Aqua Metals, Inc. — 2018 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2018; quarterly figures below include the three months ended December 31, 2018. Aqua Metals is an early-stage lead-acid battery recycler developing its water-based AquaRefining process at its McCarran, Nevada facility. Its strategy combines expanding its own recycling operations with licensing or deploying the technology with third parties.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $4.449 million | $2.088 million |
| Cost of product sales | $22.761 million | $9.541 million |
| Gross loss, calculated as revenue less product cost | $18.312 million | $7.453 million |
| Research and development | $4.502 million | $8.103 million |
| General and administrative expense | $14.214 million | $6.891 million |
| Operating loss | $37.028 million | $24.858 million |
| Net loss | $40.254 million | $26.580 million |
| Net loss per share | $1.18 | $1.31 |
| Cash used in operating activities | $26.318 million | $19.002 million |
Revenue rose 113%, but product costs increased substantially faster than sales. Gross margin remained deeply negative, approximately -412% in 2018. Net loss increased about 51%; lower loss per share reflects a larger weighted-average share count. Fourth-quarter 2018 revenue was $1.071 million and net loss was $13.532 million.
At year-end, cash was $20.892 million, working capital $10.953 million, total assets $71.371 million, and total liabilities $21.281 million. Working capital fell from $21.850 million in 2017. Notes payable were about $8.9 million on the balance sheet, and the convertible note had a $5.0 million face amount; the filing’s contractual-obligations table reports $6.651 million including accrued interest. The Green Bank loan is secured by substantially all assets of its subsidiary and carries covenants. A $1.026 million certificate of deposit was pledged as collateral.
Financing provided $28.346 million of net cash in 2018, principally from the June public offering. A further January 2019 offering generated approximately $9.1 million net proceeds; the company also repaid $6.7 million of Interstate Battery convertible debt in January 2019. Management stated that available working capital, including the offering, was expected to fund its current TRIC plan for the next twelve months, while additional capital would be needed for further expansion and to fund continuing losses.
Material changes and operating developments
- Sales increased from a partial year of commercial sales in 2017 to a full year in 2018. AquaRefined lead sales began during 2018; the company started shipping battery-ready ingots to Johnson Controls in December after receiving vendor certification in November.
- Product costs rose 139%, reflecting electrolyte and other operating inputs, process losses, maintenance, staffing, and commissioning costs. R&D expense decreased as facility costs shifted to cost of product sales. G&A more than doubled, including key-man accruals, executive severance, legal costs, activist-related expenses, and a leasehold-improvement write-off.
- Operating cash use increased by $7.316 million year over year. The company spent $3.929 million on investing activities in 2018, mainly for facility and equipment, compared with $9.775 million in 2017.
- The company had installed 16 AquaRefining modules but had operated only the first four. It reported individual modules achieving a steady-state rate of 100 kg per hour for several days; during late 2018, one or two modules were operating 24 hours a day, four days a week while improvement work continued.
Outlook, risks, contingencies, and unusual items
- Management targeted continuous operation of all 16 modules by the end of 2019, conditional on successful commissioning and positive contribution margin. The company reported 67% of its target electrolyte recovery and expected further improvements from two phases of capital and process work. These are targets, not assurances; the filing emphasizes continuing production issues and potential delays.
- In February 2019, Aqua Metals entered an operations, maintenance, and management agreement with Veolia. Veolia was expected to take primary responsibility for scaling the plant to 16 modules during 2019 and work with Aqua Metals on a potential 32-module expansion. The initial term is two years, and Veolia has specified termination rights. Compensation includes 2.35 million shares in installments and warrants for up to 4 million additional shares, subject to the agreement’s terms.
- The company and Johnson Controls had not yet completed a definitive development program agreement. They set a June 30, 2019 target for signing; the existing equipment supply agreement could be terminated if no definitive agreement is reached by then. Johnson Controls’ announced sale of its power solutions business to Brookfield was expected to close in mid-2019; Aqua Metals said it had received no indication of a change in strategy.
- Johnson Controls was a major customer: the filing gives differing 2018 revenue concentration figures—approximately 88% in one discussion and 95% in a financial-statement note. The filing also says one supplier provided substantially all refining chemicals. These concentrations create customer and supply-chain exposure.
- AMR failed the Green Bank minimum debt-service-coverage covenant for quarters from March 2017 through December 2018, but received waivers. Future waivers are not assured; default could accelerate the loan. Management also reported a $1.026 million pledged certificate of deposit and substantial secured collateral.
- A $2.5 million key-man penalty accrual included $2.0 million claimed by Johnson Controls following executive departures; Aqua Metals disputed the claim as premature. The company also agreed to pay Interstate Battery a $0.5 million fee regarding a key-man provision. The filing describes a securities class action and a shareholder derivative action, both seeking unspecified damages; the company denies the allegations and intends to defend them.
- Other principal risks include unproven commercial-scale technology and economics, volatile lead and used-battery prices, environmental permitting and hazardous-material liabilities, financing needs, potential dilution, and dependence on strategic partners. The company reported a clean audit opinion on its financial statements; management concluded internal controls were effective, but the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether the plant achieves reliable commercial production, positive contribution margin, and the targeted 16-module operating scale—and whether electrolyte recovery and lead yields improve as planned.
- Actual cash runway and financing requirements, including the impact of continued operating cash burn, the January 2019 offering, debt repayment, and potential dilution from Veolia shares and warrants.
- Resolution of Green Bank covenant compliance and waivers, the disputed Johnson Controls key-man claim, and the pending securities and derivative litigation.
- Completion and economics of the Johnson Controls development agreement, the effect of its business sale to Brookfield, and progress toward diversifying customers and suppliers.
- Reconciliation of the filing’s inconsistent 2018 Johnson Controls revenue-concentration disclosures (88% versus 95%) and confirmation of actual customer and supplier concentration.