Aqua Metals, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 24, 2022. The filing is an annual report, not a quarterly report. FY2020 is the principal comparison period.
Business context
Aqua Metals develops AquaRefining, a water-based metal-recycling process, and is shifting from operating its own lead-acid battery recycling plant to a capital-light model focused on equipment sales, technology licensing, and services. The TRIC plant’s AquaRefining area was severely damaged by a 2019 fire; cleanup and repairs were substantially complete by the end of 2021. The company was not in commercial production in 2021, and its small product sales came from existing inventory.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $173,000 | $108,000 |
| Cost of product sales | $7.017 million | $5.476 million |
| Operating expenses | $17.638 million | $15.501 million |
| Operating loss | $17.465 million | $15.393 million |
| Net loss | $18.193 million | $25.762 million |
| Net loss per share | $0.26 | $0.42 |
| Cash used in operating activities | $7.615 million | $11.029 million |
- Product sales were nominal relative to costs; cost of product sales exceeded revenue by approximately $6.844 million.
- Year-end cash was $8.137 million, working capital $8.4 million, and total assets $33.269 million. Total liabilities were $5.736 million.
- The company reported no notes payable at year-end and said it had been debt-free since repaying its Veritex loan in 2020. Lease liabilities remained; contractual operating and finance lease payments totaled $767,000.
- Cash increased $1.604 million during 2021. Financing provided $11.447 million, including $10.166 million net proceeds from ATM share sales; investing used $2.228 million.
- Balance-sheet cash and lease receivables included a $15.528 million non-current lease receivable related to the TRIC facility arrangement with LINICO.
Material changes and unusual items
- Net loss narrowed by $7.569 million, but operating loss worsened by $2.072 million. The lower net loss primarily reflects the 2020 impairment charge of $11.741 million, versus $545,000 in 2021, rather than improved operating performance.
- 2021 other items included $4.794 million of insurance proceeds net of related expenses, a $5.665 million loss on disposal of property and equipment, and $332,000 of PPP loan forgiveness. The company said it received $30.25 million in total fire insurance payments and expected no further payments.
- Product sales rose by $65,000, while cost of product sales increased $1.541 million, partly due to TRIC cleanup. G&A increased $690,000, including higher legal expenses, insurance premiums, and stock-based compensation; R&D decreased $94,000.
- The company issued 2,995,430 shares through its ATM program for $10.2 million net proceeds. Shares outstanding increased from 64.5 million at year-end 2020 to 70.4 million at year-end 2021.
Outlook, management commentary, and risks
- Management said it may need additional capital to fund operations and its licensing strategy over the next 12 months. Potential sources include equipment sales, lease revenue, licensing revenue, proceeds from a building sale, or additional equity or debt financing; availability and terms are uncertain, and equity financing could dilute shareholders.
- In July 2021, Aqua Metals signed an agreement with ACME Metal Enterprise to deploy equipment at its Taiwan facility. Equipment shipped in early January 2022. The filing does not report licensing revenue from this agreement in 2021.
- LINICO leased the TRIC facility under a triple-net lease and received an option to purchase it for $14.25 million if completed by October 1, 2022, or $15.25 million thereafter, before March 31, 2023. LINICO paid a $1.25 million deposit; a further $2 million deposit was due in November 2022. The company recognized a $3.5 million loss related to accounting for the lease-to-purchase arrangement.
- The V1.5 Aqualyzer was reported to produce over 300% more lead than the V1.0 configuration and to have 97% electrical efficiency. These are company-reported technical results; commercial-scale economics and customer adoption remain unproven.
- The company began lithium-ion battery recycling R&D and signed a collaboration agreement with LINICO. Commercial-scale recovery of lithium-ion battery metals remains at an early development stage, with no assurance of successful commercialization.
- Key risks include limited revenue and operating history, execution and financing needs, commercial-scale performance and customer acceptance, dependence on licensing partners, competition, commodity-price volatility, dilution, intellectual-property protection, and environmental, safety, permitting, and hazardous-material liabilities.
- Clarios terminated its equipment supply agreement in September 2021. Aqua Metals also filed a lawsuit in October 2021 against the fire-protection contractor concerning the 2019 TRIC fire; the outcome is uncertain. Securities and derivative actions were settled in 2021; the securities settlement included $500,000 payable by the company in cash or shares.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal control effectiveness.
Most important facts for investors to verify
- Whether Aqua Metals can secure sufficient financing and sustain operations without material dilution.
- Whether the ACME deployment leads to operational validation, licensing or equipment revenue, and repeat customer agreements.
- Whether LINICO completes the TRIC purchase option and makes the remaining deposit, and how proceeds and lease receivables are realized.
- Whether reported Aqualyzer throughput and efficiency gains translate into independently verifiable, commercially viable customer economics.
- Progress, costs, and technical results from lithium-ion recycling R&D, including the LINICO collaboration.
- Potential financial and operational effects of the contractor fire lawsuit, environmental obligations, and other contingencies.