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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to _____________________

Commission File Number: 001-36426

____________

AquaBounty Technologies, Inc.

(Exact name of the registrant as specified in its charter)

Delaware | 04-3156167
(State or other jurisdiction of ‎incorporation or organization) | (I.R.S. Employer ‎Identification No.)

2 Mill & Main Place, Suite 395

Maynard, Massachusetts 01754

(978) 648-6000

(Address and telephone number of the registrant’s principal executive offices)

Title of each class | Trading Symbol(s) | Name of exchange on which registered
Common Stock, par value $0.001 per share | AQB | The NASDAQ Stock Market LLC

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 (the “Exchange Act”) 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 x No o

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 during the preceding 12 months (or such shorter period that the registrant was required to submit such files).

Yes x No o

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 | o | Accelerated filer | o | Non-accelerated filer | x | Smaller reporting company | x
|  |  |  |  |  | Emerging growth company | x

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

At May 4, 2022, the registrant had 71,109,701 shares of common stock, par value $0.001 per share (“Common Shares”) outstanding.

‎

Table of Contents

AquaBounty Technologies, Inc.
FORM 10-Q
For the Quarterly Period Ended March 31, 2022
TABLE OF CONTENTS
PART I | FINANCIAL INFORMATION | Page
Item 1. | Financial Statements | 1
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 16
Item 4. | Controls and Procedures | 17
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings | 18
Item 1A. | Risk Factors | 18
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18
Item 3. | Defaults Upon Senior Securities | 18
Item 4. | Mine Safety Disclosures | 18
Item 5. | Other Information | 18
Item 6. | Exhibits | 19
Signatures | 19

‎

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, particularly the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward looking statements. All statements other than present and historical facts and conditions contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial positions, business strategy, plans, and our objectives for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, 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. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the anticipated benefits and characteristics of AquaBounty’s genetically engineered AquAdvantage salmon (“GE Atlantic salmon”) product;

the implementation and likelihood of achieving the business plan, future revenue, and operating results;

our plans for (including without limitation, projected costs, locations and third-party involvement) and the timing of the development of new farms and the output of those farms (including our Pioneer, Ohio farm);

developments concerning our research projects;

our expectations regarding our ability to successfully enter new markets or develop additional products;

our competitive position and developments and projections relating to our competitors and our industry;

expectations regarding anticipated operating results;

our cash position and ability to raise additional capital to finance our activities;

the impact of the evolving COVID-19 pandemic (the “COVID-19 pandemic”) on our business, operations and financial results, any of which could be significantly impaired by the COVID-19 pandemic;

our ability to protect our intellectual property and other proprietary rights and technologies;

the impact of and our ability to adapt to changes in laws or regulations and policies;

the ability to secure any necessary regulatory approvals to commercialize any products;

the rate and degree of market acceptance of any products developed through the application of bioengineering, including genetically engineered fish;

our ability to retain and recruit key personnel;

the success of any of our future acquisitions or investments;

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act (the “JOBS Act”);

our estimates regarding expenses, inflation, future revenue, capital requirements, and needs for additional financing; and

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 Quarterly Report on Form 10-Q 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 included, particularly in the section titled “Risk Factors,” that could cause actual results or events 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 Quarterly Report on Form 10-Q. 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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AquaBounty Technologies, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

|  | March 31, |  |  | December 31,
| 2022 |  | 2021
Assets |  |  |  |  |
Current assets: |  |  |  |  |
Cash and cash equivalents | $ | 75,509,793 |  | $ | 88,454,988
Marketable securities |  | 103,365,156 |  |  | 101,773,781
Inventory |  | 1,675,682 |  |  | 1,259,910
Prepaid expenses and other current assets |  | 1,695,159 |  |  | 1,536,484
Total current assets |  | 182,245,790 |  |  | 193,025,163
Property, plant and equipment, net |  | 37,828,165 |  |  | 33,815,119
Right of use assets, net |  | 269,426 |  |  | 284,320
Intangible assets, net |  | 228,417 |  |  | 231,842
Restricted cash |  | 1,000,000 |  |  | 1,000,000
Other assets |  | 75,957 |  |  | 79,548
Total assets | $ | 221,647,755 |  | $ | 228,435,992
Liabilities and stockholders' equity |  |  |  |  |
Current liabilities: |  |  |  |  |
Accounts payable and accrued liabilities | $ | 2,913,028 |  | $ | 4,317,615
Accrued employee compensation |  | 512,173 |  |  | 874,589
Current debt |  | 657,828 |  |  | 627,365
Other current liabilities |  | 67,497 |  |  | 66,269
Total current liabilities |  | 4,150,526 |  |  | 5,885,838
Long-term lease obligations |  | 206,734 |  |  | 224,058
Long-term debt, net |  | 8,419,290 |  |  | 8,523,333
Total liabilities |  | 12,776,550 |  |  | 14,633,229
Commitments and contingencies |  |  |  |  |
Stockholders' equity: |  |  |  |  |
Common stock, $0.001 par value, 80,000,000 shares authorized at March 31, 2022 and |  |  |  |  |
December 31, 2021; 71,109,701 and 71,025,738 shares outstanding at March 31, 2022 |  |  |  |  |
and December 31, 2021, respectively |  | 71,110 |  |  | 71,026
Additional paid-in capital |  | 385,063,351 |  |  | 384,852,107
Accumulated other comprehensive loss |  | (286,748) |  |  | (255,588)
Accumulated deficit |  | (175,976,508) |  |  | (170,864,782)
Total stockholders' equity |  | 208,871,205 |  |  | 213,802,763
Total liabilities and stockholders' equity | $ | 221,647,755 |  | $ | 228,435,992

See accompanying notes to these condensed interim consolidated financial statements.

