AQMS Aqua Metals Inc

1. Organization

Aqua Metals (NASDAQ: AQMS) is engaged in the business of applying its commercialized clean, water-based recycling technology principles to develop the clean and cost-efficient recycling solutions for both lead and lithium-ion (“Li”) batteries. Our recycling process is a patented hydro- and electrometallurgical technology that is a novel, proprietary and patented process we developed and named AquaRefining. AquaRefining is a low-emissions, closed-loop recycling technology that replaces polluting furnaces and hazardous chemicals with electricity-powered electroplating to recover valuable metals and materials from spent batteries with higher purity, lower emissions, and with minimal waste. The modular “Aqualyzers” cleanly generate ultra-pure metal one atom at a time, closing the sustainability loop for the rapidly growing energy storage economy.

We are in the process of demonstrating that Li AquaRefining, which is fundamentally non-polluting, can create the highest quality and highest yields of recovered minerals from lithium-ion batteries with lower waste streams and lower costs than existing alternatives.

Our focus for the lead market is providing equipment and licensing of our lead acid battery recycling technologies in an enabler model which allows us to work with anyone in the industry globally and address the entire marketplace. Our focus for the lithium market includes operating our first-of-a-kind lithium battery recycling facility, utilizing electricity to recycle instead of intensive chemical processes, fossil fuels, or high-temperature furnaces and licensing.

Liquidity and Going Concern Assessment

For the quarters ended  March 31, 2024 and 2023, the Company reported a net loss of $5.8 million and $4.6 million, respectively, and negative cash from operations of $4.3 million and $2.9 million, respectively. As of  March 31, 2024, the Company had cash and cash equivalents of approximately $8.3 million, current liabilities of $8.5 million and an accumulated deficit of $229.0 million. The Company's current liabilities of $8.5 million include the note payable with Summit Investment Services, LLC in the amount of approximately $3 million due on February 1, 2025 as disclosed in Note 10. The Company has not generated revenues from commercial operations and expects to continue incurring losses for the foreseeable future.

Management believes that the Company does not have sufficient capital resources to sustain operations through at least the next twelve months from the date of this filing. Additionally, in view of the Company’s expectation to incur significant losses for the foreseeable future it will be required to raise additional capital resources in order to fund its operations, although the availability of, and the Company’s access to such resources, is not assured. Accordingly, management believes that there is substantial doubt regarding the Company’s ability to continue operating as a going concern through the next twelve months from the date of this filing.

The accompanying condensed consolidated financial statements have been prepared under the assumption the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that  may result from uncertainty related to the Company’s ability to continue as a going concern.

Reclassification of Prior Period Financial Statements

For the quarter ended March 30, 2023, the gain on disposal of property, plant and equipment was presented in the Condensed Consolidated Statement of Operations within loss from operations. This reclassification  was made for the year ended December 31, 2023 and presented in the Annual Report on Form 10-K for the year then ended.

We have reclassified the prior period Condensed Consolidated Statement of Operations included in this filing to conform to the current period presentation, as shown in the following table:

Correction of an immaterial error to prior period financial statements

For the quarter ended March 31, 2023, we identified a correction of an immaterial error to prior period financial statements relating to number of common stock shares presented in the condensed consolidated balance sheet and condensed consolidated statements of stockholders' equity. The effect of this error was to overstate the number of common stock shares issued to employees and directors for RSU vesting during the three months ended March 31, 2023 by 510,632 shares. The error did not have an effect on the monetary balance of common stock presented or any other amounts reported in the condensed consolidated balance sheet, condensed consolidated statement of operations, condensed consolidated statements of stockholders' equity, or condensed consolidated statement of cash flow for the related periods. Based upon our evaluation of both quantitative and qualitative factors, we believe that the effect of this error was not material to any previously reported quarterly period.

The following sets forth the effects of the correction on the previously reported condensed consolidated statement of stockholders’ equity.

2. Summary of significant accounting policies

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2023, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended  December 31, 2023, as filed with the Securities and Exchange Commission, or the SEC, on March 28, 2024. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2024.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of Aqua Metals, Inc. and subsidiaries (collectively, the “Company” or “Aqua Metals”) have been prepared in accordance with the interim reporting requirements of Form 10-Q, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the Company's audited consolidated financial statements for the period ended December 31, 2023, which are included on Form 10-K filed with the Securities and Exchange Commission on March 28, 2024. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for annual consolidated financial statements. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly each of the condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations for the three months ended March 31, 2024 and March 31, 2023, the condensed consolidated statements of stockholders' equity for the three months ended March 31, 2024 and March 31, 2023 and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and March 31, 2023, as applicable, have been made. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the Company’s audited consolidated financial statements as of such date, but it does not include all disclosures required by U.S. GAAP for annual presentation.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of results that may be expected for the year ending  December 31, 2024.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned subsidiaries. Inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount and valuation of long-lived assets, valuation allowances for deferred tax assets, and the determination of stock-based compensation expense. Actual results could differ from those estimates.

