UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
oo TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-37515
Aqua Metals, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
47-1169572
(I.R.S. Employer Identification
Number)
1010 Atlantic Avenue
Alameda, California 94501
(Address of principal executive offices)
(510) 479-7635
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company (as defined in Rule 12b-2 of the Act):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes o No x
State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter: $2,291,035.
The number of shares of the registrant’s common stock outstanding as of March 28, 2016 was 14,137,442.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART IV
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This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include our
expectations, beliefs, intentions and strategies regarding the future. Such forward-looking statements relate to, among other things,
CAUTIONARY NOTICE
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our future financial and operating results;
our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
the timing and success of our plan of commercialization;
our ability to operate our AquaRefining process on a commercial scale;
our ability to procure lead acid batteries, or LABs, in sufficient quantities at competitive prices;
the timing and success of our development of our first LAB recycling facility near Reno, Nevada;
the adequacy of our available working capital to complete the development of our initial recycling center;
the effects of market conditions on our stock price and operating results;
our ability to maintain our competitive technological advantages against competitors in our industry;
our ability to have our technology solutions gain market acceptance;
our ability to maintain, protect and enhance our intellectual property;
the effects of increased competition in our market and our ability to compete effectively;
costs associated with defending intellectual property infringement and other claims;
our expectations concerning our relationships with suppliers, partners and other third parties; and
our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public
company and environmental regulations.
These and other factors that may affect our financial results are discussed more fully in “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in this report. Market data used throughout this report
is based on published third party reports or the good faith estimates of management, which estimates are presumably based upon their
review of internal surveys, independent industry publications and other publicly available information. Although we believe that such
sources are reliable, we do not guarantee the accuracy or completeness of this information, and we have not independently verified such
information. We caution readers not to place undue reliance on any forward-looking statements. We do not undertake, and specifically
disclaim any obligation, to update or revise such statements to reflect new circumstances or unanticipated events as they occur, and we
urge readers to review and consider disclosures we make in this and other reports that discuss factors germane to our business. See in
particular our reports on Forms 10-K, 10-Q, and 8-K subsequently filed from time to time with the Securities and Exchange Commission.
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Item 1.
Business
Background
PART I
Aqua Metals, Inc. was formed as a Delaware corporation on June 20, 2014 for the purpose of engaging in the business of
recycling lead through a novel, proprietary and patent-pending process that we developed and named “AquaRefining”. Since our formation,
we have focused our efforts on the further development of our AquaRefining process, establishment of strategic relationships and the
pursuit of additional working capital. We have not commenced revenue-producing operations and, under our current plan of business, do
not expect to do so until the second quarter of 2016. Unless otherwise indicated, the terms “Aqua Metals”, “Company”, “we,” “us,” and
“our” refer to Aqua Metals, Inc. and its wholly-owned subsidiaries.
All references in this report to “ton” or “tonne” refer to a metric ton, which is equal to approximately 2,204.6 pounds.
Since our organization in 2014, we have engaged in several capital raising transactions, which are summarized below in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – General.”
Overview
We are engaged in the business of recycling lead through a novel, proprietary and patent-pending process that we developed and
named “AquaRefining”. Lead is a globally traded commodity with a worldwide market value in excess of $20 billion. Lead acid batteries,
or LABs, are the primary use of all lead produced in the world. Because the chemical properties of lead allow it to be recycled and reused
indefinitely, LABs are also the primary source of all lead production. As such, LABs are almost 100% recycled for purposes of capturing
the lead contained therein for re-use. We believe that our proprietary AquaRefining process will provide for the recycling of LABs and the
production of a pure grade lead with a significantly lower cost of production, and with fewer environmental and regulatory issues, than
conventional methods of lead production.
In recent years, many lead mines have become exhausted and recycled lead has become increasingly important to LAB
production. Recycled lead surpassed mined lead in the 1990s and now represents more than 50% of the lead content in new LABs.
Whether it is produced from lead ore or recycled LABs, lead has historically been produced by smelting. Smelting is a high-temperature,
endothermic chemical reduction, making it inefficient, energy intensive and often a highly pollutive process. As a consequence of its
environmental and health issues, lead smelting has become increasingly regulated in developed countries. In the US, regulatory non-
compliance has forced the closure of large high-capacity lead smelters in Vernon, California, Frisco, Texas and Herculaneum, Missouri
over the last three years. Herculaneum was the last remaining primary lead-mine operation (i.e., smelting lead from ore) in the US, though
secondary lead smelters that process recycled lead continue to operate in the US. In response, there has been an expansion of LAB smelting
capacity in Mexico and other less regulated countries. The resulting transportation of used LABs from where they originate in the US to
smelters in Mexico, the Philippines and elsewhere is an increasingly significant logistical and global environmental cost.
AquaRefining uses an aqueous solvent and a novel electro-chemical process to produce pure lead (i.e., higher than 99.99% purity).
We believe that AquaRefining can significantly reduce production costs as compared with alternative methods of producing pure lead. This
cost reduction is partly because our novel electro-chemical process requires less energy than the endothermic high temperature (1700°F)
chemical reduction that is at the core of smelting. It is also partly because our process does not generate toxic high temperature dust and
gas, or the lead containing slag and dross that are unavoidable byproducts of smelting, and which require capital and energy intensive
processes to meet environmental compliance. We also have the potential to locate multiple smaller recycling facilities in areas closer to the
source of used LABs, thereby reducing transport costs and supply chain bottlenecks. AquaRefining is a water-based ambient temperature
process. On this basis, we believe that it significantly reduces environmental emissions, health concerns and permitting needs as compared
with lead smelting. We believe that the combined advantages offered by AquaRefining represent a potential step change in lead recycling
technology, one that can deliver advantages in economics, footprint and logistics while greatly reducing the environmental impact of lead
recycling.
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The modular nature of AquaRefining makes it possible to start LAB recycling at a much smaller scale than is possible with
smelters, thereby significantly reducing the investment risk associated with building a lead production facility. Our plan is to actively
explore distributed recycling in the US by establishing our own initial recycling operation near Reno, Nevada. This plan is based on our
belief that Reno has become a significant hub of the West Coast’s LAB distribution infrastructure and yet is very poorly served by the LAB
recycling industry. From our initial recycling facility near Reno, we intend to expand first throughout the US and then overseas. We will
seek to own our own recycling facilities but will also evaluate joint ventures, licensing and direct sales.
Our Markets
The Lead Market
Lead is a globally traded commodity and the essential component of over 95% of the world’s rechargeable batteries. Lead is traded
primarily on the London Metals Exchange, or LME. Conventionally, there are two separate categories of lead: 1) primary lead which refers
to lead mined and refined from lead ore bodies consisting of galena, or lead sulfide, and 2) secondary lead which refers to lead recovered by
recycling and which has a lower purity.
Originally, a majority of the lead used in batteries was primary but in recent decades secondary lead has grown to become the
majority of the lead used. Industry data shows that six million metric tons of lead was produced in 1995 of which approximately 45% was
primary and 55% was secondary (recycled). Twenty years later, by 2015, global lead production had increased to approximately 11 million
metric tons, of which more than 70% was secondary. Importantly primary lead production had increased only marginally during this
period. This marginal increase is because mined ore deposits (galena) are becoming worked-out. As such, an increasing quantity of primary
lead is now a byproduct of copper and zinc mining. Importantly, lead produced from copper and zinc rich ore is much less pure than lead
produced from galena and requires additional energy intensive processing before it meets the quality required to be sold as primary lead.
This has resulted in an increasing demand for secondary lead which meets the purity of lead conventionally mined from galena.
In 2005, secondary lead traded on the LME in a range of $1,000 to $1,200 per metric ton. During 2014, secondary lead traded at
$2,000 to $2,400 per metric ton. During the second half of 2015, secondary lead dropped to a trading range of $1,600 to $1,800 per metric
ton as the price of all commodities declined globally.
As noted above, lead is traded as a commodity on the LME, however it is also traded directly between producers and users, with
LME pricing for primary and secondary lead forming the basis of physical trades, forward contracts and hedge strategies. Based on our
discussions with buyers of lead in the US lead market, different grades of lead are traded in the US at a discount or premium to the LME
price substantially as follows:
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Secondary lead is traded at the LME spot price;
Lead equivalent in purity to conventional primary lead is traded at 10-21% over LME (+8 to +16 cents per lb. or $176–352 per
ton premium);
Specific battery grade alloys all traded at 1-10% over LME (+2 to +14 cents per lb. or $44–308 per ton premium); and
Rough lead (unrefined 95% pure) is traded at 5 to 10% below LME (-$.05-0.10 per lb. or $10-20 per ton discount).
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Lead Smelting
Currently, smelters produce virtually all the world’s mined and recycled lead. Smelting is an inefficient, energy intensive and
often highly polluting process. At its core, smelting is a high temperature (in excess of 1700°F) chemical reduction process in which lead
compounds are heated and then reacted with reducing agents to remove the oxygen and sulfur, leaving behind lead. The chemical reactions
are endothermic, which means that heat must be continually supplied to replace the energy consumed by the reduction processes. In
smelting, 5% to 15% of the lead is lost as “slag” and the lead produced typically contains 2% or more of impurities. Importantly, smelting
is only cost effective at large scale, typically more than 200 metric tons of lead per day.
In addition to the high costs and inefficiencies associated with smelting, it generates large volumes of toxic solid, liquid,
particulate and gaseous waste. In developed countries, there is both increased environmental regulation and enforcement of such, including
monitoring of permissible blood lead levels in employees and local populations. These regulations and the increasing enforcement have
made it more expensive to operate smelters. According to a report titled “Hazardous Trade?” produced by the Secretariat of the
Commission for Environmental Cooperation in 2013, this has led to a decline of lead smelters in the U.S., an expansion of smelting
operations in Mexico and a resultant increase in the export of used LABs from the U.S. followed by the re-import of recycled lead. This
trade is believed to be largely driven by the lower costs related to the less stringent environmental standards and enforcement in Mexico.
For the foregoing reasons, we believe that lead smelting facilities are increasingly located in poorly regulated areas remote from both the
source of used LABs and the demand for lead. We believe that the remote location of smelting increases the transport costs to the
production of recycled lead.
Lead Acid Batteries
The lead acid battery was invented in 1859 and is the oldest and most popular type of rechargeable battery. LABs have the ability
to provide higher surge currents than other rechargeable batteries, making them ideal for use in motor vehicles and other machines to
provide the high current required by starter motors. LABs are also used in lithium-ion battery-powered electric vehicles to power most
functions (outside of the drive train). The relatively inexpensive cost of manufacturing makes LABs attractive for other uses as well,
including storage in backup power supplies in cell phone towers, grid storage applications and high-availability settings like hospitals, and
stand-alone power systems.
The majority of LAB production, and with it the majority of lead, goes into what are called “starter, lighting, ignition” batteries
for automotive vehicles. According to CHR Metals, total lead output in 2017 will be 20% higher than it was in 2012. Similarly, articles
published in the Financial Times and the Wall Street Journal support continued growth in demand for lead for at least the next 20 years as
car ownership increases rapidly in developing nations. The battery market for electric e-bikes and scooters in China is one example of a
recent and rapidly growing niche application for LABs. This niche has grown from minimal roots in 2005 to accounting for over 15% of
LAB production in 2012. There are now over 150 million e-bikes and scooters on the road in China, and nearly all of them are powered by
LABs. We believe that grid storage and other energy storage applications linked to renewable energy (solar and wind) will also generate
increased demand for LABs, where low cost, safety and reliability will make them attractive options.
The increase in LAB manufacturing in general and particularly in China, India and Southeast Asia has increased demand for lead,
putting pressure on global recycling networks to meet this demand. At present, we believe that most of the LAB recycling performed
outside of the U.S., Canada, the EU, Japan, Korea, Taiwan, Australia and New Zealand is carried out in outdated facilities with poor
environmental standards and insufficient enforcement. China, India, Pakistan and South America appear to be moving toward tougher
regulation and enforcement. We believe that this will drive a demand in foreign markets for more less polluting LAB recycling processes.
Our Business Model
The market for lead is global in scale but local in nature and execution, with large differences in local regulation, custom and
practice. In some regions it is highly regulated, and in others it is not. Consequently, we have developed our business model to
commercialize our technology optimally across multiple countries.
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In the US and similarly regulated countries, our plan is to build and operate our own LAB recycling facilities. These will be
smaller distributed facilities rather than large centralized facilities as are required for smelting. Our plan is to locate our recycling facilities
close to regional supplies of used LABs, starting with locations that are furthest from existing LAB smelting facilities. In countries where
direct operation is not possible or not optimal due to local laws that restrict or limit foreign ownership of operating businesses or otherwise,
we plan to supply our process to approved third party customers on a fee-sharing basis.
Lead recycling is subject to a variety of domestic and international regulations related to hazardous materials, emissions, employee
safety and other matters. While our operations will be subject to these regulations, we believe that one of our potential advantages will be
our ability to conduct lead recycling operations with less regulatory cost and burden than smelting operators. One of our key objectives will
be to educate regulators and the public as to the environmental benefits of AquaRefining. We believe we have the potential to develop a
business model that offers both strong economics and the opportunity to conduct in a socially responsible manner an important recycling
activity that to date has been conducted in an inefficient, energy intensive and often highly polluting manner.
AquaRefining Process
We developed AquaRefining to be a less expensive, cleaner and modular alternative to smelting. Our process has two key
elements, both of which are integral to our pending-patent application. The first is our use of a proprietary, non-toxic solvent that dissolves
lead compounds. The second is a proprietary electro-chemical process and electrolyzer that converts the dissolved lead compounds into
pure, primary grade lead on a fully automated basis.
Similar to conventional LAB recycling, our AquaRefining process begins with the crushing of used LABs and the separation of
the metallic lead, active material (lead compounds), sulfuric acid and plastic for recycling. The active material is dissolved in our solvent.
The primary lead is then stripped from the solvent using our patent pending and fully automated process allowing the solvent to be reused
continuously and indefinitely.
Our AquaRefining process generates three outputs, namely:
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Lead;
Cleaned plastic chips, recovered from battery casings, which we intend to sell; and
Sulfuric acid, which is recovered as part of our AquaRefining process, which we also intend to sell.
We expect to derive revenue primarily from the sale of lead, with additional revenue derived from the sale of cleaned plastic chips
and sulphuric acid expected to be modest.
We plan to sell three types of lead:
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Secondary lead – lead which meets the purity standards for secondary lead traded on the LME
Specifically formulated battery grade lead alloys – which in time, we have a reasonable expectation of selling at LME
+10%
Primary lead – which in time, we have a reasonable expectation of selling at LME +15%.
A significant benefit of our AquaRefining process is that it is capable of producing high purity (primary grade) lead, without the
need for the highly energy intensive and wasteful, thermal processing that is required by conventional smelted lead. However, selling
primary grade lead through LME requires a formal application, review and testing process, which if successful results in an LME approved
brand of primary lead. We expect that this approval process will take at least 12-18 months and there is no guarantee of success. For this
reason, we have not included the premiums available through the sale of primary lead in our financial modeling or cash flow planning.
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Another significant benefit of our process is that we designed the equipment used in the process to be manufactured on a purpose-
built production line, in standard sized modules. This is not possible with the smelting process, as smelters need to be constructed on site.
This gives us the ability to provide AquaRefining systems with capacities ranging from four metric tons per day to 400 metric tons per day
or more all based on our standard factory produced module.
Equipment Partnering and Marketing
In early 2014, Wirtz Manufacturing Co, Inc. expressed its interest in working with us to build AquaRefining facilities and
distributing AquaRefining modules as a replacement for or alternative to smelter based LAB recycling systems.
Subsequently, Wirtz participated in both our $6 million convertible note offering and our IPO. We have since procured a majority
of the conventional LAB recycling equipment and processes from Wirtz.
We believe that in due course, the provision of AquaRefining equipment could become a significant part of our business.
