AQUABOUNTY TECHNOLOGIES INC

Previous wording

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 raise 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 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 raise 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.

Current wording

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 raise 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 broodstock and egg production farms located on Prince Edward Island in Canada, are close to key customer markets and are designed to prevent disease and to include multiple levels of fish containment to protect wild fish populations. We raise 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 not currently growing our GE Atlantic salmon for sale and consumption, as we have sold our Indiana farm and we have paused construction activities at our Ohio farm. 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.

Previous wording

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, debt financing secured by our unencumbered assets, and potential joint venture partnerships or other strategic transactions.

Current wording

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 our recent bridge loan funding and the completed sale of our Indiana farm. We continue to pursue funding sources, including the sale of non-core equipment assets from our Ohio farm, debt financing secured by our unencumbered assets, and potential strategic transactions.

Previous wording

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.

Current wording

Recently elevated global inflation rates continue to impact all areas of our business. We are experiencing higher costs for farming supplies, 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.

Previous wording

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.

Current wording

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 sale of our Indiana farm, our product revenues will consist of conventional Atlantic salmon eggs and fry from our farms on Prince Edward Island for the near term.

Previous wording

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. During the three months ended March 31, 2024, we recognized $1.0 million of product cost to reduce the value of our Indiana farm inventory in conjunction with its planned sale.

Current wording

Product costs include the labor and related costs for producing our Atlantic salmon eggs and to grow out our fish and fry, 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.

Previous wording

Interest expense includes the interest on our outstanding loans and other interest expense. Other expense includes bank charges, fees, and interest income.

Current wording

Interest expense includes the interest on our outstanding loans and other interest expense. Other (expense) income, net includes bank charges, fees, and interest income.

Previous wording

Product costs for the three months ended March 31, 2024, were up from the corresponding period in 2023, primarily due to costs associated with the winding down of operations at the Indiana farm, including a net realizable value adjustment of $900 thousand against its biomass inventory, and a $100 thousand reserve against its feed inventory. Net of these charges, product costs were lower in the current period.

Current wording

Product costs for the three months ended June 30, 2024 were down from the corresponding period in 2023, primarily due to the winding down of operations at the Indiana farm.

Previous wording

Research and development expenses for thethree months ended March 31, 2024, were down from the corresponding period in 2023, primarily due to decreases in project spending.

Current wording

Research and development expenses for thethree months ended June 30, 2024 were down from the corresponding period in 2023, primarily due to decreases in personnel costs and project spending.

Previous wording

General and administrative expenses for the three months ended March 31, 2024, were down from the corresponding period in 2023 due to reductions in professional services, state excise tax liabilities, share-based compensation costs, and travel, offset by increases in personnel costs and legal fees.

Current wording

General and administrative expenses for the three months ended June 30, 2024 were up from the corresponding period in 2023, due to increases in professional services and legal fees, partially offset by decreases in state excise tax liabilities, share-based compensation costs, travel, and personnel costs.

Previous wording

An asset impairment charge of $4.3 million was incurred in the current period against the long-lived assets of the Indiana farm. We determined the impairment charge, based on the estimate of the potential market value of the asset group to be sold, net of selling costs, compared to the current net book value of those assets.

Current wording

During the three months ended June 30, 2024, we recorded a non-cash asset impairment charge of $44.5 million against the long-lived assets of the Indiana farm and certain equipment assets at the Ohio farm. We determined the impairment charge based on the estimate of the potential market value of the asset group to be sold or available for sale, net of selling costs, compared to the current net book value of those assets.

Previous wording

Total other expense is comprised of interest expense and bank charges, less interest income for the three months ended March 31, 2024 and 2023.

Current wording

Other expense is comprised of interest expense and bank charges, less interest income for the three months ended June 30, 2024 and 2023.

Previous wording

The increase in revenue during the current period was primarily due to an increase in the sale of conventional Atlantic salmon, fry and eggs from our Rollo Bay farm. Harvest volume of our GE Atlantic salmon was up substantially, as we prepared our Indiana farm for sale. An accelerated harvesting schedule at the Indiana farm required harvesting predominantly below-market sized fish, which impacted the average selling price for the current period.

Current wording

The decrease in revenue during the current period was primarily due to a decrease in the sale of GE Atlantic salmon due to the winding down of operations at the Indiana farm, partially offset by increased sales of conventional Atlantic salmon eggs and fry from our Rollo Bay farm. The wind down of operationsat the Indiana farm required harvesting predominantly below-market sized fish, which impacted the average selling price during the period.

