Edited Transcript of AQMS earnings conference call or presentation 11-Mar-20 8:30pm GMT

And we’ll start with Slide 3. This is Aqua Metals at a glance. So what you see on the right side for any of you who haven’t seen it before, that is our novel proprietary, environmentally friendly lead acid battery recycling technology, which we call AquaRefining at work. It makes a spongy lead, and it’s a high-purity lead at a room temperature, water-based, organic acid process rather than heat furnaces to create that ultra-pure lead in a very environmentally clean methodology. And we believe that the AquaRefining technology is a great fuel for the $20 billion-plus lead recycling industry, which then feeds into the $65 billion lead acid battery industry, with that reduced environmental impact as compared to the traditional smelting process.

There are some vitals in the company down below, I won’t take everybody through in detail and you can review that on your own. But on Slide 4, we’ll talk about the current problem and the solution to recycling lead acid batteries. Today’s incumbent methodologies, which is purely smelting, is the conventional method of lead acid battery recycling deployed throughout the world. And that is a high-temperature, potentially polluting process with very large costs and risks that are doing nothing, but going up for proper environmental containment.

And that containment has to do with making sure that the volumes of waste that come out of that process are contained from a fugitive emissions perspective as well as from solid waste and all of those areas and also smelting requires a high degree of additional refining in order to make high-purity lead, which requires the application of chemicals, additional process control, et cetera. And that’s all in the backdrop of environmental regulations and concerns as you look at the marketplace today.

Now compare that to AquaRefining, what Aqua Metals has proven and demonstrated, that’s an electrochemical alternative to the incumbent methodologies of lead acid battery recycling using that room temperature, water-based process, and has lots of benefits like reduced emissions, ultrahigh-purity lead, it’s got a modular and scalable design. What you see there are 2 rotating disks in one example of AquaRefining creating a spongy, high-purity lead right off of the machine. And it’s a significant technological leap forward in the recycling industry, we believe, which further supports the circular economy that the lead acid battery industry is already doing a good job on, that we think it could do a great job on.

Moving to Slide 5. There’s 5 key business drivers we just want to point out for everybody that’s new to the story and even knows the story. And that is a reminder to everyone that this is a $20 billion global lead recycling metal industry that needs a major upgrade. And it’s being driven, and we’ll get into more detail, by automotive data centers and renewables. The industry and the planet truly needs an environmentally friendly technology to improve sustainability of the recycling processes and reduce emissions. So there’s a big environmental backdrop to a lot of the reasons that we’re doing this.

The third point is technology of AquaRefining that we have been operating here at the plant throughout 2018 and 2019, in particular, really demonstrated the process at commercial quantities. We also have leading strategic investors and partners that have included very large industry operators, inclusive of Clarios, which is the world’s largest battery manufacturer; Veolia, which is one of the world’s largest plant operators; and Interstate Batteries, which is the largest battery recycler in the United States and was one of our key feedstock suppliers while we were operating the plant.

Fourth bullet point is we have very strong intellectual property. And we’ve invested over $180 million towards the commercialization, resulting in a large number of patents granted in the U.S. and internationally. And on the go-forward business model, which we’ll talk further about in the last bullet point, the core technologies, process and commerciality of AquaRefining lead really is already proven. And the business model focus, as was before, and it’s going to be accelerated as we move forward, is on global licensing opportunities to incorporate our AquaRefining technology, both in industry upgrades of existing facilities as well as builds of new ones. We’ll talk more about that as we go further through the deck.

If you move to Slide 6, this is just a summary time line of how we got here today. Aqua Metals is not a terribly old company. It was just founded in 2014, with an idea and a concept and seed money of $6 million in a private placement, where we built our first electrolyzer prototype. Moving to 2015, you’ll see that we broke ground after — shortly after an IPO and a $10 million USDA-backed loan. And within less than a year, we started up the facility in 2016 and commenced operations and announced our partnership with Interstate Batteries to be our key feedstock supplier as well as their investment in the company.

We also cast our first AquaRefining ingot in the year 2016. In 2017, we had a great partnering success with our partner and our current partner Clarios, which was, at the time, Johnson Controls’ power systems division, and again, they’re the world’s largest battery manufacturer. And after that partnership, we did run into some technical challenges, in what we call the sticky lead problem and had some delays.

In 2018, there was some shareholder activism, which resulted, as most of you know, in new governance, which was inclusive of a new management team that began work in May 2018 with a reconstituted Board to shift and accelerate towards a licensing strategy. And in the year 2018, we made substantial operational progress and went deeply into production, which continued into 2019. And in 2019, we did get to 24/7, so 24 hours a day, 7 days a week operations, and we produced about 35,000 ingots of AquaRefined lead specifically. And the plant also became operated by Veolia midyear as we did at the Veolia operations, maintenance and management contract. And that is in furtherance of our goals towards the capital-light — of licensing the technology.

Unfortunately, as we all know, November 29, we had a fire in the AquaRefining area. We’ll talk in more detail about that. But the fire caused roughly $40 million to $50 million of loss in equipment as well as — in addition to that, a business interruption loss, which we’ll talk about in more detail. And we saw in late 2019, almost immediately after the fire, about a 50% enterprise value drop. And we did begin assessing and investigating and collecting insurance, and in fact, we collected our first tranche of insurance money in late 2019.