Although we do not expect this to become material until after our Tahoe Reno Industrial Center (“TRIC”) facility is operational, we have
commenced informal joint marketing with Wirtz. In September 2015, Wirtz supported us at the bi-annual Secondary Lead Conference in
Bangkok and Wirtz continues to conduct joint marketing our product to Wirtz’ existing customers.
Our First Recycling Facility: McCarran, Nevada
We have commenced the development of our initial LAB recycling facility near Reno, Nevada. On May 29, 2015, we purchased
11.73 acres of undeveloped land for the purchase price of $1,047,503. The property is located in TRIC, a 107,000-acre park located nine
miles east of Reno on I-80. TRIC includes a developable 30,000-acre industrial complex, with pre-approved industrial and manufacturing
uses and on-site rail service by both the Union Pacific and Burlington Northern Santa Fe railways and is both the home of the Tesla
Gigafactory and a large LAB distribution and collection business, Battery Systems Inc.
On August 17, 2015, we commenced construction of a 136,750 square foot LAB recycling facility at our TRIC property and have
allocated a total of $29.5 million of working capital towards the development of the facility, including $14 million towards site construction
and $14.5 million towards the manufacture and installation of 16 AquaRefining modules, other equipment and fixtures. The TRIC facility
will include a fully self-contained battery breaking and pre-treatment facility, which will be supplied, at our cost, by Wirtz Manufacturing
Co., Inc. As of the date of this report, we expect to complete construction of the TRIC facility in the second quarter of 2016. We also expect
to install our first AquaRefining modules in the second quarter 2016 and to install a total of 16 AquaRefining modules to support an initial
lead production capacity of 80 tons per day by the close of the third quarter of 2016. In keeping with our modular approach, we intend to
commence commercial LAB recycling operations shortly after the first AquaRefining module is delivered.
In connection with the development and operation of our TRIC facility, we will be required to obtain, among other government
permits and approvals, a use permit from the State of Nevada Division of Environmental Protection, Bureau of Waste Management and an
air quality permit from the State of Nevada Division of Environmental Protection, Bureau of Air Pollution Control. Based on our meetings
with officials from each of these agencies and our own permitting study, we do not expect to encounter any material issues or delays in
obtaining all required permits and other governmental approvals for the construction and operation of our TRIC facility.
We intend to establish additional recycling facilities throughout the US and overseas. However, we have no agreements or plans at
this time concerning any recycling facilities other than our proposed TRIC facility.
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Supply of Used LABs
We believe there is an ample supply of used LABs in the market today and will be for the foreseeable future. The used LAB
market consists primarily of LAB manufacturers, LAB specialists and distributors and LAB recovery consolidators. We have entered into
formal discussions with three separate suppliers of used LABs. Each of these suppliers has the ability to supply enough used LABs to
operate our TRIC facility at 80 metric tons of produced lead per day and have expressed a desire to do so. Although we have no definitive
agreements in place as of the date of this report with any LAB suppliers, based on our understanding of the market for used LABs and our
discussions to date with LAB suppliers, we believe that used LABs should be readily available to us from a number of sources at
competitive prices.
Competition
As of the date of this report, we are not aware of any commercially viable alternative to smelting for LAB recycling in operation,
except for one variation on smelting that uses a thermal lance to provide the heat. This process, known as Isamelt, has some limited
advantages over smelting but has not been widely taken up, although it has been in existence for over 20 years. In addition, several years
ago, Engitec Technologies S.p.A. developed an electro-refining process as an alternative to smelting for lead ore. The process is known as
the Flubor process and uses fluoboric acid as an electrolyte. We believe The Doe Run Company, a US-based operator of lead smelters,
evaluated this process for the production of primary lead, however, to our knowledge, the Flubor process has never been used in
commercial lead recycling by The Doe Run Company or anyone else.
We believe that our primary competition in the production of lead will come from operators of existing smelters and other parties
invested in the existing supply chain for smelting, both of which may resist the change presented by AquaRefining. Competition from such
incumbents may come in the form of price competition for lead produced, however to the extent we are successful in being a low cost
producer of lead, we should be able to compete effectively based on price.
Another area where incumbents may seek to compete is in controlling access to used LABs. The market for used LABs is made up
of the members of the LAB reverse supply chains, including auto repair shops, auto parts stores and auto dealers, LAB manufacturers who
operate their own smelting operations and third parties who engage in the purchase and sale of used LABs. We believe that some LAB
manufacturers who maintain their own smelting operations may feel significantly threatened by our AquaRefining process. Such parties
may attempt to restrict our access to used LABs; however, we believe these LAB manufacturers only control approximately 50% of the
market for used LABs, leaving us with significant access to LABs even if these parties do attempt to interfere. We have assumed at least
some level of interference by incumbents and have initiated discussions with potential suppliers of used LABs. On the basis of these
discussions, we do not view access to used LABs be a significant risk to our LAB recycling operations.
While we assume that smelters will be resistant, at least at first, to AquaRefining, we have received preliminary inquiries from a
number of existing operators of lead smelters who are interested in augmenting their existing capacity or replacing it entirely with our
AquaRefining modules. However, our business plan is not dependent or even focused on the acceptance of our process by lead smelters.
We intend to initially focus on operating our AquaRefining facilities directly.
We do not expect to experience significant competition in connection with our sale of lead. We believe that the market for lead is
established, fluid and effective; and like the markets for other natural resources, such as oil, gas, gold, silver, etc., we do not expect to
encounter any issues, conditions or qualifications for the sale of our lead production at prevailing market prices set by the LME. The
vertically integrated LAB manufacturers who conduct smelting operations also are buyers of lead from third parties. While these LAB
manufacturers may feel threatened by our AquaRefining process, we believe that they will still purchase lead from us if we are able to offer
it at the price we anticipate. Notwithstanding this, we believe that the vertically integrated LAB manufacturers account for only 50% of the
demand for lead production, leaving a sizable amount of the lead market in the hands of purchasers who we believe will not be reluctant to
purchase lead from us.
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Intellectual Property Rights
We regard the protection of our technologies and intellectual property rights as an important element of our business operations
and crucial to our success. We rely primarily on a combination of patent laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary technology. We generally require our employees, consultants and advisors to enter into confidentiality
agreements. These agreements provide that all confidential information developed or made known to the individual during the course of
the individual’s relationship with us is to be kept confidential and not disclosed to third parties except under specific circumstances. In the
case of our employees, the agreements provide that all of the technology that is conceived by the individual during the course of
employment is our exclusive property. The development of our technology and many of our processes are dependent upon the knowledge,
experience and skills of key scientific and technical personnel.
In November 2013, we filed with the US Patent and Trademark Office, or USPTO, a provisional patent covering multiple aspects
of our AquaRefining process, including all aspects of our proprietary water-based solvent and our novel electrolyzer. In November 2014,
our provisional patent application was converted into a non-provisional patent application which was filed in accordance with the Patent
Cooperation Treaty and contained 35 claims. The claims seek patent protection for the entirety of the novel aspects of our process, starting
with the dissolution of the lead compounds recovered from a used LAB, the solvents used and the range of chemical compositions under
which they are effective. The claims also extend to novel aspects of the electrochemical apparatus and the range of electrochemical
parameters, such as electrical current, voltage and solution pH. Finally, the claims seek patent protection for the type and composition of
the electrodes used, the form and quality of the lead produced and methods of removing the lead from the electrodes.
In May 2015, we filed an additional non-provisional patent application with the USPTO in accordance with Patent Cooperation
Treaty which contained 39 claims. These claims seek to provide additional, complementary and alternative aspects of the November 2014
filing.
In May 2015, we filed an additional six provisional patent applications with the USPTO containing a total of 54 claims. These
provisional filings seek to extend our patent protection in our core process technology and seek patent coverage for areas including ancillary
processes, electrolyte and water recovery, the form and uses of the lead produced and applications of our process to materials other than
lead.
In November of 2015, we filed additional patent applications. These patent filings seek to extend our patent protection in our core
process technology and seek patent coverage for additional higher value forms and uses of the lead produced and applications of our
process to materials other than lead.
We intend to conduct foreign patent filings covering the claims in our provisional and non-provisional patent applications.
There can be no assurance that any patents will issue from any of our current or any future applications. Also, any patents that may
issue may not survive a legal challenge to their scope, validity or enforceability, or provide significant protection for us. The failure of our
patents, or the failure of trade secret laws, to adequately protect our technology, might make it easier for our competitors to copy our
AquaRefining process.
We have also filed for trademark registration in the US of our corporate name “Aqua Metals” and the terms “AquaRefining,”
“AquaRefinery” and “AquaRefine” and intend to conduct foreign filings of these marks.
Government Regulation
Our operations in the United States will be subject to the Federal, state and local environmental, health and safety laws applicable
to the reclamation of LABs. While the lead reclamation process itself is generally not subject to Federal permitting requirements,
depending on how any particular operation is structured, our facilities may have to obtain environmental permits or approvals from Federal,
state or local regulators to operate, including permits or regulatory approvals related to air emissions, water discharges, waste management,
and the storage of LABs on-site should that become necessary. We may face opposition from local residents or public interest groups to the
installation and operation of our facilities. Failure to secure (or significant delays in securing) the necessary approvals could prevent us
from pursuing some of our planned operations and adversely affect our business, financial results and growth prospects.
8
In addition to permitting requirements, our operations are subject to environmental health, safety and transportation laws and
regulations that govern the management of and exposure to hazardous materials such as the lead and acids involved in LAB reclamation.
These include hazard communication and other occupational safety requirements for employees, which may mandate industrial hygiene
monitoring of employees for potential exposure to lead. Failure to comply with these requirements could subject our business to significant
penalties (civil or criminal) and other sanctions that could adversely affect our business. Changes to these regulatory requirements in the
future could also increase our costs, require changes in or cessation of certain activities, and adversely affect the business.
The nature of our operations involve risks, including the potential for exposure to hazardous materials such as lead, that could
result in personal injury and property damage claims from third parties, including employees and neighbors, which claims could result in
significant costs or other environmental liability. Our operations also pose a risk of releases of hazardous substances, such as lead or acids,
into the environment, which can result in liabilities for the removal or remediation of such hazardous substances from the properties at
which they have been released, liabilities which can be imposed regardless of fault, and our business could be held liable for the entire cost
of cleanup even if we were only partially responsible. Like any manufacturer, we are also subject to the possibility that we may receive
notices of potential liability in connection with materials that were sent to third-party recycling, treatment, and/or disposal facilities under
the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable
state statutes, which impose liability for investigation and remediation of contamination without regard to fault or the legality of the
conduct that contributed to the contamination, and for damages to natural resources. Liability under CERCLA is retroactive, and, under
certain circumstances, liability for the entire cost of a cleanup can be imposed on any responsible party.
As our business expands outside of the United States, our operations will be subject to the environmental, health and safety laws
of the countries where we do business, including permitting and compliance requirements that address the similar risks as do the laws in the
United States, as well as international legal requirements such as those applicable to the transportation of hazardous materials. Depending
on the country or region, these laws could be as stringent as those in the US, or they could be less stringent or not as strictly enforced. In
some countries in which we are interested in expanding our business, such as Mexico and China, the relevant environmental regulatory and
enforcement frameworks are in flux and subject to change. Therefore, while compliance with these requirements will cause our business to
incur costs, and failure to comply with these requirements could adversely affect our business, it is difficult to evaluate such potential costs
or adverse impacts until such time as we decide to initiate operations in particular countries outside the United States.
Employees
As of the date of this report, we employ 21 people on a full-time basis, including our four executive officers, four administrative
staff, 10 technical staff, and three employees to support the production of our AquaRefining modules. In addition, we have seven full time
contract people, including five technical and two production contractors. We also expect to hire up to 60 additional employees in 2016 in
connection with the operation of our LAB recycling facility near Reno, Nevada.
Available Information
Our website is located at www.aquametals.com. The information on or accessible through our website is not part of this annual
report on Form 10-K. A copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-
0330. The SEC also maintains an internet site that contains reports and other information regarding our filings at www.sec.gov.
9
Item 1A. Risk Factors
There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks
actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading
price of our common stock could decline and investors could lose all or part of their investment.
Risks Relating to Our Business
Since we have a limited operating history and have not commenced revenue-producing operations, it is difficult for potential
investors to evaluate our business. We formed our corporation in June 2014 and have not commenced revenue-producing operations. To
date, our operations have consisted of the development and limited testing of our AquaRefining process, the development of our business
plan, the raise of our present working capital and the development of our initial LAB recycling facility near Reno, Nevada. Our limited
operating history makes it difficult for potential investors to evaluate our technology or prospective operations. As an early stage company,
we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new business.
Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive
environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability.
We may need additional financing to execute our business plan and fund operations, which additional financing may not be
available on reasonable terms or at all. As of December 31, 2015, we had total assets of $47,275,702 and working capital of
$28,637,372. We believe that we have on hand working capital sufficient to fund our current business plan, including the completion of our
initial recycling facility in TRIC and attainment of production at the rate of 80 tons of recycled lead per day. However, we may require
additional capital over the next 12 months in order to meet these milestones, the receipt of which there can be no assurance. In addition, we
will require additional capital in order to fund our proposed development of additional AquaRefining recycling facilities. We intend to seek
additional funds through various financing sources, including the private sale of our equity and debt securities, licensing fees for our
technology, joint ventures with capital partners and project financing of our recycling facilities. In addition, we will consider alternatives to
our current business plan that may enable to us to achieve revenue producing operations and meaningful commercial success with a smaller
amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such
financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue
operations, in which case you may lose your entire investment.
Our business model is new and has not been proven by us or anyone else. We intend to engage in the business of producing
recycled lead through a proprietary, patent-pending electro-chemical technology. While the production of recycled lead is an established
business, to date all recycled lead has been produced by way of traditional smelting processes. To our knowledge, no one has successfully
produced recycled lead in commercial quantities other than by way of smelting. We have tested our AquaRefining process on a small scale
and to a limited degree, however there can be no assurance that we will be able to produce lead in commercial quantities at a cost of
production that will provide us with an adequate profit margin. The uniqueness of our AquaRefining process presents potential risks
associated with the development of a business model that is untried and unproven.
10
While the testing of our AquaRefining process has been successful to date, there can be no assurance that we will be able to
replicate the process, along with all of the expected economic advantages, on a large commercial scale. As of the date of this report, we
have built and operated both a small-scale unit of our AquaRefining process and a full size production prototype. Through the operation of
such units we have successfully produced 99.99% pure lead on a limited scale. While we believe that our development and testing to date
has proven the concept of our AquaRefining process, we have not undertaken the build-out or operation of a large-scale facility capable of
recycling LABs and producing lead in large commercial quantities. We have commenced the development of our initial LAB recycling
facility in TRIC which we expect to complete in the second quarter of 2016 and at which point we expect to install a total of 16
AquaRefining modules to support an initial lead production capacity of 80 ton per day by the close of the third quarter of 2016. However,
there can be no assurance that as we commence large scale manufacturing or operations at our TRIC facility that we will not incur
unexpected costs or hurdles that might restrict the desired scale of our intended operations or negatively impact our projected gross profit
margin.
Our intellectual property rights may not be adequate to protect our business. We currently do not hold any patents for our
products. To date, we have filed eight U.S. patent applications, of which six are provisional applications, relating to certain elements of the
technology underlying our AquaRefining process and related apparatus and chemical formulations. Although we expect to continue filing,
where applicable, patent applications related to our technology, no assurances can be given that any patent will be issued on our patent
applications or any other application that we may file in the future or that, if such patents are issued, they will be sufficiently broad to
adequately protect our technology. In addition, we cannot assure you that any patents that may be issued to us will not be challenged,
invalidated, or circumvented.
Even if we are issued patents, they may not stop a competitor from illegally using our patented processes and materials. In such
event, we would incur substantial costs and expenses, including lost time of management in addressing and litigating, if necessary, such
matters. Additionally, we rely upon a combination of trade secret laws and nondisclosure agreements with third parties and employees
having access to confidential information or receiving unpatented proprietary know-how, trade secrets and technology to protect our
proprietary rights and technology. These laws and agreements provide only limited protection. We can give no assurance that these
measures will adequately protect us from misappropriation of proprietary information.