‎

1

Table of Contents

AquaBounty Technologies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

| Three Months Ended ‎March 31,
| 2022 |  | 2021
Revenues |  |  |  |  |
Product revenues | $ | 962,881 |  | $ | 74,372
Costs and expenses |  |  |  |  |
Product costs |  | 3,275,690 |  |  | 1,554,655
Sales and marketing |  | 247,572 |  |  | 318,635
Research and development |  | 167,189 |  |  | 500,620
General and administrative |  | 2,376,236 |  |  | 1,785,510
Total costs and expenses |  | 6,066,687 |  |  | 4,159,420
Operating loss |  | (5,103,806) |  |  | (4,085,048)
Other income (expense) |  |  |  |  |
Interest expense |  | (75,288) |  |  | (78,804)
Other income, net |  | 67,368 |  |  | 4,961
Total other income (expense) |  | (7,920) |  |  | (73,843)
Net loss | $ | (5,111,726) |  | $ | (4,158,891)
Other comprehensive income (loss): |  |  |  |  |
Foreign currency translation gain |  | 82,905 |  |  | 80,039
Unrealized loss on marketable securities |  | (114,065) |  |  | —
Total other comprehensive income (loss) |  | (31,160) |  |  | 80,039
Comprehensive loss | $ | (5,142,886) |  | $ | (4,078,852)
Basic and diluted net loss per share | $ | (0.07) |  | $ | (0.06)
Weighted average number of Common Shares - |  |  |  |  |
basic and diluted |  | 71,004,454 |  |  | 64,550,920

See accompanying notes to these condensed interim consolidated financial statements.

‎

2

Table of Contents

AquaBounty Technologies, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

| Common stock issued and outstanding |  | Par value |  | Additional paid-in capital |  | Accumulated other comprehensive loss |  | Accumulated deficit |  | Total
Balance at December 31, 2020 |  | 55,497,133 |  | $ | 55,497 |  | $ | 263,629,116 |  | $ | (267,258) |  | $ | (148,542,194) |  | $ | 114,875,161
Net loss |  |  |  |  |  |  |  |  |  |  |  |  |  | (4,158,891) |  |  | (4,158,891)
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  | 80,039 |  |  |  |  |  | 80,039
Cashless exercise of options for common stock |  | 4,354 |  |  | 4 |  |  | (4) |  |  |  |  |  |  |  |  | —
Issuance of common stock, net of expenses |  | 14,950,000 |  |  | 14,950 |  |  | 119,105,487 |  |  |  |  |  |  |  |  | 119,120,437
Exercise of warrants for common stock |  | 491,133 |  |  | 491 |  |  | 1,595,691 |  |  |  |  |  |  |  |  | 1,596,182
Share based compensation |  | 40,525 |  |  | 41 |  |  | 129,674 |  |  |  |  |  |  |  |  | 129,715
Balance at March 31, 2021 |  | 70,983,145 |  | $ | 70,983 |  | $ | 384,459,964 |  | $ | (187,219) |  | $ | (152,701,085) |  | $ | 231,642,643
| Common stock issued and outstanding |  | Par value |  | Additional paid-in capital |  | Accumulated other comprehensive loss |  | Accumulated deficit |  | Total
Balance at December 31, 2021 |  | 71,025,738 |  | $ | 71,026 |  | $ | 384,852,107 |  | $ | (255,588) |  | $ | (170,864,782) |  | $ | 213,802,763
Net loss |  |  |  |  |  |  |  |  |  |  |  |  |  | (5,111,726) |  |  | (5,111,726)
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  | (31,160) |  |  |  |  |  | (31,160)
Share based compensation |  | 83,963 |  |  | 84 |  |  | 211,244 |  |  |  |  |  |  |  |  | 211,328
Balance at March 31, 2022 |  | 71,109,701 |  | $ | 71,110 |  | $ | 385,063,351 |  | $ | (286,748) |  | $ | (175,976,508) |  | $ | 208,871,205

See accompanying notes to these condensed interim consolidated financial statements.

