Aqua Metals, Inc. (NASDAQ:AQMS) Q4 2019 Earnings Conference Call March 11, 2020 4:30 PM ET
Company Participants
Glen Akselrod – President, Bristol Limited Capital
Steve Cotton – President and Chief Executive Officer
Judd Merrill – Chief Financial Officer
Ben Taecker – Vice President, Engineering and Operations
Operator
Greetings and welcome to the Aqua Metals 2019 Year End Results and Business Update Conference Call. [Operator Instructions] It is now my pleasure to introduce our host, Glen Akselrod, Spokesperson. Thank you. You may begin.
Glen Akselrod
Thank you, Diego and thank you everybody for joining the Aqua Metals 2019 year end results and corporate update conference call. The purpose of today’s call is to report on 2019 financial results, provide a corporate update and summary of the business and to provide investors a better understanding of Aqua Metals post-fire recovery plan and go-forward business strategy. This will be done through an Investor PowerPoint presentation by management. The discussion will be led by Steve Cotton, President and CEO who is also joined by Judd Merrill, company’s CFO; and Ben Taecker, Vice President of Engineering and Operations. At the end of management’s formal presentation, we will break for question and answers.
As a reminder, for the purpose of today’s call, we are only taking questions via the web portal. We have not yet logged in online. The web link access to that portal is available in today’s earnings press release as well as this morning’s insurance recovery press release. If you are currently only listening via the telephone and wish to ask a question after the presentation, please access the web link to do so. The presentation today will be using slides. You will be able to advance the slides in your own using the arrow keys in the top right hand corner of the presentation. You can also expand the PowerPoint using the expansion feature in the top right corner of the PowerPoint. If these arrow keys should disappear simply hover your mouse over the top right portion of your screen. Please remember, you can submit a question any time using the question textbox within the web at our portal. I will ask the questions on the air for everyone to hear and management will then answer. I will not reference any names that simply read the questions asked. If I can’t get to your question online, I will come back to via e-mail. If for some reason, you are experiencing any issues once we start, please remember you could e-mail me at glen@bristolir.com and I will be happy to assist.
During today’s call, management will be making forward-looking statements. Please refer to the company’s annual report on the Form 10-K filed today, March 11 for a summary of the forward-looking statements and in the risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. They are also listed on Page 2 of today’s PowerPoint. Aqua Metals cautions investors not to place undue reliance on any forward-looking statements, the company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by law.
With that said, once again, thank you for joining us. We do encourage Q&A following the formal remarks to help you better understand the business and its future growth path. And at this time, I will turn the call over to Steve to start his part of discussion and presentation.
Steve Cotton
Great. Well, thank you, Glen. So for starters, I just wanted to point out that the purpose of today’s call, as Glenn had alluded to is dual pronged. One is to provide an update to our existing shareholders who already follow the Aqua Metals story and the second is to continue what we embarked upon pre-fire in Q4 with Bristol, which is to introduce the company to potential shareholders who have also joined us today. I hope everybody saw our press release this morning regarding doubling our insurance collections this week to a total of $10 million from the $5 million point we were at prior to this press release. And we are really pleased with that progress and our cash position, which Judd will elaborate further during his portion of our presentation.
So moving on to Slide 2 of the deck, you will see the Safe Harbor. I won’t read all to you, but it’s there for anybody who would like to read it. And we will start with Slide 3. This is Aqua Metals for the glance. So what you see in the right side for any of you who haven’t seen it before that is our novel proprietary environmentally friendly led acid battery recycling technology, which we call, AquaRefining at work. It makes this fungi lead and it’s a high purity lead at a room temperature, water base 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 is vitals in the company down below, I won’t take everybody through in detail when you can review that on your own, but on Slide 4, we will talk about the current problem and solution to recycling lead acid batteries. Today’s incumbent methodologies, which is purely smelting, is the conventional method is that 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, etcetera. And that’s all in the backdrop of environmental regulations and concerns as you look at the marketplace today.
Now, to 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, ultra high purity lead, it’s got modular and scalable design. What you see there two rotating disks and one example of AquaRefining, creating a spongy, high purity lead write-off of the machine. And it’s a significant technology leap forward in the recycling industry we believe which further supports the circular economy that lead acid battery industry is already doing a good job on that we think that could do a great job on.
