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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, 2021

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 3, 2021, the registrant had 71,022,426 shares of common stock, par value $0.001 per share (“Common Shares”) outstanding.

 

 


AquaBounty Technologies, Inc.

FORM 10-Q

For the Quarterly Period Ended March 31, 2021

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

16

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 3.

Defaults Upon Senior Securities

20

Item 4.

Mine Safety Disclosures

20

Item 5.

Other Information

20

Item 6.

Exhibits

21

Signatures

22

 


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 our AquAdvantage 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;

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 COVID-19 coronavirus outbreak (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 bioengineered 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, 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. 


PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

 

AquaBounty Technologies, Inc.

Consolidated Balance Sheets

(Unaudited)

As of

March 31,

December 31,

2021

2020

Assets

Current assets:

Cash and cash equivalents

$

210,899,434

$

95,751,160

Inventory

2,106,473

1,525,377

Prepaid expenses and other current assets

470,961

405,370

Total current assets

213,476,868

97,681,907

Property, plant and equipment, net

27,904,874

26,930,338

Right of use assets, net

327,386

341,997

Intangible assets, net

242,120

245,546

Restricted cash

500,000

500,000

Other assets

84,685

76,715

Total assets

$

242,535,933

$

125,776,503

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and accrued liabilities

$

1,555,066

$

1,760,103

Other current liabilities

62,765

62,483

Current debt

378,791

259,939

Total current liabilities

1,996,622

2,082,525

Long-term lease obligations

274,232

290,327

Long-term debt

8,622,436

8,528,490

Total liabilities

10,893,290

10,901,342

Commitments and contingencies

 

 

Stockholders' equity:

Common stock, $0.001 par value, 80,000,000 shares authorized;

70,983,145 (2020: 55,497,133) shares outstanding

70,983

55,497

Additional paid-in capital

384,459,964

263,629,116

Accumulated other comprehensive loss

(187,219)

(267,258)

Accumulated deficit

(152,701,085)

(148,542,194)

Total stockholders' equity

231,642,643

114,875,161

Total liabilities and stockholders' equity

$

242,535,933

$

125,776,503

See accompanying notes to these unaudited interim consolidated financial statements.

 

1


AquaBounty Technologies, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

Three Months Ended March 31,

2021

2020

Revenues

Product revenues

$

74,372

$

6,753

Costs and expenses

Product costs

1,554,655

841,434

Sales and marketing

318,635

50,788

Research and development

500,620

568,762

General and administrative

1,785,510

1,637,190

Total costs and expenses

4,159,420

3,098,174

Operating loss

(4,085,048)

(3,091,421)

Other income (expense)

Interest expense

(78,804)

(17,045)

Other income (expense), net

4,961

(1,152)

Total other income (expense)

(73,843)

(18,197)

Net loss

$

(4,158,891)

$

(3,109,618)

Other comprehensive income (loss):

Foreign currency translation income (loss)

80,039

(381,985)

Total other comprehensive income (loss)

80,039

(381,985)

Comprehensive loss

$

(4,078,852)

$

(3,491,603)

Basic and diluted net loss per share

$

(0.06)

$

(0.11)

Weighted average number of common shares -

basic and diluted

64,550,920

27,116,754

See accompanying notes to these unaudited interim consolidated financial statements.

 

2


AquaBounty Technologies, Inc.

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, 2019

21,635,365

$

21,635

$

156,241,363

$

(360,160)

$

(132,142,209)

$

23,760,629

Net loss

(3,109,618)

(3,109,618)

Other comprehensive income (loss)

(381,985)

(381,985)

Issuance of common stock, net of expenses

10,350,000

10,350

14,511,354

14,521,704

Share based compensation

100,319

101

205,252

205,353

Balance at March 31, 2020

32,085,684

32,086

170,957,969

(742,145)

(135,251,827)

34,996,083

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

See accompanying notes to these unaudited interim consolidated financial statements.