‎

3

Table of Contents

AquaBounty Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

| Three Months Ended March 31,
| 2022 |  | 2021
Operating activities |  |  |  |  |
Net loss | $ | (5,111,726) |  | $ | (4,158,891)
Adjustment to reconcile net loss to net cash used in |  |  |  |  |
operating activities: |  |  |  |  |
Depreciation and amortization |  | 490,563 |  |  | 422,185
Share-based compensation |  | 211,328 |  |  | 129,715
Other non-cash charge |  | 4,251 |  |  | 4,203
Changes in operating assets and liabilities: |  |  |  |  |
Inventory |  | (411,794) |  |  | (577,154)
Prepaid expenses and other assets |  | (139,671) |  |  | (63,966)
Accounts payable and accrued liabilities |  | (6,949) |  |  | (211,347)
Accrued employee compensation |  | (362,416) |  |  | (63,139)
Net cash used in operating activities |  | (5,326,414) |  |  | (4,518,394)
Investing activities |  |  |  |  |
Purchases and deposits on property, plant and equipment |  | (5,762,143) |  |  | (1,208,183)
Purchases of marketable securities, net |  | (1,705,440) |  |  | —
Other investing activities |  | — |  |  | (11,010)
Net cash used in investing activities |  | (7,467,583) |  |  | (1,219,193)
Financing activities |  |  |  |  |
Proceeds from issuance of debt |  | — |  |  | 187,120
Repayment of term debt |  | (159,304) |  |  | (38,885)
Proceeds from the issuance of common stock, net |  | — |  |  | 119,120,437
Proceeds from the exercise of stock options and warrants |  | — |  |  | 1,596,182
Net cash (used in) provided by financing activities |  | (159,304) |  |  | 120,864,854
Effect of exchange rate changes on cash, cash equivalents and restricted cash |  | 8,106 |  |  | 21,007
Net change in cash, cash equivalents and restricted cash |  | (12,945,195) |  |  | 115,148,274
Cash, cash equivalents and restricted cash at beginning of period |  | 89,454,988 |  |  | 96,251,160
Cash, cash equivalents and restricted cash at end of period | $ | 76,509,793 |  | $ | 211,399,434
Reconciliation of cash, cash equivalents and restricted cash reported |  |  |  |  |
in the consolidated balance sheet: |  |  |  |  |
Cash and cash equivalents | $ | 75,509,793 |  | $ | 210,899,434
Restricted cash |  | 1,000,000 |  |  | 500,000
Total cash, cash equivalents and restricted cash | $ | 76,509,793 |  | $ | 211,399,434
Supplemental disclosure of cash flow information and |  |  |  |  |
non-cash transactions: |  |  |  |  |
Interest paid in cash | $ | 71,037 |  | $ | 73,685
Property and equipment included in accounts payable and accrued liabilities | $ | 1,507,514 |  | $ | 82,068

See accompanying notes to these condensed interim consolidated financial statements.

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AquaBounty Technologies, Inc.

Notes to the condensed consolidated financial statements

(unaudited)

1. Nature of business and organization

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 (“FDA”) for the production and sale of its 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.

2. Basis of presentation

The unaudited interim condensed consolidated financial statements include the accounts of AquaBounty Technologies, Inc. and its wholly owned direct subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

The unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited financial statements and related notes for the year ended December 31, 2021. The unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of March 31, 2022, results of operations and cash flows for the interim periods presented, and are not necessarily indicative of results for subsequent interim periods or for the full year. The unaudited interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements, as allowed by the relevant U.S. Securities and Exchange Commission (“SEC”) rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.

Liquidity

The Company had $179.9 million in cash and cash equivalents, marketable securities and restricted cash as of March 31, 2022. While the Company has experienced net losses and negative cash flows from operations since inception, management believes that it has sufficient cash to meet the Company's requirements beyond the next twelve months from the filing date of these condensed consolidated financial statements. However, until such time as the Company reaches profitability, it may require additional financing to fund its operations and execute its business plan.

Inventories

Inventories are mainly comprised of feed, eggs, fish in process and finished goods. Fish in process inventory is measured based on the estimated biomass of fish on hand. 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). The NRV calculation contains various estimates and assumptions in regard to the calculation of the biomass, including expected yield, the market value of the biomass and estimated costs of completion and transportation. The Company considers fish that has been harvested and transported from its farm to be finished goods inventory.

Revenue recognition

The Company 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.

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During the period ended March 31, 2022, the Company recognized the following product revenue:

| Quarter Ended March 31, 2022
|  | U.S. |  |  | Canada |  |  | Total
GE Atlantic salmon | $ | 788,977 |  | $ | 131,860 |  | $ | 920,837
Non-GE Atlantic salmon fry |  | - |  |  | 41,807 |  |  | 41,807
Other revenue |  | - |  |  | 237 |  |  | 237
Total Revenue | $ | 788,977 |  | $ | 173,904 |  | $ | 962,881

During the period ended March 31, 2022, the Company had the following customer concentration of revenue:

|  |  |  |  |  | Quarter Ended
|  |  |  |  |  | March 31, 2022
Customer A |  |  |  |  |  |  |  | 34%
Customer B |  |  |  |  |  |  |  | 21%
Customer C |  |  |  |  |  |  |  | 14%
All other |  |  |  |  |  |  |  | 31%
Total of all customers |  |  |  |  |  |  |  | 100%

