to market size faster than a conventional
farmed Atlantic salmon.
The original research on the Atlantic salmon was conducted at Memorial University in Newfoundland, Canada, by a team seeking to protect the fish from
the effects of the cold waters of the North Atlantic Ocean. They discovered that the single genetic change made by placing a second copy of the salmon
growth hormone gene under the control of an alternative genetic promoter (gene switch) from the ocean pout resulted in more consistent levels of growth
hormone being released, which accelerated the early stages of the salmon’s development, a time period when the salmon are more susceptible to disease
and mortality. The accelerated growth allows these fish to reach a marketable size sooner. This can reduce farming time in a RAS facility from roughly 26
to 28 months for conventional Atlantic salmon to roughly 18 to 20 months for our salmon.
This accelerated growth has economic and environmental advantages. The faster life cycle from hatch to harvesting of our salmon, as compared to
conventional salmon, allows it to be produced more economically in contained, land-based RAS farms. Although RAS farms require greater capital
investment than the sea-cage approach, we believe that the higher costs are offset by more efficient growth and a shorter transportation distance to market.
Compared to conventional salmon grown in a RAS farm with a similar capital investment, we can produce approximately 70% more of our GE Atlantic
salmon each year. Our fish are also 25% more efficient at converting their feed to biomass, which represents a significant cost advantage as feed is the
largest variable cost of growing salmon. Further, locating our farms closer to major food markets allows us to realize savings on transportation of the
harvested stock, while maintaining a reduced carbon footprint, and an improved ability to get fresh product to market faster.
Intellectual Property
Our GE Atlantic salmon is based upon a single, specific molecular modification in the fish that results in more rapid growth in early development. The
patent for the underlying technology, which had been issued in certain salmon producing countries, expired in August 2013, and we currently hold a global,
perpetual, royalty-free, fully paid, sub-licensable, assignable, non-exclusive right to the technology covering genetically engineered salmonid fish that
express endogenous growth hormone under the control of a protein gene promoter from an edible fish. Despite the expiration of the patent for the licensed
technology, we believe that the degree of know-how in the molecular modification process and the regulatory timescales associated with approval of
genetically engineered fish present significant barriers to entry and a competitive advantage.
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We rely on a combination of patent, trademark, and trade secret laws in the United States and applicable foreign jurisdictions, as well as confidentiality
procedures and contractual provisions, to protect our proprietary technology, processes, and brand. In December 2015, we were granted a U.S. patent for
our molecular sterility system, which renders sterile the progeny of any female fish carrying a defined maternal sterility gene. Subsequently, the maternal
sterility patent has been issued in Australia, Brazil, Canada, Chile, Japan, and the Republic of Korea. While the technology described in the sterility system
patent is not required under any of our current regulatory approvals, the technology may be desirable in the future to obtain or maintain regulatory
approvals.
Regulatory Aspects of Genetically Engineered Fish
The genetic engineering of food using the tools of modern biotechnology is regulated in the United States by two government organizations, the USDA for
genetically engineered plants and the FDA for genetically engineered animals.
The regulatory process for genetically engineered food and animal feed is based upon the Coordinated Framework issued by the Office of Science and
Technology Policy in 1986, but the enabling legislation is the Federal Food, Drug, and Cosmetic Act (“FFDCA”). The FDA is also required to determine
the environmental impact of a proposed application under the National Environmental Policy Act (“NEPA”). In the case of animals intended for food or
materials for feed, the FDA process is a pre-approval review followed by an approval if the application is acceptable under the relevant legislation, with
ongoing oversight following approval.
We opened an Investigational New Animal Drug file for AquAdvantage salmon with the FDA in 1995. At that time, there was no defined regulatory
framework for the regulation of bioengineered animals. There were, however, certain studies that were generally acknowledged to be necessary for an
eventual approval process. We commenced work on those studies and began a phased submission of studies to the FDA that ultimately was responsive to
each technical section of the New Animal Drug Application (“NADA”). These technical sections require submission of studies relating to molecular
characterization of the construct; molecular characterization of AquAdvantage salmon lineage; phenotypic characterization of AquAdvantage salmon; a
genotypic and phenotypic durability plan; support for environmental, food, and feed safety; and claim validation. The FDA’s phased review process, which
included a cycle of study conduct, submission, review, and acceptance, continued over the period from 1995 to 2010. Following this process, the FDA
concluded that AquAdvantage salmon “is as safe as food from conventional salmon, and that there is a reasonable certainty of no harm from consumption
of food” from AquAdvantage salmon. On November 19, 2015, the FDA issued an approval letter for the NADA for AquAdvantage salmon, along with a
final Environmental Assessment (“EA”) and a finding of No Significant Impact on the EA under NEPA.
Regulatory Legal Challenge
On March 30, 2016, a coalition of NGOs filed a complaint in the United States District Court for the Northern District of California against the FDA, the
United States Fish and Wildlife Service, and related individuals for their roles in the approval of AquAdvantage salmon. Subsequently, AquaBounty joined
the case as an intervenor to protect our interests. Shortly thereafter, the Fish and Wildlife Service was dismissed from the case. The NGOs, including the
Center for Food Safety and Friends of the Earth, claimed that the FDA had no statutory authority to regulate genetically engineered animals, and, if it did,
that the agency failed to adequately analyze and implement measures to mitigate ecological, environmental, and socioeconomic risks that could impact wild
salmon and the environment, including the risk that AquAdvantage salmon could escape and threaten endangered wild salmon stocks. In December 2019,
the court found that the FDA did have authority/jurisdiction over genetically engineered animals under the FFDCA, and in November 2020, the court
remanded the EA to the FDA for further work on its NEPA and Endangered Species Act (“ESA”) assessments. In December 2020, the plaintiffs filed a
motion to alter or amend the judgment. In February 2021, the judge denied that motion. The court’s decisions do not have a current business impact on
AquaBounty’s egg production on Prince Edward Island, Canada or AquaBounty’s salmon production in Albany, Indiana. AquaBounty is working with the
FDA on the NEPA and ESA regulatory matters.
On-going Regulatory Requirements
In addition to the FDA approval of the NADA for AquAdvantage salmon, our operating sites in the United States and on Prince Edward Island, as well as
those we plan to operate in the future, must be registered with, and periodically inspected by, the FDA as drug manufacturing establishments. Drug
manufacturing establishments that supply FDA-regulated products for use in the United States must comply with the product’s conditions for approval,
whether located in the United States or in a foreign country. Each of our operating sites in Indiana and on Prince Edward Island is currently registered with
the FDA, and the FDA has performed inspections and site visits at each of those facilities.
Going forward, we must continue to comply with FDA requirements not only for manufacturing but also for labeling, advertising, record keeping, and
reporting to the FDA of adverse events and other information. We also need to comply with USDA disclosure
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requirements pertaining to bioengineered foods under the National Bioengineered Food Disclosure Law. Failure to comply with these requirements could
subject us to administrative or judicial enforcement actions, including but not limited to, product seizures, injunctions, civil penalties, criminal prosecution,
refusals to approve new products, or withdrawal of existing approvals, as well as increased product liability exposure.
Production of AquAdvantage salmon in the United States also requires compliance with environmental regulations and local site permitting statutes. In
addition, every production site for AquAdvantage salmon in the United States requires approval by the FDA of both a Supplemental NADA and
satisfaction of corresponding obligations under NEPA, as well as compliance with local permitting requirements for construction of grow-out facilities. We
expect that we may incur significant costs to comply with these environmental and regulatory requirements, which could be a multi-year process to
complete for each production site, though conducted in parallel with our construction timelines.
Labeling and Disclosure Standard
There have been surveys cited by various NGOs that indicate consumers are reluctant to purchase genetically engineered food and they would like to see
labeling in order to avoid it. Many states reacted to this by enacting genetically engineered food labeling laws. Consequently, in response to the potential
for state-by-state labeling laws, Congress passed the National Bioengineered Food Disclosure Law (“Disclosure Standard”) in 2016, which directed the
USDA to establish a national mandatory standard for disclosing foods that are or may be bioengineered. The Disclosure Standard requires food
manufacturers, importers, and certain retailers to ensure bioengineered foods are appropriately disclosed. The Disclosure Standard came into effect on
January 1, 2022, but we began complying in 2021 on a voluntary basis when our salmon began to be harvested and sold.
In conjunction with the bioengineered disclosure, we also have begun to educate consumers on the benefits of our GE Atlantic salmon versus conventional
Atlantic salmon, including its 25% improved feed conversion (meaning less feed is needed to produce the same harvest), a lower carbon footprint due to
local production, reduced impact on the environment, reduced exposure of the fish to environmental toxins due to use of land-based aquaculture systems,
and reduced reliance on vaccines or antibiotics due to improved biosecurity.
In December 2019, the 2020 Appropriations Act was signed into law, which was reintroduced and passed in 2021, 2022 and 2023, which contained an
amendment that requires any genetically engineered animal approved by FDA prior to the effective date of the Disclosure Standard shall include the words
‘‘genetically engineered’’ prior to the existing acceptable market name. While we believe that this labeling requirement is unnecessary and redundant to the
requirement of the Disclosure Standard, we have and will continue to comply with all applicable laws.
Our compliance with these laws and regulations may be onerous and could increase our cost of doing business, impact our competitive position relative to
our peers or otherwise have an adverse impact on our business, reputation, financial condition and operating results. For more information about
government regulations applicable to our business, refer to “Risk Factors” in Item 1A.
U.S. Market
According to Kontali, in 2022, the supply of Atlantic salmon to the U.S. market reached a record 1.44 million pounds (652 thousand metric tons) with an
aggregate market value of over $5.4 billion. The vast majority of the imported Atlantic salmon originated from Chile, Canada, and Norway. The Atlantic
salmon farming industry in the United States contracted significantly beginning in the 1990s in the face of environmental concerns and lower costs of
production from foreign sources, notably Chile. According to Kontali, a net of only 8 thousand pounds (4 thousand metric tons) of farmed Atlantic salmon
was available in the United States in 2022, representing less than 1.0% of the total farmed Atlantic salmon supplied to the country.
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Supply of Atlantic salmon to U.S. market in thousands of metric tons (whole fish equivalent)
Area
Canada
Chile
Faroe Islands
Norway
United Kingdom
U.S. – own production, net
Other countries
Total
Source: Kontali, Salmon World 2023
2016
2017
2018
2019
2020
2021
2022
101
217
17
56
13
8
16
427
92
220
15
68
18
13
19
446
94
267
13
67
16
7
22
487
94
284
19
68
20
8
29
523
93
325
14
69
12
9
41
562
104
350
21
83
17
6
54
635
89
362
23
99
9
4
65
652
Despite intensive public consumer education campaigns promoting its health benefits, seafood consumption in the United States still lags behind other
protein sources and trails consumption in overseas markets. According to the USDA, during the period from 2010 to 2020, the latest period of data
available, annual seafood consumption in the United States ranged between 17 and 19 pounds per capita, significantly behind consumption of poultry (62
to 68 pounds), beef (51 to 55 pounds), and pork (43 to 47 pounds). In comparison, according to FAO, seafood consumption worldwide averaged 45 pounds
per capita in the period from 2018 to 2020.
Consumer Sentiment Regarding Genetically Engineered Fish
Though Atlantic salmon is the second most consumed seafood in the United States, activist groups opposing genetically engineered foods have pressured a
number of distributors, food service operations, retail food outlets and grocery chains to publicly state that they will not carry genetically engineered
salmon.
However, we do not expect that this will have a significant impact on overall consumer demand and product placement in the marketplace generally, and in
particular the distributor and wholesale marketplace. To date, we have seen large distributors and wholesalers not follow the pressure from activist groups,
and we have sold our GE Atlantic salmon from our farms since commencing harvesting in May 2021. We believe that there will be sufficient demand from
smaller retailers, distributors, wholesalers, and institutional seafood buyers to absorb our projected production. We believe that the FDA approval
reinforces the message that our salmon is a safe and nutritious seafood product that is identical to conventional farmed Atlantic salmon.
Consumer sentiment towards genetically engineered foods is evolving. Based on market research that we commissioned, the top attributes for consumer
selection of farm-raised salmon are availability, affordability, freshness, safety, and taste. According to the poll conducted, 53% of respondents had a first
impression of genetically engineered food that was neutral to very positive; 60% were neutral to very likely to purchase genetically engineered products
they buy regularly if labeled as such; 70% were neutral to very likely to purchase genetically engineered products they buy regularly if labeled with the
USDA Bioengineered Disclosure Symbol; 81% were neutral to very positive to the AquaBounty and our GE Atlantic salmon story and product benefits;
and 70% were likely to purchase and try our salmon at least once.
According to a study conducted by the Boyce Thompson Institute, which looked at the number and tone of over 100,000 online and print articles published
in top-ranked media between 2018 and 2020 as well as 1.7 million social media interactions, the overall tone of the conversation on GE foods is
“surprisingly positive, averaging 73% favorable if neutral and positive reporting are combined.” The positive reporting became more favorable over the
time period studied. Their findings suggest a drop in the importance of GE, with a more favorable and less polarized conversation across the globe.
Sales Plan
The salmon distribution system in the United States is complex and varied. Participants include fishermen, fish farmers, processors, importers, secondary
processors, broadline distributors, specialty seafood distributors, brokers, traders, and many different kinds of retail and food service companies. Salmon
distribution channels are evolving, with fewer and larger distributors handling an increasing
share of total volume and an increasing share of salmon being sold directly by large fish-farming companies and large wild salmon processors to major
retail and food service chains. Our GE Atlantic salmon is currently being sold into this distribution network with an initial focus on seafood distributors and
wholesalers. This is due to our limited supply of fish, which necessitates our being selective in bringing on new customers. We expect that once our Ohio
farm is in commercial operation, we will be able to expand our customer depth and breadth and increase our channel coverage.
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As a commodity food item, the price of Atlantic salmon is variable based on the supply and demand for product weekly. We base our pricing on a
published index by Urner Barry, which provides comprehensive market coverage across all major center-of-the-plate food proteins, taking into account
differences for fish size and quality.
Competition
The global Atlantic salmon farming industry includes several very large companies with operations in each of the major producing countries. Consolidation
has been evident in the past few years as producers attempt to gain competitive cost advantages while overcoming the regulatory challenges associated with
developing new marine farm sites. Major market producers include the following companies: Mowi, SalMar, Aquachile, Leroy Seafood Group, Cermaq
Group, Cooke Aquaculture, Bakkafrost and Australis Mar Seafood. It is estimated that these eight companies accounted for approximately 53% of the
Atlantic salmon produced in 2022. Since salmon is primarily sold as a commodity in the United States, we compete against these well-established, sea-
cage production companies.
In addition, new entrants to salmon production have emerged that use, or plan to use, land-based RAS facilities. Atlantic Sapphire is operating a facility in
Florida, with stated plans to increase production to over 220 thousand metric tons. Other entrants include Nordic Aquafarms, with plans for facilities in
Maine and California, and Whole Oceans with plans for a farm in Maine.
Operations
Current Production
We currently operate two salmon farms: a refurbished production grow-out farm in Indiana and a broodstock farm on Prince Edward Island, Canada.
However, as noted above, in February 2024, we announced our plan to sell our Indiana farm operations. Our first harvests of conventional salmon in
Indiana commenced in June 2020, and our first harvests of our GE Atlantic salmon commenced in June 2021 at both of our U.S. and Canadian farms.
During 2022, we transitioned the grow-out operation at the Canadian farm to egg production. At December 31, 2023, we had a total grow-out production
biomass of 412 metric tons.
Impact of Inflation
Recent increases in global inflation rates have impacted all areas of our business. We are experiencing higher costs for farming supplies, transportation
costs, wage rates, and other direct operating expenses. Additionally, inflation has impacted the total project cost estimate for our Ohio farm, which has
increased to a range of $485 million to $495 million. We expect inflation to continue to negatively impact our results of operations for at least the near-
term.
North America Plan
Our business plan contemplates that we will complete the construction of a 10,000 metric ton production grow-out farm in Pioneer, Ohio. During 2021, we
selected Pioneer, Ohio as the site location for our first large-scale commercial farm. Based on the engineering design that has been completed, we have
estimated that the project, which includes a roughly 479,000 square foot facility, land, insurance and other ancillary items will cost between $485 million
and $495 million. Site construction activities are currently paused, as we pursue additional financing, which is expected to include both equity and debt
components. In October 2022, the Board of Directors of the Toledo-Lucas County Port Authority approved the issuance of up to $425 million in municipal
bonds for our project, and they continue to support our efforts for the transaction.
The work that we have done to date on the design of the Ohio farm will serve as a template for future farm projects, though we will continue to incorporate
the learnings from our current farm operations and our philosophy of continual improvement. The picture below shows a design rendering of the inside of
the farm.
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Source: AquaBounty
Egg Production
We have scaled-up our egg production capability at our Fortune and Rollo Bay hatcheries on Prince Edward Island and we can now produce over 10
million eyed eggs annually, which is more than our current internal demand. As there is a shortage of supply of salmon eggs in the market, we have begun
to sell our excess conventional (“non-GE”) salmon eggs and fry to other salmon farmers. We also made the decision to transition the grow-out operation at
our Canada farm to egg production in order to increase our egg production capacity over the next three to four years to 30 million eyed eggs annually,
which would be sufficient to stock six 10,000 metric ton farms.
International Plans
While our primary focus is on North America, we are also considering international expansion, targeting those markets that are net salmon importers,
unable to supply their domestic needs and where we believe we will have success in gaining further regulatory approvals and consumer acceptance. Once
approved in these locations, we may decide to commercialize through a combination of partnerships, joint ventures, and licensing arrangements.
Growth Strategy
Optimizing Technology and Innovating for the Future
We are exploring the potential development of a range of additional products, including a second generation of our GE Atlantic salmon to help ensure
100% sterility, molecular sterility systems to provide an improved means of sterility for farmed fish, and improved methods for generating genetically
engineered fish.
Our primary research and development operations are located in our owned hatcheries on Prince Edward Island. As of December 31, 2023, we employed
37 scientists and technicians to oversee our broodstock, as well as the lines of fish we maintain for research and development purposes. In addition, we
contract some research activities to third parties. In the future, we may enter into other partnerships and collaboration agreements to advance our research
and development efforts.
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Vertical and horizontal integration
We may have multiple opportunities to vertically integrate and strategically increase our value-added capabilities within the seafood industry. These
capabilities can be obtained by building and developing in-house, forming partnerships, direct investment or through acquisition.
We could also seek to expand our production capabilities in adjacent markets, including:
(cid:0) Diversify into additional high value species, such as shrimp, trout, or tuna.
(cid:0) Evaluate markets for inputs and by-products such as animal feed, fish meal and fish oil.
(cid:0) Acquire new production technologies, such as cellular aquaculture, in the rapidly growing bio-engineered food market.
Human Capital Resources
We believe in the positive impact that a team-based management structure delivers. We empower our people by placing decision making power at the team
level; driven by those closest to the work. We provide training opportunities to our teams to continually improve their decision-making skills. Our recent
development initiatives included introduction to lean and continuous improvement, leadership coaching skills, goal setting and coaching performance,
creation of detailed work instructions and operations training based upon our standard operating procedures. We believe such initiatives ensure our team’s
alignment with our company’s expectations, and when coupled with our confidence in our people’s abilities, our team is positioned to succeed.
As of December 31, 2023, we had 104 team members, 82 of which were in our farm operations and 6 in research and technical support functions. As of
December 31, 2023, we had 16 corporate team members who provided support to all of our operations and were responsible for the execution of all
corporate functions, including executive, operational, finance, information technology, legal, sales and corporate communications. None of our team
members are represented by a labor union, and we consider our employee relations to be good. We structure our compensation packages to compete for the
best talent. Our compensation packages include a competitive base salary and health and wellness benefits, along with a retirement plan that includes a
Company match.
