Aqua Metals, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed March 28, 2016. This is an annual report, not a standalone fourth-quarter report. The company was an early-stage lead-battery recycling developer and had not begun revenue-producing operations.
Business context and outlook
Aqua Metals is developing AquaRefining, a water-based electrochemical process intended to recover high-purity lead from lead-acid batteries. Its first facility was under construction at the Tahoe Reno Industrial Center in Nevada. The company reported successful limited-scale production of 99.99%-pure lead, but had not demonstrated commercial-scale operations.
Management expected facility construction to finish in Q2 2016, initial module installation to begin in Q2, and 16 modules to support capacity of 80 metric tons of lead per day by the end of Q3 2016. The plan was to begin commercial recycling after the first module arrived and eventually expand the facility to 160 tons per day, subject to additional funding. Management believed available cash would fund the initial 80-ton-per-day plan, while acknowledging that additional capital might be needed.
Financial results and liquidity
| Metric | FY2015 / December 31, 2015 | Comparable period |
|---|---|---|
| Revenue | None | None; operations began in June 2014 |
| Operating expenses | $5.45 million | $1.41 million for June 20–December 31, 2014 |
| Net loss | $12.33 million; $1.47 basic and diluted loss per share | $2.37 million; $0.54 loss per share for the partial 2014 period |
| Cash used in operating activities | $1.48 million | $0.57 million for the partial 2014 period |
| Cash used in investing activities | $25.04 million | $0.26 million for the partial 2014 period |
| Cash provided by financing activities | $42.12 million | $5.36 million for the partial 2014 period |
| Cash and cash equivalents | $20.14 million | $4.54 million |
| Restricted cash | $11.67 million | None reported |
| Working capital | $28.64 million | Not stated |
| Total assets | $47.28 million | $5.82 million |
| Total liabilities / stockholders’ equity | $13.61 million / $33.67 million | $6.59 million / $(0.77) million |
Margins are not meaningful because the company had no revenue. Management reported $31.81 million of cash on hand, consistent with balance-sheet cash plus restricted cash; the restricted amount was escrowed for facility construction. The company raised approximately $32.86 million net from its 2015 IPO and received a $10 million Green Bank loan, reported net of issuance costs as $9.22 million long-term debt and $0.04 million short-term notes. The loan carries a floating rate of at least 6%, is secured by facility-related assets and a $1 million certificate of deposit, and is 90% USDA-guaranteed. It has financial covenants, which the company reported meeting at year-end.
Changes, unusual items, and risks
- Compared with the partial 2014 start-up period, 2015 brought substantially higher operating and development spending, facility investment, IPO proceeds, and debt financing. Management said a direct annual comparison was not meaningful because 2014 covered only about half a year and activity was limited.
- The $12.33 million net loss included $5.78 million of non-cash expense from changes in the fair value of derivative liabilities tied to the convertible-note financing and warrants, plus $1.13 million of interest expense. The convertible notes and accrued interest converted into common shares at the IPO; derivative liabilities were eliminated or reclassified at that time.
- The principal risks are failure to scale the process economically, construction or commissioning delays and cost overruns, insufficient financing, uncertain access and pricing for used batteries, lead-price volatility, permitting and environmental liabilities, and the possibility that patent applications will not provide effective protection. The company had no definitive battery-supply agreements and reported no issued patents.
- Required Nevada environmental permits remained a dependency, although management did not expect material permitting issues or delays. The filing also disclosed that future operations could face hazardous-material, worker-safety, cleanup, and community-opposition risks.
- The financial statements received an unqualified independent auditor opinion. Management concluded disclosure controls were effective, but the filing did not include management’s internal-control assessment or an auditor attestation, citing the newly public company transition period.
Most important facts for investors to verify
- Whether the Nevada facility was completed and permitted on schedule, and whether the 16 modules achieved reliable commercial production at the stated capacity.
- Actual production costs, recovery yields, product quality, customer acceptance, and realized lead prices; no revenue or commercial margins were reported for FY2015.
- Whether battery-supply agreements were executed on competitive terms and whether the company secured any additional financing needed for expansion.
- Cash available for operations after construction commitments, restricted funds, debt service, and lease obligations; confirm the distinction between unrestricted cash and restricted cash.
- Progress and outcomes of patent applications, and any changes in environmental, safety, permitting, or litigation exposure.