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. Common Shares outstanding exclude any issued, but unvested restricted shares. Fully diluted net loss per share includes the number of Common Shares issuable upon the exercise of warrants and options with an exercise price less than the fair value of the Common Shares, as well as all issued but unvested restricted shares. 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 table shows the impact of potentially dilutive securities outstanding:

|  |  |  |  | March 31, 2022 |  |  | December 31, 2021
Shares issued and outstanding, excluding unvested restricted shares |  |  | 71,087,504 |  |  | 70,992,361
Reserve for issued stock options |  |  | 873,180 |  |  | 663,425
Reserve for issued warrants |  |  | 418,441 |  |  | 418,441
Reserve for issued but unvested restricted shares |  |  | 184,645 |  |  | 65,100
Fully diluted shares |  |  |  |  | 72,563,770 |  |  | 72,139,327

Accounting Pronouncements

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.

COVID-19

Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, several variants of the virus continue to spread. Local governmental authorities in the United States and Canada have issued, and continue to update, directives aimed at minimizing the spread of the virus and the Company continues to monitor its status. The ultimate impact of the evolving COVID-19 pandemic on the Company’s operations will depend on future developments, which cannot be predicted with confidence, and the Company cannot predict the extent or impact of the extended period of continued business interruption and reduced operations caused by the COVID-19 pandemic or any additional preventative or protective measures

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taken in response. In connection with the COVID-19 pandemic, management continues to make modifications to biosecurity procedures and employee welfare practices at the Company’s farm sites to adapt to local requirements and to provide a safe work environment.

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 cash equivalents with maturities of less than 90 days, and investing 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 Company’s policy to limit the balances held in these accounts. Balances in Canadian bank accounts totaled $147 thousand and $224 thousand at March 31, 2022 and December 31, 2021, respectively. The Company also holds cash equivalent investments in a highly liquid investment account at a major financial institution. As of March 31, 2022 and December 31, 2021 the cash equivalent investment balance was $56.7 million and $73.3 million, respectively.

4. Marketable Securities

Marketable securities are classified as available-for-sale. The following tables summarize the amortized cost, gross unrealized gains and losses, and the fair value as of March 31, 2022 and December 31, 2021:

|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Market
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value
| December 31, 2021
Government bonds | $ | 28,453,161 |  | $ | 82 |  | $ | (18,255) |  | $ | 28,434,988
Corporate bonds |  | 29,874,696 |  |  | - |  |  | (21,928) |  |  | 29,852,768
Commercial paper |  | 43,486,025 |  |  | - |  |  | - |  |  | 43,486,025
Marketable securities | $ | 101,813,882 |  | $ | 82 |  | $ | (40,183) |  | $ | 101,773,781
| March 31, 2022
Government bonds | $ | 37,488,888 |  | $ | 33 |  | $ | (86,090) |  | $ | 37,402,831
Corporate bonds |  | 26,549,151 |  |  | 15 |  |  | (68,035) |  |  | 26,481,132
Commercial paper |  | 39,481,194 |  |  | - |  |  | - |  |  | 39,481,194
Marketable securities | $ | 103,519,232 |  | $ | 48 |  | $ | (154,125) |  | $ | 103,365,156

5. Inventory

Major classifications of inventory are summarized as follows:

| March 31, 2022 |  | December 31, 2021
Feed, net | $ | 306,635 |  |  | 162,047
Eggs and fry |  | 97,939 |  |  | —
Fish in process |  | 1,209,012 |  |  | 926,360
Finished goods |  | 62,096 |  |  | 171,503
Inventory, net | $ | 1,675,682 |  |  | 1,259,910

6. Property, plant and equipment

Major classifications of property, plant and equipment are summarized as follows:

| March 31, 2022 |  | December 31, 2021
Land | $ | 730,345 |  | $ | 725,799
Building and improvements |  | 15,712,641 |  |  | 15,580,385
Construction in process |  | 12,286,984 |  |  | 8,119,575
Equipment |  | 16,220,935 |  |  | 15,981,408
Office furniture and equipment |  | 242,102 |  |  | 240,939
Vehicles |  | 36,837 |  |  | 36,280
Total property and equipment | $ | 45,229,844 |  | $ | 40,684,386
Less accumulated depreciation and amortization |  | (7,401,679) |  |  | (6,869,267)
Property, plant and equipment, net | $ | 37,828,165 |  | $ | 33,815,119

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Depreciation expense was $484 thousand and $416 thousand, for the three-month period ended March 31, 2022 and 2021, respectively.

Included in construction in process is $2.1 million for construction related to the Rollo Bay farm site and improvements to the Fortune Bay hatchery, $819 thousand for construction related to the Indiana farm site, and $9.4 million related to design work and construction activities for the Ohio farm. An additional $19.4 million has been contractually committed for these farm sites, though if a contract were terminated, a portion of this total would be refundable based on the amount of work completed as of the date of the contract termination.