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ESG Leadership
We continue to believe Environmental, Social and Governance (“ESG”) concerns are fundamental to our Purpose and Values and serve as a critical
foundation as to how we operate our business. Our focus on ESG has been important in driving continuous improvement, building our culture and has
resulted in delivering increased efficiencies and effectiveness throughout our operations. We believe taking ESG considerations into account in our
decision-making process contributes to a disciplined approach to risk management.
Our ESG Committee, comprised of our executive management team with oversight by our Board of Directors, has worked cross functionally to develop
our strategy, structure, process and the roadmap for the standards that are relevant to our business.
Environmental
Energy Management
Our current operating farms utilize energy from the grid, but we are acutely aware of the need to diversify into green energy sources for existing facilities,
as well as incorporate alternative energy sources for future farming operations. We are evaluating various alternative energy sources.
Greenhouse Gas Emissions
We are collecting, monitoring, and managing data on a monthly basis that supports our Scope 1 and Scope 2 emission inventory.
Water Management
Fresh water provides critical support for our farming operations. We draw all the water supply for our farms from aquifers, via the underground wells
located at or in the immediate proximity of our Indiana and Prince Edward Island facilities. We understand that our business is water-intensive and that we
share this resource with other members of surrounding communities. Ensuring ample supply and quality of fresh water in order to comfortably operate
our business without disadvantaging local communities is one of the most important factors we use in determining locations for our commercial operations.
Waste Management
Our facilities feature RAS technology, which utilizes fresh, clean water to grow our salmon from hatch to harvest. Water in the system is continuously
recirculated and filtered, at a rate of 95+% per hour, meaning that less than 5% of each cycle is safely discharged back to the environment. The RAS
system features biological filters to remove waste and return fresh water to maintain an optimal growing environment for our salmon. The resulting
wastewater is cleaned before being moved to settling ponds. Solid waste is separated and removed from the system through the filtering process, and often
recycled as fertilizer for local agricultural farmers.
Social Impact
Consumer Welfare: Antibiotic Use in Animal Production
Unlike wild caught or offshore sea-cage farmed salmon, our fish live in indoor tanks, which are designed to prevent them from escaping and reduce the risk
of disease and contaminants. This allows the fish to be raised without the use of antibiotics and chemicals frequently used in sea-cage operations. We have
developed and implemented Standard Operating Procedures (“SOPs”) that govern the physical containment and every significant fish husbandry activity on
our farms.
Human Capital Management
Recruiting, developing, engaging, and protecting our workforce is critical to executing our strategy and achieving business success. We work to equip our
employees with critical skills and expand their contributions over time by providing a range of training and career development opportunities, including
hands-on experiences via challenging work assignments and job rotations, coaching and mentoring opportunities, and training programs. To foster
employee engagement and commitment, we follow a robust process to listen to employees, take action, and measure our progress with on-going employee
conversations, transparent communications, and employee engagement surveys.
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Employee Health, Safety and Advancement
We are committed to maintaining a safe and secure workplace for our employees. We set specific safety standards to identify and manage critical risks. We
use global safety management systems and employee trainings to ensure consistent implementation of safety protocols and accurate measurement and
tracking of incidents. To provide a safe and secure working environment for our employees, we prohibit workplace discrimination, and we do not tolerate
abusive conduct or harassment. Our attention to the health and safety of our workforce extends to the workers and communities in our supply chain. We
believe that respect for human rights is fundamental to our strategy and to our commitment to ethical business conduct.
Governance and Business Ethics
Governance
Our ESG strategy, risk management and reporting is overseen by our ESG Committee, with advice from external experts. The Committee is chaired by our
President and includes all members of our Executive Leadership Team, including our: CEO; Chief Scientific Officer; Chief Operating Officer; General
Counsel; Chief People Officer; Vice President Facilities & Continuous Improvement; and Chief Financial Officer. Our Board of Directors have oversight
over our ESG Committee and initiatives.
Diversity and Inclusion
We are making gender, cultural, and racial diversity one of our key priorities for the next 10 years both at the Board of Directors level and within our
workforce. We are focused on adding diverse, creative, talented, and seasoned personnel to our mid and upper management, as well as young, driven,
collaborative and environmentally responsible team members to our entry-level positions.
Ethical Innovation in Our Supply Chain
With a goal of receiving the best equipment, feed, and other key inputs into our production process, our global supplier and vendor network spans across
many states in the U.S. and several countries, such as Chile, Norway, Brazil, and Canada.
In selecting suppliers, we perform due diligence including review of sustainability and environmental impact information.
One of the advantages of our land-based farms is that we can locate them close to market consumption, which minimizes transportation costs and therefore,
our carbon footprint. This allows us to minimize our transportation requirement to fulfill local and regional distribution as compared to farmed salmon that
is imported into the U.S. by some of the largest farmed salmon producers (i.e., Chile, Norway, and Canada).
Animal Welfare
We raise salmon in natural, safe, and humane ways at every stage of life, from egg to harvest. We utilize technology and skilled human oversight to
continually monitor and manage water quality and fish health. Our focus and targets are based on veterinary expertise and counsel, industry standards, and
customer expectations for quality. We use industry-leading technology to help ensure fish are harvested humanely and with the least possible stress.
(cid:0)
Animal Care and Welfare
We constantly monitor welfare conditions, such as: Crowding; Fish Transfer, Stunning and Bleeding; Harvesting; Grading; and Usage of
Emerging Technologies.
As part of our welfare indicators, we are monitoring: Skin and Fin Conditions; Scale Losses; Mortality Rate; Reflex Behavior; Appetite – Hunger
– Satiation; Gill Bleaching; Sex Maturation; Eye Damage and Cataracts; and Jaw Opercula and Spinal Deformities.
(cid:0) Animal & Feed Sourcing
We do not source animals. We are a 100% vertically integrated entity, with our own Broodstock and egg production that are used in our farms
from hatch to harvest.
At this time, we are not growing our own feed stock or manufacturing feed for our GE salmon. We purchase all of our feed, which is BAP or
GlobalGAP certified, for our operations from third parties.
Feed is a critical input to growing healthy salmon. We evaluate suppliers that have high product safety and ethical standards, consistent with what
we set for ourselves.
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Communities
We believe in supporting local communities in which we operate. We strive to create jobs and contribute to the economic development of these
communities. Whenever feasible, we contract with local businesses for the sources of inputs utilized in our farm operations.
United Nations Sustainable Development Goals
Our corporate Purpose and operations are aligned with a number of the United Nations Sustainable Development Goals (“UNSDGs”). We are committed
to pursuing solutions to help end hunger, achieve food security and improve nutrition, while also promoting sustainable land-based aquaculture to provide a
resilient and domestic supply of fresh salmon. We continually transform the aquaculture segment through our research, innovation and genetics-based
technology. Our management makes conscious decisions to locate our farms close to key consumption markets, providing greater access to all consumers
including underserved communities. We work hard to supply populations with high-quality, healthy, affordable and nutritious salmon that is cultivated with
the well-being of the planet in mind and provides a much needed relief for our oceans and rivers. Our plans are to bring our technology and expertise to
other countries, including developing regions.
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Item 1A. Risk Factors
The following are certain risk factors that could affect our business, financial condition, and results of operations. You should carefully consider the risks
described below, together with the other information contained in this Annual Report on Form 10‑K, including our consolidated financial statements and
the related notes. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and
adverse impact on our business, results of operations, financial condition, or prospects. If that were to happen, the trading price of our common stock
could decline, and you could lose all or part of your investment.
This Annual Report on Form 10‑K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in
this Annual Report on Form 10‑K. See “Cautionary Note Regarding Forward-Looking Statements” for information relating to these forward-looking
statements.
Risks Relating to our Business and Future Plans
We have a history of net losses and will likely incur future losses and may not achieve or maintain profitability.
In the period from incorporation to December 31, 2023, we have incurred cumulative net losses of approximately $221 million. These losses reflect our
personnel, research and development, production and marketing costs. Our ability to realize revenues and the timing thereof are not certain, and achieving
revenues does not assure that we will become profitable. We anticipate incurring additional losses until such time that we can generate significant increases
to our revenues, and/or reduce our operating costs and losses. The size of our future net losses will depend, in part, on the rate of future expenditures and
our ability to significantly grow our business and increase our revenues. We expect to continue to incur substantial and increased expenses as we grow our
business and with our operations as a publicly traded company.
There is substantial doubt about our ability to continue as a going concern.
Since inception, we have incurred cumulative net losses and negative cash flows from operations and expect that this will continue for the foreseeable
future. As of December 31, 2023, we had $9.2 million in cash, cash equivalents, and restricted cash.
Our ability to continue as a going concern is dependent upon our ability to raise additional capital, and there can be no assurance that such capital will be
available in sufficient amounts, on a timely basis, on acceptable terms, or at all. This raises substantial doubt about our ability to continue as a going
concern within one year after the date hereof. The accompanying financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the
outcome of this uncertainty. Until such time as we reach profitability, we will require additional financing to fund our operations and execute our business
plan. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.
Our current business plans include the need for substantial additional capital, and without it, we may not be able to implement our strategy as
planned or at all.
Our strategy depends on our ability to develop and construct additional farms, including our partially constructed Ohio farm. Its construction, and
others in the future, are contingent on our ability to raise capital, without which, we may be unable to construct such facilities as planned or at all.
We may not be able to obtain the financing necessary to complete construction of our proposed facilities. We do not have the financial resources
required to fully finance the construction of the Ohio farm. We will seek to raise part of these necessary funds through debt financing. Recent increases
in interest rates have increased the borrowing costs for this financing, and any further increases before the financing is complete could further increase
such costs. Volatility and/or declines in equity markets in general, and for our securities, may cause equity financing to be unavailable on acceptable
terms or at all. We may also need further funding if there are delays in construction or increased construction costs at our construction site in Ohio. We
may finance unanticipated construction costs by issuing equity securities or debt. The delay or failure of regulatory bodies to approve our construction
plans, disruption and volatility in the financial markets, tighter credit markets and a downturn in the seafood market may negatively impact our ability
to obtain financing. We may not have access to the required funding, or funding may not be available to us on acceptable terms.
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We estimate that the total project cost for the Ohio farm, including construction, land, insurance and ancillary costs will be in the range of $485 million
to $495 million, substantially above our previously disclosed estimate, although this figure could continue to change as we finalize the design, finalize
bids from contractors and continue with construction. For example, at least partially due to recent inflationary pressures, subcontractors for certain
goods and services at our Ohio farm have submitted bids above the levels that we expected. As a result of these increases, and increased interest rates,
we have raised our estimate for the total cost for the project, and we increased the amount of proposed debt financing.
We have encountered cost increases in the expected construction cost of the Ohio farm and may encounter further unanticipated difficulties and cost
overruns in constructing this farm and other future farms. Preparing cost and timing estimates for complex RAS farms is inherently difficult and subject
to change based on a number of factors that we have experienced to date and may experience in the future, including design changes, increasing
inflationary pressure on costs of materials and labor, the impact of health epidemics, such as COVID-19, construction delays, dependence on
contractors, the impact of increasing interest rates on financing costs, customer requirements and unexpected complications. As a result, we may
encounter unanticipated difficulties and the construction and development of our proposed farms may be more costly or time-consuming than we
anticipate.
These recent increases in the construction cost estimate have caused us to put construction on pause until we can evaluate the completion cost estimate
and our financing strategy. There can be no guarantee that our attempts will be successful, and macro-economic conditions could worsen, which could
result in further cost increases and further financing and construction-related delays.
There can be no assurance that additional funds will be available on a timely basis, on acceptable terms, or at all, or that such funds, if raised,
would be sufficient to enable us to continue to implement our business strategy.
We require new financing to provide liquidity for working capital and to fund the construction of our farm in Pioneer, Ohio. To meet this need, we have
engaged an investment bank to pursue a range of funding and strategic alternatives, including the recently announced sale process for our Indiana farm,
potential debt financing secured by our unencumbered assets and potential joint venture partnerships or other strategic transactions. There is no guarantee
that additional funds will be available on a timely basis, on acceptable terms, or at all, or that such funds, if raised, would be sufficient to enable us to
continue to implement our business strategy. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the
ownership interests of holders of our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect the rights of holders of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional
funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances, or licensing
arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product
candidates or to grant licenses on terms that may not be favorable to us. In addition, we may not be able to sell our Indiana farm for the price that we
expect or on the timeline that we expect or at all. Furthermore, if we sell the Indiana farm for a price that is less than the book value of its assets, we will
incur a loss on the sale.
If we lose key personnel, including key management personnel, or are unable to attract and retain additional personnel, it could delay our
commercialization plans or harm our research and development efforts, and we may be unable to sell or develop our own products.
Our success depends substantially on the efforts and abilities of our officers and other key employees. The loss of any key members of our management, or
the failure to attract or retain other key employees who possess the requisite expertise for the conduct of our business, could prevent us from developing
and commercializing our products and executing on our business strategy. We may not be able to attract or retain qualified employees in the future due to
the intense competition for qualified personnel among aquaculture, biotechnology, and other technology-based businesses, or due to the unavailability of
personnel with the particular qualifications or experience necessary for our business. For production positions, effective training will be needed for new
hires due to the overall lack of industry experience in land-based aquaculture in North America. If we are not able to attract, train, and retain the necessary
personnel to accomplish our business objectives, we may experience staffing constraints that could adversely affect our ability to meet the demands of our
customers in a timely fashion, adequately staff existing or new production facilities, or support our internal research and development programs. In
particular, our production facilities require individuals experienced or trained in RAS-based aquaculture, and our product development programs are
dependent on our ability to attract and retain highly skilled scientists. Competition for experienced production staff, scientists, and other technical personnel
from numerous companies and academic and other research institutions may limit our ability to attract and retain such personnel on acceptable terms.
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If we lose key vendors, including those necessary to complete the construction of our Ohio farm, or are unable to engage additional vendors, it
could delay our construction or commercialization plans.
The completion of the construction of our Ohio farm depends on our construction and equipment vendors’ willingness to continue to support the project
once we are ready to resume construction. Due to the rising project cost estimate, we paused construction activities in July 2023, while we pursue
additional financing. There can be no guarantee that our vendors will be available or willing to reengage construction activities on the project when we
have completed our financing and are ready to resume construction. If our vendors are not ready to resume construction activities, or if we need to engage
new vendors, it could delay our construction and commercialization plans.
We require approvals and permits to construct and operate our farms, and any delay or denial of those approvals or permits could potentially
delay or halt certain operations and commercial efforts.
We may not be able to obtain the approvals and permits that will be necessary in order to construct and operate our facilities as planned. We will need
to obtain a number of required permits in connection with the hydrology, construction and operation of our farms, which is often a time-consuming
process. We will also need to obtain FDA approval to grow our GE Atlantic salmon in the facility. Delays or conditions imposed in obtaining the
required approvals and permits for our farms, have delayed and may further delay our expected construction completion, commercial stocking and first
sale dates and/or lead to further cost increases. If we are unable to obtain the required approvals and permits for our farms, we will not be able to
construct the farms. In addition, federal, state and local governmental requirements could substantially increase our costs, which could materially harm
our results of operations and financial condition.
Increases in interest rates have increased our expected borrowing costs and may also affect our ability to obtain working capital through
borrowings, such as bank credit lines and public or private sales of debt securities.
We will seek to raise part of the funding necessary for construction of our Ohio farm, and other future farms, through debt financing. Increases in
interest rates will increase the cost of our indebtedness for construction financing and may also affect our ability to obtain working capital through
borrowings, such as bank credit lines and public or private sales of debt securities. This may result in lower liquidity, increased expense and difficulty
in financing our expansion plans, reduced working capital and other adverse impacts on our business.
Delays and defects may prevent the commencement of farm operations.
Delays and defects may cause our costs to increase to a level that would make one or more of our farms too expensive to construct or unprofitable. We
may suffer significant delays or cost overruns at our farms that could prevent us from commencing operations as expected as a result of various factors.
These factors include shortages of workers or materials, construction and equipment cost escalation, transportation constraints, adverse weather,
unforeseen difficulties or labor issues, or changes in political administrations at the federal, state or local levels that result in policy change towards
genetically engineered foods in general or our products and farms in particular. Defects in materials or workmanship could also delay the
commencement of operations of our planned farms, increase production costs or negatively affect the quality of our products. Due to these or other
unforeseen factors, we may not be able to proceed with the construction or operation of our farms in a timely manner or at all.
Rising inflation rates could negatively impact our revenues and profitability.
Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our products or a decrease in consumer
spending results in lower sales. In addition, if our costs increase and we are not able to pass along these price increases to our customers, our net
income would be adversely affected, and the adverse impact may be material. Inflation rates, particularly in the United States, have increased to levels
not seen in years. Increased inflation may result in increased construction costs for new farms, increased operating costs (including our labor costs),
reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. Increases in interest rates, especially if
coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and
heightening these risks.
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The financing of our Ohio farm through the placement of municipal bonds may require restrictive debt covenants that could limit our control
over the farm’s operation and restrict our ability to utilize a portion of any cash that the farm generates.
We anticipate using both equity and debt to finance the construction and initial working capital for our Ohio farm. Debt financing will likely contain
certain customary restrictive covenants that require us to maintain certain operating ratios and may restrict our use of any cash that is generated by the
farm. The amount of debt used to finance the project may be significant and may require the use of a trustee to oversee the project funds and to
monitor the project’s performance and adherence to any restrictive covenants. Failure to meet the restrictive covenants over a period of time could
result in more oversight by the trustee and a loss of some of our control over the operation, or in the extreme by the trustee stepping in to manage the
farm’s operation.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of holders of our common
stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our
common stock.
Our term loan agreement with First Farmers Bank and Trust in the amount of $4 million contains certain customary restrictive covenants that limit our
ability, including without limitation, to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control,
acquire other companies, engage in new lines of business and make certain investments, as well as financial covenants requiring us to maintain certain
ratios with respect to our operations. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to
meet those covenants. A breach of any of these covenants could result in a default under the term loan agreement, which could cause all of the outstanding
indebtedness under our term loan to become immediately due and payable. In that event, we would be required to disclose the default in our public filings,
which could have an adverse effect on the price of our shares of common stock. These covenants could also limit our ability to seek capital through the
incurrence of new indebtedness or, if we are unable to meet our obligations, require us to repay any outstanding amounts with sources of capital we may
otherwise use to fund our business, operations and strategy.
We may encounter difficulties managing our growth, which could adversely affect our business.
We could face a period of rapid growth following expansion of our production capability, which may place significant pressure on our management, sales,
operational, and financial resources. The execution of our business plan and our future success will depend, in part, on our ability to manage current and
planned expansion and on our ability to continue to implement and improve our operational management. Any failure to manage the planned growth may
have a significant adverse effect on our business, financial condition, trading performance, and prospects.
We may pursue strategic acquisitions, investments or mergers that could have an adverse impact on our business if they are unsuccessful.
If appropriate opportunities become available, we may acquire, invest in or merge with businesses, assets, technologies, or products to enhance our
business in the future. In connection with any future acquisitions, investments or mergers, we could:
(cid:0) issue additional equity securities, which would dilute the ownership interest and voting power of our current stockholders;
(cid:0) incur substantial debt to fund the acquisitions; or
(cid:0) assume significant liabilities.
