Aqua Metals(AQMS) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q1 2021 detail the company's financial position, operations, equity, and cash flows Condensed Consolidated Balance Sheets This section compares the company's financial position as of March 31, 2021, to December 31, 2020, highlighting increases in total assets, cash, and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,727 | $6,533 | | Total current assets | $13,459 | $8,358 | | Investment in LiNiCo | $1,500 | $0 | | Total assets | $41,564 | $35,138 | | Total liabilities | $4,321 | $3,999 | | Total stockholders' equity | $37,243 | $31,139 | Condensed Consolidated Statements of Operations This section details the company's financial performance for Q1 2021 versus Q1 2020, showing no product sales but an improved net loss Q1 2021 vs. Q1 2020 Operating Results (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Product sales | $0 | $18 | | Loss from operations | $(4,198) | $(4,063) | | PPP loan forgiveness | $131 | $0 | | Net loss | $(4,086) | $(4,427) | | Basic and diluted net loss per share | $(0.06) | $(0.07) | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity during Q1 2021, primarily driven by common stock issuance from ATM sales and the LiNiCo investment - Raised $7.5 million in net proceeds from the issuance of 1,923,614 shares through its At-The-Market (ATM) sales agreement[15] - Issued 375,000 shares of common stock related to the LiNiCo investment, valued at $1.27 million[15] Condensed Consolidated Statements of Cash Flows This section outlines cash movements for Q1 2021, showing significant cash generation from financing activities offsetting operational and investing uses Cash Flow Summary for Three Months Ended March 31 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,156) | $(4,262) | | Net cash (used in) provided by investing activities | $(859) | $3,149 | | Net cash provided by (used in) financing activities | $8,209 | $(76) | | Net increase (decrease) in cash | $5,194 | $(1,189) | - Financing activities were primarily driven by $7.5 million in proceeds from the ATM offering and $0.7 million from stock option exercises[18][99] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, the strategic shift to a licensing model, and key investments and subsequent events - Following a fire on November 29, 2019, the company adopted a capital-light strategy focused on equipment supply and licensing opportunities rather than operating its own recycling facility[20][22] - On February 15, 2021, the company invested in LINICO Corporation by issuing 375,000 shares and paying $232,000 in cash in exchange for a ~9% equity stake[42][45] - During Q1 2021, one of the company's two PPP loans, amounting to $131,000, was forgiven[54] - Subsequent to the quarter, the company entered into an industrial lease with LiNiCo for its TRIC facility, effective April 1, 2021, which includes an option for LiNiCo to purchase the facility[72] - After the quarter ended, the company received an additional insurance payment of $1.4 million related to the 2019 fire[73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic pivot to a capital-light licensing model, operational progress, and financial results for Q1 2021, highlighting strengthened liquidity General and Plan of Operations The company is executing a capital-light strategy focused on global licensing of its AquaRefining™ technology and expanding into lithium-ion battery recycling - The company's business model is now focused on a capital-light strategy of global licensing and equipment supply for its AquaRefining technology[84][85] - The V1.25L Aqualyzer program was completed, achieving a 100% greater lead production throughput compared to the V1.0 model, expected to result in a 50% reduction in capital expenditures and a >60% reduction in operating expenses for future licensees[83][87] - Expanded into lithium-ion battery recycling through a strategic investment in LiNiCo, securing an approximate 9% ownership stake[88] Results of Operations This section details Q1 2021 operating results, showing no revenue, a slight increase in expenses, and an improved net loss due to PPP loan forgiveness Operating Expense Comparison (in thousands) | Expense Category | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Cost of product sales | $1,610 | $1,454 | 10.7% | | Research and development | $289 | $242 | 19.4% | | General and administrative | $2,299 | $2,385 | (3.6)% | | Total operating expense | $4,198 | $4,081 | 2.9% | - The increase in cost of product sales was due to plant clean-up costs in preparation for the lease and potential sale of the facility[92] - Total other income was $114,000, a significant favorable change from a total other expense of $364,000 in Q1 2020, driven by $131,000 in PPP loan forgiveness and a 97.3% decrease in interest expense[94] Liquidity and Capital Resources The company's liquidity significantly strengthened in Q1 2021 due to financing activities, though additional capital may be required for future operations Cash Position and Working Capital (in thousands) | Metric | March 31, 2021 | | :--- | :--- | | Total Cash | $11,727 | | Working Capital | $9,416 | - Net cash provided by financing activities was $8.2 million for Q1 2021, primarily from $7.5 million in net proceeds from the ATM and $0.7 million from stock option exercises[99] - Management believes additional capital may be required to fund operations over the next 12 months and is pursuing funds from insurance claims, asset sales, and potential financing[100] Quantitative and Qualitative Disclosures about Market Risk The company, as a smaller reporting entity, states that this section is not applicable - The company states that this item is not applicable[102] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the period[102] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[103] PART II - OTHER INFORMATION Legal Proceedings The company is involved in ongoing securities class action and shareholder derivative lawsuits, which it intends to vigorously defend - The company is defending a consolidated class action lawsuit alleging violations of the Securities Exchange Act related to false statements and deceptive site visits, with some claims dismissed but others proceeding[105] - A shareholder derivative action has been filed against certain current and former officers and directors for alleged breaches of fiduciary duties, and this case is currently stayed[106] Risk Factors This section outlines significant business and stock ownership risks, including the unproven new business model, financing needs, and litigation Risks Relating to Our Business This subsection details operational and strategic risks, including the unproven capital-light licensing model, technology scale-up, and the need for additional financing - The company's revised business plan, focusing on licensing after the 2019 fire, is unproven and its success is not assured[109][110] - The company may require additional capital to fund its business plan over the next 12 months, and there is no guarantee that financing will be available on acceptable terms[116] - The business model is new and has not been proven at a commercial scale, creating risk that licensees may not be able to operate profitably[119][122] - There is no assurance that a definitive development program agreement can be negotiated with Clarios, which could impact the ability to license technology to others in key regions[128] Risks Related to Owning Our Common Stock This subsection outlines risks for stockholders, including stock price volatility, pending litigation, potential dilution, and anti-takeover provisions - The market price of the company's common stock is subject to significant fluctuation and volatility[142] - Pending securities class action and shareholder derivative lawsuits could result in substantial costs and have a material adverse effect on the business[146] - The company has never paid dividends and has no plans to do so in the foreseeable future[149] - Anti-takeover provisions in the company's charter and Delaware law may inhibit a change in control that stockholders might consider favorable[150][151] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, material agreements, and required CEO and CFO certifications - Lists key agreements filed as exhibits, including the Industrial Lease Agreement, Series A Preferred Stock Purchase Agreement, Investor Rights Agreement, and Voting Agreement with LINICO Corporation, all dated February 15, 2021[153] - Includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[153][154][155]