7. Debt

The current material terms and conditions of debt outstanding are as follows:

|  | Interest ‎rate |  | Monthly ‎repayment |  | Maturity ‎date |  | March 31, 2022 |  | December 31, 2021
ACOA AIF Grant |  | 0% |  | Royalties |  | - |  | $ | 2,296,099 |  | $ | 2,261,349
ACOA term loan #1 |  | 0% |  | C$3,120 |  | Feb 2027 |  |  | 147,204 |  |  | 152,346
ACOA term loan #2 |  | 0% |  | C$4,630 |  | Sep 2029 |  |  | 333,120 |  |  | 339,015
ACOA term loan #3 |  | 0% |  | C$6,945 |  | Dec 2025 |  |  | 199,875 |  |  | 196,850
Kubota Canada Ltd |  | 0% |  | C$1,142 |  | Jan 2025 |  |  | 31,054 |  |  | 33,283
DFO term loan |  | 0% |  | C$2,091 |  | Aug 2032 |  |  | 411,935 |  |  | 405,700
PEI Finance term loan |  | 4% |  | C$16,313 |  | Nov 2023 |  |  | 1,957,755 |  |  | 1,947,510
First Farmers Bank & Trust term loan |  | 5.375% |  | $56,832 |  | Oct 2028 |  |  | 3,764,506 |  |  | 3,883,325
Total debt |  |  |  |  |  |  |  | $ | 9,141,548 |  | $ | 9,219,378
less: debt issuance costs |  |  |  |  |  |  |  |  | (64,430) |  |  | (68,680)
less: current portion |  |  |  |  |  |  |  |  | (657,828) |  |  | (627,365)
Long-term debt, net |  |  |  |  |  |  |  | $ | 8,419,290 |  | $ | 8,523,333

Estimated principal payments remaining on loan debt are as follows:

| Total
2022 (remainder of the year) | $ | 486,634
2023 |  | 2,595,928
2024 |  | 732,581
2025 |  | 752,978
2026 |  | 717,174
Thereafter |  | 3,856,253
Total | $ | 9,141,548

In September 2020, the Canadian Subsidiary entered into a Contribution Agreement with the Department of Fisheries and Ocean'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”). O n April 6, 2022, the Canadian Subsidiary borrowed an additional C$53,456 ($42,241) under the DFO Term Loan. Borrowings are interest free and monthly repayments commence in March 2023, with maturity in August 2032. All funding requests must be submitted by August 22, 2022.

In August 2020, the Indiana Subsidiary entered into a term loan agreement with First Farmers Bank and Trust (“FFBT”) in the amount of $4 million, which is secured by the assets of the Indiana subsidiary and a corporate guarantee. The agreement contains certain financial and non-financial covenants, which if not met, could result in an event of default pursuant to the terms of the loan. At March 31, 2022, the Indiana subsidiary was in non-compliance with one of its loan covenants. Subsequent to period-end, FFBT revised the covenant and the Indiana subsidiary returned to compliance.

The Company recognized interest expense of $75 thousand and $79 thousand for the three months ended March 31, 2022 and 2021, respectively, on its interest-bearing debt.

8. Leases

Lease expense for the three months ended March 31, 2022 and 2021, amounted to $21 thousand and $22 thousand, respectively. The weighted average remaining lease term of the Company’s operating leases was 24 years as of March 31, 2022. Lease payments included in operating cash flows totaled $25 thousand and $22 thousand for the three months ended March 31, 2022 and 2021, respectively.

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The table below summarizes the Company’s lease obligations and remaining payments at March 31, 2022 and December 31, 2021:

| March 31, 2022 |  | December 31, 2021
|  | Lease Liability |  |  | Lease Liability
Total leases | $ | 274,231 |  | $ | 290,327
Less: current portion |  | (67,497) |  |  | (66,269)
Long-term leases | $ | 206,734 |  | $ | $ 224,058

Remaining payments under leases are as follows:

Year |  |  |  | Amount
2022 (remainder of the year) |  | $ | 50,173
2023 |  |  |  | 20,831
2024 |  |  |  | 4,495
2025 |  |  |  | 4,340
2026 |  |  |  | 4,215
Thereafter |  |  |  | 190,177
Total lease payments |  |  | $ | 274,231

9. Stockholders’ equity

Recent issuances

On February 8, 2021, the Company completed a public offering of 14,950,000 Common Shares for net proceeds of approximately $119.1 million.

Warrants

At March 31, 2022 and December 31, 2021, there were 418,441 warrants outstanding at an exercise price of $3.25, all of which were issued in conjunction with a public equity offering in January 2018. All remaining warrants have an expiration date of January 17, 2023.

Share-based compensation

At March 31, 2022, the Company has reserved 873,180 Common Shares issuable upon the exercise of outstanding stock options awarded under its 2006 and 2016 Equity Incentive Plans. An additional 465,984 Common Shares are reserved for future award and issuance under the 2016 Equity Incentive Plan.

