Aqua Metals, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unless otherwise noted, financial amounts are in U.S. dollars.
Business context
Aqua Metals is developing and commercializing its AquaRefining battery-recycling technology, with a current focus on lithium-ion batteries and a licensing model for lead-acid recycling. The company was not in commercial production during the periods reported; pilot operations and development of a new recycling campus drove activity. Q3 product sales were nominal.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Product sales | $25,000 | $0 | $25,000 | $4,000 |
| Operating expenses | $4.974 million | $3.934 million | $14.345 million | $12.202 million |
| Loss from operations | $4.949 million | $3.934 million | $14.320 million | $12.198 million |
| Net loss | $4.547 million | $3.885 million | $13.912 million | $11.461 million |
| Basic and diluted loss per share | $0.04 | $0.05 | $0.16 | $0.15 |
Commercial gross margin is not meaningful because revenue was negligible and the company was not in commercial production; the filing does not provide a clear gross-margin value. Q3 plant operations expense rose 112.5% year over year, primarily due to hiring and supplies for pilot operations. Nine-month operating expense rose 17.6%; lower research and development spending was more than offset by higher plant and general and administrative costs.
At September 30, 2023, cash and cash equivalents were $25.598 million, working capital was $23.1 million, total assets were $41.982 million, and stockholders’ equity was $35.439 million. Notes payable totaled approximately $2.95 million, net of issuance costs; lease liabilities totaled about $350,000. The company reported $2.222 million of operating cash inflow, $6.294 million of investing cash outflow, and $22.588 million of financing cash inflow for the nine months.
Operating cash flow included approximately $12.3 million related to the completed sale of the former TRIC facility, so the positive operating cash flow should not be read as a recurring operating result. Investing outflows mainly funded the new building and facility development. Cash increased from $7.082 million at year-end 2022 to $25.598 million, supported principally by equity offerings and other financing.
Material changes and unusual items
- In April 2023, Aqua Metals sold its former TRIC property for a final payment of $12 million and used sale proceeds to repay the $6 million secured loan. It received approximately $5.7 million in net proceeds after the loan repayment.
- The company acquired a five-acre recycling campus and existing building in February 2023, financed in part with a $3 million loan at 9.5% annual interest. The loan is secured by the building and is due in March 2025.
- In July, the company raised $18.3 million net in a public offering; in August, it received $4.6 million net from a share sale to Yulho. It also raised $3.8 million net through its at-the-market program during the first nine months. These transactions materially increased shares outstanding and diluted existing holders.
- The company corrected a prior-period cash-flow classification error: $636,000 of 2022 building-lease proceeds was reclassified from financing to operating activities. Management concluded the error was not material; total cash did not change.
- Q3 interest and other income was $489,000, mainly reflecting interest on bank deposits and income from a non-recurring engineering arrangement with 6K Energy. The filing does not indicate this as recurring commercial revenue.
Outlook, risks and contingencies
Management stated that available capital was expected to fund the proposed operating plan for at least 12 months from the filing date, including commencement of the Phase One campus build-out. Additional capital is expected to be needed beyond that period to complete the build-out and begin full-scale operations. The company is pursuing loans, government-backed financing, grants, and potential equity issuance; availability and terms are uncertain, and equity financing could be dilutive.
Management’s plans are conditional on obtaining development financing. The filing describes a target to complete Phase One equipment installation by the end of the first half of 2024 and to begin operations at the new campus in 2024; it does not assure that these milestones will be achieved. The facility is designed for up to 10,000 tonnes of annual processing capacity when fully developed, with an initial planned scale of approximately 3,000 tonnes. The company also cites potential revenue of approximately $200 million at 10,000 tonnes and average 2023 year-to-date metal prices; this is a management estimate, not guidance or demonstrated revenue.
Key risks include the early stage of the business, limited revenue, unproven commercial-scale process economics and product quality, construction and financing execution, the absence of a definitive Yulho license, and dependence on permits, partners, and future capital. Commodity-price, supply-chain, labor, environmental, hazardous-material, intellectual-property, and international-operation risks are also discussed. Ordinary-course claims are disclosed; management does not expect them to have a material effect. Management reported disclosure controls effective as of September 30, 2023 and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether AquaRefining can achieve commercial-scale throughput, yields, product specifications, and competitive costs.
- Whether additional financing is secured on acceptable terms and whether campus construction and start-up meet the stated 2024 targets.
- Whether the proposed Yulho license becomes a definitive agreement and generates royalties or other material business.
- How quickly cash is consumed, particularly after excluding the one-time facility-sale proceeds, and the resulting need for capital.
- The dilution impact of future equity issuance, warrants, and outstanding equity awards.
- Whether permitting, equipment installation, customer qualification, and feedstock/offtake arrangements support planned operations.