So if you go to Slide 7, you will see the demonstration plant, that is the AquaRefinery, has really proven that AquaRefining works. As I said earlier, 35,000 ingots or 55 truckloads of AquaRefined lead were produced, qualified as a lead operating vendor and shipped to Clarios, the world’s largest manufacturer. And in 2019, we ran the process for several months at 24/7 and also ran the process at or above our original specified 2.4 tonnes per day per module design. We produced the ultra-pure lead at a very consistent basis and ran the entire plant for several months at 24 hours a day, 7 days a week, and ran 1 to 4 of those modules 24/7, sometimes up to a month at a time.

If you move to Slide 8, we had the fire event on November 29, very shortly before we were going to turn the plant back up after we had idled it for a temporary period of time to complete capital upgrades to get it to its full capacity. And the first and foremost that we’ve said before, but I’ll say it again, is that the cause of the fire had no relationship to the AquaRefining technology or process, but it was rather related to contracting work that was being done in the AquaRefining area. And it occurred during the final weeks of preparation to do that scaling to the 16 modules.

And so far, our insurance claims, just for the property and casualty losses, have exceeded $37 million. And we’ve submitted business interruption claims for $15 million plus. And the insurance collection cadence and timing, especially in the early days, was uncertain. So the company did act responsibly and swiftly and initiated a massive reduction in our cash burn in early December of 2019. And Judd will get into more detail when he takes you through the financials on that and the results of that.

The late Q4 of 2019 and Q1 2020 focus was really on assessment what happened, investigation and the early insurance collection efforts, which we did get $2.5 million in December of 2019. And now we’re up to $10 million, just about 100 days after the fire, along with formulating what our go-forward plan specifics are.

So if you go to Slide 9, we’ll summarize a little bit of our shift to accelerate the licensing and our capital-light strategy. The first tenet of that is to build our cash position. As I mentioned earlier, we’ve been conserving cash post fire at a great level, and we’ve been building our cash balance and building our runway. And second point is that we have finalized the design for our licensable electrolyzer. And our intention is to run 1 to 2 of these electrolyzers during Q2 of this year, which is very soon, in a final licensable form. We’ll get into the specifics of the improvements on what those improvements are. While we’re doing that, we are working to identify the licensing site #1, as we get the licensable electrolyzers complete for deployment as early as 2021 and contracting as early as 2020.

And our intention is also to emerge into our capital-light model as a company that’s debt free. And we do expect that we’ll be able to retire the entire debt structure that we have throughout the year of 2020. And the business strategy really is intended to build our balance sheet, build our cash position and fund that through insurance collection and as appropriate asset disposition, and accelerate our licensing efforts, and we will seek to equip the existing or planned battery recycling facilities for people that we’ve been talking to throughout the world with AquaRefining beginning in 2021.

So moving to Slide 10, I’m going to introduce Ben Taecker, who is our Vice President of Engineering and Operations and has a lot of experience, both operating the electrolyzers as well as running with the designs of them. And Ben is going to take over for a moment here and explain to everybody what we’re doing to ready these licensing — the licensed version of the modules.

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Ben Taecker, Aqua Metals, Inc. – VP of Operations [4]

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Thanks, Steve. Like Steve said, on Slide 10, we talk about the new design for electrolyzer V1.25L, specifically designed for licensing. The Aqua Metals engineering team has recently completed this new design with minor improvements solely around operation costs and capital build costs with absolutely no changes to the electrowinning process that was developed in 2019. The main areas of improvement are around the overall efficiency of the unit, the automation of the unit and the processes as well as the assembly complexity and remote access capability for field deployment. The team is in the process of building the first electrolyzer V1.25L and expect to be producing lead within the Q2 of this year.

Turn it back over to you, Steve.

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [5]

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Great. Thanks, Ben. Moving on to Slide 11. That all plugs into our 2020 first half key initiatives. And you’ll see there’s a list of 6 items there, and I’ll try to get through these as quickly as possible. First is to continue to collect those insurance proceeds that we’ve been successfully collecting, affected by our retention of a public adjuster, which allows us to interface with the insurance company adjuster, that’s been very successful thus far as well as specialized counsel to facilitate those payments, both for the casualty and for the business interruption losses and put cash on the balance sheet as we’ve already been doing.

Second point is to sell unneeded assets as appropriate. Our balance sheet shows about $37 million of book value for the — all the equipment in the plant. And some of that could be sold or redeployed as well to a licensed site. So we have opportunities to unlock some value out of the assets that we have here in the facility while we use it to run V1.25L that Ben was referring to in the near future.

Point three is restructuring our debt for the year 2020 and retiring that debt in 2020, as I mentioned earlier. The next point is to build and run those electrolyzers with those design improvements and really, the primary reasons that we’re doing that is to improve the cost and operating model for the better value proposition to the licensees while we’re talking with them, while increasing the utilization rate to get more throughput potentially through those machines, which further increases that value proposition. And again, we expect to begin running 1 or 2 of those units very soon.

We also seek to contract the licensed site number one, and we’ve been talking to several interested parties, ranging from greenfield builds to retrofit of existing battery recycling facilities to even specialized applications of AquaRefining within a facility for particular types of materials. And we’re going to work to pick the best site by Q4, Q1 timing and plan to deploy that first site and be ready to deploy that by 2021. And we are continuing our research and development, but the focus is on licensing and those improvements that Ben was mentioning earlier as well as building out support tools for our new customers. Because with these running elsewhere, we need to be able to see what’s happening on a real-time basis from flow rates to how the electrolyzers are operating on a variance in all the varied parameters to allow us to support the implementations.

