The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the
Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K for the year ended December 31, 2022filed with the SECon March 09, 2023, or our Annual Report. In this report we make, and from time to time we otherwise make written and oral statements regarding our business and prospects, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimates," "projects," "believes," "expects," "anticipates," "intends," "target," "goal," "plans," "objective," "should" or similar expressions identify forward-looking statements, which may appear in our documents, reports, filings with the SEC, and news releases, and in written or oral presentations made by officers or other representatives to analysts, stockholders, investors, news organizations and others, and in discussions with management and other of our representatives. Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties, including those risks included below in Part II, Item 1 "Risk Factors". No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement. General Aqua Metalsis 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 has the potential to replace 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. Our process was originally designed for lead recycling. Lead is a globally traded commodity with a worldwide market value in excess of $20 billion. We are also applying our commercialized clean, water-based recycling technology principles with the goal of developing the cleanest and most cost-efficient recycling solution for lithium-ion batteries. We believe our process has the potential to produce higher quality products at a lower operating cost without the damaging effects of furnaces and greenhouse emissions. Aqua Metalsestimates the total addressable market for lithium-ion battery recycling will be approximately $9 billionby 2025 and grow to exceed lead battery recycling by the end of the decade. In February 2021, we announced our entry into the lithium-ion battery (LiB) recycling market through a key provisional patent we filed that applies the same innovative AquaRefining approach. In August 2021, we announced we had established our Innovation Center in TRIC focused on applying our proven technology to LiB recycling research and development and prototyping. Our strategic decision to apply our proven clean, closed-loop hydrometallurgical and electrochemical recycling experience to lithium-ion battery recycling is designed to meet the growing demand for critical metals driven by the global transition to electric vehicles; growth in internet data centers; and alternative energy applications including solar, wind, and grid-scale storage. During the first half of 2022, we announced our ability to recover copper, lithium hydroxide, nickel and cobalt from lithium-ion battery black mass at the Company's Innovation Center. During 2022, we built our fully-integrated pilot system, located within the Company's Innovation Center, which is designed to allow Aqua Metalsto be the first company in North Americato recycle battery minerals from black mass and sell them in the U.S.and position the Company as the first LiB recycler in North Americato align with the U.S.government's goal of retaining strategic battery minerals within the domestic supply chain. 13
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During 2022, we conducted environmental comparisons based on
Argonne National Lab'smodeling of lithium battery supply chains - called EverBatt. The initial results indicate that AquaRefining is a cleaner approach to LiB recycling, producing far less CO2 waste streams than the two evaluated primary processes currently on the market which include smelting and chemically driven hydrometallurgical process. In December of 2022, we completed equipment installation and began to operate our first-of-a-kind LiB recycling facility, utilizing electricity to recycle instead of intensive chemical processes, fossil fuels, or high-temperature furnaces. In January of 2023, Aqua Metalsrecovered its first metals from recycling lithium batteries using the patent-pending Li AquaRefining process and is currently scaling operations at the Company's pilot facility. In February 2023, we acquired a five-acre recycling campus at TRIC. The facility is designed, when fully developed, to process up to 10,000 tonnes of lithium-ion battery material each year using our proprietary AquaRefining technology. Subject to our receipt of development financing on a timely basis, we expect to complete development of Phase One, including all equipment installation, by the end of 2023 and to commence operations at the new campus in the first quarter of 2024. Our initial plans call for upgrading the current building to install a commercial-scale Li AquaRefining system capable of recycling 3,000 tonnes of lithium battery 'black mass' each year. We expect to complete redevelopment of the current space and finalize equipment installation this year, and to commence operations at the new campus in the first quarter of 2024. The purchase of the new property was funded with a non-dilutive loan. At first, we intend to finance the development of Phase One through a conventional non-dilutive loan. The Company is currently in discussions with a provider of debt financing. This lender has provided the Company with debt financing in the past. At the same time, we are looking into raising capital through a potential government backed debt offering. However, there can be no assurance that such funds will be available. 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. We are also pursuing potential partnership and/or joint ventures agreements, particularly as our Li AquaRefining matures through 2023 and into 2024. We believe that Aqua Metalsis in a position to become one of the few critical minerals recovery players for which our environmental and economic value proposition should generate both great commercial wins and potentially government grants to accelerate our credibility and progress. Plan of Operations Our business strategy is based on the pursuit of building and operating Li AquaRefining recycling capacity to meet the growing demand for critical metals in lithium-ion batteries driven by innovations in automobile batteries, growth in internet data centers, and alternative energy applications, including solar, wind, and grid-scale storage. We are also continuing to pursue equipment supply and licensing opportunities within the lead acid battery recycling marketplace. 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. We have already demonstrated at our pilot facility our ability to recover key valuable minerals in lithium-ion batteries, such as lithium hydroxide, copper, nickel, cobalt, and other compounds in 2022. Our goal is to process commercial quantities of nickel, cobalt, and copper in a pure metal form that can be sold to the general metals and superalloy markets and can be made into battery precursor compound materials with known processes already used in the mining industry. We have installed, commissioned, and began to operate the first Li AquaRefining pilot plant at the end of 2022, scaling towards a commercial demonstration plant operation with capacity of processing approximately 3,000 tonnes of black mass per year. The location for the pilot demonstration is currently the Innovation Center with expansion to happen at our new 5-acre recycling campus starting with processing ~3,000 tonnes of black mass/ year in 2024 and growing to commercial quantities of ~10,000 tonnes / year or more of production starting in 2025 and 2026, which would be enough material to build ~100,000 average EVs or ~400,000 average home energy storage systems. At today's metals prices, this capacity could also generate $200,000,000plus of revenues for the company. 14