Restricted stock

A summary of the Company’s restricted Common Shares for the three months ended March 31, 2022, is as follows:

| Shares |  | Weighted ‎average grant ‎date fair value
Unvested at December 31, 2021 | 65,100 |  | $ | 4.10
Granted | 240,777 |  |  | 1.52
Vested | (121,232) |  |  | 2.14
Forfeited | — |  |  | —
Unvested at March 31, 2022 | 184,645 |  | $ | 2.03

During the three months ended March 31, 2022 and 2021, the Company expensed $168 thousand and $107 thousand, respectively related to the restricted stock awards. At March 31, 2022, the balance of unearned share-based compensation to be expensed in future periods related to the restricted stock awards is $347 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2 years.

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Stock options

The Company’s option activity is summarized as follows:

| Number of ‎options |  | Weighted ‎average ‎exercise price
Outstanding at December 31, 2021 | 663,425 |  | $ | 4.31
Issued | 209,755 |  |  | 1.55
Exercised | — |  |  | —
Forfeited | — |  |  | —
Expired | — |  |  | —
Outstanding at March 31, 2022 | 873,180 |  | $ | 3.65
Exercisable at March 31, 2022 | 624,075 |  | $ | 4.31

Unless otherwise indicated, options issued to employees, members of the Board of Directors, and non-employees are vested daily over one to three years and are exercisable for a term of ten years from the date of issuance.

The fair values of stock option grants to employees and members of the Board of Directors during 2022 were measured on the date of grant using Black-Scholes, with the following weighted average assumptions:

|  | 2022
Expected volatility |  | 103%
Risk free interest rate |  | 2.10%
Expected dividend yield |  | 0%
Expected life (in years) |  | 5

The weighted average fair value of stock options granted during the three months ended March 31, 2022 was $1.12.

The total intrinsic value of all options outstanding was $73 thousand and $18 thousand at March 31, 2022, and December 31, 2021, respectively. The total intrinsic value of exercisable options was $1 thousand and $11 thousand at March 31, 2022 and December 31, 2021, respectively.

The following table summarizes information about options outstanding and exercisable at March 31, 2022:

Weighted ‎average exercise ‎price of outstanding ‎options |  | Number of ‎options ‎outstanding |  | Weighted ‎average remaining ‎estimated life ‎(in years) |  | Number of ‎options ‎exercisable |
$1.52 - $2.50 |  | 732,288 |  | 7.9 |  | 503,779 |
$5.44 - $6.72 |  | 55,402 |  | 8.2 |  | 34,789 |
$7.50 - $10.80 |  | 16,403 |  | 2.1 |  | 16,403 |
$14.20 - $23.40 |  | 69,087 |  | 4.0 |  | 69,087 |
|  | 873,180 |  |  |  | 624,058 |

Total share-based compensation on stock options amounted to $43 thousand and $22 thousand for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, the balance of unearned share-based compensation to be expensed in future periods related to unvested share-based awards was $374 thousand. The period over which the unearned share-based compensation is expected to be earned is approximately 2 years.

10. Commitments and contingencies

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. The Company records estimated losses from these legal proceedings and claims when it determines that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Litigation is subject to many factors that are difficult to predict so that there can be no assurance, in the event of a material unfavorable result in one or more claims, the Company will not incur material costs. There have been no other material changes to the commitments and contingencies disclosed in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2021.

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11. Income Taxes

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2022 as the Company incurred losses for the three months ended March 31, 2022 and is forecasting additional losses through the remainder of the year ending December 31, 2022, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2022. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method.

Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not.

As of March 31, 2022, the Company had no unrecognized income tax benefits that would reduce the Company’s effective tax rate if recognized.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 10, 2022.

Overview

We believe we are a leader in land-based aquaculture, leveraging decades of technology expertise to deliver innovative solutions that address food insecurity and climate change issues, while improving efficiency, sustainability and profitability. 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, located in Indiana, United States and Prince Edward Island, 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 and no risk of pollution to marine ecosystems as compared to traditional sea-cage farming. Our lead 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 where we have received regulatory approval. 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.

COVID-19

Although the COVID-19 pandemic has diminished in the United States and other parts of the world as vaccines have become more readily available, several variants of the virus continue to spread. Local governmental authorities in the United States and Canada have issued, and continue to update, directives aimed at minimizing the spread of the virus and we continue to monitor their status.

The ultimate impact of the evolving COVID-19 pandemic on our operations will depend on future developments, which cannot be predicted with confidence, and we cannot predict the extent or impact of the extended period of continued business interruption and reduced operations caused by the COVID-19 pandemic or any additional preventative or protective measures taken in response. In connection with the COVID-19 pandemic, we continue to make modifications to our biosecurity procedures and our employee welfare practices at our farm sites to adapt to local requirements and to provide a safe work environment.

Due to the pandemic, we have experienced delays and cost increases in capital projects, additional challenges in our efforts to meet the capacity expectations at our existing facilities and continue to experience extended lead times on equipment purchases. We may continue to experience delays and cost increases on farm construction, purchases of capital equipment and supplies and other materials required in our operations due to vendor shortages and other labor shortages. We also expect to continue to be impacted by transportation or supply chain disruptions to our partners or customers. In addition, we are carefully managing and monitoring the impact of labor shortages on our ability to meet the annual capacity expectations at our existing facilities.