Moving to Slide 5, there is five 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 when we will 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 is a big environmental backdrop to a lot of the reasons that we are 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 have 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 will 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 is 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 will talk more about that as we go further through the deck.
If you move to Slide 6, this is just a summary timeline 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 the private placement where we built our first electrolyzer prototype. Moving to 2015, you will see that we broke ground 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, Clarius, which was at the time Johnson Controls power systems division, and again, they are the world’s largest battery manufacturer. And after that partnership we did run into some technical challenges in what we call the stick 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 the 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 AquaRefining 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. And we will 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 will talk about in more detail. And we saw in late 2019 almost immediately after fire about a 50% enterprise value drop. And we did begin assessing and investigating and collecting insurance and the 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 AquaRefining has really proven that AquaRefining works. As I said earlier, 35,000 ingots or 55 truckloads of AquaRefining lead were produced, qualified as a lead operating vendor and ships 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 tons 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 in 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 into its full capacity. And the first and foremost that we have said before, but I will 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 even 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 have 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 Jed will get into more detail when he takes you through the financials on that and the results of that. The late Q4 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 are 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 will summarize a little bit of our shift to accelerate the licensing and our capital light strategy. The first tenant of that is to build our cash position. As I mentioned earlier, we have been conserving cash post fire at a great level and we have 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 will get into the specifics of the improvements on what those improvements are. While we are doing that, we are working to identify the licensing site number one and 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 have been taking to throughout the world with AquaRefining beginning in 2021.
So moving to Slide 10 I am going to introduce Ben Taecker, who is our Vice President of Engineering and Operations and has a lot of experience with operating the electrolyzers as well as running with the designs of demand 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.
Ben Taecker
Thanks Steve. Like Steve said on slide 10 we talked about the new design for electrolyzer of V1.25L specifically designed for licensing the Aqua Metals engineering team has recently completed this new design with minor improvements so around operation costs and capital build cost with absolutely no changes to the letter lining 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 our field deployment the team is in a 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.
Steve Cotton
Great, thanks Ben. Moving on to Slide 11 that all plugs into our 2020 first half key initiatives and you will see there is a list of six items there and I will try to get through these as quickly as possible first is to continue to collect those insurance process that we have been successfully collecting effected by our retention of a public adjuster which allows us to interface with the insurance company adjusters that has been very successful thus far as well as specialized council to facilitate those payments, both for the casualty and for the business interruption losses and put cash on the balance sheet as we have 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 our license side so we have opportunities to unlock some value added assets that we have here in the facility while we use it to run the 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 improvement and really the primary reasons that we are doing that is to improve the costs and operating model for a better value proposition to the licenses while we are talking with them while increasing utilization rate to get more through potentially through those machines which further increases that value proposition and again we expect to begin running one or two of those units very soon we also seek to contract the license site number 1 we have been talking to several interested parties ranging from greenfield builds to retrofit existing battery recycling facilities to even specialized applications of AquaRefining within the facility for particular types of materials and we are 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 in development but the focus is on licensing in 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 is happening on a real time basis from flow rates to how the electrolyzers are operating on variance in all those various parameters to allows to support the implementations.
If you go to Slide 12, you can see visually that our cash needs runway can be non-diluted and so if you look at your 2020 that we are in and 2021 we can fund this capital activity 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 have 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 long-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 building cash as I mentioned in 2020 and getting to self sufficiency towards 2021 by propagating in 2022 additional license sites and gaining revenue from those sites from equipment sales and maintenance and service and licensing revenues. And then in 2023 extending AquaRefining 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 is a finite amount of capacity that’s out there and we will get into that in a minute, but there is auto growth in the emerging markets, they are putting more cars in the road, many of those cars have two batteries instead of one. There is renewable energy. So energy storage is becoming more and more important for solar and wind and other types of applications. There is multiple chemistries there. There is lithium battery farms. There is 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 is cloud-based and internet-based is becoming more and more critical and cannot have down time. And so those battery farms are there to make sure that the server farms don’t go out when the utility power fail. Electric vehicles and 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 am 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 is 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 are 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 AquaRefining advantage and there is really comparing it to traditional recycling technology is four 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, particularly 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 is an incredible opportunity there in the long-term for battery manufacturers to take advantage of the AquaRefining 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 will see our planned revenue sources summarized and a little bit of a timeline. 2020 this year is focused mostly insurance collections and again we already collected $10 million in the first 100 days since the fire and our legal councils continues to tell us that they are impressed with the progress that we have made to-date. And we are working towards the total power of up to $50 million. That’s the nameplate full insurance that we have. And as I have mentioned earlier, our claims are already exceeding that $50 million. The 2020 and 2021, we can 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 license site that we have already paid for and we could provide a 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 us up that potentially lucrative model for the existing and Greenfield battery recycling facilities. We have already built the licensing model and we have already built the beginnings of our licensee pipeline and engage with several potential licensees throughout the world inclusive of Clarios of course. And we are seeing with our licensing deals engineering revenues between 6 and 7 figures for projects.