Acquisitions, investments or mergers involve numerous risks, including:
(cid:0) difficulties integrating the purchased operations, technologies, or products;
(cid:0) unanticipated costs and other liabilities;
(cid:0) diversion of management’s attention from our core business;
(cid:0) adverse effects on existing business relationships with current and/or prospective customers and/or suppliers;
(cid:0) risks associated with entering markets in which we have no or limited prior experience; and
(cid:0) potential loss of key employees.
We do not have extensive experience in managing the integration process, and we may not be able to successfully integrate any businesses, assets,
products, technologies, or personnel that we might acquire in the future without a significant expenditure of operating, financial, and management
resources. The integration process could divert management time from focusing on operating our business, result in a decline in employee morale, or
cause retention issues to arise from changes in compensation, reporting relationships, future prospects, or the direction of the business. Certain
transactions may require us to record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and
potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write-offs and
restructuring and other related expenses, all of which could harm our operating results and financial condition. In addition, we may acquire companies that
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have insufficient internal financial controls, which could impair our ability to integrate the acquired company and adversely impact our financial reporting.
If we fail in our integration efforts with respect to any of our acquisitions and are unable to efficiently operate as a combined organization, our business
and financial condition may be adversely affected.
High customer concentration exposes us to various risks faced by our major customers and may subject us to significant fluctuations or declines in
revenues.
A limited number of our major customers have contributed a significant portion of our revenues in the past. Our revenue from the top three largest
customers accounted for approximately 76% and 68% of our total revenues in the fiscal years ended December 31, 2023 and 2022, respectively. Although
we continually seek to diversify our customer base, we cannot assure you that the proportion of the revenue contribution from these customers to our total
revenues will decrease in the near future. Dependence on a limited number of major customers will expose us to the risks of substantial losses and may
increase our accounts receivable and extend its turnover days if any of them reduces or ceases business with us. Any one of the following events, among
others, may cause material fluctuations or declines in our revenues and have a material and adverse effect on our business, financial condition, results of
operations and prospects:
(cid:0) an overall decline in the business of one or more of our significant customers;
(cid:0) the decision by one or more of our significant customers to switch to our competitors;
(cid:0) the reduction in the prices for our products agreed by one or more of our significant customers; or
(cid:0) the failure or inability of any of our significant customers to make timely payment to us.
Risks Relating to the Operation of Our Farms
Ethical, legal, and social concerns about genetically engineered products could limit or prevent the use of our products and limit our revenues.
Our technologies include the use of genetic engineering. Public perception about the safety and environmental hazards of, and ethical concerns over,
genetically engineered products could influence public acceptance of our technologies and products. Activist groups opposing the genetic engineering of
organisms have in the past pressured a number of retail food outlets and grocery chains to publicly state that they will not carry genetically engineered
Atlantic salmon, and they could file lawsuits to prevent the production and sale of our products. If we are not able to overcome the ethical, legal, and social
concerns relating to genetic engineering, products using our technologies may not be accepted in the marketplace, and demand for our products could fall
short of what we expect. These concerns could also result in increased expenses, regulatory scrutiny, delays, or other impediments to implementation of our
business plan.
The subject of genetically engineered products has received negative publicity, which has aroused public debate. This adverse publicity could lead to
lawsuits against the production, distribution, and sale of genetically engineered products; greater regulation of those products; and trade restrictions on their
importation. Further, there is a concern that products produced using our technologies could be perceived to cause adverse events, which could also lead to
negative publicity.
We may have limited success in gaining consumer acceptance of our products.
There is an active and vocal group of opponents to genetically engineered products who wish to ban or restrict the technology and who, at a minimum,
hope to sway consumer perceptions and acceptance of this technology. Their efforts include regulatory legal challenges and labeling campaigns for
genetically engineered products, as well as application of pressure to multiple channels of distribution including, but not limited to distributors, food
service operators, and consumer retail outlets seeking a commitment not to carry genetically engineered Atlantic salmon. We may not be able to
overcome the negative consumer perceptions that these organizations have instilled against our products.
Our business is affected by the quality and quantity of the salmon that we harvest.
We sell our products in a highly competitive market. Our ability to successfully sell our products, and the price that we receive, is highly dependent on the
quality of the salmon that we produce. A number of factors can negatively affect the quality of the salmon that we sell, including the quality of our
broodstock, water conditions in our farms, the food and additives consumed by our fish, population levels in the tanks, and the amount of time that it takes
to bring a fish to harvest, including transportation and processing. We have experience operating RAS facilities and raising salmon, and while we actively
monitor these factors using rigorous standard operating procedures, we cannot always ensure optimal growing conditions. Although fish grown in RAS
production systems are not subject to the disease and parasite issues that can affect salmon grown in ocean pens, there is the potential for organisms that are
ubiquitous to freshwater environments to become pathogenic if the fish are subjected to stressful conditions or there is an issue with biomass management.
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We maintain high standards for the quality of our product and if we determine that a harvest has not met such standards, we may be required to reduce our
inventory and write down the value of the harvest to reflect net realizable value. Sub-optimal conditions could lead to smaller harvests and or lower quality
fish. Conversely, if we experience better than expected growth rates, we may not be able to process and bring our fish to market in a timely manner, which
may result in overcrowding that can cause negative health impacts and/or require culling our fish population.
Further, if our salmon is perceived by the market to be of lower quality than other available sources of salmon or other fish, we may experience reduced
demand for our products and may not be able to sell our products at the prices that we expect or at all. As we continue to expand our operations and build
new farms, we potentially may face additional challenges with maintaining the quality of our products. We cannot guarantee that we will not face quality
issues in the future, any of which could cause damage to our reputation, and a loss of consumer confidence in our products, which could have a material
adverse effect on our business results and the value of our brands.
We may experience a significant fish mortality event in our broodstock or our production facilities that could impact the price of our common
stock.
In recent periods, other companies in the land-based aquaculture industry have experienced fish mortality events that resulted in a decline in their share
price. It is possible that our operations could experience a significant fish mortality event due to, among other causes, disease, pathogens, human error,
intentional malfeasance, a weather event, loss of access to electricity or water, or damage to our farms, or other factors beyond our control. If we were
to have a significant fish mortality event, this could lead to a reduction in production harvests, loss of broodstock, loss of revenue, increased production
costs, and public relations damage, the result of which could impact the price of our common stock.
The loss of our GE Atlantic salmon broodstock could result in the loss of our commercial technology.
Our GE Atlantic salmon, or more specifically the breeding population of live fish, or broodstock, themselves, is a product of our combined intellectual
property, which includes our trade secrets related to creating and maintaining the broodstock. Destruction of our salmon broodstock by whatever means
could result in a significant delay to our operations while the broodstock was replenished. Live animals are subject to disease that may, in some cases,
prevent or cause delay in the export of eggs to our farms. Disease organisms may be present but undetected and transferred inadvertently. In addition, our
broodstock is kept at a limited number of facilities, and damage to or failure of critical systems at any one of those facilities could lead to the loss of a
substantial percentage of our broodstock. Such events may cause loss of revenue, increased costs, or both. Though the broodstock could be reinstated, in
whole or in part, using our technology and stored breeding reserves, the cost and time required to do so could adversely affect our operating results and
financial condition.
Atlantic salmon farming is subject to disease outbreaks, which can increase the cost of production and/or reduce production harvests.
Salmon farming systems, particularly conventional, open sea-cage systems, are vulnerable to disease introduction and transmission, primarily from the
marine environment or adjacent culture systems. The economic impact of disease to these production systems can be significant, as farmers must incur the
cost of preventative measures, such as vaccines and antibiotics, and then, if the fish become infected, the cost of lost or reduced harvests.
Although we produce and grow our GE Atlantic salmon in land-based, closed containment facilities, we are still at risk for potential disease outbreaks.
We have implemented biosecurity measures in our facilities intended to prevent or mitigate disease impact, but there can be no assurance that any
measures will be 100% effective.
A shutdown, material damage to any of our farms, or lack of availability of power, fuel, oxygen, eggs, water, or other key components needed for
our operations, could result in our prematurely harvesting fish, a loss of a material percentage of our fish in production, a delay in our
commercialization plans, and a material adverse effect on our operations, business results, reputation, and the value of our brands.
At present, we have farms in Albany, Indiana, and Prince Edward Island, Canada. As an interruption in the power, fuel, oxygen supply, water quality
systems, or other critical infrastructure of an aquaculture facility for more than a short period of time can lead to the loss of a large number of fish, any
shutdown of or damage to either of our farms—for example, due to weather or other natural disaster, shortages of key components to our operations due to
a pandemic, reduction in water supply, contamination of our aquifers, interruption in services beyond our backup capacity, or human interference—could
require us to prematurely harvest some or all of the fish at that farm or could result in a loss of a material percentage of our fish in production. In addition,
any transportation-related or
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other accidents that may result in a spill of hazardous materials near our farms, which may contaminate the land and/or groundwater, may result in a loss of
a material percentage of our fish and other material adverse effects on our operations.
We also are dependent on egg availability and being able to ship genetically engineered Atlantic salmon eggs from Canada to the United States for
production. If we had a disruption in our ability to produce our eggs in Canada or ship our eggs to the United States, due to border closings or some other
event that would prevent us from importing the eggs to the United States, we would not be able to continue to stock our Indiana Farm with genetically
engineered Atlantic salmon eggs. We cannot guarantee that any of these disruptions might not occur in the future, any of which could cause loss of salmon
to sell, damage to our reputation, loss of consumer confidence in our products and company, and lost revenues, all of which could have a material adverse
effect on our business results and the value of our brands.
The successful development of our business depends on our ability to efficiently and cost-effectively produce and sell salmon at large commercial
scale.
Although we have over two decades of experience in successfully raising Atlantic salmon in land-based systems, we have only begun to produce them at
commercial scale. Our business plans depend on our ability to increase our production capacity through the development of larger farms. We have limited
experience constructing, ramping up, and managing such large, commercial-scale facilities, and we may not have anticipated all of the factors or costs that
could affect our production, harvest, sale, and delivery of salmon at such a scale. For example, our salmon may not perform as expected when raised at
very large commercial scale, we may encounter operational challenges for which we are unable to identify a workable solution, control deficiencies may
surface, our vendors may experience capacity constraints, or our production cost and timeline projections may prove to be inaccurate. Any of these could
decrease process efficiency, create delays, and increase our costs. We are also subject to volatility in market demand and prices, such as the disruption to
the salmon market and the resulting reduction in market prices for salmon that occurred during the COVID-19 pandemic.
In addition, competitive pressures, customer volatility and the possible inability to secure established and ongoing customer partnerships and contracts,
may result in a lack of buyers for our fish. Customers of our fish may not wish to follow our terms and conditions of sale, potentially resulting in a
violation of labeling or disclosure laws, improper food handling, nonpayment for product, and similar issues. The competitive landscape for salmon may
create challenges in securing competitive pricing for our salmon to reach our competitive goals. In addition, it is possible that we may not be able to
service our customers to meet their expectations regarding fish quality, ongoing harvest supply availability, order processing fill rate, on time or correct
deliveries, potential issues with third-party processors, and other factors, which could impact our relationships with customers, our reputation, and our
business results.
If our products become contaminated, we may be subject to product liability claims and product recalls, which could adversely affect our financial
results and damage our reputation.
Food safety issues (both actual and perceived) may have a negative impact on, the reputation of and demand for, our products. In addition to the need to
comply with relevant food safety regulations, it is of critical importance that our products are safe and perceived as safe and healthy in all relevant markets.
Our products may be subject to contamination by foreign materials or disease-producing organisms or pathogens, such as Listeria monocytogenes,
Salmonella and E. coli. These organisms and pathogens are found generally in the environment and there is a risk that one or more, as a result of food
processing, could be present in our products. These organisms and pathogens also can be introduced to our products as a result of improper handling at the
further-processing, foodservice or consumer level. These risks may be controlled, but may not be eliminated, by adherence to good manufacturing practices
and finished product testing. We have little, if any, control over handling procedures once our products have been shipped for distribution. Even an
inadvertent shipment of contaminated products may be a violation of law and may lead to increased risk of exposure to product liability claims, increased
scrutiny and penalties, including but not limited to, injunctive relief and plant closings, by federal and state regulatory agencies, and adverse publicity,
which could exacerbate the associated negative consumer reaction. Any of these occurrences may have an adverse effect on our financial results and the
value of our brands.
In addition, we may be required to recall some of our products if they spoil, become contaminated, are tampered with or are mislabeled. A widespread
product recall could result in significant losses due to the costs of a recall, the destruction of product inventory and lost sales due to the unavailability of
product for a period of time. Such a product recall also could result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our
products, which could have a material adverse effect on our business results and the value of our brands.
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Security breaches, cyber-attacks and other disruptions could compromise our information, expose us to fraud or liability, or interrupt our
operations, which would cause our business and reputation to suffer.
In the ordinary course of our business, we use third-party, cloud-based servers and networks to store sensitive data, including our proprietary business and
financial information; general business information regarding our customers, suppliers, and business partners; and personally identifiable information of
our employees; and to operate our farm equipment. The security of our network and the storage and maintenance of sensitive information is critical to our
operations. Despite our security measures, our and our third-party providers’ information technology and infrastructure are subject and vulnerable to cyber-
attacks by hackers, such as social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, and as a
result of bugs, misconfigurations or exploited vulnerabilities in software or hardware. A breach of our or our third-parties’ security could compromise our
and/or their networks, and the information stored could be accessed, manipulated, publicly disclosed, lost, or stolen. Any such access, manipulation,
disclosure, or loss of information could result in errors in our records, fraudulent use of our financial information or theft of assets, legal claims or
proceedings (such as class actions), regulatory investigations and enforcement actions, liability under laws that protect the privacy of personal information
(including fines and penalties), theft of our intellectual property, damage to our reputation and/or significant system restoration or remediation and future
compliance costs. In addition, our systems could be the subject of denial of service or other interference, which could disrupt our operations and
commercial transactions. There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls or
procedures, will be fully implemented, complied with or effective in protecting our systems and information.
In addition, with the continued automation of our farm operations, there is the possibility of exposure to critical assets or sensitive information loss
stemming from a cyber-attack on communication interfaces with third-party providers, which could adversely impact our farm operations. Any of the
foregoing could adversely affect our business, revenues, and competitive position.
We remain dependent on third parties for the processing, distribution, and sale of our products.
At present, we rely on third parties to process our fish, deliver them to seafood vendors, and ultimately sell them to consumers. While we carefully select
processors or other intermediaries in the supply chain, any failure on their part to maintain quality standards or proper food handling processes could
subject us to product liability claims, product recalls, increased scrutiny from regulators, and loss of consumer confidence in the safety and quality of our
products. Seafood vendors may reject our products due to their particular product or volume requirements, extract pricing concessions that reduce our
margins, or fail to adequately promote and sell our products. Our reliance on third parties could therefore result in a reduction in our revenues, an increase
in our costs, delays in commercialization, additional regulatory requirements, or negative public opinion that could impact future sales and growth.
We may be required to write-down the value of our inventory if its net realizable value is less than its accumulated cost at the end of a reporting
period.
Our fish in process inventory is a biological asset and is stated on our balance sheet at the lower of cost or net realizable value, where net realizable value is
calculated as the estimated market price less the estimated costs of processing, packaging and transportation. Any adjustments to the carrying value of
inventory are reported as a component of production costs on our income statement. Such adjustments may be material in any given period and could
adversely affect our financial condition and results of operations. Until such time as our net realizable value is consistently in excess of inventory costs, our
inventory may be subject to significant market value risk.
Risks Relating to the Industry and Macro Environment
Business, political, or economic disruptions or global health concerns could seriously harm our current or planned business and increase our costs
and expenses.
Broad-based business or economic disruptions, political instability, or global health concerns could adversely affect our current or planned production, sale,
distribution, research and development, and expansion. For example, the COVID-19 pandemic and its related adverse public health developments,
including orders to shelter-in-place, travel restrictions, and mandated business closures adversely affected workforces, organizations, customers,
economies, and financial markets globally, leading to an economic downturn and increased market volatility. It also disrupted the normal operations of
many businesses, including ours.
Global health concerns like the COVID-19 pandemic could in themselves result in social, economic, and labor instability in the countries in which we or
the third parties with whom we engage operate. The COVID-19 pandemic and government measures taken in response had a significant impact, both direct
and indirect, on businesses and commerce, as worker shortages occurred. These impacts included the shortage of packaging workers and transportation
suppliers that we experienced, leading to slower and more expensive harvests and increased culling activity; supply chain disruptions; facility and
production suspensions; and demand for certain goods
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and services, such as medical services and supplies spiked, while demand for other goods and services, including salmon in the institutional sales chain that
includes restaurants fell, with a resulting drop in the prices for those goods and services. We were impacted by the reduction in food service demand for
salmon due to the pandemic in the form of significantly lower than expected sales and a reduction in the value of our inventory.
We cannot predict the scope and severity of business, political or economic disruptions or global health concerns. If we or any of the third parties with
whom we engage, including suppliers, distributors, service providers, regulators, and overseas business partners, experience shutdowns or other disruptions
again in the future, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted,
our anticipated revenues could decrease, and our costs and expenses could continue to rise as a result of our efforts to address such disruptions.
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by
financial institutions or transactional counterparties, could adversely affect our business, financial condition or results of operations.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or
other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or
other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Most recently, on March 10, 2023, Silicon Valley Bank,
now a division of the First Citizens Bank, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal
Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 8, 2023, Silvergate Capital Corp. announced its decision to voluntarily liquidate
its assets and wind down its operations. Our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our
current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in
general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of
financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or
negative expectations about the prospects for companies in the financial services industry.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including
higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making
it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources
could, among other risks, adversely impact our ability to meet our operating expenses or financial obligations or fulfill our other obligations, result in
breaches of our contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting
from the factors described above or other related or similar factors, could have material adverse impacts on our liquidity and our business, financial
condition or results of operations.
We currently have cash and cash equivalents deposited in Citizens Bank, N.A. representing 85% of our total amounts and significantly in excess of
federally insured levels. If any of the financial institutions in which we have deposited funds ultimately fails, we may lose our uninsured deposits at such
financial institutions, and/or we may be required to move our accounts to another financial institution, which could cause operational difficulties, such as
delays in making payments to our partners and employees, which could have an adverse effect on our business and financial condition.
Industry volatility can affect our earnings, especially due to fluctuations in commodity prices of salmon.
Profitability in the salmon industry is materially affected by the commodity price of salmon, and to a lesser extent, alternative proteins. These prices are
determined by supply and demand factors and can fluctuate by season. For example, the COVID-19 pandemic impacted market demand for salmon, which
resulted in market prices falling by up to 40% for certain product presentations. Conversely, given the long grow-out cycle for raising salmon, disruptions
in production can depress market supply and result in price increases.
Atlantic salmon farming is restricted in certain states.
Concerns regarding the possible environmental impact from our GE Atlantic salmon have led some states to impose legislative and regulatory restrictions
or bans on its farming. In addition, some states, such as Alaska, have enacted restrictions on Atlantic salmon farming generally. While we currently
believe that many states offer excellent potential sites for our salmon production farms, if additional states adopt similar restrictions, or otherwise prohibit
the rearing of our GE Atlantic salmon in those states, the number of potential sites available to us for production farms in the United States could be
reduced.
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We have entered into agreements that require us to pay a significant portion of our future revenue to third parties.
In 2009, we received a grant from the Atlantic Canada Opportunities Agency to fund a research program. A total of C$2.9 million was made available
under the grant, and we received the entire amount through December 31, 2015. If we begin to generate revenue from any of the products from the
research program, we must commence repayment of the outstanding loan in the form of a 10% royalty. These payments could negatively impact our
ability to support our operations. Revenues from sales of our GE Atlantic salmon are not subject to the royalty.