If you go to Slide 12, you can see visually that our cash needs runway can be nondilutive. And so if you look at year 2020 that we’re in now and 2021, we can fund this capital-light pivot from the insurance proceeds and potentially some asset sales. When you look at 2022 and beyond, by then, we believe we will have enough licensing revenue to sustain and grow the company and continue to build shareholder value. And that’s part of the licensing plan that we’ve had in place for — since inception, really, but particularly accelerated in 2018.

If you move to Slide 13, beyond that shorter-term runway, there is a longer-term vision that we want to make sure we communicate to everybody that we do have a longer-term vision. And that is starting with pivot and building cash, as I mentioned, in 2020 and getting to self-sufficiency towards 2021, and by propagating in 2022 additional licensed sites and gaining revenue from those sites from equipment sales and maintenance and service and licensing revenues.

And then in 2023, extending off refining applications to prove that they do indeed improve battery performance due to the high purity of the lead, which we think will strengthen our industry influence on the energy storage world and allow us to help our partners and the industry work towards the best available technology status for AquaRefining. And then ultimately, we think that diversification can happen in the longer term, which is trials of AquaRefining applications for particular applications for lead and even potentially other metals.

Slide 14 is just a quick reminder for everybody of what the market drivers are of increasing the global demand for lead. And this is really important because there’s a finite amount of capacity that’s out there. And we’ll get into that in a minute. But there’s auto growth in emerging markets. They’re putting more cars on the road and many of those cars have 2 batteries instead of 1. There’s renewable energy. So energy storage is becoming more and more important for solar and wind and other types of applications. There’s multiple chemistries there. There’s lithium battery farms. There’s also a lot of lead battery farms that are being built, and that increases the demand for lead.

If you look at the third area, that’s the data center and telecom space, where I came from for a great bulk of my career and particularly the lead acid battery portion of that. And that is vastly growing at a rapid rate because every application that’s cloud-based and Internet-based is becoming more and more critical and cannot have downtime. And so those battery farms are there to make sure that the server farms don’t go out when the utility power fails. Electric vehicles, on the last point for everybody that didn’t know, they do have lead acid batteries in them and the lithium battery only propels the vehicle forward.

So Slide 15 just points out that the growing demand for lead is increasing and is projected to continue to increase from $46 billion back in 2015, and all the way up to $84 billion by 2019 — I’m sorry, by 2030, roughly. So we do see that the market is growing at a rapid rate by those market drivers. And that means that there’s a higher need for capacitization of existing facilities, opportunities for new facilities to be built to consider AquaRefining as part of the core design as they rebuild. And we think that we’re at a good place at the right time to facilitate a new technology for both of those types of applications in a growing market.

Slide 16 summarizes our AquaRefined advantage and there’s really, comparing it to traditional recycling technologies, 4 key advantages to AquaRefining. And that’s, again, that purity, which is very important for the future of energy storage because it’s the impurities that cause batteries, lead acid batteries, in particular, to gas and dry out and age and perform less ideally than they could if they didn’t have those impurities in them. So we think there’s an incredible opportunity there in the long term for battery manufacturers to take advantage of the AquaRefined lead.

We also believe that we can enable these global battery recyclers to meet the demand and the growing demand for lead. The capacity has to ultimately come from somewhere as we all believe this market is growing. And AquaRefining can contribute towards that capacity, with the third area of the reduced environmental impact and the fourth area potentially at equal or ultimately a lower cost to recycle because of the lower cost to maintain and manage the environmental footprint of AquaRefining as compared to incumbent techniques.

If you go to Slide 17, you’ll see our planned revenue sources summarized and a little bit of a time line. 2020 this year is focused mostly on insurance collections. And again, we already collected $10 million in the first 100 days since the fire. And our legal counsel continues to tell us that they’re impressed with the progress that we’ve made to date. And we’re working towards the total payout of up to $50 million. That’s the nameplate full insurance that we have. And as I’ve mentioned earlier, our claims are already exceeding that $50 million.

The 2020 and 2021, we could potentially augment with the sale of unneeded assets, and that could yield $10 million plus for those assets that we choose to sale, and it also creates that opportunity to redeploy some of the equipment to the first licensed site that we’ve already paid for, and we can provide an attractive licensing package for the first licensee for some of the equipment that we already have here on site that we could redeploy to a licensed site.

And 2021, ’22 plus, that’s when the equipment services and royalties kicks in and sets up that potentially lucrative model for the existing and greenfield battery recycling facilities. We’ve already built the licensing model, and we’ve already built the beginnings of our licensee pipeline and engaged with several potential licensees throughout the world, inclusive of Clarios, of course. And we’re seeking with our licensing deals, engineering revenues between 6 and 7 figures per project.

So what does that mean? That’s when you hire an architect to design a bridge or a building or a skyscraper, your house. They don’t do that for free. So the engineering package that’s provided to a project basis is paid for and its traditional in all industries for that to be the case. That would be our first beginnings of licensing revenue, which would be significant. And then we project possible equipment supply revenue of over $10 million for projects just from the AquaRefining electrolyzer supply as well as the supporting and related equipment to feed those electrolyzers and take the lead off of them and protect them in all those types of applications as well that feed into the system of — the ecosystem that the client already has.

We see recurring revenue royalties on the lead that’s produced as a great revenue source. And that’s what every licensing company is ultimately after. But in addition to the recurring running royalties, there’s additional millions of dollars of revenue opportunities, even per licensed site over the life of the license that could potentially be generated due to maintenance and upgrades over the lifetime of that AquaRefining deployment in that plant. That could be physical upgrades, that could be technology upgrades to provide additional monitoring capabilities, et cetera, et cetera. So that’s kind of a summary of the planned revenue sources.