Our processes may infringe on the intellectual property rights of others, which could lead to costly disputes or
disruptions. The applied science industry is characterized by frequent allegations of intellectual property infringement. Though we do not
expect to be subject to any of these allegations, any allegation of infringement could be time consuming and expensive to defend or resolve,
result in substantial diversion of management resources, cause suspension of operations or force us to enter into royalty, license, or other
agreements rather than dispute the merits of such allegation. If patent holders or other holders of intellectual property initiate legal
proceedings, we may be forced into protracted and costly litigation. We may not be successful in defending such litigation and may not be
able to procure any required royalty or license agreements on acceptable terms or at all.
Our business strategy includes licensing arrangements and entering into joint ventures and strategic alliances. Failure to
successfully integrate such licensing arrangements, joint ventures, or strategic alliances into our operations could adversely affect our
business. We propose to commercially exploit our AquaRefining process, in part, by licensing our technology to third parties and entering
into joint ventures and strategic relationships with parties involved in the manufacture and recycling of LABs. Licensing programs, joint
ventures and strategic alliances may involve significant other risks and uncertainties, including distraction of management’s attention away
from normal business operations, insufficient revenue generation to offset liabilities assumed and expenses associated with the transaction,
and unidentified issues not discovered in our due diligence process, such as product quality, technology issues and legal contingencies. In
addition, we may be unable to effectively integrate any such programs and ventures into our operations. Our operating results could be
adversely affected by any problems arising during or from any licenses, joint ventures or strategic alliances.
If we are unable to manage future expansion effectively, our business, operations and financial condition may suffer
significantly, resulting in decreased productivity. If our AquaRefining process proves to be commercially valuable, it is likely that we
will experience a rapid growth phase that could place a significant strain on our managerial, administrative, technical, operational and
financial resources. Our organization, procedures and management may not be adequate to fully support the expansion of our operations or
the efficient execution of our business strategy. If we are unable to manage future expansion effectively, our business, operations and
financial condition may suffer significantly, resulting in decreased productivity.
11
Certain industry participants may have the ability to restrict our access to used LABs and otherwise focus significant
competitive pressure on us. We believe that our primary competition will come from operators of existing smelters and other parties
invested in the existing supply chain for smelting, both of which may resist the change presented by our AquaRefining process.
Competition from such incumbents may come in the form of restricted access to used LABs. We believe that LAB manufacturers who also
maintain their own smelting operations control approximately 50% of the market for used LABs. We will require access to used LABs at
market prices in order to carry out our business plan. If those LAB manufacturers and others involved in the reverse supply chain for used
LABs attempt to restrict our access to used Labs that may adversely affect our prospects and future growth. There can be no assurance that
we will be able to effectively withstand the pressures applied by our competition.
We may experience significant fluctuations in raw material prices and the price of our principal product, either of which could
have a material adverse effect on our liquidity, growth prospects and results of operations. Spent LAB’s are our primary raw material
and we believe that in recent years the cost of used LABS has been volatile at times. Our principal product, recycled lead, has also
experienced price volatility from time to time as well. For example, the market price of lead on the London Metal Exchange, or LME, rose
from a trading range of $1,000 to $1,200 per metric ton during 2005 to $2,200 per metric ton during 2014. In 2015, the LME market price
for lead ranged from $1,554 to $2,139 per ton. The price per ton of lead on January 1, 2015 was $1,844 while the price on December 31,
2015 was $1,801 per ton. While we intend to pursue supply and tolling arrangements and hedge transactions as appropriate to offset any
price volatility, the volatile nature of prices for used LABs and recycled lead could have an adverse impact on our liquidity, growth
prospects and results of operations.
The global economic conditions could negatively affect our prospects for growth and operating results. Our prospects for
growth and operating results will be directly affected by the general global economic conditions of the industries in which our suppliers,
partners and customer groups operate. We believe that the market price of our principal product, recycled lead, is relatively volatile and
reacts to general global economic conditions. Lead prices decreased from $2,139 per ton on May 5, 2015 to a low of $1,554 per ton on
November 23, 2015 because of fluctuations in the market. A month later, the price per ton increased back up to $1,801 per ton. Our
business will be highly dependent on the economic and market conditions in each of the geographic areas in which we operate. These
conditions affect our business by reducing the demand for LABs and decreasing the price of lead in times of economic down turn and
increasing the price of used LABs in times of increasing demand of LABs and recycled lead. There can be no assurance that global
economic conditions will not, at times, negatively impact our liquidity, growth prospects and results of operations.
We are subject to the risks of conducting business outside the United States. A part of our strategy involves our pursuit of growth
opportunities in certain international market locations. We intend to pursue the development and ownership of recycling facilities in certain
foreign jurisdictions, including Mexico, China and India, among others countries, however it is more likely that we will enter into licensing
or joint venture arrangements with local partners who will be primarily responsible for the day-to-day operations. Any expansion outside of
the US will require significant management attention and financial resources to successfully develop and operate any such facilities,
including the sales, supply and support channels, and we cannot assure you that we will be successful or that our expenditures in this effort
will not exceed the amount of any resulting revenues. Our international operations expose us to risks and challenges that we would
otherwise not face if we conducted our business only in the United States, such as:
•
•
•
•
•
increased cost of enforcing our intellectual property rights;
heightened price sensitivities from customers in emerging markets;
our ability to establish or contract for local manufacturing, support and service functions;
localization of our LABs and components, including translation into foreign languages and the associated expenses;
compliance with multiple, conflicting and changing governmental laws and regulations;
12
•
•
•
foreign currency fluctuations;
laws favoring local competitors;
weaker legal protections of contract terms, enforcement on collection of receivables and intellectual property rights and
mechanisms for enforcing those rights;
• market disruptions created by public health crises in regions outside the United States;
•
•
•
difficulties in staffing and managing foreign operations, including challenges presented by relationships with workers’ councils
and labor unions;
issues related to differences in cultures and practices; and
changing regional economic, political and regulatory conditions.
Government regulation and environmental, health and safety concerns may adversely affect our business. Our operations in the
United States will be subject to the Federal, State and local environmental, health and safety laws applicable to the reclamation of lead acid
batteries. Depending on how any particular operation is structured, our facilities will probably have to obtain environmental permits or
approvals to operate, including those associated with air emissions, water discharges, and waste management and storage. We may face
opposition from local residents or public interest groups to the installation and operation of our facilities. Failure to secure (or significant
delays in securing) the necessary approvals could prevent us from pursuing some of our planned operations and adversely affect our
business, financial results and growth prospects. In addition to permitting requirements, our operations are subject to environmental health,
safety and transportation laws and regulations that govern the management of and exposure to hazardous materials such as the lead and
acids involved in battery reclamation. These include hazard communication and other occupational safety requirements for employees,
which may mandate industrial hygiene monitoring of employees for potential exposure to lead. Failure to comply with these requirements
could subject our business to significant penalties (civil or criminal) and other sanctions that could adversely affect our business.
The nature of our operations involve risks, including the potential for exposure to hazardous materials such as lead, that could
result in personal injury and property damage claims from third parties, including employees and neighbors, which claims could result in
significant costs or other environmental liability. Our operations also pose a risk of releases of hazardous substances, such as lead or acids,
into the environment, which can result in liabilities for the removal or remediation of such hazardous substances from the properties at
which they have been released, liabilities which can be imposed regardless of fault, and our business could be held liable for the entire cost
of cleanup even if we were only partially responsible. Like any manufacturer, we are also subject to the possibility that we may receive
notices of potential liability in connection with materials that were sent to third-party recycling, treatment, and/or disposal facilities under
the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable
state statutes, which impose liability for investigation and remediation of contamination without regard to fault or the legality of the
conduct that contributed to the contamination, and for damages to natural resources. Liability under CERCLA is retroactive, and, under
certain circumstances, liability for the entire cost of a cleanup can be imposed on any responsible party.
As our business expands outside of the United States, our operations will be subject to the environmental, health and safety laws of
the countries where we do business, including permitting and compliance requirements that address the similar risks as do the laws in the
United States, as well as international legal requirements such as those applicable to the transportation of hazardous materials. Depending
on the country or region, these laws could be as stringent as those in the US, or they could be less stringent or not as strictly enforced. In
some countries in which we are interested in expanding our business, such as Mexico and China, the relevant environmental regulatory and
enforcement frameworks are in flux and subject to change. Compliance with these requirements will cause our business to incur costs, and
failure to comply with these requirements could adversely affect our business.
13
In the event we are unable to present and operate our AquaRefining process and operations as safe and environmentally
responsible, we may face opposition from local governments, residents or public interest groups to the installation and operation of our
facilities.
Control by management may limit your ability to influence the outcome of director elections and other transactions requiring
stockholder approval. As of the date of this report, our directors and executive officers beneficially own approximately 24.7% of our
outstanding common stock. As a result, in addition to their board seats and offices, such persons will have significant influence over
corporate actions requiring stockholder approval, including the following actions:
•
•
•
•
to elect or defeat the election of our directors;
to amend or prevent amendment of our certificate of incorporation or bylaws;
to effect or prevent a merger, sale of assets or other corporate transaction; and
to control the outcome of any other matter submitted to our stockholders for vote.
Such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain
control of our company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock
price.
Risks Related to Owning Our Common Stock
Prior to the completion of our initial public offering in July 2015, there was no public trading market for our common stock.
Our common stock has traded on the Nasdaq Capital Market, under the symbol “AQMS”, since July 31, 2015. Since that date, our common
stock has been relatively thinly traded. There can be no assurance that we will be able to successfully develop a liquid market for our
common shares. The stock market in general, and early stage public companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. If we are unable to develop
a market for our common shares, you may not be able to sell your common shares at prices you consider to be fair or at times that are
convenient for you, or at all.
We are an “emerging growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure
requirements applicable to emerging growth companies will make our common stock less attractive to investors. We are an “emerging
growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to:
•
•
•
•
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval
of any golden parachute payments; and
extended transition periods available for complying with new or revised accounting standards.
We have chosen to “opt out” of the extended transition periods available for complying with new or revised accounting standards,
but we intend to take advantage of all of the other benefits available under the JOBS Act, including the exemptions discussed above. We
cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our
common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more
volatile.
14
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues
exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common
stock that is held by non-affiliates exceeds $700 million as of any June 30.
Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we
need it. Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may be less
attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare
our business with other companies in our industry if they believe that our reporting is not as transparent as other companies in our industry.
If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and
adversely affected.
We have not paid dividends in the past and have no immediate plans to pay dividends. We plan to reinvest all of our earnings, to
the extent we have earnings, in order to develop our recycling centers and cover operating costs and to otherwise become and remain
competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that
we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a
dividend. Therefore, you should not expect to receive cash dividends on our common stock.
Assuming a market for our common stock develops, shares eligible for future sale may adversely affect the market for our
common stock. We have agreed to register for resale 2,511,871 shares of common stock issued upon conversion of our senior secured
convertible notes in August 2015 and 1,411,744 shares of common stock underlying warrants. Furthermore, certain of our stockholders are
eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule
144, promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may
sell freely after six months subject only to the current public information requirement (which disappears after one year). Of the 14,137,442
shares of our common stock outstanding as of the date of this report, approximately 10,730,215 shares are held by “non-affiliates” and are
freely tradable without restriction pursuant to Rule 144.
Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse
effect on the market price of our common stock.
Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable. Provisions of our
certificate of incorporation and bylaws and applicable provisions of Delaware law may delay or discourage transactions involving an actual
or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a
premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. The provisions in our
certificate of incorporation and bylaws:
•
•
•
•
limit who may call stockholder meetings;
do not permit stockholders to act by written consent;
do not provide for cumulative voting rights; and
provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a
quorum.
In addition, Section 203 of the Delaware General Corporation Law may limit our ability to engage in any business combination
with a person who beneficially owns 15% or more of our outstanding voting stock unless certain conditions are satisfied. This restriction
lasts for a period of three years following the share acquisition. These provisions may have the effect of entrenching our management team
and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential
inability to obtain a control premium could reduce the price of our common stock.
15
Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that
may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with
the Company. Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the
State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action
asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any
action asserting a claim against us or any our directors, officers or other employees arising pursuant to any provision of the Delaware
General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us or any our directors,
officers or other employees governed by the internal affairs doctrine. This forum selection provision in our bylaws may limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or any our directors, officers or other employees.
Item 1B.
Unresolved Staff Comments
Not applicable.
16
Item 2.
Properties
Our executive offices are presently located in a 21,697 square foot office and industrial space in a multi-building commercial
project known as “Marina Village” located in Alameda, California. We also conduct engineering and assembly and shipment of our
AquaRefining modules from the Marina Village facility. The lease term is 76 months, commencing February 1, 2016 and expiring May 31,
2022. Monthly rent is $39,054, after a four month abatement of rent, subject to annual increases of approximately 2.7% commencing June
1, 2017 and ending May 31, 2021, at which time the monthly rent for the remainder of the lease term will be $45,346.
We also lease a 5,200 square feet engineering and test facility in Oakland, California pursuant to a four-year lease, expiring on
April 30, 2018, at a lease rate of $3,100 per month to April 30, 2016, then $3,200 per month until April 30, 2017 and then $3,300 until
April 30, 2018.
In May 2015, we purchased 11.73 acres of undeveloped land located in TRIC, a 107,000-acre park located nine miles east of
Reno, Nevada on I-80. We are currently developing a 136,750 square foot lab recycling facility on the property, as more fully described at
“Business - Our First Recycling Facility: McCarran, Nevada.”
Item 3.
Legal Proceedings
As of the date of this report, there are no pending legal proceedings to which we or our properties are subject.
Item 4.
Mine Safety Disclosures
Inapplicable.
17
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
Market Information
Our common stock has traded on the NASDAQ Capital Market under the symbol “AQMS,” since our initial public offering on
July 31, 2015. Since then, our common stock common stock has been relatively thinly traded and has experienced, and is expected to
experience in the future, significant price and volume volatility. The following table shows the reported high and low closing prices per
share for our common stock based on information provided by the NASDAQ Capital Market for the periods indicated.
Fiscal Year Ended December 31, 2015
Fourth Quarter
Third Quarter (commencing on July 31, 2015)
Holders of Record
As of March 17, 2016, there were 78 holders of record of our common stock.
Dividend Policy
High
Low
$
$
5.38 $
5.50 $
4.85
4.78
We have never declared or paid cash dividends on our common stock. We presently intend to retain earnings to finance the
operation and expansion of our business.
Equity Compensation Plan Information
We have adopted the Aqua Metals, Inc. 2014 Stock Incentive Plan providing for the grant of non-qualified stock options and
incentive stock options to purchase shares of our common stock and for the grant of restricted and unrestricted share grants. We have
reserved 1,363,637 shares of our common stock under the plan. All officers, directors, employees and consultants to our company are
eligible to participate under the plan. The purpose of the plan is to provide eligible participants with an opportunity to acquire an ownership
interest in our company.
18
The following table sets forth certain information as of December 31, 2015 about our stock plans under which our equity securities
are authorized for issuance.
(a)
Number of
Securities
to be Issued Upon
Exercise of
Outstanding
Options
(b)
Weighted-Average
Exercise Price of
Outstanding
Options
(c)
Number of Securities
Remaining Available
for
Future Issuance
Under
Equity Compensation
Plans
(Excluding Securities
Reflected In Column
(a))
752,324 $
—
752,324 $
3.95
—
611,313
—
611,313
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Unregistered Sales of Equity Securities and Use of Proceeds
During the fiscal year ended December 31, 2015, we issued 2,511,871 shares of our common stock upon the conversion of
$6 million of senior secured convertible promissory notes issued by us on October 31, 2014 and accrued interest of $279,678. The
issuances were exempt under Section 4(a)(2) of the Securities Act of 1933 and Rule 506 there under. All of the investors were accredited
investors, as such term is defined in Rule 501 under the Securities Act.