We have received government research grants and loans in the past, but such grants and loans may not be available in the future.
We have in the past received government assistance in the form of research grants and loans to partially fund various research projects, including projects
involving our GE Atlantic salmon. There can be no assurance that additional government assistance will be available in the future to help offset the cost of
our research activities, in which case we would need to fund our research projects entirely from our available cash resources, which may be limited. This
could delay progress on future product development and introduction. In addition, we may be subject to audit by the government agencies that provided
research assistance to ensure that the funds were used in accordance with the terms of the grant or loan. Any audit of the use of these funds would require
the expenditure of funds and result in the diversion of management’s attention.
Our financial condition or results of operations may be adversely affected by international business risks, including exchange rate fluctuations.
The majority of our employees, including our research personnel, are currently located outside of the United States. As a consequence of the international
nature of our business, we are exposed to risks associated with international operations. For example, we are based in the United States and present our
financial statements in U.S. dollars, and the majority of our cash resources are held in U.S. dollars or in Canadian dollars. Some of our future expenses and
revenues are expected to be denominated in currencies other than in U.S. dollars. Other risks include possible governmental restrictions of the movement
of funds, limitation of contractual rights, or expropriation of assets without fair compensation. Therefore, movements in exchange rates to translate to
foreign currencies and other international operational risks may have a negative impact on our reported results of operations, financial position, and cash
flows.
Our ability to use net operating losses and other tax attributes to offset future taxable income may be subject to certain limitations.
In general, under Sections 382 and 383 of the U.S. Tax Code (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on
its ability to utilize its pre-change net operating losses (“NOLs”), tax credits, or other tax attributes to offset future taxable income or taxes. For these
purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at
least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified
testing period. In addition to limitations imposed by the 2017 Tax Cuts and Jobs Act, a portion of our NOLs are subject to substantial limitations arising
from previous ownership changes, and, if we undergo another ownership change, our ability to utilize NOLs could be further limited by Sections 382 and
383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under
Sections 382 and 383 of the Code. Our NOLs may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our
NOLs. Furthermore, our ability to utilize our NOLs is conditioned upon our attaining profitability and generating U.S. federal and state taxable income.
Risks Relating to Regulated Products
Our ability to generate revenue to support our operations depends on maintaining regulatory approvals for our GE Atlantic salmon and our farm
sites and obtaining new approvals for farm sites and the sale of our products in other markets, the receipt of which is uncertain.
As a genetically engineered animal for human consumption, our GE Atlantic salmon required approval from the FDA in the United States and the
Ministers of Health and Environment in Canada before it could be produced, sold, or consumed in those countries. Our FDA approval covers the
production of our eggs in our hatchery in Canada and the grow-out of our eggs in our facilities in Indiana and Rollo Bay. FDA approvals will be needed for
each additional facility we plan to operate. Additionally, we will require local regulatory approvals in other countries in which we hope to operate. There is
no guarantee that we will receive or be able to maintain regulatory approvals from the FDA or other regulatory bodies or that there will not be a significant
delay before approval. There is
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also no guarantee that any approvals granted will not be subject to onerous obligations in relation to matters such as production or labeling, or that any
regulator will not require additional data prior to approval, which may be costly and time-consuming to acquire.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels and
statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of
other agencies on which our operations may rely is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new applications to be reviewed and/or approved by necessary government
agencies, which would adversely affect our business. For example, in May 2021, the FDA released its Resiliency Roadmap for FDA Inspectional
Oversight, which described the prioritization process for FDA inspections and oversight. We believe that our GE Atlantic salmon would be treated as a
“tier 2 - higher priority” product, but not a “tier 1 - mission critical” product. This designation could potentially impact the ability of the FDA to timely
review and process our regulatory submissions, which could have a material adverse effect on our business.
We will be required to continue to comply with FDA and foreign regulations.
Even with the approval of our NADA and other regulatory applications for our GE Atlantic salmon, we must continue to comply with FDA and other
regulatory requirements not only for manufacturing, but also for labeling, advertising, record keeping, and reporting to the FDA and other regulators of
adverse events and other information. Failure to comply with these requirements could subject us to administrative or judicial enforcement actions,
including but not limited to product seizures, injunctions, civil penalties, criminal prosecution, refusals to approve new products, or withdrawal of
existing approvals, as well as increased product liability exposure, any of which could have a material adverse effect on our business, financial condition,
or results of operations.
The markets in which we intend to sell our products are subject to significant regulations.
In addition to our FDA approval for the sale and consumption of our GE Atlantic salmon in the United States, we are also subject to state and local
regulations and permitting requirements, which could impact or delay the commercialization and commencement of revenue generation from the sale of
our salmon. International sales also are subject to rules and regulations promulgated by regulatory bodies within foreign jurisdictions. There can be no
assurance that foreign, state, or local regulatory bodies will approve the sale and consumption of our product in their jurisdiction.
We may incur significant costs complying with environmental, health, and safety laws and regulations, and failure to comply with these laws and
regulations could expose us to significant liabilities.
Our operations are subject to a variety of federal, state, local, and international laws and regulations governing, among other matters, the use, generation,
manufacture, transportation, international shipment, storage, handling, disposal of, and human exposure to our products in both the United States and
overseas, including regulation by governmental regulatory agencies, such as the FDA and the U.S. Environmental Protection Agency. We have incurred,
and will continue to incur, capital and operating expenditures and other costs in the ordinary course of our business in complying with these laws and
regulations. Additional laws and regulations could be adopted in the future further regulating our business.
We may become subject to increasing regulation, changes in existing regulations, and review of existing regulatory decisions.
Regulations pertaining to genetically engineered animals are still developing and could change from their present state. In addition, new legislation could
require new regulatory frameworks, changes in existing regulation, or re-evaluation of prior regulatory decisions. For example, despite the FDA’s final
determination that our GE Atlantic salmon may be sold without being labeled as a genetically engineered product, a provision added to the 2016 Omnibus
Appropriations Act required the FDA to issue final guidance for such labeling. The FDA was therefore obligated to maintain an Import Alert starting in
January 2016 that prohibited import of our GE Atlantic salmon until such guidance was finalized or the provision was no longer effective. On March 8,
2019, several months after the USDA promulgated its final rule establishing the Disclosure Standard, which included disclosure requirements for
bioengineered foods, including our GE Atlantic salmon, the FDA lifted the Import Alert.
Similarly, in July 2017, a bill was introduced in the United States Senate that could have, had it become law, required labeling unique to, as well as re-
examination of the environmental assessments used by the FDA in its 2015 approval of the NADA for our GE Atlantic salmon. While this bill was
reintroduced in January 2019 without the requirement for re-examination of those environmental assessments, any such legislatively imposed review of a
completed regulatory process could result in new restrictions on, or delays in, commercialization of our product in the United States. We could be subject to
increasing or more onerous regulatory hurdles as we attempt to commercialize our product, which could require us to incur significant additional capital
and operating expenditures and
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other costs in complying with these laws and regulations. Our regulatory burdens could also increase if our GE Atlantic salmon are found, or believed, to
grow to a larger final size than conventional Atlantic salmon.
In addition, the 2020 Appropriations Act, which was signed into law in December 2019, and reintroduced and passed in 2021, 2022 and 2023, contained an
amendment that requires that any bioengineered animal approved by FDA prior to the effective date of the Disclosure Standard shall include the words
‘‘genetically engineered’’ prior to the existing acceptable market name. While the Company believes that this labeling requirement is unnecessary and
redundant to the requirement of the Disclosure Standard, it will comply with all applicable laws.
Additional regulatory and lawmaking activity within the United States and abroad could increase our costs and/or delay or prevent the production and sales
of our GE Atlantic salmon.
We or regulatory agencies approving our products may be sued by non-governmental organizations and others who are opposed to the
development or commercialization of genetically engineered products.
There are many organizations in the United States and elsewhere that are fundamentally opposed to the development of genetically engineered products.
These groups have a history of bringing legal action against companies attempting to bring new biotechnology products to market. On December 23, 2013,
an application was filed by two NGOs with the Canadian Federal Court seeking judicial review to declare invalid the decision by the Canadian Minister of
the Environment to publish in the Canadian Gazette a Significant New Activity Notice (“SNAN”) with respect to our GE Atlantic salmon. Though the
Canadian Federal Court dismissed this challenge, the petitioners filed an appeal of the ruling, which was subsequently dismissed by the Canadian Federal
Court of Appeal on October 21, 2016.
On March 30, 2016, a coalition of non-governmental organizations filed a complaint in the United States District Court for the Northern District of
California against the FDA, the United States Fish and Wildlife Service, and related individuals for their roles in the approval of our GE Atlantic salmon.
Subsequently, the Fish and Wildlife Service was dismissed from the case, and AquaBounty joined the case as an intervenor to protect AquaBounty’s
interests. The coalition, including the Center for Food Safety and Friends of the Earth, claimed that the FDA had no statutory authority to regulate
genetically engineered animals, and, if it did, the agency failed to adequately analyze and implement measures to mitigate ecological, environmental, and
socioeconomic risks that could impact wild salmon and the environment, including the risk that our GE Atlantic salmon could escape and threaten
endangered wild salmon stocks. In December 2019, the court found that FDA had authority/jurisdiction over genetically engineered animals and in
November 2020, the judge remanded the Environmental Assessment (the approval) to FDA on National Environmental Protection Act (NEPA) and
Endangered Species Act (ESA) grounds. In April 2021, the FDA/US Department of Justice filed a notice of appeal relating to several claims in that case,
and subsequently withdrew the appeal, and the date to file appeals in the case has expired. The court decision from the Northern District of California does
not have a current business impact on AquaBounty’s egg production in Prince Edward Island, Canada, AquaBounty’s salmon production in Albany,
Indiana, or AquaBounty’s sales of its fish.
The term “genetically engineered” will need to be included as part of the acceptable market name for our GE Atlantic salmon, and bioengineering
disclosures will need to be provided at the retail level, in accordance with USDA regulations. These disclosures could negatively impact consumer
acceptance.
Until the passage of the National Bioengineered Food Disclosure Law in July 2016, which contained the requirement to establish the Disclosure Standard,
our GE Atlantic salmon did not need to be labeled as containing a bioengineered product, because it had been deemed to be “substantially equivalent” to
the conventional product. However, because some states either passed or considered new laws specifying varying requirements for labeling products sold
at the retail level that contain bioengineered ingredients, the United States Congress passed the National Bioengineered Food Disclosure Law in July
2016, requiring the USDA to establish a mandatory standard for disclosing foods that are or may be bioengineered. USDA issued the National
Bioengineered Food Disclosure Standard in December 2018. AquaBounty includes the bioengineered logo on its GE Atlantic salmon packaging, in
accordance with the Disclosure Standard. In addition, the 2020 Appropriations Act, which was signed into law in December 2019, which was
reintroduced and passed in 2021, 2022 and 2023, contained an amendment that requires that any bioengineered animal approved by FDA prior to the
effective date of the Disclosure Standard shall include the words ‘‘genetically engineered’’ prior to the existing acceptable market name. While the
Company believes that this labeling requirement is unnecessary and redundant to the requirement of the Disclosure Standard, it complies with all
applicable laws. Labeling requirements could cause consumers to view the label as either a warning or as an indication that GE Atlantic salmon is
inferior to conventional Atlantic salmon, which could negatively impact consumer acceptance of our product.
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Risks Relating to Intellectual Property
Competitors and potential competitors may develop products and technologies that make ours obsolete or garner greater market share than
ours.
We do not believe that we have a direct competitor for bioengineered, growth-enhanced Atlantic salmon. However, the market for Atlantic salmon is
dominated by a group of large, multinational corporations with entrenched distribution channels. Competitors may be able to reduce the grow-out times
for their conventional sea-cage and RAS farming operations, thus lowering our competitive advantages and reducing their costs. Our ability to compete
successfully will depend on our ability to demonstrate that our GE Atlantic salmon is superior to and/or less expensive than other products available in
the market.
Certain of our competitors may be better funded than we are and/or benefit from government support and other incentives that are not available to us. At
least in part due to these financial advantages, our competitors may be able to develop competing and/or superior products and compete more aggressively
and sustain that competition over a longer period of time than we can. As more companies develop new intellectual property in our markets, a competitor
could acquire patents or other rights that may limit our ability to successfully market our product.
If our technologies or products are stolen, misappropriated, or reverse engineered, others could use the technologies to produce competing
technologies or products.
Third parties, including our collaborators, contractors, and others involved in our business often have access to, and may require that we grant interest in,
our technologies. If our technologies or products were stolen, misappropriated, or reverse engineered, or if we are forced to grant broad interests in our
technologies, they could be used by other parties that may be able to reproduce our technologies or products using our technologies for their own
commercial gain. If this were to occur, it would be difficult for us to challenge this type of use, especially in countries with limited intellectual property
protection. In addition, third parties granted interests in our technologies could seek to prevent or limit our use or commercialization of those
technologies based on claims of partial ownership.
Our ability to compete may be negatively impacted if we do not adequately protect our proprietary technologies or if we lose some of our
intellectual property rights.
Our success depends in part on our ability to obtain patents and maintain adequate protection of our intellectual property in the United States and abroad
for our technologies and resultant products and potential products. We have adopted a strategy of seeking patent protection in the United States and
abroad with respect to certain of the technologies used in or relating to our products; however, the patent to the technology covering our GE Atlantic
salmon, which we license under a global, perpetual, royalty-free, non-exclusive license from Genesis Group, Inc., an affiliate of Memorial University of
Newfoundland, and an affiliate of the Hospital for Sick Children of Toronto, expired in August 2013. We expect to protect our proprietary technology in
regard to our GE Atlantic salmon through a combination of in-house know-how and the deterrence of the regulatory process that would need to be
completed for a competing product to be commercialized, which we believe provides us with a competitive advantage. There can be no guarantee that this
strategy will be successful.
We also rely on trade secrets to protect our technologies, particularly in cases when we believe patent protection is not appropriate or obtainable. However,
trade secrets are difficult to protect, and we may not be able to adequately protect our trade secrets or other proprietary or licensed information. While we
require our employees, academic collaborators, consultants, and other contractors to enter into confidentiality agreements with us, if we cannot maintain
the confidentiality of our proprietary and licensed technologies and other confidential information, our ability and that of our licensor to receive patent
protection, and our ability to protect valuable information owned or licensed by us may be imperiled.
Enforcing our intellectual property rights may be difficult and unpredictable.
Enforcing our intellectual property rights can be expensive and time consuming, and the outcome of such efforts can be unpredictable. If we were to
initiate legal proceedings against a third party to enforce a patent covering one of our technologies, the defendant could counterclaim that our patent is
invalid and/or unenforceable or assert that the patent does not cover its manufacturing processes, manufacturing components, or products. Furthermore,
in patent litigation in the United States, defendant counterclaims alleging both invalidity and unenforceability are commonplace. Although we may
believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of
invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of our patent rights, we cannot be certain, for
example, that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a
legal assertion of invalidity and/or unenforceability, we would not be able to exclude others from
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practicing the inventions claimed therein. Such a loss of patent protection could have a material adverse impact on our business. Even if our patent rights
are found to be valid and enforceable, patent claims that survive litigation may not cover commercially valuable products or prevent competitors from
importing or marketing products similar to our own, or using manufacturing processes or manufacturing components similar to those used to produce the
products using our technologies.
Although we believe that we have obtained assignments of patent rights from all inventors, if an inventor did not adequately assign their patent rights to
us, a third party could obtain a license to the patent from such inventor. This could preclude us from enforcing the patent against such a third party.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have
encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, often do not favor the enforcement of patents and other intellectual property protection, particularly
those relating to bioengineering. This could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual
property rights. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from
other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Risks Relating to our Common Stock
The price of our shares of common stock is likely to be volatile.
The share price of publicly traded emerging companies can be highly volatile and subject to wide fluctuations. The prices at which our common stock is
quoted and the prices which investors may realize will be influenced by a large number of factors, some specific to our company and operations and some
that may affect the quoted land-based fish farming industry, the biotechnology sector, or quoted companies generally. These factors could include variations
in our operating results, publicity regarding the process of obtaining regulatory approval to commercialize our products, divergence in financial results
from analysts’ expectations, changes in earnings estimates by stock market analysts, overall market or sector sentiment, legislative changes in our sector,
the performance of our research and development programs, large purchases or sales of our common stock, currency fluctuations, legislative changes in the
bioengineering environment, future sales of our common stock or the perception that such sales could occur and general economic conditions. Certain of
these events and factors are outside of our control. Stock markets have from time to time experienced severe price and volume fluctuations, which, if
recurring, could adversely affect the market prices for our common stock.
We may not be able to maintain our listing on Nasdaq, which could limit investors’ ability or willingness to make transactions in our securities and
subject us to additional trading restrictions.
Even though our common stock is traded on Nasdaq, we cannot assure you that we will be able to comply with standards necessary to maintain such
listing, which may result in our common stock being delisted from Nasdaq. If our common stock were no longer listed on Nasdaq, investors would
experience impaired liquidity for our common stock, not only in the number of shares that could be bought and sold at a given price, which might be
depressed by the relative illiquidity, but also through delays in the timing of transactions and reduction in media coverage. For example, investors might
only be able to trade on one of the over-the-counter markets. In addition, we could face significant material adverse consequences, including:
(cid:0) a limited availability of market quotations for our securities;
(cid:0) a limited amount of news and analyst coverage for us; and
(cid:0) a decreased ability to issue additional securities or obtain additional financing in the future.
On October 31, 2022, we received a letter (the “Notice”) from Nasdaq notifying us that, because the closing bid price for our common stock had been
below $1.00 per share for the previous 30 consecutive business days, it no longer complied with the minimum bid price requirement for continued listing
on Nasdaq. The Notice had no immediate effect on our listing or on the trading of our common stock. The Notice provided us with a compliance period of
180 calendar days, or until May 1, 2023, to regain compliance. We were subsequently granted an additional 180 calendar days, or until October 30, 2023, to
regain compliance with the minimum $1.00 bid price per share requirement for continued listing on Nasdaq.
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To improve the price level of our common stock so that we could regain compliance with the minimum bid price requirement, on October 12, 2023, our
stockholders approved a reverse stock split of our common stock, and our Board of Directors approved a split ratio of 1-for-20. The reverse stock split
was implemented on October 16, 2023 and on October 30, 2023, we received a notice from Nasdaq confirming that we had regained compliance with
the minimum bid price requirement.
There can be no assurance that we will maintain compliance with the listing requirements. If we fail in the future to comply with Nasdaq listing rules, it
could lead to the delisting of our common stock from Nasdaq and our common stock trading, if at all, only on the over-the-counter markets.
Our share price and our ability to raise additional funds may depend on our success in growing, or our perceived ability to grow, our GE Atlantic
salmon successfully and profitably at commercial scale.
We have not yet demonstrated that we can grow our GE Atlantic salmon successfully or profitably at commercial scale. If we are unsuccessful in growing
our salmon to harvest size, achieving our quality standards and selling the fish in the market at a profit from our commercial-scale facilities, or are
perceived as being unable to do so prior to commercial-scale harvest and sale, we may lose credibility with the investor community and other funding
sources, which could negatively impact the price of our common stock and our ability to raise additional funds.
An active trading market for our common stock may not be sustained.
Although our common stock is currently listed and traded on Nasdaq, an active trading market for our common stock may not be maintained. If an active
market for our common stock is not maintained, it may be difficult for stockholders to sell shares of our common stock. An inactive trading market may
impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by
using our shares as consideration.