If you go to Slide 18, this is 2 ways, primarily, that you could look at AquaRefining attaching to an existing facility. And this is separate from a greenfield facility, where it would be more obvious that you would just incorporate AquaRefining as you built a facility, but you can actually take AquaRefining, and one option on the left, increase the production of an existing facility that has emissions limits without increasing emissions by adding AquaRefining to process 50% of that material much more cleanly and keeping the furnace capacity for the nonpaced portion of the lead. The other option is that you can keep the total production same at an existing facility and add AquaRefining and vastly reduce the emissions and improve the quality of the metal that comes out with less environmental and finishing to get to the high-purity lead product as a result.

Moving on to Slide 19. These are just a summary of licensing market drivers and some numbers behind that. So the secondary lead demand, which secondary lead means recycled lead. Primary lead means mined lead. So the recycled lead demand is projected to increase from those numbers I was showing you earlier by 2030 — from 2018 to 2030 by about 1.8 million tonnes. And that’s a lot of capacity demand that’s going to need to be fulfilled in one way or the other. All new batteries need about 70% to 85% recycled lead at an aggregate overall battery industry level.

And that’s one great story of the lead acid battery industry. It’s one shining example of a circular economy, where most of the lead in the car battery or any battery that you use has already been in another battery and it’s been recycled. And 70% to 85% of the content needs to be recycled lead. The rest of it comes from the mines to feed the growth in the marketplace. And we believe that the demand for the secondary lead will eventually surpass the secondary lead smelting capacity and that is also going to be due to some environmental limits and constraints on furnaces and permitting over time as this all progresses.

Slide 20 summarizes how smelters could truly benefit from what we call AquaFit, and that is the active adding AquaRefining to a smelter. And for a pure battery recycle, it gives them all these opportunities on the top half to increase the capacity, lower the emissions, create a higher quality product, produce the purest lead on earth, which could result in their lead sales at a higher premium. We demonstrated already that we can get the highest premium possible for the lead that we produced here from the world’s largest battery manufacturer as a proof point.

Public relations advantages and potential reputational protection with consumers is obviously high, whether you’re a battery recycler or a battery manufacturer. The bottom part, though, is more of a focus on battery manufacturers that can meet growing demand for the ultra-pure lead, and that’s driven by the increased sales of these newest high-performance batteries like that start-stop battery in cars and data centers, et cetera, that really are driving the need for ultra-pure lead the industry is crying for.

The ability to market the performance enhancement ultimately obtained by using the pure lead also gives an opportunity to market the green nature of the products. We saw how well organic food did. We saw how well many instances and applications of green and clean methodologies that have improved sustainability have really improved the marketability of products throughout the world. We believe AquaRefining is right in the middle of that.

21 — Slide #21. This summarizes the total addressable market of a licensing market opportunity in terms of the amount of lead and value of lead that’s producible by AquaRefining. Right now, secondary lead production in 2018, not — more than 2018, is 7.2 million tonnes. And of that, about half is available for AquaRefining. So that leaves about $7.2 billion worth of lead that can be made from AquaRefining solutions as a total market opportunity, where we would be collecting running royalties from and providing the equipment to make that $7.2 billion worth of lead.

Slide 22, again, summarizes that we’ve invested over $180 million to get where we are today. And that investment has gone into getting the technology patented, getting the technology proven through the AquaRefinery and at a very near licensable state. And that heavy investment has really allowed us and all that water under the bridge to leverage into our future growth opportunity, which is to be technology, licensing, capital-light company.

And you’ll see that in order — the baseline to do that, you have to have the foundational intellectual property secured and our key strategy has been very sophisticated and is focused on materials and methods. I won’t go into great detail, but you’ll see the math, and you’ll see the summary of all the countries, which we’re continuing to add to, and we are continuing to invest in this portion of our business.

Slide 23 summarizes the experienced management team as well as our engaged Board, which is truly focused at partnering on execution. On the left, you’ll see the executive management team, which is inclusive of myself. I have a lot of experience in not only Aqua Metals for the past 5 years, but also in battery, lead acid battery deployments and battery monitoring for the stationary battery applications and working with smelters as well as battery manufacturers. Judd Merrill, our CFO, has a great degree of experience when it comes to mining and metals and has achieved a lot of positive outcomes with his businesses that he’s been involved with.

And Ben, who you all met today that described the electrolyzer V1.25L, has direct relevant experience in being on the project launch team for a very large battery recycling facility in the United States and operating that facility and Ben even picked up his whole family and moved here the first time he saw AquaRefining because he saw it as the future, and he wanted to be a part of the future.

If you look at our independent directors, we have independent directors from large business, ranging from Chevron to DuPont to Equinix, which is a very large data center operator, to a vast degree of experience in capital markets and audit and accounting and finance and administration. So we’ve got a great team, which is a big part of the formula for success.

So in summary, on Slide 24, Aqua Metals is the first of its kind, environmentally friendly solution for the entire lead recycling industry, and it produces the purest lead available, which we think is a great opportunity for all the reasons I described earlier. The company has proven AquaRefining at a demonstration commercial scale by the truckload, which we believe is a catalyst that will launch our global licensing business. And the $20 billion and growing market, of which half can be AquaRefined, is a great opportunity for a company of our size at this time.

And strategic partnerships and investment from the global leaders that we’ve talked about earlier, we think, truly validate the industry support. The industries — much of it is quite supportive and backing and interested in seeing AquaRefining propagate and become successful because everybody does have that common feeling that the industry and the world really needs it. And that management team that I just described to you, coupled with our Board, is truly executing and refining our business plan that we put in place in 2018, which we’ve now accelerated to this capital-light licensing opportunity as a result of the fire in early 2020.

