Aqua Metals, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statement amounts are in thousands of dollars except per-share data. The statements are unaudited.
Business context
Aqua Metals develops water-based AquaRefining technology for lead-acid and lithium-ion battery recycling. The company was not in commercial production during the quarter; revenue was nominal for the first nine months and nil in Q3. Its current strategy centers on licensing lead-recycling technology and developing lithium-ion recycling. The TRIC facility is leased to LINICO under an agreement that includes an option to purchase.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Product sales | $0 | $0 | $4 | $0 |
| Operating expenses | $3,934 | $4,624 | $12,202 | $13,264 |
| Loss from operations | $(3,934) | $(4,624) | $(12,198) | $(13,264) |
| Net loss | $(3,885) | $(1,386) | $(11,461) | $(13,488) |
| Basic and diluted loss per share | $(0.05) | $(0.02) | $(0.15) | $(0.20) |
- Cash flow: For the first nine months, operating cash use was $9.3 million, investing cash use was $1.7 million, and financing provided $12.1 million. Cash increased by $1.2 million to $9.3 million.
- Liquidity and assets: At September 30, cash was $9.3 million, working capital was $15.5 million, and total assets were $35.0 million. Current assets included a $15.8 million current lease receivable.
- Debt and liabilities: The company recorded $5.9 million of current notes payable, net of issuance costs, from a $6.0 million loan bearing 8.5% interest. Total liabilities were $11.5 million.
- Equity and dilution: Stockholders’ equity was $23.4 million. Shares outstanding rose to 78.1 million from 70.4 million at December 31, 2021, including 5.4 million shares issued through the ATM for $5.6 million net proceeds.
- Margins: With no meaningful sales in the periods, a useful sales margin comparison is not available.
Changes versus comparable periods
- Q3 net loss increased to $3.9 million from $1.4 million in Q3 2021, largely because the prior-year quarter included $4.3 million of net insurance proceeds; there were none in Q3 2022.
- Nine-month net loss improved to $11.5 million from $13.5 million. The comparison also reflects prior-year insurance proceeds and a $5.7 million loss on equipment disposal, versus a $0.6 million gain in 2022.
- Operating expenses fell 15% in Q3 and 8% for the nine-month period. Product-related costs declined as plant clean-up spending fell; R&D rose 80% in Q3 and 112% year to date, primarily for technology development and the lithium-ion pilot.
- Operating cash use increased to $9.3 million from $3.8 million year to date. The 2021 comparison included $4.8 million of insurance proceeds in operating cash flow.
Outlook, risks and unusual items
- Management said additional capital may be required to fund operations and its business plan over the next 12 months. Potential sources include equipment and asset sales, proceeds from the LINICO facility transaction, and equity or debt financing; equity issuance could dilute shareholders. The filing cautions that adequate financing may not be available and that inability to obtain it could prevent execution of the plan or continuation of operations.
- Management targeted a fully operational lithium-ion pilot plant in Q4 2022, initial production by year-end 2022, and a demonstration scale of up to 80 tonnes per month by year-end 2023. These are plans, not guaranteed outcomes.
- The company reported bench-scale recovery of copper, lithium hydroxide, nickel and cobalt, but commercial-scale performance remains unproven. It also described a Phase 1 lead AquaRefining deployment with ACME in Taiwan, with larger deployments being evaluated for 2023.
- LINICO did not exercise the earlier $14.25 million facility purchase option. It paid a further $2.0 million nonrefundable deposit on October 25, 2022; the company expected a $15.25 million sale to close before March 31, 2023, subject to completion. Deposits totaling $3.25 million are to be applied to the purchase price.
- The $6.0 million loan is secured by a first-priority lien on the TRIC land and facility. The filing says obligations become payable upon completion of the expected sale; confirm the timing and repayment requirements against the loan agreement and any sale developments.
- Nasdaq notified the company in August 2022 that its share price did not meet the $1.00 minimum bid requirement. The initial compliance period runs through January 30, 2023; failure to regain compliance could lead to suspension and delisting procedures.
- The company disclosed a $500,000 accrued class-action settlement item. It reported no legal proceedings in Part II, Item 1, and no additional insurance recovery is expected for the 2019 TRIC fire.
- Management stated disclosure controls were effective as of September 30, 2022, with no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Verify whether the LINICO facility sale closed, the proceeds received, and the resulting treatment of the secured loan.
- Assess cash runway, near-term funding needs, and reliance on asset sales or additional financing.
- Track pilot commissioning and independently validate lithium-ion recovery yields, product quality, costs and commercial scalability.
- Confirm ACME deployment progress and whether it produces binding licensing or commercial agreements.
- Monitor Nasdaq bid-price compliance and the potential effects of further ATM share issuance.
- Review the classification and recoverability of the large lease receivable and the value and timing of assets held for sale.