We are a “smaller reporting company” and a “non-accelerated filer” and we cannot be certain if applicable scaled disclosure requirements will
make our shares of common stock less attractive to investors.
As a “smaller reporting company,” we elected to comply with scaled disclosure requirements relative to companies that are not smaller reporting
companies, including but not limited to, reduced disclosure obligations regarding executive compensation in our filings with the SEC. Under current SEC
rules, we will continue to qualify as a “smaller reporting company” for so long as (i) we have a public float (i.e., the aggregate market value of common
equity held by non-affiliates) of less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year
and the aggregate market value of our common stock held by non-affiliates is less than $700 million. In addition, under current SEC rules, we are not an
“accelerated filer” and, therefore, are not required to include an auditor attestation of the effectiveness of our internal control over financial reporting in
this Annual Report on Form 10-K.
We cannot predict if investors will find our shares of common stock to be less attractive because we rely and may in the future continue to rely on these
exemptions. If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for our shares of
common stock, and our share price may be more volatile.
We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.
While we have no specific plan to issue preferred stock, our certificate of incorporation authorizes us to issue, without the approval of our stockholders,
one or more series of preferred stock having such designation, relative powers, preferences (including preferences over our common stock respecting
dividends and distributions), voting rights, terms of conversion or redemption, and other relative, participating, optional, or other special rights, if any, of
the shares of each such series of preferred stock and any qualifications, limitations, or restrictions thereof, as our Board of Directors may determine. The
terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, the
repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common
stock.
Provisions in our corporate documents and Delaware law could have the effect of delaying, deferring, or preventing a change in control of us,
even if that change may be considered beneficial by some of our stockholders.
The existence of some provisions of our certificate of incorporation or our bylaws or Delaware law could have the effect of delaying, deferring, or
preventing a change in control of us that a stockholder may consider favorable. These provisions include:
(cid:0) providing that the number of members of our Board of Directors is limited to a range fixed by our by-laws;
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(cid:0) establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be
acted on by stockholders at stockholder meetings; and
(cid:0) authorizing the issuance of “blank check” preferred stock, which could be issued by our Board of Directors to issue securities with voting rights
and thwart a takeover attempt.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of
Delaware. Section 203 prevents some stockholders holding more than 15% of our voting stock from engaging in certain business combinations unless
the business combination or the transaction that resulted in the stockholder becoming an interested stockholder was approved in advance by our Board
of Directors, results in the stockholder holding more than 85% of our voting stock (subject to certain restrictions), or is approved at an annual or special
meeting of stockholders by the holders of at least 66 2/3% of our voting stock not held by the stockholder engaging in the transaction. Any provision of
our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity
for our stockholders to receive a premium for their shares of our common stock and affect the price that some investors are willing to pay for our
common stock.
We do not anticipate paying cash dividends in the foreseeable future, and, accordingly, stockholders must rely on stock appreciation for any
return on their investment.
We have never declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends in the foreseeable future and intend to
retain all of our future earnings, if any, to finance the operations, development, and growth of our business. There can be no assurance that we will have
sufficient surplus under Delaware law to be able to pay any dividends at any time in the future. As a result, absent payment of dividends, only appreciation
of the price of our common stock, which may never occur, will provide a return to stockholders. You may also have to sell some or all of your shares of
our common stock in order to generate cash flow from your investment in us.
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Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our
critical systems and information.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (“NIST CSF”). This does not
imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess,
and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies,
reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational,
and financial risk areas.
Our cybersecurity risk management program includes, but is not limited to, the following key elements:
(cid:0) risk assessments designed to help identify material cybersecurity risks to our critical systems and information;
(cid:0) a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our
response to cybersecurity incidents;
(cid:0) the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security processes;
(cid:0) cybersecurity awareness training of our employees, incident response personnel, and senior management; and
(cid:0) a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us,
including our operations, business strategy, results of operations or financial condition. We face risks from cybersecurity threats that, if realized, are
reasonably likely to materially affect us, including our operations, business strategy, results of operations or financial condition. There were no material
cybersecurity breaches during 2023. See “Risk Factors – Security breaches, cyber-attacks and other disruptions could compromise our information, expose
us to fraud or liability, or interrupt our operations, which would cause our business and reputation to suffer.”
Cybersecurity Governance
Our Board of Directors considers cybersecurity risk as part of its risk oversight function and oversees management’s implementation of our cybersecurity
risk management program. The Board of Directors receives periodic reports from management on our cybersecurity risks and management updates the
Board of Directors, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential. The Board of
Directors also receives briefings from management on our cybersecurity risk management program and presentations on cybersecurity topics from external
experts as part of the Board of Directors’ continuing education on topics that impact public companies.
Our management team, including our Chief Financial Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The
team has primary responsibility for our overall cybersecurity risk management program and supervises both our external cybersecurity personnel and our
retained external cybersecurity consultants. Our Chief Financial Officer has been managing our information technology resources for over 16 years and
has overseen our cybersecurity risk assessment and the implementation of our cybersecurity risk management program since its inception.
Our management team stays informed about and monitors efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through
various means, which may include briefings from external security personnel, threat intelligence and other information obtained from governmental, public
or private sources, including external consultants engaged by us, and alerts and reports produced by security tools deployed in the information technology
environment.
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Item 2. Properties
Our corporate headquarters is located in Harvard, Massachusetts, and consists of approximately 2,000 square feet of office space under a three-year lease.
We own a production grow-out farm in Indiana, which has the potential to produce 1,200 metric tons of our fish annually. However, in February 2024, we
announced our plan to sell our Indiana farm operations. On Prince Edward Island, Canada, we own a hatchery in Fortune Bay and a salmon farm in Rollo
Bay, that consists of a hatchery, a broodstock facility, and a second broodstock facility that is currently under construction. In 2022, we purchased a parcel
of land in Pioneer, Ohio on which we have commenced construction of a 479,000 square foot production grow-out farm. We believe that the spaces that
we lease and own are sufficient to meet our current and near-term needs. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
Item 3. Legal Proceedings
We are not party to any legal proceedings the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have
a material adverse effect on our future business, consolidated results of operations, cash flows, or financial position. We may, from time to time, be
subject to legal proceedings and claims arising from the normal course of business activities.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently traded on the Nasdaq Capital Market under the symbol “AQB.” As of March 25, 2024, 3,857,444 shares of our common
stock were issued and outstanding.
As of March 25, 2024, there were approximately 220 holders of record of our common stock. The actual number of stockholders is greater than this
number and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. The transfer
agent for our common stock is Computershare Trust Company, N.A.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, to finance the growth and
development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if
any, will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, restrictions
contained in current or future financing instruments, provisions of applicable law, and other factors the Board of Directors deems relevant.
Item 6. Reserved
Not Applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and related notes that appear elsewhere in this Annual Report on Form 10‑K. In addition to historical consolidated financial information, the
following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this
Annual Report on Form 10‑K, particularly in “Risk Factors.”
Overview
We believe that we are a distinctive brand in the field of land-based aquaculture, leveraging decades of technology expertise to deliver innovative solutions
that address food insecurity and climate change issues, while improving efficiency and sustainability. We provide fresh Atlantic salmon to nearby markets
by raising our fish in carefully monitored land-based fish farms through a safe, secure and sustainable process. Our land-based Recirculating Aquaculture
System farms, including our grow-out farm located in Indiana in the United States and our broodstock and egg production farm located on Prince Edward
Island in Canada, are close to key consumption markets and are designed to prevent disease and to include multiple levels of fish containment to protect
wild fish populations. We are raising nutritious salmon that is free of antibiotics and other contaminants and provides a solution with a reduced carbon
footprint without the risk of pollution to marine ecosystems as compared to traditional sea-cage farming. Our primary product is our GE Atlantic salmon,
which received FDA approval in 2015 as the first genetically engineered animal available for sale for human consumption. We commenced commercial
activities in 2021 with operations in the United States and Canada. We are actively engaged in genetic, genomic, fish health and fish nutrition research,
which drive continuous improvement in our operations and may lead to new, disruptive technologies and products that could further expand our
competitive offerings.
Company Update
We have been pursuing a growth strategy that includes the construction of large-scale recirculating aquaculture system farms for producing our GE Atlantic
salmon. Our farm in Pioneer, Ohio is under construction and roughly 30% complete, but construction activities have been paused. To fund the construction
cost, we were using cash on hand, which would be supplemented by a municipal bond financing. However, during the initial two years of construction, the
cost estimate for the farm increased substantially and eventually exceeded our ability to complete the proposed financing. Consequently, we require new
financing to provide liquidity for working capital and to fund the construction of our farm in Pioneer, Ohio. To meet this need, we have engaged an
investment bank to pursue a range of funding and strategic alternatives, including the recently announced sale process for our Indiana farm, potential debt
financing secured by our unencumbered assets, and potential joint venture partnerships or other strategic transactions.
Inflation
Recently elevated global inflation rates continue to impact all areas of our business. We are experiencing higher costs for farming supplies, transportation
costs, wage rates, and other direct operating expenses, as well as for capital expenditures related to the construction of our farm in Ohio. We expect
inflation to continue to negatively impact our results of operations for the near-term.
Financial Overview
We expect our future capital requirements will be substantial, particularly as we continue to develop our business and expand our commercial activities, as
discussed in “Liquidity and Capital Resources”.
Product Revenue
We have generated product revenue primarily through the sales of our GE Atlantic salmon, supplemented by sales of conventional Atlantic salmon, salmon
eggs, fry, and byproducts. With the expected sale of our Indiana farm, our product revenues will consist of conventional Atlantic salmon eggs and fry for
the near term.
Product Costs
Product costs include the labor and related costs to grow out our fish, including feed, oxygen, and other direct costs; overhead; and the cost to process and
ship our products to customers. A portion of production costs is absorbed into inventory as fish in process to the extent that these costs do not exceed the
net realizable value of the fish biomass. The costs that are not absorbed into inventory, as well as any net realizable value inventory adjustments, are
classified as product costs. Our product costs also include the labor and related costs to maintain our salmon broodstock. As of December 31, 2023 and
2022, we had 82 and 70 employees, respectively, engaged in production activities.
Sales and Marketing Expenses
Our sales and marketing expenses currently include salaries and related costs for our sales personnel and agency fees for market-related activities.
As of December 31, 2023 and 2022, we had one and two employees, respectively, dedicated to sales and marketing. We expect our sales and
marketing expenses to increase as our production output and revenues grow.
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Research and Development Expenses
We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of salaries and related
overhead expenses for personnel in research and development functions; fees paid to contract research organizations and consultants who perform
research for us; and costs related to laboratory supplies used in our research and development efforts. As of December 31, 2023 and 2022, we employed
six and 12 scientists and technicians, respectively, at our farms to oversee the lines of fish we maintain for research and development purposes.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, corporate, and finance functions. Other
significant general and administrative expenses include corporate governance and public company costs, regulatory affairs, rent and utilities, insurance, and
legal services. We had 15 and 16 employees in our general and administrative group at December 31, 2023 and 2022, respectively.
Other Income (Expense), Net
Interest expense includes the interest on our outstanding loans and the amortization of debt issuance costs. Other income (expense) includes bank charges,
fees, interest income, miscellaneous gains or losses on asset disposals and realized gains or losses on investments.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which
we have prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as
well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our
estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may
differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to
our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting
policies and estimates are the most critical for fully understanding and evaluating our financial condition and results of operations.
Inventories
Inventories are mainly comprised of feed, eggs, fry, fish in process and fish for sale. Fish in process inventory is a biological asset that is measured
based on the estimated biomass of fish on hand. The estimate of fish biomass contains uncertainty, as we cannot weigh each individual fish until
harvest. We have therefore established a standard procedure to estimate the biomass of fish on hand using counting and sampling techniques.
Historically, our estimate of fish biomass has had a variability of approximately 4%. We measure inventory at the lower of cost or net realizable value
(“NRV”), where NRV is defined as the estimated market price, less the estimated costs of processing, packaging and transportation. We consider fish
that have been harvested and transported from its farm to be fish for sale.
Revenue Recognition
We generate revenue from the sale of our products. Revenue is recognized when the customer takes physical control of the goods, in an amount that
reflects the transaction price consideration that we expect to receive in exchange for the goods. Revenue excludes any sales tax collected and includes any
estimate of future credits.
Recent Accounting Pronouncements
We do not expect any recently issued, but not yet effective, accounting standards to have a material effect on our results of operations or financial
condition.
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Results of Operations
Comparison of the year ended December 31, 2023 to the year ended December 31, 2022.
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022, together with the changes in those items in
dollars (in thousands) and as a percentage:
Product revenue
Operating expenses:
Product costs
Sales and marketing
Research and development
General and administrative
Operating loss
Total other (expense) income
Net loss
Product Revenue
Years Ended
December 31,
2023
2022
Dollar
Change
%
Change
$
2,473 $
3,137
(664)
(21)%
15,282
796
704
13,008
27,317
(241)
27,558 $
13,631
1,139
904
9,787
22,324
167
22,157
$
1,651
(343)
(200)
3,221
4,993
(408)
5,401
12%
(30)%
(22)%
33%
22%
(244)%
24%
Product revenue for the year ended December 31, 2023 consisted of sales of our GE Atlantic salmon and conventional Atlantic salmon eggs, fry and
byproducts. During the current year, we increased the volume of harvests of GE Atlantic salmon from our Indiana farm and completed the transition of our
Rollo Bay farm to a broodstock and egg production facility. Our Indiana farm required extensive repairs to one of its buildings during the fourth quarter of
2022, which impacted the number of fish that could be harvested and sold during the final two months of 2022 and the first two months of 2023. The
decrease in revenue during the year ended December 31, 2023 was primarily due to changes in product mix during the first half of 2023 and decreases in
market prices for Atlantic salmon in the second half of 2023.
Harvest of GE Atlantic salmon (mt)
Product revenue
GE Atlantic salmon revenue
Non-GE Atlantic salmon revenue
Other revenue
Total product revenue
Product Costs
Years Ended
December 31,
%
2023
2022
Change
Change
492
2,332 $
124
17
2,473 $
430
2,913 $
187
37
3,137 $
$
$
62
14%
(581)
(63)
(20)
(664)
(20)%
(34)%
(54)%
(21)%
Product costs for the year ended December 31, 2023 were up from the year ended December 31, 2022, due to production cost increases for labor and other
direct costs related to increased production output and inflation. Increases included headcount additions, feed costs and other direct supplies, maintenance
and repairs, as well as the costs for processing and transportation to bring our product to market.
Sales and Marketing Expenses
Sales and marketing expenses for the year ended December 31, 2023 were down from the year ended December 31, 2022, primarily due to a decrease in
marketing program costs.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2023 were down from the year ended December 31, 2022, due to the receipt of
provincial government grant funds in support of local hiring and a reduction in outside research costs. Gross research and development expenses for the
year ended December 31, 2023, excluding the grant funds, were $816 thousand versus $935 thousand in 2022. During the current period, research activities
continued in key strategic areas of genomics and breeding, gene editing, fish health and operational optimization.
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General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2023 were up from the year ended December 31, 2022, due to increases in legal fees,
state excise taxes, personnel, audit fees, consulting fees and share-based compensation charges.
Total Other (Expense) Income
Total other (expense) income for 2023 and 2022 is comprised of interest income, interest on debt, bank charges, and miscellaneous gains and losses on the
disposal of assets. The change in total other (expense) income in the year ended December 31, 2023, compared to the year ended December 31, 2022, was
primarily due to interest income, which was down considerably in 2023 compared to 2022, due to a reduction in marketable securities.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses from operations since our inception in 1991, and, as of December 31, 2023, we had an accumulated deficit of $221 million. We
expect to continue to experience losses from operations for the foreseeable future and we will require substantial additional cash to fund our business plans.
Liquidity has primarily come from equity financings, supplemented by debt transactions.
During 2023 and 2022, we received $418 thousand and $476 thousand, respectively, in debt proceeds on an existing loan facility.
In the future, we expect to use both debt and equity issuances to fund our continued operations and growth opportunities.
As of December 31, 2023, we had $9.2 million in cash, cash equivalents, and restricted cash.
Our principal contractual commitments include capital expenditure obligations, repayments of debt and related interest, and payments under operating
leases. Refer to the notes in our consolidated financial statements for further information about our capital expenditure commitments (Note 6), debt (Note
7), and lease payment obligations (Note 10).
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash Flows from Operating Activities
Years Ended
December 31,
2023
2022
Dollar
Change
%
Change
$
$
(24,236) $
(68,893)
(309)
3
(93,435) $
(21,007)
34,350
(162)
3
13,184
(3,229)
(103,243)
(147)
-
(106,619)
15%
(301)%
91%
—%
(809)%
Net cash used in operating activities during the year ended December 31, 2023, was primarily due to our $27.6 million net loss, partially offset by non-cash
depreciation and share-based compensation charges of $2.7 million and decreased by working capital sources of $0.6 million. Spending on operations
increased in 2023 due to increases in production activities at our Rollo Bay and Indiana farm sites, increases in headcount and increases in costs for excise
taxes, legal fees and professional fees. The decrease in cash provided by working capital was due primarily to a decrease in inventory and prepaid
expenses, partially offset by an increase in accrued expenses. We expect cash flows from operating activities to remain negative and roughly flat in the near
term.
Net cash used in operating activities during the year ended December 31, 2022, was primarily comprised of our $22.2 million net loss, partially offset by
non-cash depreciation and share-based compensation charges of $2.6 million and increased by working capital uses of $1.4 million. Spending on operations
increased in 2022 due to increases in production activities at our Rollo Bay and Indiana farm sites, increases in headcount and increases in costs for
insurance, taxes, and professional fees. The increase in cash used for working capital was due primarily to increases in inventory and prepaid expenses,
partially offset by an increase in accrued expenses.
Cash Flows from Investing Activities
During 2023, we used $65.1 million for construction charges and equipment deposits for our Ohio farm, and $2.2 million and $1.6 million for equipment
purchases and deposits for our Indiana and Rollo Bay farms, respectively.
During 2022, we used $65.1 million for construction charges and equipment deposits for our Ohio farm, and $1.4 million and $1.0 million for equipment
purchases and deposits for our Indiana and Rollo Bay farms, respectively, and we received $101.8 million on the net sales of marketable securities.
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We have paused construction at our Ohio farm, but we expect expenditures on capital projects to increase in future periods once we secure additional
funding and resume construction at the site. For more information, see “Our current business plans include the need for substantial additional capital, and
without it, we may not be able to implement our strategy as planned or at all.”
Cash Flows from Financing Activities
During 2023, we received approximately $418 thousand in proceeds from new debt, and we repaid $726 thousand of outstanding debt. During 2022, we
received approximately $476 thousand in proceeds from new debt, and we repaid $640 thousand of outstanding debt.
Future Capital Requirements
Since inception, we have incurred cumulative net losses and negative cash flows from operating activities and we expect this to continue for the foreseeable
future. As of December 31, 2023, we had $9.2 million of cash, cash equivalents, and restricted cash, a significant portion of which is required to fund our
current liabilities and other contractual obligations. Our ability to continue as a going concern is dependent upon our ability to raise additional capital, and
there can be no assurance that such capital will be available in sufficient amounts, on a timely basis, on terms acceptable to us, or at all. This raises
substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are
issued.
Until such time, if ever, as we can generate positive cash flows from operating activities, we may finance our cash needs through a combination of equity
offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements, as well as our announced plan to sell
our Indiana farm. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of holders of
our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders
of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through government or other third-party
funding, marketing and distribution arrangements, or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to
relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or to grant licenses on terms that may not
be favorable to us.