Item 6.
Selected Financial Data
Not applicable.
19
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We were formed as a Delaware corporation on June 20, 2014 for the purpose of engaging in the business of recycling lead through
a novel, proprietary and patent-pending process that we developed and named “AquaRefining”. Since our formation, we have focused our
efforts on the development and limited testing of our AquaRefining process, the development of our business plan, the raise of our present
working capital and the development of our initial LAB recycling facility near Reno, Nevada. We have not commenced revenue-producing
operations and, under our current plan of business, do not expect to do so until the second quarter of 2016.
Since our organization in 2014, we have engaged in the following financing transactions:
Convertible Note Placement . Prior to our initial public offering, we capitalized our operations with equity contributions and
advances from our founders, our receipt of a $500,000 investment from Wirtz Manufacturing Co. Inc. and our receipt of $5.5 million of
capital from our private placement sale of senior secured convertible promissory notes, which we refer to as our “convertible notes”, in
October 2014. Pursuant to the terms of our investment agreement with Wirtz Manufacturing Co. Inc., Wirtz exchanged its investment in our
company for a convertible note sold in the October 2014 private placement. As a result, we had issued and outstanding convertible notes in
the aggregate principal amount of $6 million, with accrued and unpaid interest as of August 5, 2015 in the amount of $279,678. All
principal and accrued interest under the convertible notes converted into shares of our common stock at the close of our initial public
offering on August 5, 2015.
Initial Public Offering. On July 31, 2015, we conducted an initial public offering of 6.6 million shares of our common stock, at the
public offering price of $5.00 per share. After the payment of underwriter discounts and offering expenses, and after giving effect to the
underwriters’ exercise of its overallotment option on August 13, 2015 to purchase an additional 641,930 shares of our common stock at the
offering price of $5.00 per share, we received net proceeds of approximately $32,862,172.
Pursuant to the terms of our convertible notes, all principal and interest under the convertible notes automatically converted into
shares of our common stock upon the completion of the initial public offering at the conversion price of $2.50 per share. As of the close of
our initial public offering, all principal and interest, including $6 million of principal and $279,678 of accrued interest, under the
convertible notes automatically converted into 2,511,871 shares of our common stock.
Green Bank Loan. On November 3, 2015, Aqua Metals Reno, Inc., our wholly-owned subsidiary, entered into a Loan Agreement
with Green Bank, N.A. pursuant to which Green Bank provided us with a loan in the amount of $10 million. The loan proceeds will be
applied towards the development of our TRIC facility. The loan accrues interest at an annual rate of the Wall Street Journal Prime Rate
Index plus a margin of 2.00% per year, adjusted quarterly, with a floor rate of 6.00% per year. Interest-only payments are due monthly for
the first twelve months. Thereafter, principal and interest are due monthly and are fully amortized over 20 years. The loan is collateralized
by the real estate, plant and fixtures at the TRIC facility and a certificate of deposit of $1 million at Green Bank. Additionally, the terms of
the Loan Agreement contain various affirmative and negative covenants. Among them, Aqua Metals Reno, Inc. must maintain a minimum
debt service coverage ratio of 1.25 to 1.0, a maximum debt-to-net worth ratio of 1.0 to 1.0 and a minimum current ratio of 1.5 to 1.0.
The loan is guaranteed by the United States Department of Agriculture Rural Development, or USDA, in the amount of 90% of
the principal amount of the loan. We paid a guarantee fee to USDA in the amount of $270,000 at the time of closing of the Loan
Agreement and we will be required to pay to USDA an annual renewal fee in the amount of 0.50% of the guaranteed portion of the
outstanding principal balance of the loan as of December 31 of each year.
20
Plan of Operations
Our plan of operations for the 12-month period following the date of this report is to construct and commence commercial
operations at our initial recycling facility in TRIC. In May 2015, we purchased 11.73 acres of undeveloped land within TRIC for the
purchase price of $1,047,503. We have commenced the construction of a 136,750 square foot lead acid battery, or LAB, recycling facility
at our TRIC property and have allocated a total of $29.5 million of working capital towards the development of the facility. This includes
$14 million towards site construction and $14.5 million towards the manufacture and installation of 16 of our AquaRefining modules, other
equipment and fixtures.
As of the date of this report, we believe that interest in our first recycling facility and demand for our recycling capacity is strong.
Consequently, we have implemented a plan to achieve production at the rate of 80 tons of recycled lead per day by the fourth quarter of
2016 and, over time, expand to 160 tons per day. Our TRIC facility is designed and is being constructed in order to accommodate a total of
32 AquaRefining modules and additional battery breaking and component separations equipment sufficient to support expansion to 160
tons of recycled lead per day.
Construction of the TRIC facility began on August 17, 2015 and is progressing with a completion expected in the second quarter
of 2016. We expect to install our first AquaRefining modules in approximately the second quarter of 2016 and to install a total of 16
AquaRefining modules to support an initial lead production capacity of 80 tons per day by the close of the third quarter of 2016. In keeping
with our modular approach, we intend to commence commercial LAB recycling operations shortly after the first AquaRefining module is
delivered.
As of the date of this report, we believe that we will not need additional funds and that our cash on hand is sufficient to achieve
production at a rate of 80 tons of lead per day. Our goal is to increase our production of lead at our TRIC facility to 160 tons per day,
subject to our receipt of required expansion funds, of which there can be no assurance.
Results of Operations
We were formed on June 20, 2014 and have not commenced revenue-producing operations. To date, our operations have consisted
of the development and limited testing of our AquaRefining process, the development of our business plan, the raise of our present
working capital and the development of our initial LAB recycling facility near Reno, Nevada.
For the fiscal year ended December 31, 2015, we incurred $2,280,604 of operations and development costs, consisting of
$1,220,377 of salary and benefits, $543,031 of research and development, $160,750 professional services, $77,445 depreciation and
$279,001 for overhead and travel. We also incurred $3,170,659 of business development and management costs, consisting of $1,769,037
of salary and benefits, $800,944 of professional services, $121,460 of depreciation and amortization and $479,218 of insurance, travel and
overhead. Other expenses for the fiscal year ended December 31, 2015 included $1,128,244 of interest expense and $5,776,254 resulting
from a change in fair value of derivative liabilities relating to our convertible note financing and the related financing warrants. We
incurred a net loss of $12,331,637 for the year ended December 31, 2015.
We commenced operations in June 2014. Due to the fact that we operated for approximately one-half of the 2014 fiscal year, and
the level of such operations were relatively insignificant, we have not provided comparative analysis of the 2015 and 2014 fiscal years as
we do not consider such analysis to be meaningful.
Financial Condition
As of December 31, 2015, we had total assets of $47,275,702, working capital of $28,637,372 and cash on hand of $31,807,982.
We have not generated revenues and have net losses of $12,331,637 and $2,373,751 for the year ended December 31, 2015 and the period
from inception to December 31, 2014, respectively. Since inception, we have met our liquidity requirements principally through the private
placement of convertible notes and the sale of our common stock in a registered public offering.
21
During the year ended December 31, 2015, cash flows used in operating activities were $1,476,249, consisting of a net loss of
$12,331,637, less non-cash expenses aggregating $7,567,068 (representing principally the amortization of debt discount of $909,411, stock
based compensation of $300,771 and the change in fair value of derivative liabilities of $5,776,254), an increase in accounts payable of
$3,151,807, primarily due to $2,644,069 of December 2015 unpaid invoices for building the TRIC facility and deferred rent of $163,485.
During the period from inception to December 31, 2014, cash flows used in operating activities were $567,612, consisting of a net loss of
$2,373,751, offset by non-cash expenses of $2,123,200 and net changes in operating assets and liabilities of $(317,061).
During the year ended December 31, 2015 and the period from inception to December 31, 2014, cash flows used in investing
activities were $25,043,496 and $(260,618), respectively. The increase for the year ended December 31, 2015 consisted principally of
restricted cash of $11,667,315 (use restricted to cost of TRIC facility), land, facility and equipment for TRIC facility of $11,636,250,
$1,000,000 deposit held by Green Bank and $593,531 deposit for the Alameda, CA corporate leased facility.
During the year ended December 31, 2015, cash flows provided by financing activities were $42,123,811 and consisted of the net
proceeds from our IPO of $32,862,172 and net proceeds from a loan from Green Bank of $9,261,639. During the period from inception to
December 31, 2014, cash flows from investing consisted principally of $5,363,331 in proceeds from the sale of convertible debt.
We believe that our cash on hand as of the date of this report is sufficient to fund our current business plan over the next
12 months, including the development of our initial recycling facility at TRIC. However, we may require additional capital over the next 12
months, the receipt of which there can be no assurance. In addition, we will require additional capital in order to fund our proposed
development of additional AquaRefining recycling facilities. We intend to seek additional funds through various financing sources,
including the sale of our equity and debt securities, licensing fees for our technology, joint ventures with capital partners and project
financing of our recycling facilities. In addition, we will consider alternatives to our current business plan that may enable to us to achieve
revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees
that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may
be unable to further pursue our business plan and we may be unable to continue operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
22
Item 8.
Financial Statements and Supplementary Data
Index To Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Operations for the year ended December 31, 2015 and the period from inception (June 20, 2014) to
December 31, 2014
Consolidated Statements of Changes In Stockholders’ Equity for the year ended December 31, 2015 and the period from
inception (June 20, 2014) to December 31, 2014
Consolidated Statements of Cash Flows for the year ended December 31, 2015 and the period from inception (June 20, 2014) to
December 31, 2014
Notes to Consolidated Financial Statements
23
Page
F-1
F-2
F-3
F-4
F-5
F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Aqua Metals, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Aqua Metals, Inc. and Subsidiaries (collectively the “Company”) as of
December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the
year ended 2015, and for the period from June 20, 2014 (inception) to December 31, 2014. The consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2015 and 2014, including the results of their operations and their cash flows for the year ended December 31,
2015, and for the period from June 20, 2014 (inception) to December 31, 2014, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Armanino LLP
San Ramon, CA
March 28, 2016
F-1
AQUA METALS, INC.
Consolidated Balance Sheets
December 31, 2015 December 31, 2014
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Prepaid expenses and other current assets
Total current assets
Non-current assets
Property and equipment, net
Intellectual property, net
Equipment deposits
Other assets
Total non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable
Accrued expenses
Short term notes payable
Accrued interest
Convertible notes payable, net
Total current liabilities
Deferred rent
Long term notes payable, net
Derivative liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity (deficit)
$
$
$
20,140,667 $
11,667,315
146,987
31,954,969
8,808,387
1,065,113
3,853,702
1,593,531
15,320,733
4,536,601
-
13,406
4,550,007
245,641
1,028,554
-
-
1,274,195
47,275,702 $
5,824,202
3,192,113 $
80,518
44,966
-
-
3,317,597
1,071,129
9,221,786
-
13,610,512
40,306
12,292
-
65,589
5,090,589
5,208,776
-
-
1,384,782
6,593,558
-
-
Common stock; $0.001 par; 50,000,000 shares authorized; 14,137,442 and
4,363,641 shares issued and outstanding at December 31, 2015 and December 31,
2014, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity (deficit)
14,137
48,356,441
(14,705,388)
33,665,190
4,364
1,600,031
(2,373,751)
(769,356)
Total liabilities and stockholders' equity (deficit)
$
47,275,702 $
5,824,202
The accompanying notes are an integral part of these consolidated financial statements.
F-2
AQUA METALS, INC.
Consolidated Statements of Operations
Operating expenses
Operations and development costs
Business development and management costs
Total operating expenses
Loss from operations
Other expenses (income)
Increase in fair value of derivative liabilities
Interest expense
Interest income
Other income
Total other expenses, net
Loss before income tax expense
Income tax expense (benefit)
Net loss
Year Ended
December 31,
2015
Period from
Inception (June
20, 2014) to
December 31,
2014
$
2,280,604 $
3,170,659
5,451,263
231,043
1,175,613
1,406,656
(5,451,263)
(1,406,656)
5,776,254
1,128,244
(19,224)
(6,500)
1,172,627
216,919
(1,039)
(370)
6,878,774
1,388,137
(12,330,037)
(2,794,793)
1,600
(421,042)
$
(12,331,637) $
(2,373,751)
Weighted average shares outstanding, basic and diluted
8,404,311
4,363,641
Basic and diluted net loss per share
$
(1.47) $
(0.54)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
AQUA METALS, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity (Deficit)
Balances, June 20, 2014 (inception)
- $
- $
- $
- $
-
Common stock issued as reimbursement for expenses paid for by
founders
261,819
262
39,575
-
39,837
Common stock issued for intellectual property contributed by
founders
4,101,822
4,102
633,056
Issuance of consulting warrants
Debt discount - beneficial conversion feature on convertible notes
Net loss
-
-
-
-
-
-
715,245
212,155
-
-
-
637,158
715,245
212,155
-
(2,373,751)
(2,373,751)
Balances, December 31, 2014
4,363,641 $
4,364 $
1,600,031 $
(2,373,751) $
(769,356)
Common stock issued upon initial public offering ("IPO"), net of
offering costs
6,600,000
6,600
29,891,411
-
29,898,011
Common stock issued for over allotment of the IPO, net of offering
costs
641,930
642
2,963,519
-
2,964,161
Conversion of convertible notes and accrued interest upon
completion of the IPO
2,511,871
2,511
6,277,167
Extinguishment of benficial conversion feature derivative liability
-
-
6,279,677
-
-
6,279,678
6,279,677
Reclassification of financing warrants (from derivative liability to
APIC) upon completion of IPO
Stock based compensation - stock options
-
-
-
300,771
-
881,359
-
881,359
Stock issued for consulting services
20,000
20
97,780
Warrants issued for consulting services
Net loss
-
-
-
-
64,726
-
(12,331,637)
(12,331,637)
Balances, December 31, 2015
14,137,442 $
14,137 $
48,356,441 $
(14,705,388) $
33,665,190
The accompanying notes are an integral part of these consolidated financial statements.
F-4
-
-
-
300,771
97,800
64,726
AQUA METALS, INC.
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net loss
Reconciliation of net loss to net cash used in operating activities
Depreciation
Amortization of intellectual property
Fair value of warrants issued for consulting services
Fair value of common stock issued for consulting services
Fair value of common stock issued as reimbursement for expenses paid by founders
Stock option based compensation
Increase in fair value of derivative liabilities
Amortization of debt discount
Amortization of deferred financing costs
Non-cash convertible note interest expense
Changes in operating assets and liabilities
Prepaid expenses and other current assets
Accounts payable
Accrued expenses
Deferred Income tax benefit
Deferred rent
Net cash used in operating activities
Cash flows from investing activities:
Increase in restricted cash
Purchases of property and equipment
Deposits
Other assets
Intellectual property
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs
Proceeds from issuance of warrants
Proceeds from notes payable, net of issuance costs
Proceeds from convertible note payable
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Year Ended
December 31,
2015
Period from
Inception (June
20, 2014) to
December 31,
2014
$
(12,331,637) $
(2,373,751)
89,064
109,841
64,726
97,800
-
300,771
5,776,254
909,411
5,113
214,088
(95,199)
3,151,807
68,227
-
163,485
(1,476,249)
(11,667,315)
(7,782,548)
(3,853,702)
(1,593,531)
(146,400)
(25,043,496)
32,862,172
-
9,261,639
-
42,123,811
15,604,066
4,536,601
1,298
44,125
713,745
-
39,837
-
1,172,627
151,568
-
-
(13,406)
40,306
77,881
(421,842)
-
(567,612)
-
(246,940)
-
-
(13,678)
(260,618)
-
1,500
-
5,363,331
5,364,831
4,536,601
-
Cash and cash equivalents at end of period
$
20,140,667 $
4,536,601
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Non-cash investing activities
Tenant improvement allowances
Non-cash financing activities
Fair value of consulting warrants
Fair value of financing warrants
Fair value of common stock issued for intellectual property, net of tax
Fair value of common stock issued to founders as reimbursement for expenses paid prior to
inception
Fair value of common stock issued upon conversion of convertible notes and accrued interest
Increase in additional paid in capital upon extinguishment of beneficial conversion feature
derivative liability
Fair value of common stock issued to consultants
$
$
$
$
103,078 $
1,600 $
869,262 $
64,726 $
881,359
-
-
6,279,678
6,279,677
97,800
262
-
0
715,245
-
637,158
39,837
-
-
-
Total non-cash financing activities
$
13,603,240 $
1,392,240
The accompanying notes are an integral part of these consolidated financial statements.