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 in its traditional and 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 to offer them and protect them in all those types of applications as well to 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 royalties, there is additional millions of dollars of revenue opportunities even provide some sight over the life of the license that could potentially be generated to do the 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, etcetera, etcetera. So that’s kind of summary of the planned revenue sources.
If you go to Slide 18, this is two ways primarily you could look at AquaRefining attaching to an existing facility and this is separate from the 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 the emissions limits without increasing emissions by adding AquaRefining to process 50% of that material much more cleanly and keeping the furnace capacity for the non-paced portion our the lead. The other option is that you can keep the total production same as an existing facility, ad-hoc refining 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, secondary lead demand which secondary lead needs recycled lead, primary lead, mine 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 tons. 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 better recycled and 75% 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 as smelters can 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 in the top half to increase the capacity, lower the emissions, create a higher quality product to produce the purest Lead on earth which could result and 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 proof point public relations advantages and potential reputation of protection with consumers is obviously whether you’re a battery recycler or a battery manufacturer. The bottom part, though, is more of a focus and battery manufacturers that could 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 etcetera that really are driving the need for ultra pure Lead in the industry is crying for. The ability to market the performance enhancement ultimately obtained by using a 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 on many instances and applications of green and clean methodologies that have improved sustainability has really improved the marketability of products throughout the world we believe AquaRefining is right in the middle of that.
Slide #21, this summarizes total addressable market of licensing market opportunity in terms of the amount of lead and value lead producible by AquaRefining right now the secondary lead production in 2018 is more than 2018 as 7.2 million tones and of that about half is available for AquaRefining set these by 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 have invested over a $180 million to get where we are today and that investment has gone into getting the technology patented getting the technology proven through the AquaRefining and at a very near licensable state and that heavy investment has really allowed us and all that water in the bridge to leverage into our future growth opportunity which is the technology licensing capitalized company and you will 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 focused on materials and methods I won’t go in a great detail but you will see the math and you will see the summary of all the countries which we are continuing to add to and we are continuing to invest in this portion of our business.
Slide 23 summarizes the experience management team as well as our engaged board which is truly focused in partnering on execution on the left you will see the executive management team which is inclusive of myself I have a lot of experience in not only Aqua Metals for the past five years, but also in battery, lead acid battery deployments and battery bordering 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 he has been involved with and then 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 thought it is 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 audits and accounting and finance administration so we 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 have to 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 have talked about earlier we think truly validate the industry support the industry much of it is quite supportive in 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 you coupled with our board is truly executing and refining our business plan that we put in place in 2018 which we have now accelerated to this capital licensing opportunity as a result of the fire in early 2020. So, with that, I am 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.
Judd Merrill
Alright. Thanks, Steve. I will spend a few comments on each slide. We are going to start on Slide 26 capitalization. You will 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 receive at the end of the year, subsequent to the end of the year. We do have the debt with Green Bank for approximately $9.2 million, but a $8.6 million net of insurance cost, which is secured by liens on substantially of all of our assets, including insurance proceeds. However, we are in current negotiations with Green Bank on a loan modification that may takeaway some of those covenants related to the leads 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 have already seen $7.5 million. The expected $17.4 million of insurance receivable is segregated on our balance sheet. As a result of 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 the lead Boolean and lead compounds and plastics. So it’s 10% increase over 2018, which was mainly revenues from just the sale of lead compound 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 of our AquaRefining in order to focus our resources on implementing the plant improvements and enhance the processes and efficiencies. However, during the fourth quarter, we also were impacted by the fire events.