 

3


AquaBounty Technologies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,

2021

2020

Operating activities

Net loss

$

(4,158,891)

$

(3,109,618)

Adjustment to reconcile net loss to net cash used in

operating activities:

Depreciation and amortization

422,185

347,859

Share-based compensation

129,715

205,353

Other non-cash charge

4,203

Changes in operating assets and liabilities:

Inventory

(577,154)

(610,200)

Prepaid expenses and other assets

(63,966)

(107,922)

Accounts payable and accrued liabilities

(274,486)

339,818

Net cash used in operating activities

(4,518,394)

(2,934,710)

Investing activities

Purchase of property, plant and equipment

(1,208,183)

(691,351)

Proceeds from sale of asset held for sale

98,000

Proceeds from legal settlement, net

1,014,008

Other investing activities

(11,010)

(1,307)

Net cash (used in) provided by investing activities

(1,219,193)

419,350

Financing activities

Proceeds from issuance of debt

187,120

Repayment of term debt

(38,885)

(39,391)

Proceeds from the issuance of common stock, net

119,120,437

14,521,704

Proceeds from the exercise of stock options and warrants, net

1,596,182

Net cash provided by financing activities

120,864,854

14,482,313

Effect of exchange rate changes on cash, cash equivalents and restricted cash

21,007

(15,951)

Net change in cash, cash equivalents and restricted cash

115,148,274

11,951,002

Cash, cash equivalents and restricted cash at beginning of period

96,251,160

2,798,744

Cash, cash equivalents and restricted cash at end of period

$

211,399,434

$

14,749,746

Reconciliation of cash, cash equivalents and restricted cash reported

in the consolidated balance sheet:

Cash and cash equivalents

$

210,899,434

$

14,749,746

Restricted cash

500,000

Total cash, cash equivalents and restricted cash

$

211,399,434

$

14,749,746

Supplemental disclosure of cash flow information and

non-cash transactions:

Interest paid in cash

$

73,685

$

17,045

Property and equipment included in accounts payable and accrued liabilities

$

82,068

$

257,884

See accompanying notes to these unaudited interim consolidated financial statements.

 

4


AquaBounty Technologies, Inc.

Notes to the consolidated financial statements

For the three months ended March 31, 2021 and 2020 (unaudited)

 

1. Nature of business and organization

AquaBounty Technologies, Inc. (the “Parent” and, together with its 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 approval from the US Food and Drug Administration (the “FDA”) for the production and sale of its AquAdvantage salmon product in the United States and in 2016, the Parent obtained regulatory approval from Health Canada for the production and sale of its AquAdvantage salmon product in Canada.

AQUA Bounty Canada Inc. (the “Canadian Subsidiary”) was incorporated in January 1994 for the purpose of establishing a commercial biotechnology laboratory to conduct research and development programs related to the Parent’s technologies and to commercialize the Parent’s products in Canada.

AquaBounty Panama, S. de R.L. (the “Panama Subsidiary”) was incorporated in May 2008 in Panama for the purpose of conducting commercial trials of the Parent’s products. Operations at the site concluded in May 2019.

AquaBounty Farms, Inc. (the “U.S. Subsidiary”) was incorporated in December 2014 in the State of Delaware for the purpose of conducting field trials and commercializing the Parent’s products in the United States.

AquaBounty Farms Indiana LLC (the “Indiana Subsidiary”), which is wholly owned by the U.S. Subsidiary, was formed in June 2017 in the State of Delaware for the purpose of operating its aquaculture facility in Albany, Indiana.

AquaBounty Brasil Participações Ltda. (the “Brazil Subsidiary”) was incorporated in May 2015 for the purpose of conducting field trials and commercializing the Parent’s products in Brazil.

 

2. Basis of presentation

The unaudited interim consolidated financial statements include the accounts of AquaBounty Technologies, Inc. and its wholly owned direct subsidiaries, AQUA Bounty Canada Inc.; AquaBounty Panama, S. de R.L.; AquaBounty Farms, Inc.; AquaBounty Farms Indiana LLC; and AquaBounty Brasil Participações Ltda. The entities are collectively referred to herein as the “Company.” All intercompany transactions and balances have been eliminated upon consolidation.

The unaudited interim 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 footnotes for the year ended December 31, 2020. The unaudited interim 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, 2021, and its 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 consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements, as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.

Liquidity

In February 2021, the Company completed an equity raise with net proceeds of $119.1 million and has $210.9 million in cash and cash equivalents as of March 31, 2021. 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 for at least the next twelve months from the filing date. 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 packaging materials. 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.

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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. As of March 31, 2021, the NRV of the Company’s conventional salmon biomass was valued at $0 as a result of its decision to harvest and donate this fish. The NRV of the Company’s AquAdvantage salmon biomass was valued at $1.8 million.

The Company also considers capacity utilization in calculating its inventory value with any excess capacity charged to production costs as idle capacity. Inventory reserves are recorded as needed to represent the difference between the carrying value and the NRV calculation, taking into consideration the expected timing and disposition of the inventory.

Revenue recognition

The Company records revenue on the sale of a product when all revenue recognition criteria are fulfilled, including identifying the contract with a customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations in the contract; and recognizing revenue when (or as) the Company satisfies a performance obligation. The Company evaluates customer credit risk in order to conclude it is “probable” it will collect the amount of consideration due in exchange for the goods or services.