So with that, I’m going to turn it over to Judd Merrill, our Chief Financial Officer, to take you guys through the financial elements of our presentation. Go ahead, Judd.

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [6]

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All right. Thanks, Steve. I’ll spend a few comments on each slide.

We’re going to start on Slide 26, capitalization. You’ll see, as of December 31, 2019, we had total cash of $7.6 million, working capital of $17.7 million, which gives no effect to the payment of the $7.5 million insurance proceeds that we received at the end of the year or subsequent to the end of the year. We do have the debt with Green Bank for approximately $9.2 million, but it’s $8.6 million net of issuance costs, which is secured by liens on substantially all of our assets, including insurance proceeds. However, we are in current negotiations with Green Bank on a loan modification. That may take away some of those covenants related to the liens and such.

Moving right on to the next slide on the balance sheet. As we have stated, as of December 31, 2019, the company did receive $2.5 million in insurance payments as a result of the fire damage and subsequent to year-end, as I mentioned, we received an additional $7.5 million. The company, as of year-end, determined that it was probable that we will receive at least an additional $17.4 million insurance proceeds during the 2020 fiscal year, of which we’ve already received $7.5 million. The expected $17.4 million of insurance receivable is segregated on our balance sheet.

As a result of the fire, the company did write off approximately $22.4 million of fixed assets that were damaged. These assets consisted of operational equipment, building and equipment that was under construction at the time of the fire. The disposal of the fire damaged assets included a decrease of accumulated depreciation of $2.5 million, so the total net write-off of fixed assets totaled $19.9 million.

Moving to the statement of operations. Product sales for 2019 consisted of high-purity lead from our AquaRefining process as well as lead bullion and lead compounds and plastics. So it’s a 10% increase over 2018, which was mainly revenues from just the sale of lead compounds and plastics. During the second quarter of 2019 and throughout the third quarter, we began to increase production by the addition of our new modules and increased efficiencies. And during the fourth quarter, we limited the operations at our AquaRefining in order to focus our resources on implementing the plant improvements, enhancement processes and efficiencies.

However, during the fourth quarter, we also were impacted by the fire event. Cost of product sales including — includes raw material supplies and related costs, salaries and benefits, consulting, outside services, depreciation and amortization, insurance, travel and overhead costs. Costs did increase by 9% over the 12 months ended December 31, 2019, as compared to 2018 same period. And the cost of product sales were lower in 2018 due to lower production rates. The cost increase in 2019 were also affected by our ramping up of operations with the AquaRefining process.

General and administrative expenses increased approximately 36% for the 12 months ended December 31, 2019, compared to the 12 months ended December 31, 2018. The most significant drivers of these increases were noncash expense items. So for the 12 months ended December 31, 2019, we had $8.9 million of noncash expense related to the Veolia agreement. In addition, noncash stock-based compensation to our current employees and directors increased by approximately $2.8 million compared to 2018.

In December, right after the fire, we did take significant action to reduce costs, including the very hard task of laying off a big portion of our workforce. It wasn’t an easy thing to do, but it was a tough decision that we made. Our current monthly burn rate is approximately $800,000 a month. So it’s just a little under $2.5 million per quarter. We may see that come down throughout the year. It’s a balancing act to make sure that we conserve cash but maintaining our potential to execute on our go-forward strategy.

For the year ended December 31, 2019, the company had a net loss of $44.8 million or negative $0.86 per diluted share compared to a net loss of $40.3 million or a negative $1.18 per diluted share for the year ended December 31, 2018. The net loss for the year ended December 31, 2019, included the $13.2 million of noncash items comprised of $4.2 million of stock-based compensation and $9 million of expenses related to the Veolia agreement. So if we exclude the impact of the Veolia noncash compensation, the company’s adjusted net loss was $35.8 million or a negative $0.69 per diluted share. Weighted average shares outstanding for the year was 52.3 million.

Moving to the last slide on cash flow. We did have net cash used in operations for the year ended December 31, 2019, and December 31, 2018, of $25.2 million and $26.3 million, respectively. And non-cat — or net cash used in investing activities during the year consisted primarily of purchases of fixed assets related to Phase 2 construction on our final production upgrades at our TRIC facility in Nevada. And that was offset by the initial $2.5 million insurance payments.

Next, net cash provided by financing activities for the year ended December 31, 2019, consisted of $9.1 million in net proceeds from our January 2019 public offering and $20.3 million in net proceeds from our May public offering. This increase of cash flow was offset by $6.0 million payoff of the interstate battery convertible notes.

And with that, I’ll turn the time back over to Steve.

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [7]

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Yes, so thanks, Judd. And that’s a wrap for our presentational materials. So Glen, I’ll turn it over to you and you can facilitate the Q&A portion for today.

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Questions and Answers

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Glen Akselrod, Bristol Capital Ltd. – President [1]

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Okay, super. Thank you very much, Steve. (Operator Instructions)

So our first question to you, Steve, is can you talk about what the OpEx run rate is to reach licensing revenue?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [2]

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So the OpEx run rate, as Judd was talking about, is going to be significantly lower because we’ve reduced our cash burn rate. And Judd, maybe you can actually answer that question better than me.

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [3]

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So the OpEx burn rate is composed of G&A and plant operations, it’s about a 65-35 split at this point. So about 65% G&A and 35%. As I mentioned, we’re about $800,000 a month. And we will probably see, there are some things — as you transition in this environment, there’s few commitments that are kind of still out there related to certain smelting type contracts, things like that. So we may see that actually come down a little bit as we move through the year.