Revenue

We currently generate product revenue through the sales of our GE Atlantic salmon, conventional Atlantic salmon eggs and fry, and salmon byproducts. We expect revenues to grow modestly in 2022, as we increase our weekly harvesting capability at our Indiana farm. In the future, we believe that our revenue will depend upon the number and capacity of grow-out farms we have in operation and the market acceptance we achieve.

Production Costs

Production 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 inventory value adjustments, are classified as production costs. As of March 31, 2022 and 2021, we had sixty-four and forty-three 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 consulting fees for market-related activities. As of March 31, 2022 and 2021, we had two and one 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

As of March 31, 2022 and 2021, we employed twenty-two and fifteen scientists and technicians, respectively at our facilities on Prince Edward Island to oversee our broodstock of GE Atlantic salmon, as well as the lines of fish we maintain for research and development purposes. 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, development functions, and brood-stock husbandry;

fees paid to contract research organizations and consultants who perform research for us;

costs related to laboratory supplies used in our research and development efforts; and

costs related to operating our field trials.

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 thirteen and fifteen employees in our general and administrative group as of March 31, 2022 and 2021, respectively.

Other Income (Expense)

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.

Results of Operations

Comparison of the three months ended March 31, 2022, to the three months ended March 31, 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage (all dollar amounts in thousands):

| Three Months Ended March 31, |  | Dollar |  | %
| 2022 |  | 2021 |  | Change |  | Change
|  | (unaudited) |  |  |  |
Product revenue | $ | 963 |  | $ | 74 |  | 889 |  | 1,201%
Operating expenses: |  |  |  |  |  |  |  |  |
Product costs |  | 3,276 |  |  | 1,555 |  | 1,721 |  | 111%
Sales and marketing |  | 248 |  |  | 319 |  | (71) |  | (22)%
Research and development |  | 167 |  |  | 500 |  | (333) |  | (67)%
General and administrative |  | 2,376 |  |  | 1,785 |  | 591 |  | 33%
Operating loss |  | 5,104 |  |  | 4,085 |  | 1,019 |  | 25%
Total other expense |  | 8 |  |  | 74 |  | (66) |  | (89)%
Net loss | $ | 5,112 |  | $ | 4,159 |  | 953 |  | 23%

Product Revenue

Product revenue for the three months ended March 31, 2022 consisted of our GE Atlantic salmon and conventional Atlantic salmon fry. Product revenue for the three months ended March 31, 2021 consisted of conventional Atlantic salmon fry and eggs. The increase in revenue is due to the harvesting and sale of our GE Atlantic salmon, which commenced in June 2021. We expect revenues for the remainder of 2022 to slowly grow as we increase our harvesting capability at our Indiana and Rollo Bay farm sites.

Production Costs

Production costs for the three months ended March 31, 2022, were up from the corresponding period in 2021, due to production cost increases related to harvesting at the Indiana and Rollo Bay farms. Increases included headcount additions, feed costs and other direct supplies, as well as the costs for processing and transportation to bring our product to market.

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Since our production costs were higher than the net realizable value of the salmon produced, the current period includes an inventory value charge of $2.1 million based on the market price for salmon, our production yields and external processing and transportation costs. For the corresponding period in 2021, the inventory value charge was $1.5 million.

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended March 31, 2022, were down from the corresponding period in 2021 due to decreases in donations, promotional expenses, and fees payable to outside consultants, offset by an increase in head count and travel related to marketing activities for our salmon.

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2022, were down from the corresponding period in 2021 due to a decrease in outside contract service fees and field trials, and by an increase in broodstock cost transferred to production costs for related product revenue during the period.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2022, were up from the corresponding period in 2021 due to an increase in recruitment, insurance costs, auditing fees, stock compensation, and travel, offset by a decrease in legal fees, outside consulting and advisory fees, and personnel costs.

Total Other (Income) Expense

Total other (income) expense is comprised of interest on debt, bank charges, and interest income for the three months ended March 31, 2022 and 2021.

Cash Flows

The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):

| Three Months Ended March 31, |  | Dollar |  | %
| 2022 |  | 2021 |  | Change |  | Change
Net cash provided by (used in): |  |  |  |  |  |  |  |  |
Operating activities | $ | (5,326) |  | $ | (4,518) |  | (808) |  | 18%
Investing activities |  | (7,468) |  |  | (1,219) |  | (6,249) |  | 513%
Financing activities |  | (159) |  |  | 120,865 |  | (121,024) |  | (100)%
Effect of exchange rate changes on cash |  | 8 |  |  | 21 |  | (13) |  | (62)%
Net (decrease) increase in cash | $ | (12,945) |  | $ | 115,149 |  | (128,094) |  | (111)%

Cash Flows from Operating Activities

Net cash used in operating activities during the three months ended March 31, 2022 was primarily comprised of our $5.1 million net loss, offset by non-cash depreciation and stock compensation charges of $702 thousand and increased by working capital uses of $921 thousand. Net cash used in operating activities during the three months ended March 31, 2021 was primarily comprised of our $4.1 million net loss, offset by non-cash depreciation and stock compensation charges of $552 thousand and increased by working capital uses of $911 thousand.

