Aqua Metals, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. Amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
Aqua Metals is developing its AquaRefining technology for lead-acid and lithium-ion battery recycling. It was not in commercial production during the periods presented and reported no product sales in Q2 or the first half of 2023. In June, the company said its lithium-ion pilot had transitioned to 24/5 operations and was producing saleable quantities of recycled materials; this had not yet resulted in reported product revenue.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Product sales | $0 | $0.004 | $0 | $0.004 |
| Operating expenses | $4.855 | $3.959 | $9.371 | $8.269 |
| Operating loss | $(4.855) | $(3.955) | $(9.371) | $(8.265) |
| Net loss | $(4.759) | $(3.166) | $(9.365) | $(7.576) |
| Basic and diluted loss per share | $(0.06) | $(0.04) | $(0.11) | $(0.10) |
- Margins: Not meaningful because sales were zero in 2023. The filing reports no clear positive commercial gross margin.
- Cash flow, six months: Operating activities provided $5.472, largely reflecting approximately $12.3 of receipts related to the sale of the former facility, rather than recurring operating cash generation. Investing activities used $5.511, including property and equipment purchases. Financing activities used $0.847. Cash declined $0.886 to $6.196.
- Liquidity at June 30: Current assets were $7.114 and current liabilities $3.112, giving working capital of approximately $4.0. Total assets were $21.881; stockholders’ equity was $15.743.
- Debt: Notes payable totaled approximately $2.942 at June 30, comprising $2.908 non-current and $0.034 current. The prior $6.0 loan secured by the former facility was repaid from its sale proceeds. The remaining loan, secured by the new building, carries 9.5% interest and is due March 2025. Lease liabilities totaled approximately $0.434.
Material changes versus the prior comparable period
- Q2 net loss increased to $4.759 from $3.166; six-month net loss increased to $9.365 from $7.576. Higher plant operating costs reflected pilot operations and black-mass processing; higher general and administrative costs included payroll-related and professional fees.
- Interest expense rose to $0.255 in Q2 and $0.431 in the first half, principally due to borrowing. Prior-year gains on disposal of property and equipment were substantially larger, making year-over-year other income lower in 2023.
- Property, plant and equipment, net, increased to $11.951 from $7.343 at year-end 2022. Cash fell from $7.082 to $6.196.
- Common shares outstanding increased during the first half, including 2.41 million shares sold through the at-the-market program for net proceeds of $2.8 million. The company also recorded 510,632 shares withheld for employee tax obligations as treasury stock.
Outlook, commentary, risks and unusual items
- Management’s plan is to build out the new five-acre recycling campus, initially targeting capacity of about 3,000 tonnes of lithium-ion battery black mass annually, with a longer-term design capacity of up to 10,000 tonnes. The company described operations at the new campus as expected in 2024, subject to development financing. Timing statements differ within the filing: the plan section refers to Phase One completion by the end of the first half of 2024, while a risk-factor discussion refers to completion by the end of Q1 2024 and operations in Q2.
- At June 30, cash was $6.2 million. After quarter-end equity financings, management said it believed funds would support its operating plan for at least 12 months from the report date, including commencement of the Phase One build-out. It also said additional capital would be needed beyond that period to complete the build-out and begin full-scale commercial operations. Further financing is not assured and equity funding may dilute shareholders.
- After quarter-end, a July public offering of 18.193 million shares generated $18.5 million net. A separate Yulho offering of 4.545 million shares at $1.10 per share closed August 4, generating $5 million gross before expenses. The company also agreed to use best efforts to negotiate a definitive Korean technology license with Yulho; royalties and other terms were proposed, not finalized in the filing.
- The sale of the former TRIC property closed April 26 for a final payment of $12 million; after repayment of the related loan, the company received approximately $5.7 million net. The cash-flow statement reflects lease-related proceeds associated with this transaction.
- Key risks include an early-stage business with little revenue, unproven commercial-scale technology and economics, execution and permitting risks for the new facility, dependence on additional financing, potential dilution, commodity-price exposure, and environmental, health and safety obligations. Management reported disclosure controls were effective as of June 30 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the pilot can consistently produce materials that meet customer specifications and achieve commercial-scale yields, costs and margins.
- Actual facility build-out milestones, capacity, operating start date, permitting status and total funding required; reconcile the filing’s differing Phase One timing statements.
- Whether the company secures additional financing on acceptable terms and how much further dilution may result.
- Whether Yulho and other prospective partners execute definitive licenses, establish offtake arrangements and generate royalties or other revenue.
- Underlying cash burn excluding the one-time property-related receipts, and whether post-quarter financing is sufficient to meet the company’s stated operating plan.