F-5
AQUA METALS, INC.
Notes to Consolidated Financial Statements
1. Organization and Operations
Aqua Metals, Inc. (the "Company") was incorporated in Delaware and commenced operations on June 20, 2014 (inception). On
January 27, 2015, the Company formed two wholly-owned subsidiaries, Aqua Metals Reno, Inc. (“AMR”) and Aqua Metals
Operations, Inc. (“Subsidiaries”), both incorporated in Delaware. The Company has developed an innovative process for recycling
lead acid batteries. The Company intends to manufacture the equipment it has developed, and will also operate lead acid battery
recycling facilities. Construction of the first recycling facility is in progress in McCarran, Nevada (“NV”).
Liquidity and Management Plans
As of December 31, 2015, the Company had not yet completed the development of its facility and had not yet recorded any revenues.
Since inception, the Company’s primary activities have consisted of developing its technology, developing its business plan, raising
capital, constructing a new facility, and recruiting and hiring its workforce and executive team. To date, these activities have been
funded primarily through the sale of convertible notes (“Convertible Notes”) (see note 8 - Private Placement), and the funding of the
Company’s initial public offering (“IPO”), which was consummated on July 31, 2015 (see note 12 – Stockholders’ Equity (Deficit)).
The Company has not generated revenues since its inception and had net losses of $12,331,637 and $2,373,751 for the year ended
December 31, 2015 and the period ended December 31, 2014, respectively. The Company expects that cash on hand as of December
31, 2015 will be sufficient to fund the Company’s operations into positive cash flow from the first recycling plant in McCarran, NV.
2. Summary of Significant Accounting Policies
Basis of presentation
The Company’s consolidated financial statements are prepared on the accrual method of accounting.
The accounting and reporting policies of the Company conform with generally accepted accounting principles (“GAAP”). In the
opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation of the consolidated balance sheets and the consolidated
statements of operations, stockholders’ equity (deficit) and cash flows for the year ended December 31, 2015 and the period ended
December 31, 2014.
F-6
AQUA METALS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned.
Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and
assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of expenses during the period. Significant items subject to such
estimates and assumptions include the carrying amount and valuation of long-lived assets, the valuation of conversion features of
convertible debt, valuation allowances for deferred tax assets, the determination of stock option expense, and the determination of the
fair value of stock warrants issued. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments with original or remaining maturities of ninety days or less at the date of
purchase to be cash equivalents. The Company maintains its cash balances in large financial institutions. Periodically, such balances
may be in excess of federally insured limits.
Property and equipment
Property and equipment are stated at cost net of accumulated depreciation. Depreciation on property and equipment is calculated on
the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the life
of the asset or the remaining term of the lease.
Intangible and other long-lived assets
The intangible assets consists of a patent application contributed to the Company by five founding stockholders, patent applications
for technology developed by the Company and trademark applications. The useful life of the intangible assets has been determined to
be ten years and the assets are being amortized. The Company periodically evaluates its intangible and other long-lived assets for
indications that the carrying amount of an asset may not be recoverable. In reviewing for impairment, the Company compares the
carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual
disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized
equal to the difference between the assets’ fair value and their carrying value. In addition to the recoverability assessment, the
Company routinely reviews the remaining estimated lives of its long-lived assets. Any reduction in the useful life assumption will
result in increased depreciation and amortization expense in the period when such determination is made, as well as in subsequent
periods. The Company evaluates the need to record impairment during each reporting period. No impairment has been recorded. The
Company determined that the estimated life of the intellectual property properly reflected the current remaining economic life of the
asset.
F-7
AQUA METALS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Research and development
Research and development expenditures are expensed as incurred.
Income taxes
The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under the liability
method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences
between financial statement carrying amounts of assets and liabilities and their respective tax bases. The provision for income taxes is
comprised of the current tax liability and the changes in deferred tax assets and liabilities. The Company establishes a valuation
allowance to the extent that it is more likely than not that deferred tax assets will not be recoverable against future taxable income.
The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Convertible instruments
The Company accounts for hybrid contracts that feature conversion options in accordance with "Derivative and Hedging Activities,"
("ASC 815") and " Distinguishing Liabilities from Equity" ("ASC 480"), which require companies to bifurcate conversion options
from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The
criteria includes circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not
clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both
the embedded derivative's instrument and the host contract is not re-measured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the
same terms as the embedded derivative instrument would be considered a derivative instrument. The Company accounts for
convertible instruments which have been determined to be free standing derivative financial instruments (when the Company has
determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.
Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the
derivative. The derivative is subsequently marked to market each reporting date based on current fair value, with the changes in fair
value reported in results of operations. The convertible instruments were converted into common stock August 5, 2015. The Company
has no hybrid contracts as of December 31, 2015.
F-8
AQUA METALS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Fair value measurements
The carrying amounts of cash and cash equivalents, prepaid expenses and other current assets, equipment deposits, accounts payable,
accrued expenses and deferred rent approximate fair value due to the short-term nature of these instruments. The carrying value of
short and long term debt also approximates fair value since these instruments bear market rates of interest. None of these instruments
are held for trading purposes.
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a
liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on
assumptions that market participants would use in pricing an asset or liability. A three-tier far value hierarchy is used to prioritize the
inputs in measuring fair value as follows:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3. Significant unobservable inputs that cannot be corroborated by market data.
The asset or liability's fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is
significant to the fair value measurement. The following table provides a summary of the liabilities that are measured at fair value on
a recurring basis at December 31, 2014, consisting of certain Financing Warrants and the conversion feature of the Company’s
Convertible Notes, both of which are more fully described in Note 8:
Derivative liabilities:
Conversion feature
Financing Warrants
Total
Total
Level 1
Level 2
Level 3
$
$
1,108,955 $
275,827
1,384,782 $
- $
-
- $
- $
-
- $
1,108,955
275,827
1,384,782
F-9
AQUA METALS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Fair value measurements (continued)
There are no assets or liabilities that are measured at fair value on a recurring basis at December 31, 2015.
The following table sets forth a summary of the changes in the fair value of the Company's Level 3 financial liabilities that were
measured at fair value on a recurring basis:
Balance at inception (June 20, 2014)
Aggregate fair value of Financing Warrants upon issuance
Change in fair value of conversion feature and Financing Warrants
Balance at December 31, 2014
Change in fair value of conversion feature and Financing Warrants
Extinguishment of beneficial notes and accrued interest at time of IPO
Reclassification of financing warrants upon completion of IPO
Balance at December 31, 2015
$
$
$
-
212,155
1,172,627
1,384,782
5,776,254
(6,279,677)
(881,359)
-
As of December 31, 2014, the conversion feature of the Convertible Notes was measured at fair value using a Monte Carlo simulation
and classified within Level 3 of the valuation hierarchy. The warrant liability for the Financing Warrants was measured at fair value
using a Black-Scholes-Merton valuation model and is classified within Level 3 of the valuation hierarchy.
As of December 31, 2014, Level 3 liabilities were valued using unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair
value hierarchy, the Company's chief financial officer determined its valuation policies and procedures. The development and
determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations were the responsibility of the
Company's chief financial officer with support from the Company's consultants and which are approved by the chief financial officer.
As of December 31, 2014, Level 3 financial liabilities consisted of the derivative liabilities for which there was no current market for
these securities such that the determination of fair value required significant judgment or estimation. Prior to conversion, changes in
fair value measurements categorized with Level 3 of the fair value hierarchy were analyzed each period based on changes in estimates
or assumptions and recorded as appropriate.
F-10
AQUA METALS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Fair value measurements (continued)
The Company used a Monte Carlo model to value certain Level 3 financial liabilities at inception and on subsequent valuation dates.
The simulation incorporated transaction details such as the Company's stock price, contractual terms, maturity, risk free rates and
volatility. The Company also used a Black-Scholes-Merton economic model to measure the Financing Warrants and certain
Consulting Warrants (which are more fully described in Note 12) at issuance. Prior to conversion into equity, the Financing Warrants
were re-valued using a Black-Scholes-Merton economic model for each reporting date.
A significant decrease in the volatility or a significant decrease in the Company's stock price, in isolation, would result in a
significantly lower fair value measurement. Changes in the value of the derivative liabilities are recorded within other expense
(income) in the Company's consolidated statements of operations.
In accordance with the provisions of ASC 815, the Company presented the conversion feature and Financing Warrant liability at fair
value on the consolidated balance sheets, with the corresponding changes in fair value recorded in the Company's consolidated
statements of operations.
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of
net-cash settlement or a settlement in the Company's own shares (physical settlement or net-share settlement) providing that such
contracts are indexed to the Company's own stock as defined in ASC 815-40 “(Contracts in Entity's Own Equity)”. The Company
classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract
if an event occurs and if that event is outside the Company's control) or (ii) gives the counterparty a net-cash settlement or settlement
in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and
other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or
equity is required.
Net loss per common share
The Company reports net loss per share in accordance with the standard codification of ASC “Earnings per Share” (“ASC 260”).
Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net loss available to common stockholders
by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could be exercised or converted into common shares, and is computed by dividing earnings available to
common stockholders by the weighted average of common shares outstanding plus the dilutive potential common shares. Diluted
earnings per share for all periods presented exclude the impact of convertible notes and warrants to purchase common stock, as the
effect would be anti-dilutive. During a loss period, the assumed exercise of in-the-money stock warrants and other potentially diluted
instruments has an anti-dilutive effect and, therefore, these instruments are excluded from the computation of dilutive earnings per
share.
F-11
AQUA METALS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Fair value measurements (continued)
Potentially dilutive securities in the table below have been excluded from the computation of diluted net loss per share because the
effect of their inclusion would have been anti-dilutive.
Consulting warrants to purchase common stock
Options to purchase common stock
Financing, IPO, and O-A warrants to purchase common stock
Total potential dilutive securities
Recent accounting pronouncements
Year Ended
Period Ended
December 31, 2015 December 31, 2014
145,455
-
41,865
187,320
443,447
752,324
550,259
1,746,030
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17.
“Income Taxes (Topic 740): Balance Sheet Classifications of Deferred Taxes.” This ASU eliminates the existing requirements for a
Company to separate deferred tax assets and liabilities into current and non-current amounts in a classified statement of financial
position. The new guidance requires that all deferred tax assets and liabilities now be classified as non-current in a classified statement
of financial position. This ACU is effective for annual reporting periods beginning after December 31, 2016, and interim periods
therein. Early adoption is permitted. The Company does not expect the adoption of this guidance will have a material effect on its
consolidated financial statements.
3. Restricted cash
The restricted cash balance at December 31, 2015 is comprised of funds held in escrow at Green Bank for the purpose of paying for
the construction of the lead recycling plant building in McCarran, NV. The building is expected to be completed in the second quarter
of 2016. As of December 31, 2015, $2,644,069 of the outstanding accounts payable balance is to be paid out of the escrowed funds.
4. Property and equipment, net
Property and equipment, net, consisted of the following as of December 31:
Asset Class
Demonstration equipment
Shop equipment
Lab equipment
Computer equipment
Leasehold improvements
Office equipment
Building under construction
Equipment under construction
Land
Less: accumulated depreciation
Useful Life
(Years)
2015
2014
5 $
5
5
3
5-7
5
25
10
-
$
297,347 $
58,638
51,508
71,519
1,086,351
9,238
5,681,435
595,210
1,047,503
8,898,749
(90,362)
8,808,387 $
196,671
18,750
-
11,089
15,848
4,581
-
-
-
246,939
(1,298)
245,641
F-12
AQUA METALS, INC.
Notes to Consolidated Financial Statements
4. Property and equipment, net (continued)
Depreciation expense was $89,064 and $1,298 for the year ended December 31, 2015 and for the period from inception (June 20,
2014) through December 31, 2014, respectively. Building under construction is the 136,750 square foot lead acid battery recycling
plant being built in McCarran, NV. Equipment under construction is AquaRefining modules manufactured by the Company to be used
in the McCarran, NV recycling plant.
Certain costs necessary to make the recycling facility ready for its intended use have been capitalized, including interest expense on
notes payable. Capitalized interest totaled $98,333 and $0 for the year ended December 31, 2015 and period ended December 31,
2014.
5. Intellectual Property
On July 3, 2014, five of the founding stockholders contributed the rights to certain intellectual property to the Company in exchange
for the issuance of 4,101,822 shares with a fair value of $1,059,000. This contribution was recorded as an intangible asset with an
offset to additional paid in capital for $637,158 and deferred taxes for $421,842. The fair market value of the intellectual property was
determined by management with the assistance of an independent valuation specialist using an equal weighting of the incremental
cash flow and relief from royalty methodologies.
Both methodologies used a discount rate of 50%. The discounted cash flow approach used a 10 year forecast and a 20% probability of
achieving commercial success. The forecast assumed 85% of revenue is generated from sales of lead processed in Company owned
and operated recycling plants and 15% of revenue is generated from license fees. The relief from royalty method used revenues equal
to 50% of management’s discounted cash flow forecast and a license rate of 1.5% of revenue.
The increase of $146,400 in 2015 is due to fees associated with additional patent and trademark filings.
Intellectual property, net, is comprised of the following as of December 31:
Intellectual property
Accumulated amortization
Intellectual property, net
2015
1,219,080 $
(153,967)
1,065,113 $
2014
1,072,680
(44,126)
1,028,554
$
$
F-13
AQUA METALS, INC.
Notes to Consolidated Financial Statements
5. Intellectual Property (continued)
Aggregate amortization expense for the year ended December 31, 2015 and the period from inception (June 20, 2014) through
December 31, 2014 was $109,841 and $44,125 respectively.
Estimated future amortization expense is as follows as of December 31, 2015;
2016
2017
2018
2019
2020
Thereafter
Total
6. Equipment Deposits
$ 121,898
121,898
121,898
121,898
121,898
455,623
$1,065,113
The Company’s deposit balances are comprised of $58,989 for furniture and equipment to be delivered and installed in the Company’s
Alameda, California (“CA”) headquarters during the first quarter of 2016 and $3,794,713 for equipment to be installed at the plant in
McCarran, NV during the second quarter of 2016.
7. Other Assets
The Company’s other asset balance is made up of a security deposit for the Alameda headquarters lease, totaling $593,531, and a
certificate of deposit totaling $1,000,000, held by Green Bank as collateral for the AMR construction note payable balance (see note
11).
The lease deposit will be released in three installments. On June, 2017, $275,000 will be released, followed by $275,000 on June 2018
and the remainder will be released at the end of the lease term.
The deposit with Green Bank will be released after AMR has three consecutive months of positive cash flow from operations.
F-14
AQUA METALS, INC.
Notes to Consolidated Financial Statements
8. Private Placement
Convertible notes
On October 31, 2014, the Company entered into a securities purchase agreement (the "Securities Purchase Agreement") with
accredited investors (the "Investors"), pursuant to which the Company issued an aggregate of $6,000,000 principal amount of senior
secured convertible notes (the "Convertible Notes"). In connection with the sale of the Convertible Notes (the "Bridge Financing"),
the Company entered into a registration rights agreement (the "Registration Rights Agreement") and a security agreement (the
"Security Agreement") with the Investors. The closing of the Bridge Financing was completed October 31, 2014. Upon issuance, the
Convertible Notes bore simple interest at 6% per annum and upon the occurrence of any specified event of default, the Convertible
Notes would bear interest at 12% per annum and were scheduled to mature on December 31, 2015.