Table of Contents Results of Operations We have not engaged in commercial operations since 2019, and since that time our operations have been devoted to improvements to our AquaRefining processes and developing our Li AquaRefining battery recycling technology. During 2022, we spent approximately
$3.1 millionon research and development, which includes the build out of the initial Li battery recycling pilot at the Innovation Center. During the three months ended March 31, 2023, Aqua Metalsis focused on quickly advancing from the planning and validation phases to execution and operation of our pilot facility and the build out of our commercial facility. We did not earn any revenue during the three months ended March 31, 2023and 2022. The following table summarizes our results of operations with respect to the items set forth below for the three months ended March 31, 2023and 2022 together with the dollar and percentage changes in those items (in thousands). Three Months Ended March 31, Favorable % 2023 2022 (Unfavorable) Change Plant operations and clean up $ 1,065 $ 994$ (71 ) 7.1 % Research and development cost 445 551 106 (19.2 )% General and administrative expense 3,006 2,765 (241 ) 8.7 % Total operating expense $ 4,516 $ 4,310$ (206 ) 4.8 % Plant operations and clean up includes raw materials, supplies and related costs, salaries and benefits, consulting and outside services costs, inventory adjustments, depreciation and amortization costs and insurance, travel and overhead costs. Plant operations and clean up increased approximately 7% for the three months ended March 31, 2023as compared to the three months ended March 31, 2022. The increase in plant operations and clean up was primarily due to the increase in plant operations costs, as we began to operate the pilot facility and to process black mass. Research and development cost includes expenditures related to the improvement of the AquaRefining technology and the development of our lithium-ion battery recycling process. For the three months ended March 31, 2023, research and developments costs decreased $106,000, or approximately 19% compared to the three months ended March 31, 2022. The decrease was driven by our focus to operate our recycling pilot at the Innovation Center. General and administrative expense increased approximately 9% for the three months ended March 31, 2023compared to the three months ended March 31, 2022. The increase in general and administrative expenses includes changes in payroll and payroll related expenses as we ramp up and support the growth of our lithium-ion recycling business model.
The following table summarizes our other income and interest expense for the
three months ended
percentage changes in those items (in thousands).
Three Months Ended March 31, Favorable % 2023 2022 (Unfavorable) Change Other income and (expense) Gain (loss) on disposal of property, plant and equipment
$ 20 $ (150 )$ 170 (113.3 )% Interest expense (176 ) - (176 ) n/a Interest and other income 66 52 14 26.9 % Total other expense, net $ (90 ) $ (98 )$ 8 (8.2 )% We recognized a gain on disposal of property, plant and equipment of approximately $20,000during the three months ended March 31, 2023compared to a loss of $0.2 millionfor the three months ended March 31, 2022. The gain (loss) on disposal of property, plant and equipment resulted from the sales of fixed assets and assets held for sale.
The increase in interest expense for the three months ended
due to the interest paid on the notes payable.
We recognized approximately
the three months ended
primarily due to the increase in interest received on our bank deposits.
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Liquidity and Capital Resources
The following table summarizes our cash provided by (used in) operating,
investing and financing activities (in thousands):
Three Months Ended March 31, 2023 2022 Net cash used in operating activities
$ (2,863 ) $ (3,404 )Net cash provided by (used in) investing activities $ (5,222 )$ 417 Net cash provided by financing activities $ 4,358 $ 3,890
Net cash used in operating activities
Net cash used in operating activities for the three months ended
March 31, 2023and 2022 was $2.9 millionand $3.4 million, respectively. Net cash used in operating activities during each of these periods consisted primarily of our net loss adjusted for non-cash items such as depreciation, amortization, stock-based compensation, and loss (gain) on the disposal of property, plant and equipment, as well as net changes in working capital.
Net cash provided by (used in) investing activities
Net cash used in investing activities for the three months ended
March 31, 2023was $5.2 millionand consisted mainly of $4.3 millionutilized towards the purchase of the building located at 2999 Waltham Way McCarran, NV89434 and $0.9 millionutilized towards purchases of fixed assets. Net cash provided by investing activities for the three months ended March 31, 2022was $0.4 millionand consisted mainly of $0.3 millionutilized towards the purchase of property, plant and equipment, $1.1 millionof proceeds from the sale of equipment and $0.5 millionutilized towards the warrant exercise.
Net cash provided by financing activities
Net cash provided by financing activities of
$4.3 millionfor the three months ended March 31, 2023consisted of $2.0 millionin net proceeds from the sale of Aqua Metalsshares pursuant to the at-the-market offering, or ATM, and $2.9 millionin net proceeds from the loan agreement secured with the Summit Investment Services, LLCpartially offset by the $0.6 millionrelated to tax withholdings to cover RSU vestings. Net cash provided by financing activities for the three months ended March 31, 2022was approximately $3.9 millionin net proceeds from the sale of Aqua Metalsshares pursuant to the ATM. As of March 31, 2023, we had total cash of $3.4 millionand working capital of $7.4 million. As of the date of this report, we believe that we will require additional capital in order to fund our current level of ongoing costs and our proposed business plan over the next 12 months, including the completion of the Phase One build-out of our newly acquired five-acre recycling campus at TRIC. To satisfy our capital requirements, including financing the development of Phase One and ongoing future operations, we intend to raise additional capital through conventional loans, potential government backed debt offerings, government grants or through the sale of our common shares via our current at-the-market offering. However, there can be no assurance that such funds will be available. Funding that includes the sale of our equity may be dilutive. If financing is not available on satisfactory terms, we will be unable to further pursue our business plans and we will be unable to continue operations. 16
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Critical Accounting Estimates
No material changes from what was reported in the 2022 Form 10-K.
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