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Glen Akselrod, Bristol Capital Ltd. – President [4]

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Okay. And can you comment on how much CapEx is required?

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [5]

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How much CapEx is required in our current…

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Glen Akselrod, Bristol Capital Ltd. – President [6]

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I guess, as — in the new business model.

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [7]

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So the CapEx actually is a fairly low amount. Some of the work that’s being done right now, it’s towards the enhanced electrolyzers that we’ve been talk — that Ben talked about. And so for 2020, we’re probably $0.5 million to $1 million of CapEx for the year.

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Glen Akselrod, Bristol Capital Ltd. – President [8]

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Okay. What are the hurdles that you see in signing a licensing agreement?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [9]

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So the licensing agreement, depending upon who we sign it with and for what type of facility, obviously, people want to learn more about the proof points of what we’ve already done, which we could very easily communicate. And people are going to want to see the electrolyzer, V1.25L, run. And that, we expect that we’ll accomplish and begin to accomplish certainly in Q2. And then it comes down to the hurdle of the value proposition, and we are confident that we can model multiple applications of AquaRefining with the folks that we’re talking to, to provide a compelling solution for at least 1 site from the get-go. And that’s the key is to get that first site.

And it’s a numbers game in any sales process that you have to be talking to multiple players about multiple types of opportunities and find the best fit. And so it’s the commercial hurdle that in any new product that you’re going to have to overcome. And we’ve had many conversations and feel good about the progress that we’ve made with our conversations to date.

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Glen Akselrod, Bristol Capital Ltd. – President [10]

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Can you comment on the number of potential licensees you’re currently speaking with, about agreements?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [11]

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So we’ve been talking to potential licensees that are involved with greenfield builds as well as involved with retrofit of existing facilities and even a couple that have interest in particular applications for AquaRefining that would be significant volumes for AquaRefining in a facility, but processing something different than just the battery paste in that facility but other things that come out of the process in those facilities. So there’s multiple that we’ve been talking to. But not going to give you an exact number.

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Glen Akselrod, Bristol Capital Ltd. – President [12]

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Okay. Has the agreement with Veolia changed? Or do you expect it to change as part of the adjusting strategy?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [13]

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So the agreement with Veolia is in force. So we still have an agreement with Veolia. And the means to the end was to operate the plant here at the AquaRefinery with OM&M, which we did suspend that portion of the agreement because there’s no need to operate a full 24/7 plant. But the partnership’s foundation is that Veolia wants to be a part of AquaRefining propagation, deployment and operating those types of facilities throughout the world. And that part of our partnership is strong and remains in force. And we have a very common interest in seeing that happen. So we’ve suspended the OM&M portion of it, but the overall relationship is geared towards finding the best path forward to get AquaRefining deployed elsewhere.

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Glen Akselrod, Bristol Capital Ltd. – President [14]

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Okay. Next question, can you provide color on the asset sales mentioned in the press release and how much money you think can be generated from the sale?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [15]

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So in the deck, we talked about $10 million plus opportunity there for the asset sales. And we’re going to be very opportunistic and consider what makes the most sense at the right time as we utilize the facility in the meantime to operate our 1 to 2 electrolyzers. So in operating the 1 to 2 electrolyzers, there are certain pieces of assets within the facility that we may not need, like, for example, we have 3 operating kettles and provisions for 6 50-tonne kettles. If we don’t intend to run the full facility here and march towards the licensing opportunity and focus towards that, there may be an opportunity to sell some of the kettle materials. If we don’t operate all 16 modules, the outside of the building not affected by the fire, but your cooling systems that we may be able to sell the ones that we’re not using and get some dollars in-house for that.

We preserve all optionality that if a strategic partner has an interest in outfitting the facility in a capital-heavy mode and is willing to provide, either as a financial partner or as a strategic partner, the dollars to build out the facility to its full capacity, that’s something that we will continue to entertain and keep that option open.

But ultimately, if we do the licensing path down the line, there is an opportunity to consider exiting the entire building and selling the plant, but that’s not on our agenda at the moment. It is to use the plant, sell the assets that we don’t need and keep that optionality open depending upon how the licensing and other — further conversations with strategics and financials would go.

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Glen Akselrod, Bristol Capital Ltd. – President [16]

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Okay. Can you comment on how you can run a licensed electrolyzer without a plant in place?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [17]

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So we have a plant in place. The part that did not survive the fire so well was on the AquaRefining side of the wall. So people may be wondering justifiably, well, how are you going to run AquaRefining if the AquaRefining area has been burned? And the way that we intend to do it is more than 3/4 of the square footage of the plant is still usable and accessible. And we’ve already moved some of those chilling systems that I was mentioning in place to feed into running the electrolyzer or electrolyzers right there in the front end area of the plant. And that’s our plan, and we don’t need the AquaRefining area to do that.

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Glen Akselrod, Bristol Capital Ltd. – President [18]

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Okay. Insurance-related question. What are the insurance dollars limits covering the November fire? And are those first-party or third-party insurance coverages?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [19]

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So our total insurance coverage is $50 million. And that is first party. So those are our — that’s our insurance carriers. Now it’s a layered insurance, 4 different insurance companies involved, but they’re all directly with us. And so the first initial payment came from that first layer, the second payment came from the second layer, but these are all first-party insurance carriers that are working directly that adds up to that $50 million limit.

