Aqua Metals, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. Unless stated otherwise, financial amounts below are in millions of dollars. The company develops AquaRefining technology and supplies equipment, licenses technology, and provides related services for metals recycling. Following a 2019 fire at its Nevada facility, it shifted to a capital-light licensing and equipment-supply strategy and was not in commercial production during the periods presented.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0.090 | $0 | $0.108 |
| Operating loss | $(4.624) | $(3.411) | $(13.264) | $(11.242) |
| Net loss | $(1.386) | $(1.837) | $(13.488) | $(10.247) |
| Net loss per share, basic and diluted | $(0.02) | $(0.03) | $(0.20) | $(0.17) |
- Costs and margins: With no revenue in 2021, gross margin is not meaningful. Operating expenses were $4.624 million in Q3, up 32% year over year, and $13.264 million for the nine months, up 17%. Management attributed higher product costs mainly to plant cleanup; higher R&D to technology development; and higher G&A to stock compensation, legal expense, director fees, and insurance premiums.
- Cash flow: Nine-month operating cash use was $3.753 million, versus $8.992 million in 2020. Investing cash use was $1.506 million, compared with $6.961 million of cash provided in 2020, which included insurance proceeds. Financing provided $10.426 million, primarily from $9.331 million net ATM share-sale proceeds and $0.727 million from option exercises. Cash rose to $11.700 million from $6.533 million at year-end 2020.
- Balance sheet and debt: At September 30, cash was $11.700 million, working capital $10.3 million, total assets $37.327 million, and stockholders’ equity $30.789 million. Total liabilities were $6.538 million. Notes payable were zero after forgiveness of both PPP loans; lease liabilities were approximately $0.75 million, including operating and finance leases.
- Other balance-sheet items: The company reported a $17.0 million lease receivable for the LINICO facility arrangement, including $0.821 million current and $15.811 million non-current. Property and equipment fell to $1.822 million from $24.883 million at December 2020, reflecting asset reclassification, disposals, and the facility transaction.
Material changes and unusual items
- Q3 net loss narrowed versus 2020, despite a higher operating loss, mainly because of $4.344 million of insurance proceeds net of related expenses. For the nine months, net loss increased year over year; net other expense included a $5.665 million loss on disposal of property and equipment, partly offset by $4.792 million of net insurance proceeds and $0.332 million of PPP loan forgiveness.
- The company reported $30.25 million in total insurance payments related to the 2019 fire; the $5.25 million received in Q3 was described as the final expected payment. Plant cleanup and fire-damage repairs were expected to be completed by year-end 2021.
- LINICO leased the TRIC facility beginning April 1, 2021, under a lease-to-buy arrangement. It can purchase the facility for $14.25 million if completed by October 1, 2022, or $15.25 million thereafter during the option period. LINICO paid a $1.25 million nonrefundable deposit on October 15, 2021, after quarter-end; a further $2.0 million deposit is due by November 22, 2022, subject to the agreement.
- Shares outstanding increased to 69,823,664 at September 30, 2021, from 64,461,065 at December 31, 2020, including ATM issuance. The filing reported 69,830,488 shares outstanding as of October 29, 2021.
Outlook, management commentary, and risks
- Management is pursuing licensing and equipment sales rather than operating a capital-intensive recycling plant. In July 2021 it signed an agreement with ACME Metal Enterprise to deploy AquaRefining equipment at ACME’s Taiwan facility. The filing describes phased deployment and potential licensing; it does not provide revenue guidance or a clear timetable for meaningful licensing revenue.
- The company reported its V1.5 Aqualyzer produced over 300% more lead than its original V1.0 configuration, with electrical efficiency of 97% and a stated reduction of more than 60% in the number of units needed for equivalent output. These are company-reported development results, not evidence of commercial-scale licensee performance.
- The company established an Innovation Center to research lithium-ion battery recycling and had filed a provisional patent related to recovering high-value metals. Management cautioned that commercial-scale success is uncertain.
- Management said additional capital may be needed to fund operations and its plan over the next 12 months. Intended sources included asset sales and proceeds from the facility arrangement; further equity or debt financing may be sought, and equity financing could dilute shareholders. The filing warns that unavailable financing could prevent execution of the plan or continuation of operations.
- Clarios terminated its equipment supply agreement in September 2021. The company also faces execution, technology scale-up, customer adoption, permitting, environmental and hazardous-material, international expansion, and intellectual-property risks. Its 2019 fire and the shift in business model remain significant uncertainties.
- Legal matters include proposed settlements of securities class-action and derivative litigation, both subject to court approval, and an October 2021 lawsuit against the contractor responsible for maintaining the TRIC fire-protection system. The class-action settlement included a company contribution of $0.5 million in cash or common shares, at the company’s option; the company’s insurance carriers were to fund an additional amount.
- Management concluded disclosure controls and procedures were effective as of September 30, 2021, and reported no material change in internal control over financial reporting during the nine-month period.
Most important facts for investors to verify
- Whether the ACME deployment advances to commercial operation and results in licensing or equipment revenue, and whether other customers are secured.
- Whether facility-sale proceeds and asset dispositions materialize on the expected terms and timing, including satisfaction of the LINICO purchase-option conditions.
- Cash burn, operating costs, and the amount and terms of any additional financing; track potential share dilution.
- Whether reported Aqualyzer performance translates to reliable, economical commercial-scale operation and whether lithium-ion recycling research proves viable.
- Status and financial consequences of the litigation settlements and fire-related claim, and completion costs for facility cleanup and repairs.