Spending on operations increased in the current period due to increases in production activities at our Rollo Bay and Indiana farm sites. Cash used by working capital increased in the current period and was due to an increase in inventory and prepaid expenses and a decrease in accounts payable and accrued liabilities, and accrued employee compensation.

Cash Flows from Investing Activities

During the three months ended March 31, 2022, we used $5.8 million for construction activities at our farm sites and the purchase of equipment, and $1.7 million on marketable securities purchases. During the same period in 2021, we used $1.2 million for construction charges and for equipment purchases, and $11 thousand on capitalized software.

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We expect expenditures on capital projects to increase in future periods as we continue construction of our Ohio farm. We currently estimate the construction costs to be in the range of $290 million to $320 million, including a reserve for potential contingencies of $30 million. We expect to finance this project cost through a combination of cash on hand and future issuances of debt. Estimating the cost and timing for the completion of this new and complex capital project is inherently difficult and subject to change based on a number of factors, including design changes, fluctuating costs of materials, labor shortages, the impact of the COVID-19 pandemic, construction delays, dependence on contractors, financing costs, customer requirements and unexpected complications. For more information, see “Our 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” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Cash Flows from Financing Activities

During the three months ended March 31, 2022, we made a $159 thousand debt repayment. During the same period in 2021, we received approximately $119.1 million in net proceeds from the issuance of shares of common stock in a public equity offering, $1.6 million from the exercise of warrants, and $187 thousand from new debt. This was offset by $39 thousand in debt repayment.

Future Capital Requirements

We had $179.9 million of cash and cash equivalents, marketable securities and restricted cash as of March 31, 2022. While we have experienced net losses and negative cash flows from operations since inception, we believe that we have sufficient cash to meet our requirements for at least the next twelve months from the filing date. During the balance of 2022, we expect to use approximately $104 million of cash to fund our operations and construction costs for our Ohio farm.

In 2020, we entered into a term loan agreement with First Farmers Bank and Trust in the amount of $4 million, which is secured by the assets of our Indiana subsidiary and a corporate guarantee. The agreement contains certain financial and non-financial covenants, which if not met, could result in an event of default pursuant to the terms of the loan. At March 31, 2022, the Indiana subsidiary was in non-compliance with one of its loan covenants. Subsequent to period-end, First Farmers Bank and Trust revised the covenant and the Indiana subsidiary returned to compliance. The ability of the Indiana subsidiary to meet its debt covenants over the next twelve months is dependent upon its operating performance.

Until such time, if ever, as we can generate positive operating cash flows, 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. 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 the future through financings, sales of our products, government grants, loans, or from other sources or transactions, 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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.

There have been no material changes to these estimates, or the policies related to them, during the three months ended March 31, 2022. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s

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Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Emerging Growth Company and Smaller Reporting Company Status

We qualify as an emerging growth company (“EGC”), as defined in the JOBS Act. As an EGC, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions until December 31, 2022 or such earlier time that we are no longer an emerging growth company. We would cease to be an EGC earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates or we issue more than $1.0 billion of non-convertible debt securities over a three-year period. For so long as we remain an EGC, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs. We may choose to take advantage of some, but not all, of the available exemptions.

In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an EGC. Therefore, the reported results of operations contained in our consolidated financial statements may not be directly comparable to those of other public companies.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Item 3. 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. At March 31, 2022, and December 31, 2021, we had $5.7 million and $5.8 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 has 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 accumulated other comprehensive loss within shareholders’ equity.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended March 31, 2022, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(g) and 15d-15(f)) that occurred during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. 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 1A. Risk Factors

As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 10, 2022, there are a number of risk factors that could affect our business, financial condition, and results of operations. You should carefully review the risks described in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes, and in other reports we file with the Securities and Exchange Commission, in evaluating our business. 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 Quarterly Report on Form 10-Q 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, elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements” for information relating to these forward-looking statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None
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Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number |  | Exhibit Description
31.1 |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+ |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | XBRL instance document.
101.SCH |  | XBRL taxonomy extension schema document.
101.CAL |  | XBRL taxonomy extension calculation linkbase document.
101.LAB |  | XBRL taxonomy label linkbase document.
101.PRE |  | XBRL taxonomy extension presentation linkbase document.
101.DEF |  | XBRL taxonomy extension definition linkbase document.
104 |  | Cover Page Interactive Data File-the cover page interactive data file does not appear in the Interactive Data File because the XBRL tags are embedded within the Inline XBRL document.

+ The certification furnished in Exhibit 32.1 hereto is deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

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Signatures

Pursuant to the requirements 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.

|  | AQUABOUNTY TECHNOLOGIES, INC.
May 5, 2022 |  | /s/ Sylvia Wulf
|  | Sylvia Wulf
|  | President, Chief Executive Officer, and Director (Principal Executive Officer)
May 5, 2022 |  | /s/ David A. Frank
|  | David A. Frank
|  | Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

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