The principal and interest of the Convertible Notes were convertible into the Company's common stock at a conversion price between
$1.67 and $2.50 per share depending on the facts and circumstances at the time of the conversion (see below). The Convertible Notes
were required to be converted upon a qualifying IPO, if any, in which case the conversion price was to be equal to 50% of the price to
the public in such offering (but not more than $2.50 or less than $1.67 per share).
In the event of an optional conversion by the holder of a Convertible Note, the conversion price would be $2.50. The conversion price
under the Convertible Notes was further subject to adjustments in the event of stock splits, combinations or the like and upon certain
other events, all as provided in the Convertible Notes.
The aggregate amount of accrued interest on the Convertible Notes was $65,589 as of December 31, 2014. The Company had an IPO
on July 31, 2015 and the Convertible Notes and accrued interest were converted into 2,400,000 and 111,871 shares of the Company
common stock, respectively, at a conversion price of $2.50 per share.
Pursuant to the terms of the Convertible Notes, the conversion price was subject to adjustments in the event of an IPO, other financing
and upon certain other events. The embedded conversion feature was not clearly and closely related to the host instrument and was
bifurcated from the host Convertible Notes as a derivative, principally because the instrument's variable exercise price terms would
not qualify as being indexed to the Company's own common stock. Accordingly, this conversion feature instrument was classified as a
derivative liability in the accompanying consolidated balance sheet as of December 31, 2014. Derivative liabilities were initially
recorded at fair value and were then re-valued at each reporting date, with changes in fair value recognized in earnings during the
reporting period.
F-15
AQUA METALS, INC.
Notes to Consolidated Financial Statements
8. Private Placement (continued)
Convertible notes (continued)
The Company determined that the initial fair value of the embedded conversion option was $212,155. From the aggregate principal
amount of the Convertible Notes of $6,000,000, the Company deducted in full the fair value of the embedded conversion feature, and
offering costs of $848,824 as a debt discount. The debt discount was amortized under the effective interest method over the term of
the Convertible Notes. The balance of Convertible Notes as of December 31, 2014 was as follows:
Face value of the Convertible Notes
Debt discount and value of embedded option, net of amortization
Convertible Notes, net
$
$
6,000,000
(909,411)
5,090,589
The Company calculated the fair value of the embedded conversion feature of the Convertible Notes using the Monte Carlo
simulation, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value
measurement of the reporting entity's embedded conversion feature were expected stock prices, levels of trading and liquidity of the
Company's stock. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair
value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a
significantly lower fair value measurement.
Fair value of stock price on valuation date
High collar
Low collar
Term (years)
Expected volatility
Weighted average risk-free interest rate
Trials
Aggregate fair value
As of
October 31,
2014
As of
December 31,
2014
$
$
$
$
$
$
$
1.77
2.50
1.67
0.75
80%
0.11%
2.18
2.50
1.67
0.58
80%
0.14%
50,000
212,155
$
50,000
1,108,955
The fair value of the embedded conversion feature at the time of the IPO and note conversion into common shares of the Company
was $6,279,677.
On September 8, 2014, the Company entered into an agreement (the "Placement Agent Agreement") with National Securities
Corporation ("NSC") pursuant to which the Company appointed NSC to act as the Company's placement agent in connection with the
sale of the Company's securities ("Offering or Offerings"). Specifically, NSC was the placement agent in connection with the sale of
its Convertible Notes. The Placement Agent Agreement had an initial term of 180 days after which it will continue in effect until it's
terminated by either party with 60 days written notice to the other party.
F-16
AQUA METALS, INC.
Notes to Consolidated Financial Statements
8. Private Placement (continued)
Convertible notes (continued)
In connection with the sale of the Convertible Notes, the Company paid NSC a cash fee of $553,490 and issued on October 31, 2014
to NSC warrants ("Financing Warrants") to purchase shares of the Company's common stock. NSC subsequently transferred a portion
of the Financing Warrants to associated persons. The Financing Warrants were fully vested upon issuance, have a term of five years,
and are immediately exercisable, provided that upon the Company's consummation of an IPO, the Financing Warrants may not be
exercised until 90 days after the consummation of the IPO. Pursuant to the terms of the Financing Warrants, the per share exercise
price is determined based upon 120% of the conversion price of the Convertible Notes upon the consummation of the IPO, or upon
other events under which the Convertible Notes may convert. As of December 31, 2015 and at December 31, 2014 the Financing
Warrants were exercisable into 251,187 and 220,268, respectively, shares of the Company’s common stock assuming an exercise price
of $3.00 per share (calculated as 120% of the Convertible Notes conversion price of $2.50 per share).
The warrant holders have certain registration rights with respect to the common stock issued upon exercise of the Financing Warrants.
The Company calculated the fair value of the Financing Warrants using a Black Scholes Merton model with the assumptions provided
in the table below. The fair market value of the stock used prior to the IPO was from 409A valuations prepared by an outside
consultant.
Provided below are the principal assumptions used in the initial and subsequent measurement of the fair values of the Financing
Warrants:
Fair market value of shares
Assumed exercise price
Term in years
Volatility
Annual rate of dividends
Discount rate
Call option value
Warrant shares issuable
Warrants fair value
10/31/14
$
$
1.77
3.00
5
80%
0%
1.62%
0.88
$
220,268
212,155
$
$
$
$
$
12/31/14
2.18
3.00
4.84
$
$
80%
0%
1.65%
$
1.14
220,268
275,827
$
8/5/15
5.00
3.00
4.25
80%
0%
1.55%
3.51
251,187
881,359
F-17
AQUA METALS, INC.
Notes to Consolidated Financial Statements
8. Private Placement (continued)
Convertible notes (continued)
The initial fair value of the Financing Warrants was accounted for as a derivative issuance cost and along with the other private
placement costs was amortized over the life of the Convertible Notes. During the year ended December 31, 2015 and the period from
inception (June 20, 2014) through December 31, 2014, the Company recorded an increase of $605,532 and $63,672, respectively, in
the fair value of the Financing Warrant as a change in the fair value of derivative liabilities within the statements of operations. On
August 5, 2015, after the conclusion of the IPO, the financing warrants fair value was fixed and the derivative liability of $881,359
was reclassified to additional paid in capital.
9. Convertible Note Issuance Costs
The costs associated with the issuance of the Convertible Notes were recorded as a reduction to the carrying amount of the
Convertible Notes and were amortized as interest expense within the statements of operations over the 14-month life of the notes:
Issuance costs are as follows:
Placement fee
Fair value of Financing Warrants at time of issue
Attorney fees
Escrow fees
Beneficial conversion feature
Accumulated amortization
Net issuance costs
Convertible Notes
Convertible Notes discount, net of amortization
Convertible Notes, net of discount
December 31,
2014
$
$
$
$
553,490
212,155
79,679
3,500
212,155
(151,568)
909,411
6,000,000
(909,411)
5,090,589
The amount of issuance cost amortized as interest expense on the statements of operations was $909,411 and $151,568 for the year
ended December 31, 2015 and the period from inception (June 20, 2014) through December 31, 2014, respectively. Upon completion
of the IPO, all remaining unamortized debt discount and BCF were immediately expensed.
F-18
AQUA METALS, INC.
Notes to Consolidated Financial Statements
10. Deferred Rent
On August 7, 2015, the Company signed a lease for 21,697 square feet of mixed office and manufacturing space in Alameda, CA. The
term of the lease is 76 months plus 6 months pre commencement date for tenant improvement construction. The total cost of the lease
is $3,033,241 which is being amortized over 82 months at approximately $36,991 per month. As of December 31, 2015 the landlord
had paid for $869,262 in tenant improvements. The tenant improvements cost has been included in owned assets and deferred rent and
is being amortized over the life of the lease. Net deferred rent expense for the period ended December 31, 2015 was $163,485. The
December 31, 2015 short term deferred rent balance of $38,382 is included in prepaid expenses and other current assets and the
remaining liability of $1,071,129 is classified as long term deferred rent.
The future minimum payments related to the lease are as follows as of December 31, 2015:
2016
2017
2018
2019
2020
Thereafter
Total minimum lease payments
$ 273,382
476,249
490,786
506,408
522,030
764,386
$3,033,241
11. Notes Payable
AMR entered into a $10,000,000 loan with Green Bank on November 3, 2015. The term of the loan is twenty-one years. The first
twelve months interest only is payable and thereafter monthly payments of interest and principal are due. The interest rate will adjust
on the first day of each calendar quarter equal to or greater of six percent (6%) or two percent (2%) per annum above the minimum
prime lending rate charged by large U.S. money center commercial banks as published in the Wall Street Journal. The terms of the
Loan Agreement contain various affirmative and negative covenants. Among them, AMR must maintain a minimum debt service
coverage ratio of 1.25 to 1.0, a maximum debt-to-net worth ratio of 1.0 to 1.0 and a minimum current ratio of 1.5 to 1.0. AMR was in
compliance with all covenants as of and for the year ending December 31, 2015.
The net proceeds of the loan was deposited into an escrow account at Green Bank. The funds will be released as payment for the
building being constructed in McCarran, NV to house AMR’s lead acid recycling operation. Collateral for this loan is AMR’s
accounts receivable, goods, equipment, fixtures, inventory, accessions and a certificate of deposit in the amount of $1,000,000.
The loan is guaranteed by the United States Department of Agriculture Rural Development (“USDA”), in the amount of 90% of the
principal amount of the loan. The Company paid a guarantee fee to the USDA in the amount of $270,000 at the time of closing and
will be required to pay to the USDA an annual fee in the amount of 0.50% of the guaranteed portion of the outstanding principal
balance of the loan as of December 31 of each year.
The December 31, 2015 long term note balance is comprised of $1,336 due to Thermo Fisher Financial Service and $9,220,450, net of
issuance costs, due to Green Bank.
The December 31, 2015 short term note balance is comprised of $16,034 due to Thermo Fisher Financial Service and $28,932 due to
Green Bank.
F-19
AQUA METALS, INC.
Notes to Consolidated Financial Statements
11. Notes Payable (continued)
The costs associated with obtaining the loan were recorded as a reduction to the carrying amount of the note and are being amortized
as interest expense within the statements of operations over the twenty-one year life of the loan.
Issuance costs are as follows:
USDA guarantee fee
Broker commission
Origination fee
Legal fees
Construction services
Title insurance
Miscellaneous fees
Accumulated amortization
Net loan costs
Loan
Loan, short term
Loan discount net of amortization
Loan, long term, net of discount
December 31,
2015
$
$
$
$
270,000
211,404
200,000
38,160
15,133
11,700
9,334
(5,113)
750,618
10,000,000
(28,932)
(750,618)
9,220,450
The future principal payments related to the Green Bank and Thermo Fisher Financial Service notes are as follows as of December 31,
2015:
2016
2017
2018
2019
2020
Thereafter
Total loan payments
$
$
44,966
181,125
190,877
202,650
215,149
9,182,603
10,017,370
12. Stockholders’ Equity (Deficit)
Authorized capital
Pursuant to the Company's original certificate of incorporation, on June 20, 2014, the Company authorized 5,000 shares of common
stock with no par value.
On September 24, 2014, pursuant to an amendment of the Company's certificate of incorporation, the Company increased to
50,000,000 the authorized number of shares of common stock, par value of $0.001 per share.
The holders of the Company's common stock are entitled to one vote per share. Holders of common stock are entitled to receive a
ratable share of dividends, if any, as may be declared by the board of directors.
On June 20, 2014, the Company issued 1,000 shares of common stock to seven founders of the Company. A total of $39,837 in
expenses incurred prior to incorporation and rights to certain intellectual property with a fair value of $1,059,000 (see note 5) was
deemed to be contributed by the founders of the Company.
F-20
AQUA METALS, INC.
Notes to Consolidated Financial Statements
12. Stockholders’ Equity (Deficit) (continued)
Authorized capital (continued)
On September 24, 2014, the Company had a forward stock split whereby each share of issued common stock was converted into 4,800
shares of common stock of the Company.
On June 24, 2015, the Company had reverse stock split whereby each share of issued common stock was converted into 0.91 shares of
common stock of the Company. All share and per share amounts in the period preceding the stock split have been adjusted to reflect
the split retroactively.
On June 9, 2015, the Company filed a registration statement on form S-1 with the Securities and Exchange Commission. The
registration was for the sale of 6,600,000 shares of common stock to raise proceeds of $33,000,000 at an issue price of $5.00 per
share. On July 31, 2015, the common shares of the Company began trading on the NASDAQ capital markets. On July 31, 2015, the
Company sold 6,600,000 shares of common stock for $33,000,000 less commissions of $2,524,500 and expenses of $577,489 for net
proceeds of $29,898,011. The form S-1 included an over-allotment option of 990,000 common shares. On August 13, 2015, the
Company sold 641,930 shares of the over-allotment option for $3,209,650 less commissions of $245,489 for net proceeds of
$2,964,161.
On November 2, 2015, the Company issued 20,000 shares of common stock to Insight Capital Consultants Corporation for work
performed for the Company.
Warrants issued
On September 8, 2014, the Company entered into a consulting agreement with Liquid Patent Consulting, LLC ("LPC"), pursuant to
which LPC agreed to provide management, strategic and intellectual property advisory services. The Consulting Agreement had an
initial term of 180 days after which it will continue in effect until it is terminated by either party with 30 days written notice to the
other party.
As consideration for services provided under the Consulting Agreement the Company issued warrants ("Consulting Warrants") to
LPC for the purchase of an aggregate of 436,364 shares of the Company's common stock. LPC subsequently transferred a portion of
the Consulting Warrants to a third party.
The Consulting Warrants vested upon issue, have a term of three years, an exercise price of $0.0033475 per share and are immediately
exercisable, provided that upon the Company's consummation of an IPO, the Consulting Warrants may not be exercised until 90 days
after the consummation of the IPO. The Consulting Warrants may be exercised on a cashless basis.
In connection with underwriting the IPO, the Company issued on August 5, 2015 to NSC warrants (“IPO Warrants”) to purchase
660,000 shares of the Company’s common stock at an exercise price of $6.00 per share. The IPO Warrants were fully vested upon
issuance, are not exercisable until July 30, 2016 and have a term of five years. The registration statement with the Securities and
Exchange Commission included an over-allotment of shares available for sale in addition to the IPO. On August 13, 2015, the
Company issued warrants to NSC (“O-A Warrants”) to purchase 64,193 shares of the Company’s common stock at an exercise price
of $6.00 per share for underwriting the over-allotment sale of shares. The O-A Warrants were fully vested upon issuance, are not
exercisable until July 30, 2016 and have a term of five years. The fair values were recorded as an increase to IPO costs and or increase
to additional paid in capital.
F-21
AQUA METALS, INC.
Notes to Consolidated Financial Statements
12. Stockholders’ Equity (Deficit) (continued)
Warrants issued (continued)
On October 31, 2015, the Company issued warrants to a consultant to purchase 12,500 shares of the Company’s common stock at an
exercise price of $6.00 per share. The warrants were fully vested on issuance and expire on July 30, 2018. The fair value of the
warrants, calculated by the Black-Scholes-Merton method, $28,460 was recorded to business development and management costs and
additional paid in capital in 2015.
On November 2, 2015, the Company issued warrants to a consultant to purchase 30,000 shares of the Company’s common stock at an
exercise price of $6.00. The warrants were fully vested upon issuance and have a term of one year. The fair value of the warrants,
calculated by the Black-Scholes-Merton method, $36,266 was recorded to business development and management costs and additional
paid in capital in 2015.
Provided below are the principal assumptions used in the measurement of the fair values of the warrants.