Cost of product sales includes raw material supplies or related costs, salaries and benefits, consulting, outside services, depreciation and amortization, insurance travel and rent cost. Cost had increased 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 increases in 2019 were also affected by ramping up of operations with the AquaRefining process.
General and administration expenses increased approximately 36% for 12 months ended December 31, 2019 compared to the 12 months ended December 31, 2018. The most significant drivers of these increases were non-cash expense items. So for the 12 months ended December 31, 2019, we had $8.9 million of non-cash expense related to the Veolia agreement. In addition, non-cash 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 cost, 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 per quarter. We may see that come down throughout the year. It’s a balancing act to make sure that we can serve cash that maintain our potential to execute on our go forward strategy.
For the year ended December 31, 2019, the company had net loss of $44.8 million or a 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 non-cash items comprised of $4.2 million in stock-based compensation and $9 million of expenses related to the Veolia agreement. So if we exclude the impact of Veolia non-cash 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-cash – 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 payment. 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 flows is offset by $6.0 million payoff of the interstate convertible notes.
And with that, I will turn the time back over to Steve.
Steve Cotton
Yes. So thanks, Judd and that’s a wrap for our presentational materials. So Glen, I will turn it over to you and you can facilitate the Q&A portion for today.
Question-and-Answer Session
A – Glen Akselrod
Okay, super. Thank you very much, Steve. And to our audience, remember, please use the question-and-answer textbox in the presentation portal. We do have quite a number of questions in the queue. We will try to do our best to get to everybody. We will stay past 5:30 to answer questions. And if we don’t get to you questions today, I will be sure to respond via e-mail or phone call as a follow-up. So our first question to you Steve is can you talk about what the OpEx run-rate is to reach licensing revenue?
Steve Cotton
So the OpEx run-rate as Judd was talking about is going to be significantly lower, because we reduced our cash burn rate. And Judd maybe you can actually answer that question better than me.
Judd Merrill
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 are about $800,000 a month and we will probably see there is something that you transitioned in this environment, there is few commitments that are kind of still out there related to certain smelting type contracting, but as we may see that actually come down a little bit as we move through the year.
Glen Akselrod
Okay. And can you comment on how much CapEx is required?
Judd Merrill
How much CapEx is required in our current?
Glen Akselrod
I guess, as – in a new business model?
Judd Merrill
So the CapEx is actually is a fairly low amount. Some of the work that’s being done right now, it’s towards the enhanced electrolyzers that we would talk – that Ben talked about. And so for 2020, we are probably $0.5 million to $1 million of CapEx for the year.
Glen Akselrod
Okay, thank you. What are the hurdles that you see in signing a licensing agreement?
Steve Cotton
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 approved points that what we have already done which we can very easily communicated and people are going to want to see the electrolyzer V1.25L is one and that we expect it will 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 are talking to provide compelling solution for at least one site from the get go and that’s the key is to get the first site and it is 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 is commercial hurdle that in any product that you are going to have to overcome and we have had many conversations and feel good about the progress that we have made with our conversations today.
Glen Akselrod
Okay thank you. Can you comment on the number of potential licenses you are currently speaking with about agreements?
Steve Cotton
So we have been talking to potential licensees that are involved with Greenfield build as well as involved with retrofit of existing facilities and even a couple of that have interest in particular applications for AquaRefining that would be significant volumes for our AquaRefining in a facility but are processing something different than just a battery paste in that facility but other things that come out of the process in those facilities so there is multiple that we have been talking to but not going to give you the exact number.
Glen Akselrod
Okay, thank you. Has the agreement with Veolia changed or do you expect it to change as part of the adjusting strategy?
Steve Cotton
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 O&M, which we did suspend that portion of agreement because there is no need to operate a full 24/7 plant but the partnerships foundation is that Veolia wants to be a part of our AquaRefining propagation and 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 suspend the O&M portion of it but the overall relationship is geared towards finding the best path forward to get AquaRefining deployed elsewhere.
Glen Akselrod
Okay, thank you. 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?
Steve Cotton
So in the debt we talked about $10 million plus opportunity there for the assets sales and we are going to be very opportunistic and consider what makes the most sense at the right time as we utilized the facility in the meantime to operate our one to two electrolyzers so in operating that one or two electrolyzers there is this certain piece of assets within the facility that we may not need like for example we have three operating kettle provisions for 650 ton 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 to outside of the building and not affected by the fire bunch of cooling systems that may be able to sell the ones that we are not using and get some dollars in house for that We preserved 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 this facility to its full capacity that is 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 filling the plants but that’s not on our agenda at the moment is to use the plant sell the assets that we don’t need and keep that optionality open depending upon how the licensing and conversations with strategics and financials would go.