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method or the if-converted method, as applicable. For purposes of this calculation, stock options, restricted stock units (RSUs) and warrants to purchase common stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. The following shares underlying outstanding convertible notes, stock options, RSUs and warrants to purchase common stock were anti-dilutive due to a net loss in the periods presented and, therefore, were excluded from the dilutive weighted average securities computation for the three and three months ended March 31, as indicated below:

Segment and geographic information

Our chief operating decision maker (“CODM”) is the Chief Executive Officer. Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the CODM in deciding how to allocate resources and in assessing performance. The CODM views its operations and manages its business in one operating segment.

Concentration of credit risk

The Company did not generate revenue during the three months ended March 31, 2024 and 2023, respectively. The Company had no trade receivables as of  March 31, 2024 and  December 31, 2023. The accounts receivable balance on the Company's consolidated balance sheet as of  December 31, 2023 consisted of proceeds from a non-recurring engineering (NRE) arrangement with 6K Energy.

Recent accounting pronouncements

Recently issued accounting pronouncements not yet adopted

In  November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after  December 15, 2023, and interim periods within fiscal years beginning after  December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the impact that this guidance will have on the disclosures within our consolidated financial statements.

In  December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after  December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will require additional disclosures in our consolidated financial statements, once adopted.

3. Revenue recognition

The Company has historically generated revenues by recycling lead acid batteries (“LABs”) and selling the recovered lead to its customers.

The Company was not in commercial production during the three months ended March 31, 2024 and 2023, respectively. Historically, Company products transferred to customers at a single point in time accounted for 100% of its revenue. 

4. Note receivable

On February 15, 2021, the Company entered into a Series A Preferred Stock Purchase Agreement with LINICO Corporation, a Nevada Corporation, or ("LINICO"), that provided for the Company's issuance of 375,000 shares (“Aqua Shares”) of the Company's common stock in consideration of LINICO’s issuance of 1,500 shares of its Series A Preferred Stock, at a stated aggregate value of $1.5 million, along with a three-year warrant (“Series A Warrant”) to purchase an additional 500 shares of LINICO Series A Preferred Stock at an exercise price of $1,000 per share. During the three months ended March 31, 2022, the Company exercised the warrant for all 500 LINICO Series A Preferred shares. Following the exercise, the Company held a total of 2,000 shares of the Series A Preferred Stock with a fair market value of $2,000,000, representing approximately 12% of LINICO common stock on a fully diluted basis.

The Company accounted for the LINICO investment under ASC 321, Investments-Equity Securities, using the measurement alternative of recording at cost as the investment in LINICO doesn’t have a readily determinable fair value.

During the year ended  December 31, 2023, the Company sold its stock in LINICO and recorded an impairment of $1,400,000 and a note receivable of $600,000. The proceeds will be received over a 12-month installment starting in  January 2024. For the three months ended March 31, 2024, the Company recognized a reduction in the note receivable balance of $150,000.

5. Inventory

Inventory consisted of the following (in thousands):

6. Property, plant and equipment, net

Property, plant and equipment, net, consisted of the following (in thousands):

Property, plant and equipment depreciation expense was $218,000 and $82,000 for the three months ended March 31, 2024 and three months ended March 31, 2023, respectively. Equipment under construction is comprised of our lithium-ion battery recycling commercial equipment along with various components being manufactured or installed by the Company.

7. Other assets

Other assets consist of the following (in thousands):

(1) Deposits for equipment to be acquired and utilized at the Company's Phase One build-out of our recycling campus at Tahoe-Reno Industrial Center (TRIC). 

(2) See Footnote 9.

8. Accrued expenses

Accrued expenses consist of the following (in thousands):

9. Leases

As of March 31, 2024, the Company maintained one finance lease for equipment and two operating leases for real estate. The operating leases have current terms of 36 and 37 months and include one or more options to extend the duration of the agreements. These operating leases are included in "Other assets" on the Company's condensed consolidated balance sheets and represent the Company's right to use the underlying assets for the term of the leases. The Company's obligation to make lease payments are included in "Lease liability, current portion" and "Lease liability, non-current portion" on the Company's condensed consolidated balance sheets. 

On March 14, 2024, the Company extended its operating lease for its headquarters located at 5370 Kietzke Lane, Reno, NV. The lease extension was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract. As such, the Right-of-Use (“ROU”) assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of 9.61%, which resulted in an increase of the ROU asset of $170,000 and an increase in the operating lease liabilities of $166,000.

The Company currently maintains one finance lease for equipment. In November 2021, the Company entered into a finance lease for a modular laboratory which expires in October 2024. On April 1, 2024 the Company entered into a finance lease for laboratory equipment which expires in 2029.

