Aqua Metals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial statements are unaudited and amounts are in U.S. dollars; financial statement figures are in thousands except per-share data.
Business context
Aqua Metals develops AquaRefining technology for lead-acid battery recycling and is pursuing equipment supply and technology licensing rather than operating a capital-intensive recycling plant. Its TRIC facility has not been in commercial production since a November 2019 fire. The company reported no Q1 2021 revenue. It also invested in LiNiCo, a lithium-ion battery recycler, and leased LiNiCo its TRIC facility beginning April 1, 2021.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Product sales | $0 | $18 |
| Operating expenses | $4.198 million | $4.081 million |
| Operating loss | $4.198 million | $4.063 million |
| Net loss | $4.086 million | $4.427 million |
| Basic and diluted loss per share | $0.06 | $0.07 |
| Cash used in operating activities | $2.156 million | $4.262 million |
| Cash at period end | $11.727 million | $6.386 million |
With no Q1 2021 sales, a meaningful revenue margin is not available. Cost of product sales was $1.610 million, including facility clean-up costs. At March 31, 2021, working capital was $9.4 million, total assets were $41.6 million, and stockholders’ equity was $37.2 million. Notes payable totaled approximately $201,000; lease liabilities were approximately $690,000, excluding a small finance lease. The company raised $7.5 million net through its at-the-market share offering and received $724,000 from option exercises during the quarter.
Changes and notable items
- Operating cash use fell year over year, while net loss narrowed by $341,000. Operating expenses rose 2.9%, including higher product costs and research and development spending.
- Q1 2021 other income included $131,000 from forgiveness of one PPP loan. The company said it believed the remaining PPP loan qualified for forgiveness, but noted there was no assurance.
- As of March 31, the company had received $23.6 million in fire-related insurance proceeds. It received another $1.4 million after quarter-end; management said it expected approximately $2.0 million from the final insurance layer, subject to coverage and collection.
- The LiNiCo investment was recorded at $1.5 million, paid with 375,000 Aqua Metals shares and $232,000 cash, for approximately 9% ownership on a fully diluted basis before warrant exercise. The preferred shares carry an 8% cumulative dividend and specified liquidation preferences.
- LiNiCo’s facility lease runs through March 31, 2023, with monthly payments starting at $68,000 and rising to $100,640 in the final six months. LiNiCo has purchase options at $14.25 million or $15.25 million depending on closing date, subject to required nonrefundable deposits. Aqua Metals must clean up and repair the fire-damaged area at its expense by stated 2021 deadlines.
Outlook, risks and management commentary
Management said the plant would not be in production during 2021 except for operation and testing of improved Aqualyzers. It reported that the V1.25L Aqualyzer program was completed in Q4 2020 and claimed twice the lead-production throughput of the earlier design, with lower equipment and operating costs. These are management-reported development results, not evidence of commercial-scale licensing revenue.
The filing gives no specific revenue or earnings guidance. Management stated it may need additional capital over the next 12 months and expects to pursue insurance recoveries, possible asset sales and financing, including equity issuance. It cautioned that funding may not be available on acceptable terms and equity financing could dilute shareholders. The company had no licensing, joint-venture or strategic-alliance agreements in place as of the report date, apart from its equipment supply agreement with Clarios; successful commercialization, negotiations and technology performance remain uncertain.
Key risks include the absence of commercial revenue, the unproven commercial economics and scale of AquaRefining, dependence on licensing and financing, insurance recovery uncertainty, and environmental, operational and market risks. A securities class action remains pending on site-visit claims, and a shareholder derivative action is stayed; the company denies the allegations and intends to defend them. Management reported disclosure controls were effective as of March 31, 2021, with no material changes in internal control during the quarter.
Investor verification points
- Confirm actual collection of the expected remaining insurance proceeds and any further property or business-interruption recoveries.
- Track liquidity, operating cash use, asset sales and any additional equity or debt financing.
- Verify LiNiCo’s required deposits, lease payments, facility clean-up and repair obligations, and whether its purchase option is exercised.
- Look for signed licensing or development agreements, particularly with Clarios, and evidence of commercial-scale performance and economics.
- Monitor the pending litigation and the company’s ability to meet the facility remediation deadlines.