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Glen Akselrod, Bristol Capital Ltd. – President [20]

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Okay. You’ve commented on your relationship with Veolia, can you also expand on that on the current relationship with Clarios and Interstate Batteries and how have they changed post fire?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [21]

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Sure. So I’ll start with Interstate Batteries. We’re not buying much feedstock right now. So there’s not any transactional relationship with Interstate Batteries at the moment. On the Clarios side of the equation, we are regularly meeting with Clarios. And although there is no AquaRefined lead sales to them at this time, they do remember — remain as a key Board observer and obviously as an interested licensee of AquaRefining and an overall partner as we continue on our journey forward.

So Clarios has been in this with us for quite a few years. And ultimately, we will find the right way to work together with them, we believe. And in the meantime, they’re on our Board as a Board observer, and we regularly meet and talk to them about different types of opportunities.

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Glen Akselrod, Bristol Capital Ltd. – President [22]

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Okay. Can you comment on what the current headcount is today and what your expected G&A cost will be in 2020?

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [23]

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Yes. So our current headcount is 23 employees made up of engineers and plant operations individuals who are helping us get the electrolyzers up and running and general corporate staff as well. So that should stay fairly consistent throughout the year, and we’ll add resources as needed. Our G&A, as I said, our current monthly burn rate is about $800,000 a month. And G&A makes up about 65% of that.

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Glen Akselrod, Bristol Capital Ltd. – President [24]

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Okay. Could you comment on what type of assets would be for sale as part of this new strategy?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [25]

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So earlier, I gave an example of the kettles that we use to melt the lead. And if we’re not going to need to melt 80 tonnes a day of lead and only need to melt a few tonnes a day of lead, we wouldn’t necessarily need all those kettles. And then those chiller systems for 16 modules if we’re running just a few electrolyzers, we’re not going to need some of that infrastructure, some of which survived the fire. And there’s other potential pieces of equipment, not only that would be for sale, but could be moved to our first licensee that gives us a great value proposition to the first licensee.

One example of that that I’ll provide is we do have that kiln that we put in. We ran the demonstration kiln, but we have a full size, brand-new kiln here that cost several million dollars to put in, which is a part of our process for the full-blown facility. What’s to say that we wouldn’t take that kiln and send that to a licensee for a first mover’s advantage, great deal on the kiln.

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Glen Akselrod, Bristol Capital Ltd. – President [26]

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Okay. Just for clarity purposes, are you planning on selling the plant itself or just equipment within the plant? And then further clarity, I think you may have commented on it, but just again, what is the current burn per month down to?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [27]

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So I’ll answer the first question and then Judd can answer the second. So the assets that we’re talking about doing asset disposition opportunistically now is not inclusive of the full plant because we need the plant to operate and run the electrolyzers. It’s more of those equipment examples I gave just a moment ago, and then ultimately, as we progress in our strategic conversations, there might be opportunities to either go back and outfit the plant with sourcing someone else’s large and heavy capital so it doesn’t dilute our shareholders. Or once we complete our mission to get to the first licensed site, it may make sense to sell the plant and the building and the land at that point in time. But we’re keeping that optionality fully open.

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Glen Akselrod, Bristol Capital Ltd. – President [28]

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Okay. Next question is related to insurance again. Is there a reason that you’re only booking insurance proceeds receivables of $17.4 million when the total nameplate would be an additional $47.5 million? Can you just walk the investors through the math?

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [29]

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Yes. So this is actually by GAAP accounting rules that we can book only up to the amount of the write-off, although we internally believe it’s going to be much, much higher, and we’ve got a lot of evidence to support that, and we’re putting that — we’re giving that information to the insurance carriers on an ongoing basis. So if you remember, I said the net write-off was $19.9 million, of which we’ve already collected $2.5 million as of the end of the year, which leaves us with the $17.4 million as a receivable. So there’s GAAP accounting rules, and then there’s what we actually expected to receive. As we go throughout the year, and we collect more then we’ll be able to recognize that on our financial statements.

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Glen Akselrod, Bristol Capital Ltd. – President [30]

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Okay. Again, back to the licensee model. In your discussions with licensees, have any said or indicated that they would sign an agreement without the current plant operating? And then as a second follow-up, why do you think it will take until the end of 2020 to get a deal done?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [31]

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So the answer to question one is, yes, there are potential licensees that do not need to see the entire plant operating for them to proceed with the license option. And so the answer to the second question is we believe it’s prudent for us to get the V1.25L electrolyzers running because it’s in our interest to make sure that we can see them operating when they’re remote, and that we make those improvements and we improve our value proposition and get the best win-win for the licensee and us. And that shouldn’t take years, it should take months. And so we should be through that, as I said, commencing in Q2. And while we work out the commercial discussions with the licensees, we have an opportunity to move on that by 2021.

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Glen Akselrod, Bristol Capital Ltd. – President [32]

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Okay. If the Green Bank loan is retired or modified, would you be able to sell and lease back your building? And if so, how much additional cash might this generate?

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [33]

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Yes. So yes, the Green Bank loan, we’re currently working on that right now. And it would first be a modification and then a retirement over the course of several months. Once we do that, yes, it frees up what we can do with the plant. And there are certain covenants whenever you enter into an agreement with the lender that we have to follow and we’ve followed those, and we have a great relationship with Green Bank, but once those are out of the place then we have significant abilities to do what we’d like to. So if any of those opportunities came up, there would be — we’d be able to take advantage of them.