Information related to the Company's right-of-use assets and related lease liabilities were as follows (in thousands):

Future maturities of lease liabilities as of March 31, 2024 are as follows (in thousands):

10. Note payable

On February 1, 2023, Aqua Metals Reno, Inc., our wholly-owned subsidiary, entered into a Loan Agreement with Summit Investment Services, LLC, a Nevada limited liability company (the “Lender”), pursuant to which the Lender provided us with a loan in the amount of $3 million. The loan proceeds were used to purchase a building located at 2999 Waltham Way McCarran, NV 89434 (the “Building”). The loan accrues interest at a fixed annual rate of 9.50%. Interest-only payments are due monthly for the first twenty-four months and the principal and all unpaid interest is due on February 1, 2025. We have the right to prepay the loan at any time, provided that we must pay guaranteed minimum interest of $213,750 (9-months of interest). The Loan Agreement includes representations, warranties, and affirmative and negative covenants that are customary of institutional loan agreements. As of  March 31, 2024 and  December 31, 2023, the Company was in compliance with all of the covenants. The loan is collateralized by a first priority lien on the building and site improvements, and is guaranteed by Aqua Metals, Inc.

Note payable is comprised of the following (in thousands):

11. Stockholders’ equity

Shares issued

During the three months ended March 31, 2024, the Company issued 1,056,082 shares of common stock upon vesting of Restricted Stock Units ("RSUs") granted by the Company to management and employees, including 428,566 of reissued treasury stock. We withheld 456,646 shares to satisfy approximately $360,000 of employees’ tax obligations during the three months ended March 31, 2024. We treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs in a similar manner as common stock repurchases and reported as treasury stock. 

During the three months ended March 31, 2024, the Company issued 39,773 shares of common stock upon vesting of RSUs granted to Board members.

During the three months ended March 31, 2024, the Company issued 4,155,611 shares of common stock pursuant to the at the market issuance sales agreement for net proceeds of $2.1 million.

Stock-based compensation

The stock-based compensation expense was allocated as follows:

2014 Stock Incentive Plan

We have adopted the Aqua Metals, Inc. 2014 Stock Incentive Plan providing for the grant of non-qualified stock options and incentive stock options to purchase shares of our common stock and for the grant of restricted and unrestricted share grants. All of our officers, directors, employees and consultants are eligible to participate under the plan. The purpose of the plan is to provide eligible participants with an opportunity to acquire an ownership interest in our company. As of  March 31, 2024, there were 635,215 remaining shares available for future grants.

2019 Stock Incentive Plan

In 2019, our board of directors adopted the Aqua Metals, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). A total of 18,500,000 shares of common stock was authorized for issuance pursuant to the 2019 Plan. The 2019 Plan provides for the following types of stock-based awards: incentive stock options; non-statutory stock options; restricted stock; and performance stock. The 2019 Plan, under which equity incentives may be granted to employees and directors under incentive and non-statutory agreements, requires that the option price may not be less than the fair value of the stock at the date the option is granted. Option awards are exercisable until their expiration, which may not exceed 10 years from the grant date. As of  March 31, 2024, there were 1,269,037 remaining shares available for future grants.

Restricted stock units

During the first quarter of 2024, the Company granted 111,522 RSUs, all of which were subject to vesting, with a grant date fair value of $60,000 to employees. The shares vest in three equal installments over a three-year period.

12. Commitments and contingencies

We  may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we  may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows. We are not party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows.

13. Subsequent events

On May 14, 2024, Aqua Metals, Inc. (the “Company”) entered into an Underwriting Agreement (the “Agreement”) with The Benchmark Company, LLC, as representative of the several underwriters (the “Underwriter”), relating to an underwritten offering of 17,500,000 shares (“Company Shares”) of its $0.001 par value common stock (“Common Stock”) and warrants (“Warrants”) to purchase up to 17,500,000 shares of Common Stock (“Warrant Shares”). The Warrants are being offered and sold at the rate of one Warrant for every one Company Share purchased in this offering. The public offering price, before the Underwriter’s discount and commissions, for each Company Share is $0.39 and for each accompanying Warrant is $0.01. Per the Agreement the Underwriter will get a 7% discount and has the option to exercise an over-allotment option to acquire up to an additional 2,625,000 shares of Common Stock and 2,625,000 Warrants within 30 days of closing. 

Each Warrant will have an exercise price of $0.39 per share of Common Stock and will be immediately exercisable on the date of issuance. The Warrants will expire five years after the date of issuance. 

On May 13, 2024, we entered into a non-binding term sheet with a strategic lender for a secured loan facility in the amount of up to $33 million. The secured loan facility is to be used for the completion of the Phase 1 development of our five‑acre recycling campus in the Tahoe‑Reno Industrial Center. The term sheet is non-binding, except for certain confidentiality and break-up provisions, and the lender’s obligation to close is subject to its further due diligence and the negotiation and execution of definitive agreements. The term sheet contemplates that the parties will close on the loan facility by June 30, 2024, subject to the aforementioned closing conditions. There can be no assurance that we will be able close on the secured loan facility.

PART II - OTHER INFORMATION