Aqua Metals, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unless stated otherwise, financial amounts below are in millions of dollars. The financial statements are unaudited.
Business context
Aqua Metals develops AquaRefining technology and supplies equipment and licensing services for lead-battery recycling. Following the November 2019 fire that damaged its Nevada facility, the company shifted to a capital-light licensing and equipment-supply strategy; it has not conducted commercial production since the fire. In February 2021, it leased the facility to LiNiCo under a lease-to-buy agreement and retained space for research and development.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Product sales | $0 | $0 | $0 | $0.018 |
| Operating expenses | $4.443 | $3.768 | $8.642 | $7.849 |
| Operating loss | $(4.443) | $(3.768) | $(8.642) | $(7.831) |
| Net loss | $(8.016) | $(3.983) | $(12.102) | $(8.410) |
| Net loss per share | $(0.12) | $(0.07) | $(0.18) | $(0.14) |
With no sales in Q2 2021 and only nominal sales in the first half of 2020, a sales margin comparison is not meaningful. Cost of product sales was $2.138 million in Q2 and $3.749 million for the first half of 2021, principally reflecting plant clean-up costs, according to management.
For the six months ended June 30, operating cash outflow was $4.940 million, investing cash outflow was $1.131 million, and financing cash inflow was $10.242 million. Financing included $9.331 million of net ATM proceeds and $0.727 million from option exercises. Cash increased to $10.704 million from $6.533 million at year-end 2020.
At June 30, total assets were $38.128 million, current assets $17.155 million, current liabilities $6.415 million, and working capital approximately $10.7 million. The company reported no notes payable; lease liabilities were approximately $0.562 million on the balance sheet. Property and equipment fell to $1.930 million from $24.883 million at year-end, while $4.339 million of assets were classified as held for sale and a $17.0 million lease receivable was recognized for the LiNiCo transaction.
Changes, unusual items, and developments
- Q2 net loss increased to $8.016 million from $3.983 million, largely reflecting a $4.254 million loss on disposal of property and equipment. The company attributed $3.5 million of that loss to accounting for the facility lease-to-purchase arrangement and about $0.7 million to equipment sales.
- For the first half, net loss rose to $12.102 million from $8.410 million. Operating cash use improved from $8.323 million to $4.940 million, but the comparison includes non-cash adjustments and working-capital movements.
- Insurance proceeds of $1.4 million received in Q2 were recorded net of related expenses. After quarter-end, the company and insurers agreed to an additional $5.25 million, described as the final expected payment, bringing total insurance proceeds to approximately $30.25 million.
- Both PPP loans, totaling $0.332 million, were forgiven during the first half. Interest expense was minimal after repayment of the Veritex loan in 2020.
- After quarter-end, Aqua Metals signed a definitive AquaRefining license and equipment-supply agreement with ACME Metal Enterprise Co., Ltd. for its Taiwan facility. The filing does not provide expected revenue or financial terms for the agreement.
- The company reported that its V1.25L Aqualyzer achieved twice the lead-production throughput of the V1.0 design and management cited potential equipment capital-cost reductions of 50% and operating-cost reductions exceeding 60%. These are management-reported technology results and expected benefits, not reported commercial financial performance.
Outlook, risks, and contingencies
Management said additional capital may be required over the next 12 months to fund ongoing costs and the licensing strategy. Planned sources include remaining insurance proceeds, possible equipment and asset sales, and proceeds from the facility lease or sale; availability and sufficiency are not assured. The company may also seek debt or equity financing, including further ATM sales, which could dilute shareholders. It warned that unavailable financing on acceptable terms could impede its business plan or threaten continued operations. No quantified revenue or earnings guidance is provided.
Key risks include the unproven commercial economics and scale-up of AquaRefining, the ability to secure and execute licensing arrangements, customer certification and technology performance, funding needs, permitting and environmental compliance, and international execution. A securities class-action settlement stipulation entered in July 2021 requires court approval and includes insurance-funded cash plus $500,000 payable by Aqua Metals in cash or common shares, at its option. A separate derivative-action settlement stipulation based on corporate-governance reforms also awaits court approval.
Management concluded disclosure controls and procedures were effective as of June 30, 2021, and reported no material changes in internal control over financial reporting during the six-month period.
Important facts for investors to verify
- Whether the ACME agreement leads to deployment, licensing revenue, and commercially viable operating results.
- Receipt and timing of the additional $5.25 million insurance payment, and any further proceeds from TRIC assets or the facility.
- Cash burn and financing requirements against the company’s stated potential need for additional capital over the next 12 months.
- Progress on facility clean-up and repair obligations under the LiNiCo lease, and whether LiNiCo exercises its purchase option.
- Court approval and final terms of both July 2021 litigation settlement stipulations, including the $500,000 company payment.
- Share dilution from ATM sales and other equity issuance; shares outstanding were 68.607 million at June 30 and 69.458 million as of July 26, 2021.