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Glen Akselrod, Bristol Capital Ltd. – President [34]

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Okay. And I know we’ve reached top of the hour. We’ve got about 6 or 7 questions left in the queue. We’ll try to get through those and then end the call at that time. Can you comment on the current delisting situation and the plan that you would have in place to address that?

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Judd B. Merrill, Aqua Metals, Inc. – CFO & Company Secretary [35]

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Yes. So as we announced back in January, we received a notice from the NASDAQ on the listing rules where we fell under $1 per share. The company has a period of 180 calendar days from that date of notification, so until July 13, 2020, to cure it. So if at any point in time between now and then that our share price goes above $1 for 10 consecutive business days, we would cure it. If we do not regain that dollar per share for 10 days by July 13 then we — the company may be eligible for additional time to regain compliance.

Sometimes that’s another additional 6 months. So that would take us into January of ’21. So we believe that the actions we’re taking and the go-forward plan will be very positive and hopefully drive that up. We intend to monitor this very closely between now and then, and we’re considering all the options in order to make sure we regain compliance with this requirement.

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Glen Akselrod, Bristol Capital Ltd. – President [36]

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Okay, super. I’ve got a couple of, obviously, headline-type questions related to coronavirus. So we’ll ask them now. Number one is has this affected your operations? And have you built plans around it?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [37]

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So with any businesses, considering right now is how you operate if you have to quarantine or put employees out of harm’s way. And we do have a plan in place in the event that we need to do so. We’ve sat down with our IT department and made sure everybody has the proper VPN and connectivity in the event that we need to pull the trigger on that. So it’s an interesting time for all of us with the coronavirus. And obviously, the people that we’re trying to protect are typically in the older ages, and so we want to make sure that nobody is bringing home something to somebody else.

So the plans are in place. We’re thinking about how we would approach it. And there are certain essential activities that would be taking place in the plant in the event that things got worse. And fortunately, in the environment that we work in, people wear respirators anyway with N95 masks. And so that’s kind of a natural thing that would take place with proper PPE and you’re wearing latex gloves and all those things anyway. So I think we’re prepared, and we’ll see what the world brings us in the next several days.

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Glen Akselrod, Bristol Capital Ltd. – President [38]

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Okay, super. And I guess, as a related question, how could critical component lead times impact the operation of the version 1.25? And are you expecting any delays due to China supply issues?

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Ben Taecker, Aqua Metals, Inc. – VP of Operations [39]

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So right now, we have just about all the parts that we need to build the version 1.25L and we’re in the process of procuring those last parts and have line of sight to delivery for each and every one of them. So we expect no delay due to lead times.

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Glen Akselrod, Bristol Capital Ltd. – President [40]

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Okay. Super. Can you just comment, you may have done this earlier, whether Clarios still has first mover status in their agreement? And I guess, what other factors within the agreement still need to be met or perhaps were not met?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [41]

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So Clarios, as part of our agreement with them, does have a first-mover advantage that was extended to June of 2021. And we continue to dialogue with Clarios about the most appropriate facility and application for AquaRefining while we talk to other potential licensees. And — but the contract is in place with Clarios between now and June of 2021 for them to have that first mover’s advantage. Now if they choose not to be the first mover for some reason, that would likely with our — the strength of our partnership, we would have the opportunity to work with another licensee and still maintain a, obviously, a relationship with Clarios in the event that that scenario were to develop.

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Glen Akselrod, Bristol Capital Ltd. – President [42]

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Okay, super. I believe all but one question in the queue have now been answered in one way, shape or form. If not, please, for the person asking, retype the specific question. And the last question that I’ll ask at this point unless other questions come in is, could a potential licensee take over your existing plant?

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [43]

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The answer is yes. So there’s an opportunity for, as I mentioned earlier, for strategics, whether they’re financial strategics or for industry-specific strategics to look at the opportunity to operate the plant. The plant is set up for the most part, to work with lead acid batteries. But there’s even potential other types of applications that use battery breakers and kettles for refining business — for example, an aluminum plant just down the street that has kettles running by the day, melting aluminum. And so there’s other uses as well. So when we think of strategics, we think of strategics on multiple layers. But the most strategic for us would be someone in the lead industry that would have an interest in doing that. And we’re open to conversations with any and all and are having some of those conversations.

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Glen Akselrod, Bristol Capital Ltd. – President [44]

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Good. Super. Thank you, gentlemen. There are no further questions in the queue. Steve, I’ll turn the call over to you, back for closing remarks.

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Stephen Cotton, Aqua Metals, Inc. – CEO, President & Director [45]

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Yes, yes. Thank you, Glen, and thanks to everyone for attending today, and for those of you that are familiar with the story being patient with those that were getting more familiar with the story and vice versa, frankly. And in these challenging times, with the markets doing what they’re doing and even questions about coronavirus, et cetera, we’re comfortable that we have the cash runway, as mentioned earlier, to proceed with our path forward.

And as we’ve discussed today, Aqua Metals has accomplished a great deal in 2019, in post fire even, in the last 100 days into early 2020. And we believe we have set our vision and path forward. We have a strong footing of the building and maximizing cash model to fuel what we believe is a nondilutive push forward with short-term technical improvements that are going to prepare AquaRefining for licensing and the goal of seeing through our vision of propagating AquaRefining in a large industry, as we’ve talked about, that we and our partners think need AquaRefining, and we look forward to continuing to provide further updates to everybody in the near future.

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Glen Akselrod, Bristol Capital Ltd. – President [46]

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Super. Thank you very much. Thank you to our audience, and this concludes this presentation.

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Operator [47]

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Thank you. All parties may disconnect. Have a great evening.