If we are unable to generate additional funds in a timely manner, we will exhaust our resources and will be unable to maintain our currently planned
operations. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following sections provide quantitative information on our exposure to interest rate risk and foreign currency exchange risk. We make use of
sensitivity analyses, which are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.
Interest Rate Risk
Our primary exposure to market risk is interest rate risk associated with debt financing that we utilize from time to time to fund operations or specific
projects. The interest on this debt is usually determined based on a fixed rate and is contractually set in advance. As of December 31, 2023 and
December 31, 2022, we had $4.6 million and $5.1 million, respectively, in interest-bearing debt instruments on our consolidated balance sheet. All of our
interest-bearing debt is at fixed rates, except for our loan with First Farmers’ Bank and Trust, which will have a rate reset in July 2025.
Foreign Currency Exchange Risk
Our functional currency is the U.S. Dollar. The functional currency of our Canadian subsidiary is the Canadian Dollar, and the functional currency of our
U.S. and Brazil subsidiaries is the U.S. Dollar. For the Canadian subsidiary, assets and liabilities are translated at the exchange rates in effect at the balance
sheet date, equity accounts are translated at the historical exchange rate, and the income statement accounts are translated at the average rate for each period
during the year. Net translation gains or losses are adjusted directly to a separate component of other comprehensive loss within stockholders’ equity.
Item 8. Financial Statements and Supplementary Data
The financial statements required by this Item are located beginning on page F-1 of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit
under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure. As of December 31, 2023 (the “Evaluation Date”), our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded based upon the evaluation
described above that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company. Internal control over
financial reporting is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision
of, our Chief Executive and Chief Financial Officers and effected by our Board of Directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
(cid:0) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
(cid:0) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles;
(cid:0) provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and
directors; and
(cid:0) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have
a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2023. In conducting this evaluation, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
Based upon this evaluation and those criteria, management believes that, as of December 31, 2023, our internal control over financial reporting were
effective.
This Annual Report on Form 10‑K does not include an auditor’s attestation of management’s assessment of internal control over financial reporting as of
December 31, 2023, as we are not an “accelerated filer” under SEC rules.
Changes in Internal Control
There have been no changes in our internal control over financial reporting for the three months ended December 31, 2023, that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
37
Table of Contents
Item 9B. Other Information
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or
“non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, and is
incorporated by reference into this Annual Report on Form 10‑K.
Item 11. Executive Compensation
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, and is
incorporated by reference into this Annual Report on Form 10‑K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, and is
incorporated by reference into this Annual Report on Form 10‑K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023, and is
incorporated by reference into this Annual Report on Form 10‑K.
Item 14. Principal Accountant Fees and Services
The information required by this Item is set forth in our 2024 Proxy Statement to be filed with the SEC within 120 days of December 31, 2023 and is
incorporated by reference into this Annual Report on Form 10‑K, for Deloitte & Touche LLP (PCAOB ID No. 34).
38
Table of Contents
Part IV
Item 15. Exhibit and Financial Statement Schedules
List of Documents Filed as Part of this Report
1. Consolidated Financial Statements
The following consolidated financial statements are filed herewith in accordance with Item 8 of Part II above:
(i) Report of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Operations and Comprehensive Loss
(iv) Consolidated Statements of Changes in Stockholders’ Equity
(v) Consolidated Statements of Cash Flows
(vi) Notes to Consolidated Financial Statements
2. Schedules
Schedules not listed are omitted because the required information is inapplicable or is presented in the consolidated financial statements.
39
Table of Contents
3. Exhibits
Exhibit Number Exhibit Description
3.1*
3.2*
3.3*
3.4*
3.5*
3.6*
3.7*
3.8*
4.1*
4.2*
4.3*
10.1*
10.2*†
10.3*†
10.4*†
10.5*†
10.6*†
10.7*†
10.8*†
10.9*†
10.10*†
Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.1
to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on January 6, 2017).
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc.
(incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1, filed on January 15, 2020).
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 19, 2020).
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 27, 2022).
Certificate of Validation dated October 18, 2022 relating to Certificate of Amendment to the Third Amended and Restated Certificate
of Incorporation of AquaBounty Technologies, Inc. dated May 27, 2022 (incorporated by reference to Exhibit 3.5 to the Registrant’s
Quarterly Report on Form 10-Q, filed on November 8, 2022).
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of AquaBounty Technologies, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on October 13, 2023).
Amended and Restated Bylaws of AquaBounty Technologies, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s
Registration Statement on Form 10, filed on November 7, 2016).
Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form
10, filed on November 7, 2016).
Specimen Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on
Form S-1, filed on January 9, 2018).
Description of Registrant’s securities. (incorporated by reference to Exhibit 4.3 to the Registration’s Annual Report on Form 10-K,
filed on March 10, 2020).
Stock Purchase Agreement, by and between AquaBounty Technologies, Inc. and Intrexon Corporation, dated November 7, 2016
(incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration
Statement on Form 10, filed on November 7, 2016).
Amendment No. 1 to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
Form of Stock Option Agreement pursuant to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by reference
to Exhibit 10.4 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
Form of Restricted Stock Agreement pursuant to AquaBounty Technologies, Inc. 2006 Equity Incentive Plan (incorporated by
reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration
Statement on Form 10, filed on November 7, 2016).
Amendment No. 1 to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K, filed on May 2. 2019).
Amendment No. 2 to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K, filed on April 29, 2020).
Form of Stock Option Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference
to Exhibit 10.22 to the Registrant’s Registration Statement on Form 10, filed on December 12, 2016).
Form of Restricted Stock Purchase Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated
by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form 10, filed on December 12, 2016).
40
Table of Contents
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*†
10.20*†
10.21*†
10.22*
10.23*
10.24*#
10.30*
10.25*
10.26*
10.27*
Form of Warrant Exercise Agreement, by and between AquaBounty Technologies, Inc. and certain holders of its Common Stock
Purchase Warrants, dated October 24, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,
filed on October 25, 2018).
Agreement, by and among Atlantic Canada Opportunities Agency and AQUA Bounty Canada Inc. and AquaBounty Technologies
Inc., dated December 16, 2009 (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form 10, filed
on November 7, 2016).
Offer Letter, dated as of July 10, 2018, from Prince Edward Island Century 2000 Fund Inc. to AQUA Bounty Canada Inc. and
accepted by AQUA Bounty Canada Inc. and AquaBounty Technologies, Inc. on August 20, 2018 (incorporated by reference to Exhibit
10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018).
Negotiable Promissory Note, dated as of October 16, 2018, issued by AQUA Bounty Canada Inc. in favor of Prince Edward Island
Century 2000 Fund Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on
November 2, 2018).
Collateral Mortgage dated as of July 26, 2016, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000
Fund Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018).
Collateral Mortgage, dated as of October 9, 2018, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century 2000
Fund Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018).
General Security Agreement, dated as of July 26, 2016, by and between AQUA Bounty Canada Inc. and Prince Edward Island Century
2000 Fund Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2,
2018).
Guarantee, dated as of October 9, 2018, made by AquaBounty Technologies, Inc. in favor of Prince Edward Island Century 2000 Fund
Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 2, 2018).
Executive Employment Agreement, by and between Sylvia Wulf and AquaBounty Technologies, Inc., dated November 27, 2018
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2018).
Employment Agreement, by and between David Frank and AquaBounty Technologies, Inc., dated October 1, 2007 (incorporated by
reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
Employment Agreement, by and between Alejandro Rojas and AquaBounty Technologies, Inc., dated December 30, 2013
(incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form 10, filed on November 7, 2016).
Intellectual Property License and Full and Final Release among Genesis Group Inc., HSC Research and Development Partnership and
AquaBounty Technologies, Inc., dated February 28, 2014 (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration
Statement on Form 10, filed on November 7, 2016).
Asset Purchase Agreement by and between AquaBounty Technologies, Inc. and Bell Fish Company LLC, dated as of June 9, 2017
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 4, 2017).
Loan and Security Agreement by and between AquaBounty Farms Indiana LLC and First Farmers Bank and Trust, dated as of July 31,
2020 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).
Term Note granted by AquaBounty Farms Indiana LLC in favor of First Farmers Bank and Trust, dated as of July 31, 2020
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).
Mortgage, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement granted by AquaBounty
Technologies, Inc. in favor of First Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.4 to the
Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).
Guarantor Security Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31,
2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).
Unconditional and Continuing Secured Guaranty Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank
and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q,
filed on August 6, 2020).
41
Table of Contents
10.28*
10.29*
10.30*
10.31*
10.32^
10.33†
10.34†
10.35†
10.36†
10.37^
21.1
23.1
31.1
31.2
32.1
97.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Collateral Access Agreement by and between AquaBounty Technologies, Inc. and First Farmers Bank and Trust, dated as of July 31,
2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2020).
Unconditional and Continuing Guaranty Agreement by and between AquaBounty Farms, Inc. and First Farmers Bank and Trust,
dated as of July 31, 2020 (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q, filed on
August 6, 2020).
Environmental Indemnity Agreement by and among AquaBounty Technologies, Inc., AquaBounty Farms Indiana LLC and First
Farmers Bank and Trust, dated as of July 31, 2020 (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on
Form 10-Q, filed on August 6, 2020).
Letter Agreement between AquaBounty Technologies, Inc. and Third Security And its affiliates dated July 30, 2021 (incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 4, 2021).
Agreement For Architectural/Engineering Services between AquaBounty Farms Ohio LLC and Clark, Richardson and Biskup
Consulting Engineers, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on
March 3, 2023).
Amended and Restated Employment Agreement, by and between David Frank and AquaBounty Technologies, Inc., dated March 29,
2023 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 4, 2023).
Employment Agreement, by and between Angela Olsen and AquaBounty Technologies, Inc., dated November 1, 2019 (incorporated
by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 4, 2023).
Form of Restricted Stock Unit Agreement pursuant to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 4, 2023).
Amendment No. 3 to AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed on May 26, 2023).
Agreement For Construction Management Services Between AquaBounty Farms Ohio LLC and Gilbane Building Company
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on June 30, 2023).
List of Subsidiaries of AquaBounty Technologies, Inc.
Consent of Deloitte & Touche LLP
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Compensation Recovery Policy, Adopted November 1, 2023
Inline XBRL instance document-the instance document does not appear in the Interactive Data File because XBRL tags are
embedded within the Inline XBRL document.
Inline XBRL taxonomy extension schema document.
Inline XBRL taxonomy extension calculation linkbase document.
Inline XBRL taxonomy extension definition linkbase document.
Inline XBRL taxonomy label linkbase document.
Inline XBRL taxonomy extension presentation linkbase document.
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in exhibit
101).
*Incorporated herein by reference as indicated.
# Schedules, exhibits, and similar supporting attachments or agreements to the Loan and Security Agreement are omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Registrant agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange
Commission upon request.
†Management contract or compensatory plan or arrangement.
^Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or
exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
42
Table of Contents
**The certification furnished in Exhibit 32.1 is deemed to be furnished and will not be deemed “filed” for purposes of Section 18 of the Exchange Act.
Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that the Registrant specifically incorporates it by reference.
The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the
rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less
than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.
43
Table of Contents
Item 16. Form 10‑K Summary
Not applicable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Signatures
AQUABOUNTY TECHNOLOGIES, INC.
By:
/s/ Sylvia A. Wulf
Sylvia A. Wulf
Chief Executive Officer and Board Chair
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Frank and Angela M.
Olsen, as his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Annual
Report on Form 10‑K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated below.
Signature
/s/ Sylvia A. Wulf
Sylvia A. Wulf
/s/ David A. Frank
David A. Frank
/s/ Ricardo Alvarez
Ricardo Alvarez
/s/ Erin Sharp
Erin Sharp
/s/ Gail Sharps Myers
Gail Sharps Myers
/s/ Christine St.Clare
Christine St.Clare
/s/ Rick Sterling
Rick Sterling
/s/ Michael Stern
Michael Stern
Chief Executive Officer and Board Chair (Principal Executive Officer)
April 1, 2024
Title
Date
Chief Financial Officer and Treasurer (Principal Financial Officer and
April 1, 2024
Principal Accounting Officer)
Lead Independent Director
Director
Director
Director
Director
Director
44
April 1, 2024
April 1, 2024
April 1, 2024
April 1, 2024
April 1, 2024
April 1, 2024
Table of Contents
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of AquaBounty Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AquaBounty Technologies, Inc. and subsidiaries (the "Company") as of December 31,
2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows, for the years
then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred cumulative operating losses and negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Inventory – Fish in Process – Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
Fish in process inventory is measured at the lower of cost or net realizable value, where net realizable value is defined as the estimated market price, less
the estimated cost of processing, packaging and transportation. The Company’s determination of net realizable value of fish in process inventory requires
management to make various estimates and assumptions related to the estimated biomass of fish,
45
Table of Contents
as well as the expected harvest yields, market price of biomass and costs of processing, packaging and transportation. Changes in these assumptions could
have a significant impact on the net realizable value of fish in process inventory.
Given the determination of net realizable value requires management to make significant estimates and assumptions relating to expected harvest yields,
market price and future costs, performing audit procedures to evaluate the reasonableness of such estimates and assumptions required a high degree of
auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to fish in process inventory included the following, among others:
(cid:0) We tested the design and implementation of the Company's inventory controls, including the review of the net realizable value estimate and
assumptions and compilation of inventory biomass.
(cid:0) We evaluated management's method for determining the net realizable value of fish in process inventory.
(cid:0) We observed and tested the Company’s physical inventory inspection, fish counting and fish weighing processes.
(cid:0) We tested the completeness and accuracy of management's estimates and assumptions within the net realizable value calculation by comparing
expected:
o
Processing, packaging and transportation costs to historical amounts.
o Market price to historical sales prices and market benchmarks.
o Yield to the Company's historical results and industry peer data.
(cid:0) We tested the changes in fish in process biomass from a physical observation date to December 31, 2023.
/s/ Deloitte & Touche LLP
Baltimore, Maryland
April 1, 2024
We have served as the Company's auditor since 2021.
46
AquaBounty Technologies, Inc.
Consolidated Balance Sheets
Table of Contents
Assets
Current assets:
Cash and cash equivalents
Inventory
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Right of use assets, net
Intangible assets, net
Restricted cash
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities
Accrued employee compensation
Current debt
Other current liabilities
Total current liabilities
Long-term lease obligations
Long-term debt, net
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 75,000,000 and 150,000,000 shares authorized at
December 31, 2023 and 2022, respectively; 3,847,022 and 3,834,383 shares
outstanding at December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to the consolidated financial statements.
47
$
$
$
as of December 31,
2023
2022
8,203,869 $
1,733,603
1,700,273
11,637,745
174,381,382
281,104
204,436
1,000,000
46,761
187,551,428 $
12,991,819 $
754,621
795,300
30,863
14,572,603
250,241
7,711,866
22,534,710
101,638,557
2,276,592
2,133,583
106,048,732
106,286,186
222,856
218,139
1,000,000
64,859
213,840,772
12,000,592
1,021,740
2,387,231
20,830
15,430,393
203,227
6,286,109
21,919,729
3,847
385,998,213
(405,464)
(220,579,878)
165,016,718
3,834
385,455,961
(516,775)
(193,021,977)
191,921,043
$
187,551,428 $
213,840,772
AquaBounty Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
Table of Contents
Revenues
Product revenues
Costs and expenses
Product costs
Sales and marketing
Research and development
General and administrative
Total costs and expenses
Operating loss
Other (expense) income
Interest expense
Other income, net
Total other (expense) income
Net loss
Other comprehensive income (loss):
Foreign currency gain (loss)
Unrealized gains on marketable securities
Total other comprehensive income (loss)
Comprehensive loss
Basic and diluted net loss per share
Weighted average number of common shares -
basic and diluted
See accompanying notes to the consolidated financial statements.
Years ended
December 31,
2023
2022
2,472,659
$
3,136,954
15,281,635
795,931
703,823
13,007,869
29,789,258
13,630,911
1,138,781
903,981
9,786,819
25,460,492
(27,316,599)
(22,323,538)
(303,967)
62,665
(241,302)
(291,177)
457,520
166,343
(27,557,901)
$
(22,157,195)
111,311
—
111,311
(301,288)
40,101
(261,187)
(27,446,590)
$
(22,418,382)
(7.17)
$
3,844,239
(5.78)
3,832,557
$
$
$
$
48
Table of Contents
Balance at December 31, 2021
Net loss
Other comprehensive loss
Exercise of options
Share-based compensation
Balance at December 31, 2022
Net loss
Other comprehensive income
Share-based compensation
Balance at December 31, 2023
AquaBounty Technologies, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Common stock
issued and
outstanding
Par value
3,830,128 $
3,830 $
Additional paid-
in capital
384,919,303 $
Accumulated
other
comprehensive
loss
(255,588) $
52
4,203
3,834,383 $
—
4
3,834 $
1,539
535,119
385,455,961 $
(261,187)
(516,775) $
111,311
Accumulated
deficit
(170,864,782) $
(22,157,195)
(193,021,977) $
(27,557,901)
12,639
3,847,022 $
13
3,847 $
542,252
385,998,213 $
(405,464) $
(220,579,878) $
Total
213,802,763
(22,157,195)
(261,187)
1,539
535,123
191,921,043
(27,557,901)
111,311
542,265
165,016,718
See accompanying notes to the consolidated financial statements.
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Table of Contents
AquaBounty Technologies, Inc.
Consolidated Statements of Cash Flows
Operating activities
Net loss
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization
Share-based compensation
Other non-cash charge
Changes in operating assets and liabilities:
Inventory
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Accrued employee compensation
Net cash used in operating activities
Investing activities
Purchases of and deposits on property, plant and equipment
Maturities of marketable securities
Purchases of marketable securities
Other investing activities
Net cash (used in) provided by investing activities
Financing activities
Proceeds from issuance of debt
Repayment of term debt
Proceeds from the exercise of stock options and warrants
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Reconciliation of cash, cash equivalents and restricted cash reported
in the consolidated balance sheet:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Supplemental disclosure of cash flow information and non-cash transactions:
Interest paid in cash
Property and equipment included in accounts payable and accrued liabilities
See accompanying notes to the consolidated financial statements.
50
Years Ended
December 31,
2023
2022
$
(27,557,901) $
(22,157,195)
2,158,231
542,265
16,604
546,847
375,430
(50,602)
(267,119)
(24,236,245)
(68,889,540)
—
—
(3,263)
(68,892,803)
417,673
(726,140)
—
(308,467)
2,827
(93,434,688)
102,638,557
9,203,869 $
2,024,783
535,123
22,983
(1,027,650)
(550,120)
(1,905)
147,151
(21,006,830)
(67,476,327)
149,435,173
(47,621,291)
12,500
34,350,055
476,228
(640,170)
1,538
(162,404)
2,748
13,183,569
89,454,988
102,638,557
8,203,869 $
1,000,000
9,203,869 $
101,638,557
1,000,000
102,638,557
289,138 $
11,670,996 $
274,562
10,565,820
$
$
$
$
$
Table of Contents
1. Nature of business and organization
Nature of business
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
AquaBounty Technologies, Inc. (the “Parent” and, together with its wholly owned subsidiaries, the “Company”) was incorporated in December 1991 in
the State of Delaware for the purpose of conducting research and development of the commercial viability of a group of proteins commonly known as
antifreeze proteins. In 1996, the Parent obtained the exclusive licensing rights for a gene construct (transgene) used to create a breed of farm‑raised
Atlantic salmon that exhibit growth rates that are substantially faster than conventional salmon. In 2015, the Parent obtained regulatory approval from
the U.S. Food and Drug Administration for the production and sale of its genetically engineered AquAdvantage salmon product (“GE Atlantic salmon”)
in the United States, and in 2016, the Parent obtained regulatory approval from Health Canada for the production and sale of its GE Atlantic salmon in
Canada. In 2021, the Parent obtained regulatory approval from the National Biosafety Technical Commission for the sale of its GE Atlantic salmon in
Brazil. In 2021, the Company began harvesting and selling its GE Atlantic salmon in the United States and Canada.
