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 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.

Current wording

Until 2024, our primary product was our GE Atlantic salmon, which received FDA approval in 2015 as the first genetically engineered animal available for sale for human consumption. Although 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.

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 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.

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 was under construction and roughly 30% complete, but construction activities were paused in 2023. To fund the construction cost, we were using cash on hand, which was to 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 completion 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 completed sale of our Indiana farm. We continue to pursue funding sources, including our decision to sell our Rollo Bay farm, the sale of non-core equipment assets from our Ohio farm, debt financing secured by our unencumbered assets, and potential strategic transactions.

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 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.

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 salmon byproducts from our Fortune Bay farm on Prince Edward Island for the near term.

Previous 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.

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 eggs or fish in process to the extent that these costs do not exceed their net realizable value. The costs that are not absorbed into inventory, as well as any net realizable value inventory adjustments, are classified as product costs.

Previous wording

In the second quarter of 2024, we began marketing the Indiana farm for sale and on June 28, 2024, signed a Purchase and Sale Agreement with a buyer for a sale price of $9.5 million less transaction expenses, which included certain equipment assets that had been purchased for our Ohio farm. Based on this agreement, we recorded an additional non-cash impairment charge of $18.2 million and classified the assets to be sold in the transaction as Assets Held for Sale on the condensed consolidated balance sheet. The sale transaction closed on July 26, 2024.

Current wording

In the second quarter of 2024, we began marketing the Indiana farm for sale and on June 28, 2024, we signed a Purchase and Sale Agreement with a buyer for a sale price of $9.5 million less transaction expenses, which included certain equipment assets that had been purchased for our Ohio farm. Based on this agreement, we recorded an additional non-cash impairment charge of $18.2 million and classified the assets to be sold in the transaction as Assets Held for Sale on our condensed consolidated balance sheet at June 30, 2024. The transaction closed on July 26, 2024, and we received proceeds of $9.0 million at closing and $500 thousand on October 17, 2024. Related transaction expenses were $305 thousand.

Previous wording

In the second quarter of 2024, we initiated a plan to sell additional equipment from the Ohio farm to generate liquidity, resulting in an additional non-cash impairment charge of $26.3 million. These assets have been classified as Assets Held for Sale on the condensed consolidated balance sheet

Current wording

In the second quarter of 2024, we initiated a plan to sell additional equipment from our Ohio farm to generate liquidity, resulting in a non-cash impairment charge of $26.3 million. We sold some of this equipment for net proceeds of $506 thousand. The remaining equipment assets were classified as Assets Held for Sale on our condensed consolidated balance sheet at September 30, 2024.

Previous 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.

Current wording

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

Previous 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 preparation for sale of the Indiana farm, partially offset by increased sales of conventional Atlantic salmon eggs from our Rollo Bay farm.

Current wording

The decrease in revenue during the current period was primarily the result of the decrease in the sale of GE Atlantic salmon due to the sale of the Indiana farm.

Previous 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.

Current wording

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

Previous wording

Sales and marketing expenses for the three months ended June 30, 2024 were down from the corresponding period in 2023 due to decreases in personnel costs, marketing programs, travel, and share-based compensation costs.

Current wording

Sales and marketing expenses for the three months ended September 30, 2024 were down from the corresponding period in 2023, primarily due to decreases in personnel costs, marketing programs, and share-based compensation costs in our efforts to reduce operating spend.

Previous 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.

Current wording

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

Previous 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.

Current wording

General and administrative expenses for the three months ended September 30, 2024 were down from the corresponding period in 2023, primarily due to decreases in personnel costs, state excise tax liabilities, professional services, legal fees, share-based compensation costs, and travel in our efforts to reduce operating spend.

Previous wording

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

Current wording

Other expense for the three months ended September 30, 2024 is comprised of interest expense, bank charges and gains or losses on asset sales, less interest income, and other expense for the three months ended September 30, 2023 is comprised of interest expense and bank charges, less interest income. Interest expense in the three months ended September 30, 2024 included the costs for our bridge loan.

Previous wording

Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023

Current wording

Comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023

Previous wording

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):

Current wording

The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):

Previous 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.

Current wording

The decrease in revenue during the current period was primarily the result of the decrease in the sale of GE Atlantic salmon due to the sale of 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 current period.

Previous wording

Product costs for the six 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.

Current wording

Product costs for the nine months ended September 30, 2024 were down from the corresponding period in 2023, primarily due to the sale of the Indiana farm.

Previous wording

Sales and marketing expenses for the six months ended June 30, 2024 were down from the corresponding period in 2023, due to decreases in personnel costs, marketing programs, travel, and share-based compensation costs.

Current wording

Sales and marketing expenses for the nine months ended September 30, 2024 were down from the corresponding period in 2023, primarily due to decreases in personnel costs, marketing programs, travel, and share-based compensation costs in our efforts to reduce operating spend.

Previous wording

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

Current wording

Research and development expenses for thenine months ended September 30, 2024 were down from the corresponding period in 2023, primarily due to decreases in personnel costs and project spending in our efforts to reduce operating spend.

Previous wording

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

Current wording

General and administrative expenses for the nine months ended September 30, 2024 were down from the corresponding period in 2023, primarily due to decreases in personnel costs, state excise tax liabilities, share-based compensation costs, and travel, in our efforts to reduce operating spend, partially offset by increases in legal fees.

Previous wording

During the six months ended June 30, 2024, we recorded a non-cash asset impairment charge of $48.7 million against the long-lived assets of the Indiana farm and certain equipment assets of 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.

Current wording

During the nine months ended September 30, 2024, we recorded a non-cash asset impairment charge of $48.7 million against the long-lived assets of the Indiana farm and certain equipment assets of 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

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.

Current wording

Net cash used in operating activities during the nine months ended September 30, 2024, was primarily comprised of our $65.1 million net loss, partially offset by non-cash depreciation and share-based compensation charges of $1.1 million, long-lived asset impairment charges of $48.7 million, and working capital sources of $2.5 million. Net cash used in operating activities during the nine months ended September 30, 2023 was primarily comprised of our $19.1 million net loss and working capital uses of $1.4 million, partially offset by non-cash depreciation and share-based compensation charges of $2.0 million.

Previous 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.

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 personnel, 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 liabilities.

Previous 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.

Current wording

During the nine months ended September 30, 2024, we received $6.8 million from new debt and made $9.5 million in term debt repayments. During the same period in 2023, we received $394 thousand from new debt and made $542 thousand in term 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 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.

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 September 30, 2024, we had $500 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

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.

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 our term loan with First Farmers Bank & Trust, upon which the $1 million of restricted cash held by us 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

On July 26, 2024, we completed the sale of our Indiana farm, along with certain equipment assets from our Ohio farm for net proceeds of $9.2 million. We plan to sell additional equipment assets from our Ohio farm in order to increase our cash liquidity and fund our on-going operations.

Current wording

On July 26, 2024, we completed the sale of our Indiana farm, along with certain equipment assets from our Ohio farm for net proceeds of $9.2 million. We plan to sell our Rollo Bay farm and additional equipment assets from our Ohio farm in order to increase our cash liquidity and fund our ongoing operations.

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 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.

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 assets, 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 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.

Current wording

There have been no material changes to these estimates, or the policies related to them, during the nine months ended September 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.