Consulting
09/08/14
IPO
08/05/15
O-A
08/13/15
Consulting
10/31/15
Consulting
11/02/15
Fair market value of shares
Assumed exercise price
Term in years
Volatility
Annual rate of dividends
Discount rate
Call option value
Warrant shares issued
Warrants fair value
Stock based compensation
$
$
$
$
$
$
1.64
0.0034375
3
80%
0%
1.02%
1.49
$
436,364
713,745
$
$
$
5.00
6.00
5
80%
0%
1.64%
$
3.05
660,000
2,013,870
$
$
$
5.36
6.00
5
80%
0%
1.57%
3.34
$
64,193
214,243
$
$
$
5.00
3.00
2.75
80%
0%
1.26%
$
2.28
12,500
28,460
$
4.89
6.00
1
80%
0%
1.26%
1.21
30,000
36,266
In 2014, the Board of Directors adopted the Company's stock incentive plan (the "2014 Plan") under which a maximum of 1,363,637
shares of common stock were authorized for issuance. The 2014 Plan provides for the following types of stock-based awards:
incentive stock options; non-statutory stock options; restricted stock; and performance stock. The 2014 Plan, under which equity
incentives may be granted to employees and directors under incentive and non-statutory agreements, requires that the option price
may not be less than the fair value of the stock at the date the option is granted. Option awards are exercisable until their expiration,
which may not exceed 10 years from the grant date.
F-22
AQUA METALS, INC.
Notes to Consolidated Financial Statements
12. Stockholders’ Equity (Deficit) (continued)
Stock based compensation (continued)
The stock-based compensation expense recorded was allocated as follows:
Operations and development costs
Business development and management costs
Total
Year Ended
December 31, 2015
$
Period From
Inception (June 20, 2014)
to December 31, 2014
-
-
-
119,144 $
181,627
300,771 $
$
The following assumptions were used in the Black-Scholes-Merton option pricing model to estimate the fair value of the awards
granted during the year ended December 31, 2015.
Expected stock volatility
Risk free interest rate
Expected years until exercise
Dividend yield
80%
1.32% - 1.75%
3.42 - 3.5
0.00%
The following table summarizes the stock option activity for the year ended December 31, 2015.
Number of Shares
Per Share
Outstanding as of December 31, 2014
Granted
Forfeited
Outstanding as of December 31, 2015
Vested and exercisable as of December 31, 2015
-
777,779 $
(25,455) $
752,324 $
-
Weighted-Average
Remaining Term
-
-
3.94
3.56
3.95
-
4.4years
-
4.4years
-
Weighted Average
Exercise Price
The unrecognized compensation expense for outstanding stock options is $1,351,837 as of December 31, 2015.
F-23
AQUA METALS, INC.
Notes to Consolidated Financial Statements
13. Commitments and Contingencies
Lease commitments
On October 10, 2014, the Company entered into an operating lease for its current Oakland facility through April 2018. The future
minimum payments related to this lease are as follows as of December 31, 2015:
2016
2017
2018
Total minimum lease payments
$
$
38,000
39,200
13,200
90,400
During the year ended December 31, 2015 and the period from inception (June 20, 2014) through December 31, 2014, the Company
has incurred total rent expense related to this lease, including facility fees, of $38,105 and 42,500, respectively.
See note 10 for lease commitments associated with our Alameda Facility.
Legal proceedings
The Company is not subject to any legal proceedings as of December 31, 2015.
14. Income Taxes
Net loss before tax provision consists of the following:
Year ended
U.S.
Foreign
December 31, 2015
$
(12,330,037) $
-
(12,330,037) $
$
F-24
Inception (June 20, 2014)
to December 31, 2014
(2,794,793)
-
(2,794,793)
AQUA METALS, INC.
Notes to Consolidated Financial Statements
14. Income Taxes (continued)
The components of the provision for (benefit from) income tax expense consist of the following for the periods indicated:
Current
Federal
State
Deferred
Federal
State
Total provision for (benefit from) income taxes
Year ended
December 31, 2015
Inception (June 20, 2014)
December 31, 2014
$
$
$
- $
1,600
- $
-
1,600 $
-
800
(360,060)
(61,782)
(421,042)
Reconciliation of the statutory federal income tax rates consist of the following for the periods indicated:
Tax at federal statutory rate
State tax, net of federal benefit
Change in derivative liability
Valuation allowance
Other
Effective income tax rate
Year ended
December 31, 2015
Inception (June 20, 2014)
December 31, 2014
34.00%
5.83
(18.66)
(20.53)
(0.65)
(0.01)%
34.00%
5.81
(16.71)
(5.70)
(2.33)
15.07%
The components of deferred tax assets (liabilities) included on the consolidated balance sheet are as follows:
Deferred tax assets
Warrants
Start-up costs
Net operating losses
Credits
Other
Total gross deferred tax assets
Valuation allowance
Total gross deferred tax assets
(net of valuation allowance)
Deferred tax liabilities
Patents
Others
Total gross deferred tax liabilities
Net deferred tax assets
December 31, 2015 December 31, 2014
$
284,316 $
1,840,329
770,915
57,826
110,932
3,064,318
(2,682,406)
284,313
276,445
48,562
26,050
517
635,887
(167,618)
$
381,912 $
468,269
(381,912)
-
(381,912)
- $
(404,266)
(64,003)
(468,269)
-
$
F-25
AQUA METALS, INC.
Notes to Consolidated Financial Statements
14. Income Taxes (continued)
Based on the available objective evidence at this time, management believes that it is more likely than not that the deferred tax assets
of the Company will not be fully realized for the year ended December 31, 2015 and period from inception (June 20, 2014) to
December 31, 2014. Accordingly, management has applied a full valuation allowance against net deferred tax assets at December 31,
2015 and December 31, 2014.
The Company has Federal and California net operating loss carry-forwards of approximately $1,939,000 and $1,929,000,
respectively, available to reduce future taxable income which will begin to expire in December 31, 2034 for Federal and California
purposes.
At December 31, 2015, the Company had research and development credits carryforward of approximately $53,000 and $45,000 for
Federal and California income tax purposes, respectively.
If not utilized, the Federal research and development credits carryforward will begin to expire in December 31, 2034. The California
credits can be carried forward indefinitely.
Utilization of the Company's net operating loss may be subject to substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net
operating loss carryforwards prior to utilization.
The Company’s policy is to account for interest and penalties as income tax expense. As of December 31, 2015, the Company had no
interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the
provision for income taxes.
The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgement and estimation and are
continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of
relevant court cases, and other information. The Company recognizes potential accrued interest and penalties related to unrecognized
tax benefits as income tax expense. At December 31, 2015, the Company’s total amount of unrecognized tax benefit was
approximately $29,000 that did not affect the effective tax rate. The Company does not expect its unrecognized benefits to change
materially over the next twelve months.
F-26
AQUA METALS, INC.
Notes to Consolidated Financial Statements
The Company files income tax returns with the United States federal government and the State of California. The Company’s tax
returns for the prior year remains open to audit for Federal and California purposes. This year is open due to net operating losses and
tax credits unutilized.
15. Subsequent Events
The Company has evaluated subsequent events through the date which the consolidated financial statements were available to be
issued.
F-27
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our chief executive officer and chief financial officer evaluated the effectiveness of our
disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Based upon that evaluation, our management, including our chief executive officer and chief financial officer, concluded that for the
reasons described below our disclosure controls and procedures were effective as of December 31, 2015 in ensuring all material
information required to be filed has been made known in a timely manner.
(b) Changes in internal control over financial reporting.
There were no changes to our internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act that
occurred during the fiscal quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
(c) Management’s report on internal controls over financial reporting.
This report does not include a report of management's assessment regarding internal control over financial reporting or an
attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange
Commission for newly public companies.
Item 9B.
Other Information
Not applicable.
24
Item 10.
Directors, Executive Officers and Corporate Governance
Set forth below are our directors and officers.
PART III
Name
Stephen R. Clarke
Thomas Murphy
Selwyn Mould
Stephen Cotton
Vincent L. DiVito
Mark Slade
Age
Position
58
63
55
49
56
54
President, Chief Executive Officer and Chairman of the Board
Chief Financial Officer and Director
Chief Operating Officer
Chief Commercial Officer
Director
Director
Stephen R. Clarke is a co-founder of our company and has served as our president, chief executive officer and chairman of our
board directors since inception in June 2014. From May 2013 to June 2014, Dr. Clarke, along with Mr. Mould and others, engaged in
research and development that ultimately lead to their development of the AquaRefining process. From 2008 to May 2013, Dr. Clarke was
employed as the chief executive officer of Applied Intellectual Capital, Ltd., an Isle of Jersey company co-founded by Dr. Clarke in 1999 to
engage in the business of incubating and developing electro-chemical technologies. Dr. Clarke holds a Ph.D. in computer simulation and
manufacturing management from The University of Aston, UK, a BSc in mechanical engineering from Nottingham Trent University, UK
and an MSc/MBA in engineering enterprise management from The University of Warwick, UK.
Dr. Clarke has extensive knowledge of the battery industry and electro-chemical technologies from his senior management
position with Applied Intellectual Capital, Ltd. As a result of these and other professional experiences, our board of directors has concluded
that Mr. Clarke is qualified to serve as a director.
Thomas Murphy is a co-founder of our company and has served as our chief financial officer and a member of our board directors
since inception in June 2014. From May 2013 to June 2014, Mr. Murphy worked alongside Mr. Clarke and Mr. Mould in the development
of the AquaRefining process and our current business. From September 2009 to May 2013, Mr. Murphy served as chief financial officer of
Applied Intellectual Capital, Ltd. In addition Mr. Murphy has over 30 years’ experience in senior financial positions working in publishing,
construction and aviation industries.
Mr. Murphy has extensive knowledge of accounting issues and business operations in the markets in which we operate from his
experience as chief financial officer of Applied Intellectual Capital, Ltd. As a result of these and other professional experiences, our board
of directors has concluded that Mr. Murphy is qualified to serve as a director.
Selwyn Mould is a co-founder of our company and has served as our chief operating officer since inception in June 2014. From
May 2013 to June 2014, Mr. Mould, along with Mr. Clarke and others, engaged in research and development that ultimately lead to their
development of the AquaRefining process. From 2008 to May 2013, Mr. Mould served as chief operating officer of Applied Intellectual
Capital, Ltd. From 1999 to 2007, Mr. Mould served as head of supply chain for Group Lotus Plc, the sports car manufacturer and
engineering consultant. Prior to that he was head of logistics for Pilkington Plc. In his earlier career, Mr. Mould was a production manager
for Chloride Industrial Batteries Ltd. Mr. Mould holds an MA in natural sciences from the University of Cambridge with a major in
chemistry.
Stephen Cotton has served as our chief commercial officer since January 2015. Mr. Cotton co-founded Canara, Inc. in December
2001 and served as its chief executive officer through the sale of the company to a private equity firm in June 2012, after which he served as
executive chairman until April 2014. Canara is a global provider of stationary battery systems with integrated monitoring systems and
cloud-based monitoring services to many of the largest data center operators. From April 2014 to January 2015, Mr. Cotton managed his
private investments.
25
Vincent L. DiVito has served as a member of our board of directors since May 2015. Since April 2010, Mr. DiVito has served as
the owner and chief executive officer of Vincent L. DiVito, Inc., a financial and management consulting firm. From January 2008 to April
2010, Mr. DiVito served as president of Lonza America, Inc., a global life sciences chemical business headquartered in Allendale, New
Jersey, and also served as chief financial officer and treasurer of Lonza America, Inc. from September 2000 to April 2010. Lonza America,
Inc. is part of Lonza Group, whose stock is traded on the Swiss Stock Exchange. From 1990 to September 2000, Mr. DiVito was employed
by Algroup Wheaton, a global pharmaceutical and cosmetics packaging company, first as its director of business development and later as
its vice president and chief financial officer. Mr. DiVito is a certified public accountant and certified management accountant and is a
National Association of Corporate Directors Board Leadership Fellow. He has served on the board of directors and chairman of the audit
committee of Entertainment Gaming Asia Inc., a Nasdaq listed company gaming company, since October 2005 and also served as a
member of the board of directors of Riviera Holdings Corporation, formerly an AMEX listed gaming and resort company, from July 2002
until the consummation of a change in control of the corporation in March 2011.
Mr. DiVito has extensive knowledge of accounting and corporate governance issues from his experience serving on various
corporate boards of directors and has extensive operational knowledge as a result of his experience as a senior executive officer of major
corporations. As a result of these and other professional experiences, our board of directors has concluded that Mr. DiVito is qualified to
serve as a director.
Mark Slade has served as a member of our board of directors since June 2015. Mr. Slade was the chief executive officer and
founder of Marex Financial Ltd, one of Europe’s leading independent commodity brokers, from January 2006 to January 2011. Marex was
a member of the London Metal Exchange, Intercontinental Exchange, The London International Financial Futures and Options Exchange
and Eurex Exchange, with offices in London, Geneva and New York. Since leaving Marex Financial, Mr. Slade has held a number of
advisory and executive roles. From December 2011 to December 2012, he was an advisor on international business development to the
Hong Kong Mercantile Exchange. From January 2013 to July 2013, Mr. Slade was chief executive officer of London Capital Group. Since
January 2015, Mr. Slade has served as an advisor on strategy and business development to Tower Trading Group Ltd. In addition to his
corporate roles, Mr. Slade also held a number of board and committee appointments within the commodity futures industry, including
being a board member of the London Metal Exchange (1999 – 2006) and the Futures and Options Association (2005-2008).
Mr. Slade has extensive knowledge of the metals and other commodity markets from his experience serving as a senior executive
officer and consultant to commodity trading and brokerage firms. As a result of these and other professional experiences, our board of
directors has concluded that Mr. Slade is qualified to serve as a director.
26
Board Composition
Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors
currently consists of four authorized members.
Generally, under the listing requirements and rules of the Nasdaq Stock Market, independent directors must comprise a majority of
a listed company’s board of directors. Our board of directors has undertaken a review of its composition, the composition of its committees
and the independence of each director. Our board of directors has determined that, other than Mr. Clarke and Mr. Murphy, by virtue of
their executive officer positions, none of our directors has a relationship that would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and that each is “independent” as that term is defined under the applicable rules and
regulations of the SEC and the listing requirements and rules of the Nasdaq Stock Market. In making this determination, our board of
directors considered the current and prior relationships that each nonemployee director has with our company and all other facts and
circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital
stock by each nonemployee director. Accordingly, only 50% of our directors are independent, as required under applicable Nasdaq Stock
Market rules. We intend to appoint to our board of directors another independent member of the board prior to our next annual meeting of
stockholders.
Committees of the Board of Directors
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance
committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and
functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined
by our board of directors.
Audit Committee
Our audit committee consists of Vincent DiVito and Mark Slade, with Mr. DiVito serving as Chairperson. The composition of our
audit committee meets the requirements for independence under current Nasdaq Stock Market listing standards and SEC rules and
regulations, except that standards and regulations require that we have three members, on our audit committee whereas we currently only
have two members. We intend to appoint a third member to our audit committee prior to our next annual meeting of stockholders. Each
member of our audit committee meets the financial literacy requirements of the Nasdaq Stock Market listing standards. Mr. DiVito is an
audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended, or the
Securities Act. Our audit committee will, among other things:
•
•
•
•
•
•
select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management
and the independent registered public accounting firm, our interim and year-end operating results;
develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
review our policies on risk assessment and risk management;
review related-party transactions; and
approve (or, as permitted, pre-approve) all audit and all permissible nonaudit services, other than de minimis nonaudit services,
to be performed by the independent registered public accounting firm.
Our audit committee operates under a written charter that satisfies the applicable rules of the SEC and the listing standards of the
Nasdaq Stock Market.
Compensation Committee
Our compensation committee consists of Mark Slade and Vincent DiVito, with Mr. Slade serving as Chairperson. The
composition of our compensation committee meets the requirements for independence under the Nasdaq Stock Market listing standards and
SEC rules and regulations. Each member of the compensation committee is also a nonemployee director, as defined pursuant to Rule 16b-3
promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986,
as amended, or the Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating
to compensation of our executive officers. Our compensation committee will, among other things:
27
review, approve and determine the compensation of our executive officers;
administer our stock and equity incentive plans;
•
•
• make recommendations to our board of directors regarding the establishment and terms of incentive compensation and equity
plans; and
establish and review general policies relating to compensation and benefits of our employees.