Basis of presentation
The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiaries. The entities are collectively referred to
herein as the “Company.” All inter-company transactions and balances have been eliminated upon consolidation.
On October 12, 2023, the stockholders of the Company approved a reverse stock split of the Company’s common stock, and the Board of Directors
approved a split ratio of 1-for-20. The reverse stock split was implemented on October 16, 2023. In conjunction with the reverse stock split, the
number of shares of common stock authorized for issuance was reduced from 150 million to 75 million. All share and per share information, as well as
other related information on equity instruments in the consolidated financial statements and accompanying notes, have been adjusted to reflect this
change.
Going Concern Uncertainty
Since inception, the Company has incurred cumulative net losses and negative cash flows from operations and expects that this will continue for the
foreseeable future. As of December 31, 2023, the Company has $9.2 million in cash and cash equivalents, and restricted cash.
The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital, and there can be no assurance that such
capital will be available in sufficient amounts, on a timely basis, or on terms acceptable to the Company, or at all. This raises substantial doubt about the
Company’s ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued. The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty.
Until such time as the Company reaches profitability, it will require additional financing to fund its operations and execute its business plan.
2. Summary of significant accounting policies
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Actual results could
differ from those estimates.
Comprehensive loss
The Company displays comprehensive loss and its components as part of its consolidated financial statements. Comprehensive loss consists of net loss
and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains
(losses) on the Company’s marketable securities.
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Table of Contents
Foreign currency translation
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
The functional currency of the Parent is the US Dollar. The functional currency of the Canadian Subsidiary is the Canadian Dollar (C$), and the
functional currency of the US and Brazil Subsidiaries is the US Dollar. For the Canadian Subsidiary, assets and liabilities are translated at the exchange
rates in effect at the balance sheet date, equity accounts are translated at the historical exchange rate, and the income statement accounts are translated at
the average rate for each period during the year. Net translation gains or losses are adjusted directly to a separate component of other comprehensive
income (loss) within stockholders’ equity.
Cash equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash equivalents
consist primarily of business savings accounts, certificates of deposit and money market accounts.
Fair Value of Financial instruments
The Company groups its financial instruments measured at fair value, if any, in three levels based on the markets in which the instruments are traded and
the reliability of the assumptions used to determine fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Financial instruments with readily available quoted prices or for
which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of
judgement used in measuring fair value. The three levels of the fair value hierarchy are as follows:
Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; or inputs derived principally from, or that can be corroborated by, observable market data by correlation
or other means.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial
instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires
significant management judgement or estimation.
The carrying amounts reported in the consolidated balance sheets for prepaid expenses and other current assets and accounts payable approximate fair
value based on the short-term maturity of these instruments. All of the Company’s interest-bearing debt is at fixed rates, except for the loan with First
Farmer’s Bank and Trust, which has a rate reset in July 2025.
Inventories
Inventories are mainly comprised of feed, eggs, fry, fish in process and fish for sale. Fish in process inventory is a biological asset that is measured based
on the estimated biomass of fish on hand and expected harvest yields. The Company has established a standard procedure to estimate the biomass of fish on
hand using counting and sampling techniques. The Company measures inventory at the lower of cost or net realizable value (“NRV”), where NRV is
defined as the estimated market price, less the estimated costs of processing, packaging and transportation. The Company considers fish that has been
harvested and transported from its farm to be fish for sale.
Intangible assets
Definite lived intangible assets include patents and licenses. Patent costs consist primarily of legal and filing fees incurred to file patents on proprietary
technology developed by the Company. Patent costs are amortized on a straight-line basis over 20 years beginning with the filing date of the applicable
patent. License fees are capitalized and expensed over the term of the licensing agreement.
Property, plant and equipment
Property, plant and equipment are recorded at cost. The Company depreciates all asset classes over their estimated useful lives, as follows:
Building
Equipment
Office furniture and equipment
Leasehold improvements
Vehicles
20 - 25 years
5 - 20 years
3 years
shorter of asset life or lease term
3 years
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
The Company commences depreciation on an asset when it is placed into service.
Impairment of long-lived assets
The Company reviews the carrying value of its long-lived assets, definite lived intangible assets, and property, plant and equipment when facts and
circumstances suggest that they may be impaired. The carrying values of such assets are considered impaired when the estimated undiscounted cash
flows from such assets are less than their carrying values. An impairment loss, if any, is recognized in the amount of the difference between the carrying
amount and the fair value of such assets.
Leases
The Company leases certain facilities, property, and equipment under noncancelable operating leases. A determination is made if an arrangement is a
lease at its inception, and leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease terms may include options to
extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For operating leases, expense is recognized on a
straight-line basis over the lease term.
Revenue recognition
The Company is comprised of one reporting segment and generates revenue from the sale of its products. Revenue is recognized when the customer takes
physical control of the goods, in an amount that reflects the transaction price consideration that the Company expects to receive in exchange for the goods.
Revenue excludes any sales tax collected and includes any estimate of future credits.
During the years ended December 31, 2023 and 2022, the Company recognized the following product revenue:
GE Atlantic salmon
Non-GE Atlantic salmon eggs
Non-GE Atlantic salmon fry
Other revenue
Total Revenue
GE Atlantic salmon
Non-GE Atlantic salmon eggs
Non-GE Atlantic salmon fry
Other revenue
Total Revenue
Year Ended December 31, 2022
U.S.
Canada
Total
2,518,495
-
-
-
2,518,495
$
$
394,478
85,089
102,387
36,505
618,459
Year Ended December 31, 2023
U.S.
2,331,352
$
-
-
-
2,331,352
$
Canada
-
730
123,381
17,196
141,307
$
$
$
$
2,912,973
85,089
102,387
36,505
3,136,954
Total
2,331,352
730
123,381
17,196
2,472,659
$
$
$
$
During the years ended December 31, 2023 and 2022, the Company had the following customer concentration of revenue:
Customer A
Customer B
Customer C
All other
Total of all customers
Income taxes
Years Ended December 31,
2023
44%
18%
14%
24%
100%
2022
36%
17%
15%
32%
100%
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the
expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect when the differences
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Table of Contents
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized. The Company follows accounting
guidance regarding the recognition, measurement, presentation and disclosure of uncertain tax positions in the financial statements. Tax positions taken
or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are
“more likely than not” to be upheld under regulatory review. The resulting tax impact of these tax positions is recognized in the financial statements
based on the results of this evaluation. The Company did not recognize any tax liabilities associated with uncertain tax positions, nor has it recognized
any interest or penalties related to unrecognized tax positions. The Company is not currently under exam and is no longer subject to federal and state tax
examinations by tax authorities for years before 2020.
Net loss per share
Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss by the weighted average number of
common shares outstanding during the year. Basic net loss per share is based solely on the number of common shares outstanding during the year. Fully
diluted net loss per share includes the number of shares of common stock issuable upon the exercise of warrants and options with an exercise price less
than the fair value of the common stock. Since the Company is reporting a net loss for all periods presented, all potential common shares are
considered anti-dilutive and are excluded from the calculation of diluted net loss per share.
The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:
Weighted Average Outstanding
Stock options
Warrants
Unvested stock awards
Share-based compensation
Years Ended December 31,
2023
61,146
917
27,368
2022
40,543
20,929
8,299
The Company measures and recognizes all share-based payment awards, including stock options and restricted share units made to employees and
directors, based on estimated fair values. The fair value of a share-based payment award is estimated on the date of grant using an option pricing model.
The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s
consolidated statement of operations. The Company uses the Black-Scholes option pricing model (“Black-Scholes”) as its method of valuation. Non-
employee share-based compensation is accounted for using Black-Scholes to determine the fair value of warrants or options awarded to non-employees
with the fair value of such issuances expensed over the period of service.
Recently Issued Accounting Standards
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.
3. Risks and uncertainties
The Company is subject to risks and uncertainties common in the biotechnology and aquaculture industries. Such risks and uncertainties include, but are
not limited to: (i) results from current and planned product development studies and trials; (ii) decisions made by the FDA or similar regulatory bodies in
other countries with respect to approval and commercial sale of any of the Company’s proposed products; (iii) the commercial acceptance of any products
approved for sale and the Company’s ability to produce, distribute, and sell for a profit any products approved for sale; (iv) the Company’s ability to obtain
the necessary patents and proprietary rights to effectively protect its technologies; and (v) the outcome of any collaborations or alliances entered into by the
Company.
Concentration of credit risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, and marketable securities. This risk is
mitigated by the Company’s policy of maintaining all balances with highly rated financial institutions, investing in cash equivalents with maturities of less
than 90 days, and investing in marketable securities with maturities of less than 180 days. The Company’s cash balances may at times exceed insurance
limitations. The Company holds cash balances in bank accounts located in Canada to fund its local operations. These amounts are subject to foreign
currency exchange risk, which is minimized by the
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Table of Contents
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts at December 31, 2023 and 2022 totaled $227 thousand
and $518 thousand, respectively.
4. Inventory
Major classifications of inventory are summarized as follows for December 31, 2023 and 2022:
Feed
Eggs and fry
Fish in process
Fish for sale
Inventory
December 31, 2023
December 31, 2022
$
$
167,136 $
147,998
1,418,469
—
1,733,603 $
366,957
22,140
1,869,387
18,108
2,276,592
5. Prepaid and other current assets
Major classifications of prepaid and current assets are summarized as follows for December 31, 2023 and 2022:
Receivables
Prepaid insurance
Prepaid supplies
Prepaid professional services
Deposits and other
Total prepaid expenses and other current assets
December 31, 2023
December 31, 2022
1,216,585
$
388,049
85,988
-
9,651
1,700,273
$
337,154
272,958
55,007
1,446,819
21,645
2,133,583
$
$
Certain prepaid professional services, consisting of $2.1 million in legal expenditures and fees related to a bond financing transaction for the Ohio farm site
were expensed during the year ended December 31, 2023, as the transaction was postponed for an undetermined amount of time.
6. Property, plant and equipment
Major classifications of property, plant and equipment are summarized as follows for December 31, 2023 and 2022:
Land
Building and improvements
Construction in process
Equipment
Office furniture and equipment
Vehicles
Total property and equipment
Less accumulated depreciation and amortization
Property, plant and equipment, net
$
$
$
December 31, 2023
December 31, 2022
2,974,685 $
15,804,739
147,755,336
18,285,038
231,758
108,120
185,159,676 $
(10,778,294)
174,381,382 $
2,968,561
15,535,904
78,806,762
17,259,301
258,972
106,074
114,935,574
(8,649,388)
106,286,186
Depreciation and amortization expense for 2023 and 2022 on property, plant and equipment was $2.1 million and $2.0 million, respectively.
As of December 31, 2023, construction in process included $141.8 million, $4.3 million and $1.6 million for construction related to the Ohio, Rollo Bay
and Indiana farm sites, respectively. An additional $16.7 million has been contractually committed for these farm sites as of December 31, 2023.
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Table of Contents
7. Debt
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
The current terms and conditions of long-term debt outstanding as of December 31, 2023 and 2022, are as follows:
ACOA AIF Grant
ACOA term loan #1
ACOA term loan #2
ACOA term loan #3
Kubota Canada Ltd.
DFO term loan
Finance PEI term loan
First Farmers Bank & Trust term loan
Total debt
less: debt issuance costs
less: current portion
Long-term debt, net
Interest
rate
0%
0%
0%
0%
0%
0%
6.5%
5.4%
Monthly
repayment
Royalties
C$3,120
C$4,630
C$6,945
C$1,142
C$14,896
C$19,913
$56,832
Maturity
date
-
Feb 2027
Sep 2029
Dec 2025
Jan 2025
Jan 2034
Dec 2028
Oct 2028
Principal payments due on the long-term debt are as follows:
2024
2025
2026
2027
2028
Thereafter
Total
December 31, 2023
$
2,166,289 $
89,460
240,946
125,712
11,202
1,305,193
1,713,837
2,891,763
8,544,402 $
(37,236)
(795,300)
7,711,866 $
December 31, 2022
2,119,476
115,158
276,743
184,500
21,077
854,885
1,752,547
3,401,019
8,725,405
(52,065)
(2,387,231)
6,286,109
$
$
Total
808,114
913,964
887,032
902,419
2,136,774
2,896,099
8,544,402
$
$
Atlantic Canada Opportunities Agency (“ACOA”)
ACOA is a Canadian government agency that provides funding to support the development of businesses and promote employment in the Atlantic region
of Canada.
ACOA Atlantic Innovation Fund (“AIF”) Grant
In January 2009, the Canadian Subsidiary was awarded an AIF grant from ACOA to provide a contribution towards the funding of a research and
development project. Contributions under the grant were made through 2014, and no further funds are available. Amounts claimed by the Canadian
Subsidiary must be repaid in the form of a 10% royalty on any products that are commercialized out of this research project until the loan is fully repaid.
Revenue from the sale of the Company’s GE Atlantic salmon is not subject to the royalty, and the Company does not expect to commercialize products that
would be subject to the royalty in the next five years.
ACOA term loans
In February 2016, the Canadian Subsidiary executed an agreement with ACOA to partially finance the renovations to the Rollo Bay farm site. All available
funding under the agreement was disbursed through May 2017, and no further amounts are available. The loan is being repaid over a 108-month term at a
zero percent interest rate.
In November 2018, the Canadian Subsidiary executed a second agreement with ACOA to partially finance the renovations to the Rollo Bay site. All
available funding under the agreement was disbursed through March 2019, and no further amounts are available. The loan is being repaid over a 108-month
term with a zero percent interest rate.
In July 2021, the Canadian Subsidiary entered into a contribution agreement with ACOA under its REGI-Business Scale-up and Productivity program to
provide funding assistance for the Rollo Bay farm site, and on August 20, 2021, the Canadian Subsidiary
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Table of Contents
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
received C$250,000 ($200,075). All funds received are being repaid over a 36-month term commencing January 2023 at a zero percent interest rate.
Kubota
In January 2018, the Canadian Subsidiary financed the purchase of equipment through a loan with Kubota Canada Ltd. The total amount is being repaid in
monthly installments. The loan is secured by the underlying equipment.
Department of Fisheries and Oceans (“DFO”)
DFO is a department of the government of Canada responsible for safeguarding its waters and managing its fisheries, oceans and freshwater resources.
DFO supports economic growth in the marine and fisheries sectors, and innovation in areas such as aquaculture and biotechnology.
In September 2020, the Canadian Subsidiary entered into a Contribution Agreement with DFO's Atlantic Fisheries Fund, whereby it is eligible to receive
up to C$1.9 million ($1.4 million) to finance new equipment for its Rollo Bay farm (the “DFO Term Loan”). As of December 31, 2022, the Canadian
Subsidiary had borrowed C$1.2 million ($883 thousand) on the facility, and during 2023, the Canadian Subsidiary borrowed an additional C$572 thousand
($418 thousand) under the DFO Term Loan. Borrowings are interest free and monthly repayments commence in August 2024, with maturity in January
2034.
The Company recognized interest expense of $304 thousand and $291 thousand for the years ended December 31, 2023 and 2022, respectively, on its
interest-bearing debt.
Finance PEI (“FPEI”)
FPEI is a corporation of the Ministry of Economic Development and Tourism for Prince Edward Island, Canada, and administers business financing
programs for the provincial government.
In August 2016, the Canadian Subsidiary obtained a loan from FPEI to partially finance the purchase of the assets of the former Atlantic Sea Smolt plant in
Rollo Bay West on Prince Edward Island.
In 2018, the Canadian Subsidiary obtained a new loan from FPEI, which incorporated the existing loan and provided C$2.0 million ($1.5 million) of
additional funds. All funds have been dispersed and the loan is being repaid over a 147-month term ending with a balloon payment, which was extended for
five additional years to December 2028. The loan has an interest rate of 6.5% and is collateralized by a mortgage executed by the Canadian Subsidiary,
which conveys a first security interest in all of its current and acquired assets. The loan is guaranteed by the Parent.
First Farmers Bank & Trust (“FFBT”)
On July 31, 2020, the Company’s Indiana Subsidiary obtained a $4.0 million loan from First Farmers Bank and Trust. Net proceeds were $3.9 million after
deducting $90 thousand in loan costs. The loan bears interest at a rate of 5.375% for the first five years. On July 31, 2025, the interest rate resets to the then
U.S. Treasury 5-year maturities rate plus 5% and remains fixed at that rate through maturity on October 1, 2028. The note required interest only payments
for the first 13 months, followed by monthly principal and interest payments of approximately $57 thousand through maturity. The Company must comply
with certain financial and non-financial covenants and provide certification of compliance quarterly. During 2022, FFBT removed two of the loan’s
negative covenants and the Company increased its required restrictive cash balance amount from $500 thousand to $1.0 million. This amount is reflected as
restricted cash on the balance sheet. At December 31, 2023, the Company was in compliance with its loan covenants. The loan is also subject to certain
prepayment penalties and is secured by the assets of the Indiana subsidiary and a guarantee by the Parent.
8. Stockholders’ equity
The Company’s stockholders have authorized 80 million shares of stock, of which 5 million are authorized as preferred stock and 75 million as common
stock.
Common stock
The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders. Dividends and distribution of assets of the
Company in the event of liquidation are subject to the preferential rights of any outstanding preferred shares.
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Warrants
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
All outstanding warrants as of December 31, 2022 expired unexercised during the year ended December 31, 2023.
Share-based compensation
In 2006, the Company established the 2006 Equity Incentive Plan (as amended, the “2006 Plan”). The 2006 Plan provided for the issuance of incentive
stock options to employees of the Company and non-qualified stock options and awards of restricted stock to directors, officers, employees, and consultants
of the Company. In accordance with its original terms, the 2006 Plan terminated on March 18, 2016. All outstanding awards under the 2006 Plan will
continue until their individual termination dates.
In March 2016, the Company’s Board of Directors adopted the AquaBounty Technologies, Inc. 2016 Equity Incentive Plan (as amended, the “2016 Plan”)
to replace the 2006 Plan. The 2016 Plan provides for the issuance of incentive stock options, non-qualified stock options, and awards of restricted and
direct stock purchases to directors, officers, employees, and consultants of the Company. Total common shares authorized under the 2016 Plan are 215,000,
of which 68,280 shares are reserved for future issuance as of December 31, 2023.
Restricted stock
The Company’s restricted stock activity under the 2016 Plan is summarized as follows:
Unvested at December 31, 2022
Granted
Vested
Forfeited
Unvested at December 31, 2023
Shares
9,974 $
39,286
(13,584)
(1,536)
34,140 $
Weighted
average grant
date fair value
37.27
10.58
25.40
23.20
11.91
During 2023 and 2022, the Company expensed $360 thousand and $358 thousand, respectively, related to restricted stock awards. At December 31, 2023,
the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $215 thousand. The period over
which the unearned share-based compensation is expected to be earned is approximately 1.4 years.
Stock options
The Company’s option activity under the 2006 Plan and the 2016 Plan is summarized as follows:
Outstanding at December 31, 2022
Issued
Exercised
Forfeited
Expired
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Number of
options
Weighted
average
exercise price
42,035 $
36,654
—
(2,315)
(705)
75,669 $
46,397 $
71.69
7.20
—
10.13
146.20
41.64
61.32
Options issued to employees, members of the Board of Directors, and non-employees generally vest over a period of one year to three years and are
exercisable for a term of 10 years from the date of issuance.