Glen Akselrod
Okay, thank you. Can you comment on how you can run a licensed electrolyzer without a plant in place?
Steve Cotton
So we have a plant in place that part did not survive the fire so well. It was on the AquaRefining side of the wall. So people maybe wondering justifiably well, how you can run AquaRefining if the AquaRefining areas has been burnt. And the way that we intend to do that is more than three quarters of the square footage of the plant is still usable and accessible. And we have already moved some of those chilling systems that I was mentioning in place to feed into running the electrolyzer or electrolyzer or is right there in the front end area of the plant. And that’s our plan and w don’t need the AquaRefining area to do that.
Glen Akselrod
Okay, thank you. Insurance related question, what are the insurance dollars and limits covering the November fire and are those first-party or third-party insurance coverages?
Steve Cotton
So, our total insurance coverage is $50 million. And that is first-party, so that’s our insurance carrier. Now, it’s layered insurance is four different insurance companies involved, but they are all directly with us. And so the first initial payment came from that first layer and second payment came from the second layer, but these are all first-party insurance carriers that they are working directly to act up to that $50 million limit.
Glen Akselrod
Thank you. You have commented on your relationship with Veolia, can you also expand on that on the current relationship with Clarius and Interstate Batteries and how have they changed post fire?
Steve Cotton
Sure. So I will start with Interstate Batteries. We are not buying much feedstock right now. So there is not any transactional relationship with Interstate Batteries at the moment. On the Clarius side of the equation, we are regularly being with Clarius though there is no AquaRefining 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 in our journey forward. So Clarius 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 are on our board as a board observer and we regularly meet and talk to them about different types of opportunities.
Glen Akselrod
Okay, thank you. Can you comment on what the current headcount is today and what your expected G&A costs will be in 2020?
Steve Cotton
Yes. So our current headcount is 23 employees made up of engineers and plants of 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 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%.
Glen Akselrod
Yes, thank you. Could you comment on what type of assets would be for sale as part of this new strategy?
Steve Cotton
So earlier I gave an example of the kettles that we use to melt the lead and if we are not going to need to melt 80 tons a day of lead, we need to melt a few tons a day of lead we wouldn’t necessarily meet all those kettles. And then those chiller systems for 16 modules if we are running just a few electrolyzers, we are not going to need some of that infrastructure, some of which survived the fire. And there is 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 for the first licensee. One example of that, that I will provide is we do have that kiln that we put in. We ran the demonstrate kiln, but we have a full size brand new kiln here that cost several million dollars to put in which is part of our process for the full loan facility, what’s to say that we wouldn’t take that kiln and send that to a licensee for first mover’s advantage great deal on the kiln.
Glen Akselrod
Okay, thank you. 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?
Steve Cotton
So, I will answer the first question and then Judd can answer the second. So, the assets that we are talking about doing asset disposition opportunistically, now is not inclusive of the full plant, because we need the plants to operate and run the electrolyzers. It’s more that those equipment examples I gave just a moment ago and then ultimately as we progressed in our strategic conversations there might be opportunities to either go back and outfit the plants with sourcing someone else large and heavy capital so it does not dilute our shareholders or once we complete our admission to get to the first life in site it may make sense to sell the plant and the building in the land at that point in time for keeping that optionality fully open.
Glen Akselrod
Okay thank you. Next question is related to insurance again is there a reason to get only booking insurance proceeds receivables 17.4 million when the total name thing would be an additional $47.5 billion can you just walk the investors through that?
Steve Cotton
Yes. So this is actually by GAAP accounting rules that we can book only upon to the amount of the right off although we internally believe it is going to be much, much higher and we have got a lot of evidence to support that and we are putting that we are giving that information to the insurance carriers on long run basis so if you remember I said the net right off with $19.9 million of which we have already collected 2.5 as of the end of the year which leaves us with a 17.4 million as a receivable and so there is GAAP accounting rules and then there is what we actually expect to receive as we go throughout the year and we collect more then we will be able to recognize that on our financial statements.