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 is based solely on the number of common shares outstanding during the year. Fully diluted net loss per share includes the number of shares of common stock issuable upon the exercise of warrants and options with an exercise price less than the fair value of the common stock. Since the Company is reporting a net loss for all periods presented, all potential common shares are considered anti-dilutive and are excluded from the calculation of diluted net loss per share.

At March 31, 2021, the Company had 1,141,847 potentially dilutive securities outstanding, consisting of 457,722 warrants and 684,125 stock options.

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 manufacture, 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

The COVID-19 pandemic continues to spread throughout the United States and the world, and now includes several variants of the virus. Because infections of this virus and the incidences of the disease it causes, certain national, provincial, state, and local governmental authorities in the United States and Canada have issued, and continue to update, proclamations and directives aimed at minimizing the spread of the virus. These directives currently remain in effect and the Company is monitoring their status.

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 pandemic, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption and reduced operations.

To date, the Company’s farm operations have not been materially affected by the pandemic, although management has made modifications to biosecurity procedures and the farm sites to adapt to local requirements and to provide a safe work environment. The Company’s current preventative and protective measures include, but are not limited to, segregating farm workers to specific

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locations, rotating shifts, and monitoring worker temperatures upon arrival at the Company’s facilities. To the extent possible, work-from-home is utilized for employees that do not have fish care responsibilities.

The Company experienced delays in capital projects due to the pandemic, including, but not limited to, a six-month delay in the completion of the processing facility at the Indiana farm, which did not become operational until November 2020. Management utilized third party alternatives for fish processing during the delay. During Q1 2021, project delays were limited to extended lead-times on equipment purchases. However, the Company could experience delays on purchases of capital equipment and supplies and other materials required in its operations due to vendor shortages or it could be impacted by transportation or other supply chain disruptions to its partners or customers.

The Company has been primarily impacted by a reduction in the market price and demand for Atlantic salmon due to the pandemic’s impact on the food service sector. This had and continues to have a negative impact on revenue and inventory value, as the company is not yet an established vendor and customers have been reluctant to add a new supplier during a period of depressed demand. Consequently, in December 2020, the Company made the decision to donate substantially all of the conventional salmon to local food charities, which are experiencing unprecedented need during the pandemic. This decision was made to ease the capacity constraints at the Indiana farm to provide space for the growing biomass of AquAdvantage salmon. The donation program commenced in February 2021 and is expected to be completed in May 2021, though the Company is exploring the possibility of continuing the donation program for fish that do not meet customer specifications.

Management expects the financial impact of the pandemic to continue through at least the first half of 2021, as the industry waits for the roll-out of COVID-19 vaccines and the subsequent reopening of the food service sector. Any financial impact beyond the near-term cannot be reasonably estimated at this time but may have a material adverse impact on the Company’s business, financial condition, and results of operations in 2021.

Concentration of credit risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and certificates of deposit. This risk is mitigated by the Company’s policy of investing in financial instruments with short-term maturities issued by highly rated financial institutions. 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 $83 thousand at March 31, 2021.

 

4. Inventory

Major classifications of inventory are summarized as follows:

March 31, 2021

December 31, 2020

Feed

$

234,804

244,311

Eggs and fry

57,175

54,929

Packaging

4,422

6,452

Fish in process, net

1,810,072

1,219,685

Inventory, net

$

2,106,473

1,525,377

 

5. Property, plant and equipment

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

March 31, 2021

December 31, 2020

Land

$

728,316

$

724,785

Building and improvements

14,214,666

14,048,917

Construction in process

3,887,384

3,212,287

Equipment

14,380,752

13,819,210

Office furniture and equipment

217,246

202,596

Vehicles

29,044

28,700

Total property and equipment

$

33,457,408

$

32,036,495

Less accumulated depreciation and amortization

(5,552,534)

(5,106,157)

Property, plant and equipment, net

$

27,904,874

$

26,930,338

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Included in construction in process is $2.1 million for construction related to the Rollo Bay farm site and renovations to the Fortune Bay hatchery, $1.2 million for construction related to the Indiana farm site, and $583 thousand related to design work for a new 10,000 metric ton farm. An additional $1.2 million has been committed to these projects.

6. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities include the following:

March 31, 2021

December 31, 2020

Accounts payable

$

644,459

$

799,888

Accrued payroll including vacation

520,162

583,301

Accrued professional fees and contract services

246,968