Previous wording

Net cash used in operating activities during the three months ended March 31, 2024, was primarily comprised of our $11.2 million net loss, partially offset by non-cash depreciation and share-based compensation charges of $681 thousand, a long-lived asset impairment charge of $4.3 million and decreased by working capital sources of $1.8 million. Net cash used in operating activities during the three months ended March 31, 2023 was primarily comprised of our $6.5 million net loss, offset by non-cash depreciation and share-based compensation charges of $728 thousand, and increased by working capital uses of $388 thousand.

Current wording

Net cash used in operating activities during the six months ended June 30, 2024, was primarily comprised of our $61.7 million net loss, partially offset by non-cash depreciation and share-based compensation charges of $897 thousand, a long-lived asset impairment charge of $48.7 million, and working capital sources of $3.3 million. Net cash used in operating activities during thesix months ended June 30, 2023 was primarily comprised of our $13.0 million net loss, and working capital uses of $630 thousand, partially offset by non-cash depreciation and share-based compensation charges of $1.4 million.

Previous wording

Spending on operations decreased in the current period, before the recording of impairment charges against the Indiana farm property and inventory assets, due to reductions in marketing programs, outside research projects, professional services, and share-based compensation. Increases in cash provided by working capital was due to reductions in inventory and other current assets and increases in accounts payable and accrued expenses.

Current wording

Spending on operations decreased in the current period, before the recording of non-cash asset impairment charges against the Indiana farm and certain equipment assets of the Ohio farm, due to reductions in marketing programs, outside research projects, professional services, and share-based compensation. Increases in cash provided by working capital was due to reductions in inventory and other current assets.

Previous wording

During the three months ended March 31, 2024 and 2023, we used $1.2 million and $22.9 million, respectivelyfor construction activities at our farm sites and the purchase of equipment.

Current wording

During the six months ended June 30, 2024 and 2023, we used $2.0 million and $46.6 million, respectivelyfor construction activities at our farm sites and the purchase of equipment.

Previous wording

During the three months ended March 31, 2024, we received $117 thousand from new debt and made $184 thousand in debt repayments. During the same period in 2023, we received $394 thousand from new debt and made $179 thousand in debt repayments.

Current wording

During the six months ended June 30, 2024, we received $5.1 million from new debt and made $3.0 million in debt repayments. During the same period in 2023, we received $394 thousand from new debt and made $360 thousand in debt repayments.

Previous wording

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 March 31, 2024, we had $3.6 million of 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 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 condensed consolidated financial statements are issued.

Current wording

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 June 30, 2024, we had $728 thousand of cash and cash equivalents. 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 condensed consolidated financial statements are issued.

Previous wording

On April 18, 2024, we entered into a Loan Agreement with JMB Capital Partners Lending, LLC to fund working capital through a secured term loan of up to $10 million that matures on July 31, 2024 or, if earlier, upon the sale of certain collateral or upon an Event of Default (as defined in the Loan Agreement) . Of the total loan amount, $5 million was advanced on April 18, 2024, and an additional $5 million will be advanced upon the satisfaction of certain conditions set out in the Loan Agreement. The loan bears interest at a rate of 15% on its outstanding principal balance and is subject to a commitment fee equal to 5%, payable at closing, and an exit fee equal to 8%. Of the initial loan advancement, approximately $2.8 million was used to pay the remaining outstanding balance of the Company’s term loan with First Farmers Bank & Trust, upon which the $1 million of restricted cash held by the Company as of both March 31, 2024 and December 31, 2023, was no longer deemed to be restricted.

Current wording

In April 2024, we entered into a Loan Agreement with JMB Capital Partners Lending, LLC to fund working capital through a secured term loan of up to $10 million that was scheduled to mature on July 31, 2024 or, if earlier, upon the sale of certain collateral or upon an Event of Default (as defined in the Loan Agreement) . Of the total loan amount, $5 million was advanced in April 2024 and $1.5 million was advanced in July 2024. The loan bore interest at a rate of 15% on its outstanding principal balance and was subject to a commitment fee equal to 5% and an exit fee equal to 8%. Of the initial loan advancement, approximately $2.8 million was used to pay the remaining outstanding balance of the Company’s term loan with First Farmers Bank & Trust, upon which the $1 million of restricted cash held by the Company as of December 31, 2023, was no longer deemed to be restricted. The outstanding loan balance of $6.5 million was repaid on July 26, 2024 from the net proceeds of the Indiana farm sale.

Previous wording

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.

Current wording

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 sales of non-core equipment assets from our Ohio farm, equity offerings, debt financings, government or other third-party funding, strategic alliances, and licensing arrangements. 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.

Previous wording

There have been no material changes to these estimates, or the policies related to them, during the three months ended March 31, 2024. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

There have been no material changes to these estimates, or the policies related to them, during the six months ended June 30, 2024. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.