Aqua Metals, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. The filing also reports fourth-quarter results. Aqua Metals is developing and licensing AquaRefining, a lead-acid battery recycling technology. After a November 2019 fire damaged the AquaRefining area at its Nevada facility, the company shifted from operating a recycling plant to a capital-light equipment and technology licensing strategy.
Financial performance and position
- Revenue: $0.108 million in FY2020, down 98% from $4.874 million in FY2019. The 2020 sales were from pre-fire inventory; there was no commercial production. FY2020 revenue was entirely product sales, not licensing revenue.
- Operating costs and margins: Cost of product sales was $5.476 million, versus $24.799 million in 2019. Gross loss was approximately $5.368 million, or a gross margin of about negative 4,970%, reflecting very low sales against remaining product costs. Research and development was $1.027 million and general and administrative expense was $8.998 million. Total operating expenses were $15.501 million.
- Loss: Operating loss was $15.393 million, compared with $40.794 million in 2019. Net loss was $25.762 million, or $0.42 per diluted share, versus $44.795 million, or $0.86 per share, in 2019. The smaller net loss included $2.946 million of net insurance proceeds, offset in part by an $11.741 million asset impairment charge. Fourth-quarter 2020 net loss was $15.515 million, including the impairment charge.
- Cash flow: Cash used in operating activities was $11.028 million, compared with $25.177 million in 2019. Investing activities provided $6.633 million, primarily reflecting $9.838 million of insurance proceeds, while financing activities provided $3.354 million, including $3.676 million net proceeds from ATM stock sales and $0.332 million of PPP loans. Cash decreased by $1.041 million during the year.
- Liquidity and assets: At year-end, cash was $6.533 million, working capital was $4.9 million, and total assets were $35.138 million. Property and equipment, net, was $24.883 million. Management said it may need additional capital over the next 12 months.
- Debt and obligations: The $10 million Veritex/Green Bank loan was repaid in December 2020 using insurance proceeds and collateral; the payoff included a $0.4 million prepayment penalty and $0.6 million of remaining loan costs expensed. Year-end notes payable of $0.332 million consisted of PPP loans; one $0.131 million loan was forgiven after year-end. Operating lease liabilities were $0.836 million.
- Equity financing: The company issued 3.217 million shares through its ATM program in 2020 for $3.676 million net proceeds. After year-end, it issued a further 1.828 million shares for $7.0 million net proceeds. Shares outstanding at December 31, 2020 were 64.461 million.
Changes versus the prior period
- Plant-based commercial operations remained suspended throughout 2020 following the 2019 fire. Revenue fell sharply, and the company relied on insurance collections, cash on hand, and equity issuance rather than operating sales.
- Operating expenses declined: cost of product sales fell 78%, R&D 34%, and general and administrative expense 53% versus 2019. Lower activity, staff reductions, and suspension of Veolia-related operations contributed; 2019 G&A included $9.0 million of noncash Veolia-related expense.
- Net loss improved year over year, but 2020 included a new $11.7 million impairment charge following the strategic shift and reassessment of equipment values and useful lives. The 2019 period included a $22.4 million write-off of fire-damaged fixed assets.
- Cash use from operations decreased, while investing cash flow turned positive due mainly to insurance proceeds. Financing proceeds were substantially lower than 2019, when public offerings generated $29.4 million net.
Outlook, commentary, and material risks
- Management reported that the V1.25L Aqualyzer program finished in December 2020 on time and under budget. The company said the unit doubled throughput versus V1.0, could reduce the number of units needed by 50%, lower equipment-installation capital expenditure by 50%, and reduce operating expenses by more than 60%. These are company-reported technical and cost claims, not demonstrated licensee economics.
- Management considered V1.25L commercially ready and hoped to complete an initial licensing transaction in Q2 2021; no assurance was given. At the filing date, the company had no licensing, joint-venture, or strategic-alliance agreement in place that would generate licensing revenue.
- The Clarios equipment supply agreement’s performance conditions were based on operation of up to 16 modules at the TRIC plant. The company said it had not reached agreement with Clarios on revised standards; absent agreement, third-party sales or licenses could be restricted until the agreement expires in June 2021 or is terminated earlier.
- The company had received approximately $23.4 million in insurance payments by December 31, 2020 and reported a further $0.1 million received after year-end. It considered additional insurance payments probable and was pursuing property, casualty, and business-interruption claims, subject to policy limits. Other filing passages state approximately $23.5 million received as of the report date; investors should confirm the amount and remaining claims.
- In February 2021, Aqua Metals agreed to lease the TRIC facility to LiNiCo beginning April 1, 2021, with rent starting at $68,000 per month and rising to $100,640. LiNiCo received an option to purchase the property for $14.25 million or $15.25 million depending on closing timing. Aqua Metals must clean up the fire-damaged area by July 31, 2021 and repair it by November 15, 2021. The company also agreed to exchange 375,000 of its shares and a warrant for a preferred-stock investment in LiNiCo, described as approximately an 11% interest.
- Funding remains a significant risk: year-end cash was limited, the company expected it might need additional capital, and insurance recovery or asset-sale proceeds might not be sufficient. Further equity financing could dilute shareholders. Commercial-scale performance, customer acceptance, licensing economics, permitting, hazardous-material liabilities, and the effects of COVID-19 also remain uncertain.
- Pending securities class-action and shareholder derivative litigation could entail costs and management distraction. The company denied the allegations and said it intended to defend the cases. It also disclosed a Nasdaq audit-committee composition deficiency and said it intended to regain compliance by the applicable deadline.
Most important facts for investors to verify
- Whether Aqua Metals completed a licensing transaction after filing, and the actual terms, timing, and expected recurring revenue.
- Whether Clarios revised or terminated the performance requirements and whether any exclusivity restrictions affected commercialization.
- Whether additional insurance proceeds were collected, the status of business-interruption claims, and the final net recovery after related costs.
- Whether LiNiCo made the required deposits, met lease and repair obligations, and exercised its facility purchase option; assess the preferred investment’s protections and potential dilution.
- Cash runway and financing needs after the post-year-end ATM issuance, including any additional share issuance or debt financing.
- Independent evidence supporting V1.25L throughput, uptime, build-cost, and operating-cost claims under commercial conditions.
- Current status and potential financial exposure from the lawsuits, Nasdaq listing compliance, and remaining PPP loan forgiveness.