The weighted average fair value of stock options granted during 2023 was $5.02 (2022: $22.20). There were no options exercised in 2023 (2022: 52). The
total intrinsic value of options exercised in 2022 was $142. As of December 31, 2023 and 2022, the total intrinsic value of exercisable and outstanding
options was $0.
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
The following table summarizes information about options outstanding and exercisable as of December 31, 2023:
Weighted
average exercise
price of outstanding
options
< $10.00
$20.00 - $50.00
$100.00 - $200.00
$200.00 - $500.00
Number of
options
outstanding
34,604
35,380
2,369
3,316
75,669
Weighted
average remaining
estimated life
(in years)
9.5
6.1
6.4
2.2
Number of
options
exercisable
8,966
31,847
2,268
3,316
46,397
The fair values of stock option grants to employees and members of the Board of Directors during 2023 and 2022 were measured on the date of grant using
Black-Scholes, with the following weighted average assumptions:
Expected volatility
Risk free interest rate
Expected dividend yield
Expected life (in years)
2023
86%
4.01%
0.0%
5
2022
92%-103%
1.71%-3.95%
0.0%
5
The risk-free interest rate is estimated using the Federal Funds interest rate for a period that is commensurate with the expected term of the awards. The
expected dividend yield is zero because the Company has never paid a dividend and does not expect to do so for the foreseeable future. The expected life
was based on a number of factors including historical experience, vesting provisions, exercise price relative to market price, and expected volatility. The
Company believes that all groups of employees demonstrate similar exercise and post-vesting termination behavior and, therefore, does not stratify
employees into multiple groups and forfeitures are recognized as they occur. The expected volatility was estimated using the Company’s historical price
volatility over a period that is commensurate with the expected term of the awards.
Total share-based compensation on stock-option grants amounted to $182 thousand and $177 thousand for the years ended December 31, 2023 and 2022,
respectively. As of December 31, 2023, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-
based awards is $219 thousand. The period over which the unearned share-based compensation is expected to be earned is 1.4 years.
Share-based compensation
The following table summarizes share-based compensation costs recognized in the Company’s Consolidated Statements of Operations and Comprehensive
Loss for the years ended December 31, 2023 and 2022:
Sales and marketing
General and administrative
Total share-based compensation
9. Income taxes
2023
19,325
522,940
542,265
$
2022
15,956
519,167
535,123
$
The components of loss before income taxes for the years ended December 31, 2023 and 2022 are presented below:
Domestic
Foreign
Loss before income taxes
$
$
2023
(23,732,417) $
(3,825,484)
(27,557,901) $
2022
(20,673,855)
(1,483,340)
(22,157,195)
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
We have made no provision for foreign or domestic income taxes on the cumulative unremitted earnings of our foreign subsidiaries. We intend to
permanently reinvest all foreign earnings and have no intention to repatriate foreign earnings for the foreseeable future.
Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate for the years ended December 31, 2023
and 2022 primarily due to the following:
Income tax benefit
State and provincial income tax
Permanent differences
US-Foreign rate differential
Other
Change in valuation allowance
Total income tax
2023
2022
$
$
$
(5,787,160) $
(2,074,037)
48,028
232,963
(1,013,689)
(8,593,895) $
8,593,895
- $
(4,653,011)
(1,031,963)
(60,904)
(65,058)
483,873
(5,327,063)
5,327,063
-
As of December 31, 2023, the Company had domestic net operating loss carryforwards of approximately $122 million, after consideration of limitations
pursuant to section 382, to offset future federal taxable income, which begin to expire in 2033. Of this amount, the Company had domestic net operating
loss carryforwards of approximately $93 million, which can be carried forward indefinitely. The future utilization of certain historic net operating loss and
tax credit carryforwards, however, is subject to annual use limitations based on the change in stock ownership rules of Internal Revenue Code Sections 382
and 383. The Company experienced a change in ownership under these rules during 2012 and revised its calculation of net operating loss carryforwards
based on annual limitation rules. The Company also had foreign research and development loss carryforwards totaling approximately $18 million and
foreign research and development expense tax credits of approximately $3 million as of December 31, 2023, which expire at various times commencing in
2024. Since the Company has incurred only losses from inception and there is uncertainty related to the ultimate use of the loss carryforwards and tax
credits, a valuation allowance has been recognized to offset the Company’s deferred tax assets, and no benefit for income taxes has been recorded.
The IRS released guidance which modified the procedures for taxpayers that incur specified research or experimental (R&E) expenditures to change their
method of accounting to comply with the new capitalization and amortization rules provided in Section 174, as revised by the Tax Cuts and Jobs Act. The
Section 174 rules require taxpayers to capitalize and amortize specified R&E expenditures over a period of five years (for domestic research) or 15 years
(for foreign research), beginning with the midpoint of the taxable year in which the expenses are paid or incurred. The impact defers the tax benefit of R&E
expenditures.
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Table of Contents
AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards
Foreign research and development tax credit carryforwards
Intangibles
R&D costs
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property and equipment
Total deferred tax liabilities
Net deferred tax liabilities
10. Commitments and contingencies
2023
2022
$
$
$
$
$
37,551,366
2,611,184
2,366,372
843,947
470,847
43,843,716
(42,646,455)
1,197,261
$
$
$
(1,197,261)
(1,197,261) $
- $
28,188,265
2,454,756
2,630,122
696,326
332,473
34,301,942
(34,052,560)
249,382
(249,382)
(249,382)
-
The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues
contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
The Company is subject to legal proceedings and claims arising in the normal course of business. Management believes that final disposition of any such
matters existing at December 31, 2023, will not have a material adverse effect on the Company’s financial position or results of operations.
Lease commitments
The table below summarizes the Company’s lease obligations as of December 31, 2023 and 2022:
Operating lease right-of-use assets, net
Right-of-use assets obtained for new lease liabilities
Other current liabilities
Operating lease liabilities
Total operating lease liabilities
Operating lease expense
Short-term lease expense
Lease payments included in operating cash flows
Weighted average remaining lease term
Weighted average discount rate
December 31, 2023
December 31, 2022
281,104 $
84,143
30,863
250,241
281,104 $
222,856
-
20,830
203,227
224,057
December 31, 2023
December 31, 2022
41,798 $
48,968
92,857
22.5 years
8%
85,718
-
84,080
25.4 years
8%
$
$
$
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AquaBounty Technologies, Inc.
Notes to the Consolidated Financial Statements
for the years ended December 31, 2023 and 2022
Remaining payments under leases are as follows as of December 31, 2023:
Year
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: imputed interest
Total operational lease liabilities
11. Retirement plan
$
$
Amount
48,054
49,801
40,373
19,102
19,676
544,549
721,555
(440,451)
281,104
The Company has a savings and retirement plan for its US employees that qualifies under Section 401(k) of the Internal Revenue Code. The plan covers
substantially all employees and provides for voluntary contributions by participating employees up to the maximum contribution allowed under the Internal
Revenue Code. Contributions by the Company can be made, as determined by the Board of Directors, provided the amount does not exceed the maximum
permitted by the Internal Revenue Code. Company contributions made and expensed in operations in connection with the plan during the years ended
December 31, 2023 and 2022, amounted to $113 thousand and $94 thousand, respectively.
The Company also has a Registered Retirement Savings Plan for its Canadian employees. Company contributions made and expensed in operations in
connection with the plan during the years ended December 31, 2023 and 2022, amounted to $45 thousand and $44 thousand, respectively.
12. Subsequent events
On February 14, 2024, the Company announced that it had made the decision to sell its Indiana farm as part of its strategy to increase liquidity.
62
EXHIBIT 21.1
List of Subsidiaries of AquaBounty Technologies, Inc.
The following is a list of subsidiaries of AquaBounty Technologies, Inc., the names under which such subsidiaries do business, and the
state or country in which each was organized:
Name
AquaBounty Brasil Participações Ltda.
AQUA Bounty Canada Inc.
Aqua Bounty Farms Chile Limitada
AquaBounty Farms, Inc.
AquaBounty Farms Indiana LLC
AquaBounty Farms Ohio LLC
Jurisdiction of Organization
Brazil
Canada
Chile
Delaware
Delaware
Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-258561 and 333-252264 on Form S-3 and
Registration Statement Nos. 333-272448 and 333-238207 on Form S-8 of our report dated April 1, 2024, relating to the
financial statements of AquaBounty Technologies, Inc. appearing in this Annual Report on Form 10-K for the year ended
December 31, 2023.
/s/ Deloitte & Touche LLP
Baltimore, Maryland
April 1, 2024
EXHIBIT 31.1
I, Sylvia Wulf, certify that:
1. I have reviewed this Annual Report on Form 10-K of AquaBounty Technologies, Inc;
Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: April 1, 2024
/s/ Sylvia Wulf
Chief Executive Officer
EXHIBIT 31.2
I, David A. Frank, certify that:
1. I have reviewed this Annual Report on Form 10-K of AquaBounty Technologies, Inc;
Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: April 1, 2024
/s/ David A. Frank
Chief Financial Officer
EXHIBIT 32.1
The following certification is being made to the Securities and Exchange Commission solely for purposes of Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). This certification is not to be deemed a part of the Report, nor is it deemed to be
“filed” for any purpose whatsoever.
In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1350), each of the undersigned hereby
certifies, to his knowledge, that:
(i) this Annual Report on Form 10-K for the year ended December 31, 2023, which this statement accompanies, fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(ii) the information contained in this Annual Report on Form 10-K for the year ended December 31, 2023, fairly presents, in all
material respects, the financial condition and results of operations of AquaBounty Technologies, Inc.
Dated as of this 1st day of April 2024.
/s/ Sylvia Wulf
Sylvia Wulf
Chief Executive Officer
/s/ David A. Frank
David A. Frank
Chief Financial Officer
Exhibit 97.1
AQUABOUNTY TECHNOLOGIES, INC.
COMPENSATION RECOVERY POLICY
Adopted as of November 1, 2023
AquaBounty Technologies, Inc., a Delaware corporation (together with its subsidiaries, the
“Company”), has adopted a Compensation Recovery Policy (this “Policy”) as described below.
1.
Overview
The Policy sets forth the circumstances and procedures under which the Company shall recover
Erroneously Awarded Compensation from Covered Persons (as defined below) in accordance with
rules issued by the United States Securities and Exchange Commission (the “SEC”) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Nasdaq Stock
Market. Capitalized terms used and not otherwise defined herein shall have the meanings given
in Section 3 below.
2.
Compensation Recovery Requirement
In the event the Company is required to prepare a Financial Restatement, the Company shall
recover reasonably promptly all Erroneously Awarded Compensation with respect to such
Financial Restatement.
3.
Definitions
a. “Applicable Recovery Period” means the three completed fiscal years immediately
preceding the Restatement Date for a Financial Restatement. In addition, in the event
the Company has changed its fiscal year: (i) any transition period of less than nine
months occurring within or immediately following such three completed fiscal years
shall also be part of such Applicable Recovery Period and (ii) any transition period of
nine to 12 months will be deemed to be a completed fiscal year.
b. “Applicable Rules” means any rules or regulations adopted by the Exchange pursuant to
Rule 10D-1 under the Exchange Act and any applicable rules or regulations adopted by
the SEC pursuant to Section 10D of the Exchange Act.
c. “Board” means the Board of Directors of the Company.
d. “Committee” means the Compensation & Human Capital Committee of the Board or, in
the absence of such committee, a majority of independent directors serving on the
Board.
e. “Covered Person” means any Executive Officer and any other person designated by the
Board or the Committee as being subject to this Policy. A person’s status as a Covered
Person with respect to Erroneously Awarded Compensation shall be determined as of
the time of receipt of such Erroneously Awarded Compensation regardless of the
person’s current role or status with the Company (e.g., if a person began service as an
Executive Officer after the beginning of an Applicable Recovery Period, that person
would not be considered a Covered Person with respect to
Erroneously Awarded Compensation received before the person began service as an
Executive Officer, but would be considered a Covered Person with respect to
Erroneously Awarded Compensation received after the person began service as an
Executive Officer where such person served as an Executive Officer at any time during
the performance period for such Erroneously Awarded Compensation).
f.
“Effective Date” means October 2, 2023.
g. “Erroneously Awarded Compensation” means the amount of any Incentive-Based
Compensation received by a Covered Person on or after the Effective Date and during
the Applicable Recovery Period that exceeds the amount that otherwise would have
been received by the Covered Person had such compensation been determined based on
the restated amounts in a Financial Restatement, computed without regard to any taxes
paid. Calculation of Erroneously Awarded Compensation with respect to Incentive-
Based Compensation based on stock price or total shareholder return, where the amount
of Erroneously Awarded Compensation is not subject to mathematical recalculation
directly from the information in a Financial Restatement, shall be based on a reasonable
estimate of the effect of the Financial Restatement on the stock price or total shareholder
return upon which the Incentive-Based Compensation was received, and the Company
shall maintain documentation of the determination of such reasonable estimate and
provide such documentation to the Exchange in accordance with the Applicable
Rules. Incentive-Based Compensation is deemed received, earned or vested when the
Financial Reporting Measure is attained, not when the actual payment, grant or vesting
occurs.
h. “Exchange” means the Nasdaq Stock Market LLC.
i. An “Executive Officer” means any person who served the Company in any of the
following roles at any time during the performance period applicable to Incentive-
2
Based Compensation and received Incentive-Based Compensation after beginning
service in any such role (regardless of whether such Incentive-Based Compensation was
received during or after such person’s service in such role): the president, principal
financial officer, principal accounting officer (or if there is no such accounting officer
the controller), any vice president in charge of a principal business unit, division or
function (such as sales, administration or finance), any other officer who performs a
policy making function or any other person who performs similar policy making
functions for the Company. Executive officers of parents or subsidiaries of the
Company may be deemed executive officers of the Company if they perform such
policy making functions for the Company.
j.
“Financial Reporting Measures” mean measures that are determined and presented in
accordance with the accounting principles used in preparing the Company’s financial
statements, any measures that are derived wholly or in part from such measures
(including, for example, a non-GAAP financial measure), and stock price and total
shareholder return.
k. “Incentive-Based Compensation” means any compensation provided, directly or
indirectly, by the Company or any of its subsidiaries that is granted, earned or vested
based, in whole or in part, upon the attainment of a Financial Reporting Measure and
any other equity-based compensation provided by the Company or any of its
subsidiaries, including, without limitation, stock options, restricted stock awards,
restricted stock units and stock appreciation rights.
l. A “Financial Restatement” means a restatement of previously issued financial
statements of the Company due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required
restatement to correct an error in previously-issued financial statements that is material
to the previously-issued financial statements or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the
current period.
m. “Restatement Date” means, with respect to a Financial Restatement, the earlier to occur
of: (i) the date the Board8 concludes, or reasonably should have concluded, that the
Company is required to prepare the Financial Restatement or (ii) the date a court,
regulator or other legally authorized body directs the Company to prepare the Financial
Restatement.
3
4.
Exception to Compensation Recovery Requirement
The Company may elect not to recover Erroneously Awarded Compensation pursuant to this Policy
if the Committee determines that recovery would be impracticable, and one or more of the
following conditions, together with any further requirements set forth in the Applicable Rules, are
met: (i) the direct expense paid to a third party, including outside legal counsel, to assist in
enforcing this Policy would exceed the amount to be recovered, and the Company has made a
reasonable attempt to recover such Erroneously Awarded Compensation; or (ii recovery would
likely cause an otherwise tax-qualified retirement plan to fail to be so qualified under applicable
regulations.
5.
Discretionary Compensation Recovery Circumstances
In addition to (and without limiting) the provisions of paragraph 2 above, in the event the Company
is required to prepare a Financial Restatement after the Effective Date, the Company will use
reasonable efforts to recover from any current or former employee of the Company who is not a
Covered Person (each a “Participating Employee”) and who received Incentive-Based
Compensation from the Company during the three completed fiscal years immediately preceding
the date on which the Board or the Audit Committee determines that the Company is required to
prepare a Financial Restatement, the amount that exceeds what would have been paid to the
Participating Employee under the Financial Restatement; provided that, this paragraph 5 will apply
only to the extent the Board (or a duly established committee thereof), in its sole discretion,
determines that the Participating Employee committed any act or omission that materially
contributed to the circumstances requiring the Financial Restatement [and such act or omission
involved any of the following: (i) misconduct, wrongdoing or a violation of any of the Company’s
rules or of any applicable legal or regulatory requirements in the course of the Participating
Employee’s employment by the Company; or (ii) a breach of a fiduciary duty to the Company or its
stockholders by the Participating Employee.
6.
Tax Considerations
To the extent that, pursuant to this Policy, the Company is entitled to recover any Erroneously
Awarded Compensation that is received by a Covered Person, the gross amount received (i.e.,
the amount the Covered Person received, or was entitled to receive, before any deductions for tax
withholding or other payments) shall be returned by the Covered Person.
7.
Method of Compensation Recovery
The Committee shall determine, in its sole discretion, the method for recovering Erroneously
Awarded Compensation hereunder, which may include, without limitation, any one or more of the
following:
a.
requiring reimbursement of cash Incentive-Based Compensation previously paid;
4
b. seeking recovery of any gain realized on the vesting, exercise, settlement, sale,
transfer or other disposition of any equity-based awards;
c. cancelling or rescinding some or all outstanding vested or unvested equity-based
awards;
d. adjusting or withholding from unpaid compensation or other set-off;
e. cancelling or offsetting against planned future grants of equity-based awards;
and/or
f.
any other method permitted by applicable law or contract.
Notwithstanding the foregoing, a Covered Person will be deemed to have satisfied such person’s
obligation to return Erroneously Awarded Compensation to the Company if such Erroneously
Awarded Compensation is returned in the exact same form in which it was received; provided that
equity withheld to satisfy tax obligations will be deemed to have been received in cash in an
amount equal to the tax withholding payment made.
8.
Policy Interpretation
This Policy shall be interpreted in a manner that is consistent with the Applicable Rules and any
other applicable law. The Committee shall take into consideration any applicable interpretations
and guidance of the SEC in interpreting this Policy, including, for example, in determining whether
a financial restatement qualifies as a Financial Restatement hereunder. To the extent the Applicable
Rules require recovery of Incentive-Based Compensation in additional circumstances besides those
specified above, nothing in this Policy shall be deemed to limit or restrict the right or obligation of
the Company to recover Incentive-Based Compensation to the fullest extent required by the
Applicable Rules.
9.
Policy Administration
This Policy shall be administered by the Committee; provided, however, that the Board shall have
exclusive authority to authorize the Company to prepare a Financial Restatement. In doing so, the
Board may rely on a recommendation of the Audit Committee of the Board. The Committee shall
have such powers and authorities related to the administration of this Policy as are consistent with
the governing documents of the Company and applicable law. The
Committee shall have full power and authority to take, or direct the taking of, all actions and to
make all determinations required or provided for under this Policy and shall have full power and
authority to take, or direct the taking of, all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of this Policy that the
Committee deems to be necessary or appropriate to the administration of this Policy. The
interpretation and construction by the Committee of any provision of this Policy and all
determinations made by the Committee under this policy shall be final, binding and conclusive.
5
10.
Compensation Recovery Repayments not Subject to Indemnification
Notwithstanding anything to the contrary set forth in any agreement with, or the organizational
documents of, the Company or any of its subsidiaries, Covered Persons are not entitled to
indemnification for Erroneously Awarded Compensation or for any losses arising out of or in any
way related to Erroneously Awarded Compensation recovered under this Policy.
6