Glen Akselrod
Okay thank you. Again back to the licensing model in your discussions with licensees have any said or indicated that they we would sign an agreement without the current plants 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?
Steve Cotton
So, the answer to question one is yes there are potential licenses that do not need to see the entire plant operating for them to proceed with the licensed option. And so the answer to the second question is if we believe it is prudent for us to get the V1.25L electrolyzers running because it is our interest to make sure that we can see them operating when they are remote. And that we make those improvements and we improve our value proposition and get the best of win-win for the licensing enough and that should not 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.
Glen Akselrod
Okay thank you. 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 just generate?
Steve Cotton
Yes. So the Green Bank loan that we are 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 could do at the plants and there is certain governance whenever you enter into an agreement with the vendor that we have to follow and we followed those and we had a great relationship with Green Bank but once those are out of the place when we have significant abilities to do what we like to So I think if those opportunities came up, there would be – we would be able to take advantage of it.
Glen Akselrod
Okay thank you. And I know we have reached top of the hour we got about six or seven questions left in the queue we will 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?
Steve Cotton
Yes. So as we announced back in January we received a notice from the NASDAQ on the listing rules we were still under a dollar per share the company has a period of 180 calendar days from that date of notifications so until July 13 2020 to cure it so at any point in time between now and then that our share price goes above a dollar 10 to 15 business day we will cure it if we do not regain that dollar per share for ten days by July 13 then we the company may be eligible for additional time to regain compliance And sometimes that’s another additional six months. So that would take us into the January of 21 so we believe that the actions we are taking and the go forward plan will be very positive and hopefully drive that up we intend to monitor very closely between now and then and we are considering all the options in order to make sure we regained clients with this requirement.
Glen Akselrod
Okay, super. Thank you. I have got a couple of obviously headline type questions related to coronavirus, so we will ask them now. Number one is has this affected your operations and have you built plans around it?
Steve Cotton
So with any businesses considering right now is how you operate if you have to quarantine or put employees out of farms away. And we do have a plan in place in the event that we need to so, we have sat down with our IT department and make sure everybody has the proper VPN and connectivity in the event that we need to pull the trigger on that. So, it’s a interesting time for all of us with the coronavirus and obviously the people that we are 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 are thinking about how we would approach it and there is certain accentual activities that would be taking place at the plants 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 are wearing latex gloves and all those things anyway. So, I think we are prepared and we will see what the world brings us in the next several days.
Glen Akselrod
Okay, super. Thank you. And I guess is 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?
Steve Cotton
So, right now, we have just about all the parts that we need to build Version 1.25L. And we are 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.
Glen Akselrod
Okay, super. Thank you. Can you just comment and you may have done this earlier, whether Clarius 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?
Steve Cotton
So, Clarius 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 Clarius about the most appropriate facility in application for AquaRefining while we talk to other potential licensees, but the contract is in place with Clarius 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 obviously a relationship with Clarius in the event that, that scenario were to develop.
Glen Akselrod
Okay, super. Thank you very much. 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 a specific question? And the last question that I will ask at this point unless other questions come in is could a potential licensee takeover your existing plant?
Steve Cotton
The answer is yes. So, there is an opportunity for us as I mentioned earlier for strategics, whether they are financial strategics or for industry specific strategics to look at the opportunity to operate the plant. The plant is setup to for the most part of work with lead acid batteries, but there is 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 is 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 are open to the conversations with any and all and are having some of those conversations.
Glen Akselrod
Okay. Super. Thank you, gentlemen. There are no further questions in the queue. Steve, I will turn the call over to you back for closing remarks.
Steve Cotton
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 we are getting more familiar with the story and vice-versa frankly and in these challenging times what the market is doing, what they are doing, it even questions about coronavirus etcetera. We are comfortable that we have the cash runway as mentioned earlier to proceed with our path forward. And as we have discussed today, Aqua Metals has accomplished a great deal in 2019 and post fire even on the last 100 days into early 2020, we believe we have set our vision and path forward. We have a strong footing of the building in maximizing cash model to fuel what we believe is a non-dilutive push forward with short-term technical improvement that we can prepare AquaRefining for licensing and the goal of seeing through our vision of propagating AquaRefining in a large industry as we have 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.
Glen Akselrod
Super. Thank you very much. Thank to our audience and this concludes this presentation.
Operator
Thank you. All parties may disconnect. Have a great evening.
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