Aqua Metals, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The company was developing its AquaRefining lead-acid battery recycling technology and constructing its first facility in McCarran, Nevada. It had not begun revenue-producing operations.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | None reported; operations had not begun | None reported |
| Operating expenses | $2.179 million | $0.685 million |
| Operating loss | $2.179 million | $0.685 million |
| Net loss | $2.174 million; $0.15 per share | $4.899 million; $1.12 per share |
| Net cash used in operations | $1.600 million | $0.747 million |
| Net cash used in investing | $3.293 million | $0.104 million |
| Cash and cash equivalents | $15.244 million | $20.141 million at Dec. 31, 2015 |
| Restricted cash | $7.893 million | $11.667 million at Dec. 31, 2015 |
| Working capital | $18.139 million | Not stated for comparison |
| Total assets | $47.190 million | $47.276 million at Dec. 31, 2015 |
| Total liabilities | $15.476 million | $13.611 million at Dec. 31, 2015 |
There was no revenue or gross margin to report. Operating expenses rose substantially year over year as staffing, development work, professional services and other costs increased. The lower net loss versus Q1 2015 primarily reflects the absence of a $3.896 million noncash derivative-liability fair-value charge recorded in that earlier quarter; the operating loss itself increased.
Investing cash use reflected facility and equipment build-out, including $3.274 million of property and equipment purchases and $1.121 million of deposits. Property and equipment, net, increased to $15.020 million from $8.808 million at year-end. Total notes payable were approximately $9.372 million, including $0.118 million current and $9.254 million non-current; the Green Bank construction loan was originally $10 million. The company reported compliance with that loan’s financial covenants at March 31. Restricted funds were held in escrow for facility construction, and a separate $1 million certificate of deposit collateralized the loan.
Changes, outlook and key commentary
- Operations and development costs increased to $0.883 million from $0.214 million; business development and management costs increased to $1.295 million from $0.472 million. Management cited higher headcount, research and development, consulting and legal fees, and general operating costs.
- Management expected facility construction to be completed in Q2 2016, installation of initial modules during Q2, and initial commercial operations after delivery of the first module. Its target was 80 tons of recycled lead per day by the end of Q3 2016, with a longer-term goal of 160 tons per day.
- On May 18, 2016, the company entered into agreements for approximately $15.1 million of equity and debt financing, including Interstate Battery’s proposed $5 million stock purchase and $5 million secured convertible loan, plus approximately $5.1 million of stock sales to other investors. The agreements were subject to customary closing conditions and were expected to close May 27; the filing does not establish that they had closed as of its date.
- The contemplated Interstate Battery supply agreement would provide used batteries on a cost-plus basis, with minimum purchase and sale requirements and limited rights of first refusal. The proposed financing included warrants and other investor rights that could result in dilution.
- Management said cash, giving effect to the expected financing, was believed sufficient for the initial facility and 80-ton-per-day target, but additional capital might be needed. Expansion to 160 tons per day and additional facilities would require further funding, with no assurance it would be available.
- Key risks include unproven commercial-scale performance and economics, access to used batteries, volatility in battery and lead prices, financing needs, permitting and environmental obligations, and protection of intellectual property. The company reported no material litigation and stated disclosure controls were effective.
Important facts for investors to verify
- Whether the May 2016 financing and supply agreements closed, on what final terms, and how the warrants and convertible debt affect dilution and leverage.
- Actual facility completion, module installation, required permits, start of commercial operations, and progress toward the 80-ton-per-day target.
- Whether commercial-scale output, product quality, operating costs and margins validate the AquaRefining process.
- Cash runway and financing requirements, including funding for the longer-term 160-ton-per-day expansion.
- The filing’s MD&A cash-flow narrative conflicts with its financial statements: the narrative cites operating cash use of $4.2 million and investing cash use of $0.6 million for Q1 2016, whereas the statements report $1.600 million and $3.293 million, respectively. Confirm the correct figures with the company’s filed statements or subsequent disclosures.