•
Our compensation committee operates under a written charter that satisfies the applicable rules of the SEC and the listing
standards of the Nasdaq Stock Market.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Vincent DiVito and Mark Slade. The composition of our
nominating and corporate governance committee meets the requirements for independence under Nasdaq Stock Market listing standards
and SEC rules and regulations. Our nominating and corporate governance committee will, among other things:
•
•
•
•
•
•
identify, evaluate and make recommendations to our board of directors regarding nominees for election to our board of directors
and its committees;
evaluate the performance of our board of directors and of individual directors;
consider and make recommendations to our board of directors regarding the composition of our board of directors and its
committees;
review developments in corporate governance practices;
evaluate the adequacy of our corporate governance practices and reporting; and
develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.
The nominating and corporate governance committee operates under a written charter that satisfies the applicable listing
requirements and rules of the Nasdaq Stock Market.
Compensation Committee Interlocks and Insider Participation
None of our independent directors, Vincent L. DiVito or Mark Slade, is currently or has been at any time one of our officers or
employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or
compensation committee of any entity that has one or more executive officers serving as a member of our board of directors.
Code of Conduct
We have adopted a code of conduct for all employees, including the chief executive officer, principal financial officer and
principal accounting officer or controller, and/or persons performing similar functions, which is available on our website, under the link
entitled “Code of Conduct”.
Limitation of Liability of Directors and Indemnification of Directors and Officers
The Delaware General Corporation Law provides that corporations may include a provision in their certificate of incorporation
relieving directors of monetary liability for breach of their fiduciary duty as directors, provided that such provision shall not eliminate or
limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payment of a dividend
or unlawful stock purchase or redemption, or (iv) for any transaction from which the director derived an improper personal benefit. Our
certificate of incorporation provides that directors are not liable to us or our stockholders for monetary damages for breach of their
fiduciary duty as directors to the fullest extent permitted by Delaware law. In addition to the foregoing, our bylaws provide that we may
indemnify directors, officers, employees or agents to the fullest extent permitted by law and we have agreed to provide such
indemnification to each of our directors.
28
The above provisions in our certificate of incorporation and bylaws and in the written indemnity agreements may have the effect
of reducing the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their fiduciary duty, even though such an action, if successful, might otherwise have benefited us
and our stockholders. However, we believe that the foregoing provisions are necessary to attract and retain qualified persons as directors.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 11.
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation awarded to, earned by or paid to, our executive officers for the years ended
December 31, 2015 and 2014. In reviewing the table, please note that:
• We commenced operations in June 2014 and commenced paying compensation to our executive officers in August 2014; and
• Mr. Cotton commenced his employment with us in January 2015.
Name and Principal
Position
Stephen Clarke, CEO
Selwyn Mould, COO
Thomas Murphy, CFO
Stephen Cotton, CCO
Year
Salary
Bonus
Stock
Awards
Option
Awards
All Other
Compensation
Total
$
$
$
$
$
$
$
2015
2014
2015
2014
2015
2014
2015
2014
280,000 $
131,167
70,000
—
250,000 $
119,167
62,500
—
250,000 $
106,667
62,500
—
$
—
$
—
$
—
70,000
—
62,500
—
62,500
—
$
— $
420,000
131,167
$
— $
375,000
119,167
$
— $
375,000
106,667
239,583 $
—
62,500
—
$
—
629,526
—
$
—
931,609
—
The dollar amounts in the Option Awards column above reflect the values of options as of the grant date for the years ended December 31,
2015 and 2014, in accordance with ASC 718, Compensation-Stock Compensation and, therefore, do not necessarily reflect actual benefits
received by the individuals. Assumptions used in the calculation of these amounts are included in Note 12 to our audited financial
statements for the year ended December 31, 2015.
Narrative Disclosure to Summary Compensation Table
We have entered into executive employment agreements with each of our executive officers. Pursuant to the employment
agreements, we compensate our executive officers at the annual rate of $280,000 for Dr. Clarke and $250,000 for Messrs. Mould, Murphy
and Cotton. The employment agreements entitle each officer to reasonable and customary health insurance and other benefits, at our
expense, and a severance payment in the amount of two-times their then annual salary and related benefits in the event of our termination of
their employment without cause or their resignation for good reason. Each employment agreement provides for intellectual property
assignment and confidentiality provisions that are customary in our industry.
29
In April 2015, we granted Mr. Cotton options to purchase 286,364 shares of our common stock over a five-year period at an
exercise price of $3.56 per share. Mr. Cotton’s options vest and first become exercisable over a three-year period commencing on the first
anniversary of the date of grant. Mr. Cotton’s options were granted pursuant to our 2014 Stock Incentive Plan.
In December 2016, the compensation committee of our board of directors approved performance-based bonuses for each of our
executive officers in the amount of 50% of their base annual salary, of which 50% was paid in cash and 50% payable in option grants under
our 2014 Stock Incentive Plan. Pursuant to the compensation committee’s determination, we awarded:
· Dr. Clarke a bonus in the amount of $140,000, consisting of $70,000 of cash and an option to purchase 24,918 shares of our
common stock at an exercise price of $5.07 per share; and
· Messrs. Murphy, Mould and Cotton, each, a bonus in the amount of $125,000, consisting of $62,500 of cash and an option to
purchase 22,248 shares of our common stock at an exercise price of $5.07 per share.
The number of option shares for each officer was calculated pursuant to a Black-Scholes Merton calculation of 50% of the bonus
amount as of December 17, 2015, however the options were not formally granted until January 8, 2016. The options have a term of five
years and first become exercisable on July 30, 2016.
Outstanding Equity Awards at December 31, 2015
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
95,455
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)
190,909
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d)
Option
Exercise
Price
(e)
— $
3.56
Option
Expiration
Date
(mm/dd/yyyy)
(f)
04/01/2020
Name (a)
Steve Cotton
Compensation of Directors
We do not compensate any of our executive directors for their service as a director and we have not adopted any policies or plans
with regard to the compensation of our independent directors. However, in connection with the appointment of our current independent
directors, we agreed to compensate each of the independent directors as follows:
• We have granted Vincent DiVito options to purchase 21,853 shares of our common stock over a five-year period at an exercise
price of $3.56 per share and agreed to pay him annually cash in the amount of $60,000; and
• We have granted Mark Slade and a former director, Stan Kimmel, options to purchase 17,482 shares of our common stock over
a five-year period at an exercise price of $3.56 per share and agreed to pay each annually cash in the amount of $50,000.
30
The directors’ options were granted pursuant to our 2014 Stock Incentive Plan. The options vest and first become exercisable over
a three-year period commencing one year from the date of grant. The above-described cash payments are in lieu of attendance fees,
however we intend to reimburse our independent directors for their reasonable expenses incurred in connection with attending meetings of
our board of directors.
The following table sets forth the compensation we paid to our independent directors during the year ended December 31, 2015
Name
Vincent DiVito
Stan Kimmel
Mark Slade
Cash
Compensation
40,000
34,233
27,500
$
$
$
$
$
$
Option
Awards
Total
43,382 $
34,704 $
34,827 $
83,382
68,937
62,327
Mr. Kimmel served on our board of directors between May 2015 and March 2016. The dollar amounts in Option Awards column above
reflect the values of options as of the grant date in accordance with ASC 718, Compensation-Stock Compensation and, therefore, do not
necessarily reflect actual benefits received by the individuals. Assumptions used in the calculation of these amounts are included in Note
12 to our audited financial statements for the year ended December 31, 2015.
Section 16(A) Beneficial Ownership Reporting Compliance
Rules adopted by the SEC under Section 16(a) of the Securities Exchange Act of 1934, or the Exchange Act, require our officers
and directors, and persons who own more than 10% of the issued and outstanding shares of our equity securities, to file reports of their
ownership, and changes in ownership, of such securities with the SEC on Forms 3, 4 or 5, as appropriate. Such persons are required by the
regulations of the SEC to furnish us with copies of all forms they file pursuant to Section 16(a).
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us during our most recent fiscal year, and
any written representations provided to us, we believe that all of the officers, directors, and owners of more than 10% of the outstanding
shares of our common stock complied with Section 16(a) of the Exchange Act for the year ended December 31, 2015.
31
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding the beneficial ownership of our common stock as of the date of this
report by:
•
•
•
each person who is known by us to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares
of common stock;
each of our directors and executive officers; and
all directors and executive officers as a group.
The beneficial ownership of each person was calculated based on 14,137,442 common shares issued and outstanding as of the date
of this report. The SEC has defined “beneficial ownership” to mean more than ownership in the usual sense. For example, a person has
beneficial ownership of a share not only if he owns it, but also if he has the power (solely or shared) to vote, sell or otherwise dispose of the
share. Beneficial ownership also includes the number of shares that a person has the right to acquire within 60 days of the date of this
report, pursuant to the exercise of options or warrants or the conversion of notes, debentures or other indebtedness. Two or more persons
might count as beneficial owners of the same share. Unless otherwise indicated, the address for each reporting person is 1010 Atlantic
Avenue, Alameda, California 94501.
Name of Director or Executive Officer
Stephen R. Clarke
Selwyn Mould
Thomas Murphy
Stephen Cotton
Vincent L. DiVito
Mark Slade
Directors and executive officers as a group
* Less than 1%.
Name and Address of 5% + Holders
AIC Nevada, Inc.
Number of
Shares
Percentage
Owned
1,736,196(1)
785,455(2)
785,455(2)
195,576(3)
7,284(5)
5,827(4)
3,515,793
12.3%
5.6%
5.6%
1.4%
*%
*%
24.68%
Number of
Shares
Percentage
Owned
732,559
5.2%
1
2
3
4
5
Includes 732,559 common shares held by AIC Nevada, Inc. Mr. Clarke is a director of AIC Nevada, Inc. and, therefore, is considered to
be the beneficial owner of those shares. Excludes 24,918 shares underlying an option that is subject to vesting.
Excludes 22,248 shares underlying an option that is subject to vesting.
Includes 95,455 shares underlying a presently exercisable option and excludes 213,157 shares underlying options subject to vesting.
Includes 5,827 shares underlying a presently exercisable option and excludes 11,655 shares underlying an outstanding option subject to
vesting.
Includes 7,284 shares underlying a presently exercisable option and excludes 14,569 shares underlying an outstanding option subject to
vesting.
32
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions, Promoters and Director Independence
We have not entered into any transactions with any of our directors, officers, beneficial owners of five percent or more of our
common shares, any immediate family members of the foregoing or entities of which any of the foregoing are also officers or directors or
in which they have a material financial interest, other than the compensatory arrangements described elsewhere in this report.
We have adopted a policy that any transactions with directors, officers, beneficial owners of five percent or more of our common
shares, any immediate family members of the foregoing or entities of which any of the foregoing are also officers or directors or in which
they have a financial interest, will only be on terms consistent with industry standards and approved by a majority of the disinterested
directors of our board.
Item 14.
Principal Accountant Fees and Services
The following table sets forth the aggregate fees billed to us for services rendered to us for the year ended December 31, 2015 and
the period from inception (June 20, 2014) to December 31, 2014 by our independent registered public accounting firm, Armanino LLP, for
the audit of our consolidated financial statements for the years ended December 31, 2015 and 2014, and assistance with the reporting
requirements thereof, the review of our condensed consolidated financial statements included in our quarterly reports on Form 10-Q, the
filing of our Form 8-K, and preperation of (Federal and State) Income Tax returns.
Audit Fees
Audit - Related Fees
Tax Fees
2015
$ 203,250 $
7,826
15,536
$ 226,612 $
2014
37,461
-
20,345
57,806
33
Item 15.
Exhibits and Financial Statement Schedules
(a)
Financial statements
PART IV
Reference is made to the Index and Financial Statements under Item 8 in Part II hereof where these documents are listed.
(b)
Financial statement schedules
Financial statement schedules are either not required or the required information is included in the consolidated financial
statements or notes thereto filed under Item 8 in Part II hereof.
(c)
Exhibits
The exhibits to this Annual Report on Form 10-K are set forth below. The exhibit index indicates each management contract or
compensatory plan or arrangement required to be filed as an exhibit.
Number
Exhibit Description
Method of Filing
1.1
3.1
3.2
3.3
4.1
4.2
4.3
4.4
Form of Underwriting Agreement
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on July 22, 2015.
First Amended and Restated Certificate of Incorporation of
the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Amended and Restated Bylaws of the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Certificate of Amendment to First Amended and Restated
Certificate of Incorporation of the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 25, 2015.
Specimen Certificate representing shares of common stock
of Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on July 20, 2015.
Warrant dated September 8, 2014 issued to Liquid Patent
Consulting, LLC
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Form of Senior Secured Convertible Promissory Note
issued by the Registrant to investors in the offering
completed on October 31, 2014
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Warrant dated October 31, 2014 issued to National
Securities Corporation
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
34
Number
Exhibit Description
Method of Filing
4.5
Form of Underwriters’ Warrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on July 20, 2015.
10.1
Form of Indemnification Agreement entered into by the
Registrant with its Officers and Directors
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.2*
Aqua Metals, Inc. 2014 Stock Incentive Plan
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.3
Engagement Agreement dated September 8, 2014 between
Liquid Patent Consulting, LLC and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.4
10.5
10.6
Securities Purchase Agreement dated October 31, 2014
between the Purchasers of Senior Secured Convertible
Promissory Notes and the Registrant
Registration Rights Agreement dated October 31, 2014
between the Purchasers of Senior Secured Convertible
Promissory Notes and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Security Agreement dated October 31, 2014 between the
Purchasers of Senior Secured Convertible Promissory
Notes and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.7
Real Estate Purchase and Sale Agreement dated
February 23, 2015 between Tahoe-Reno Industrial Center,
LLC and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.8*
10.9*
10.10*
10.11*
Executive Employment Agreement dated January 15, 2015
between Stephen R. Clarke and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Executive Employment Agreement dated January 15, 2015
between Thomas Murphy and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Executive Employment Agreement dated January 1, 2015
between Selwyn Mould and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
Executive Employment Agreement dated January 15, 2015
between Stephen D. Cotton and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.12
Form of Lock-Up Agreement
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
10.13
Third Amendment to Purchase and Sale Agreement dated
May 19, 2015 between Tahoe-Reno Industrial Center, LLC
and the Registrant
Incorporated by reference from the Registrant’s Registration
Statement on Form S-1 filed on June 9, 2015.
35
Number
Exhibit Description
Method of Filing
10.14
10.15
10.16
10.17
Lease Agreement dated August 7, 2015 between Registrant
and with BSREP Marina Village Owner LLC
Incorporated by reference from the Registrant’s Current
Report on Form 8-K filed on August 27, 2015
Contract for Construction dated September 22, 2015
between Aqua Metals, Reno, Inc. and Miles Construction
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q filed November 10, 2015
Loan Agreement dated November 3, 2015 between Aqua
Metals Reno, Inc. and Green Bank. N.A.
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q filed November 10, 2015
Deed of Trust, Security Agreement and Fixture Filing
dated November 3, 2015 made by Aqua Metals Reno, Inc.
in favor of Green Bank. N.A
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q filed November 10, 2015
21.1
List of subsidiaries of Registrant.
Incorporated by reference from the Registrant’s Registration
Statement on S-1 filed on June 9, 2015.
31.1
31.2
32.1
Certification under Section 302 of the Sarbanes-Oxley Act
of 2002.
Filed electronically herewith.
Certification under Section 302 of the Sarbanes-Oxley Act
of 2002.
Filed electronically herewith.
Certifications Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, 18 U.S.C. Section 1350.
Filed electronically herewith.
101.INS
XBRL Instance Document
Filed electronically herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed electronically herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Filed electronically herewith
Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed electronically herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Filed electronically herewith
Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed electronically herewith
Document
* Indicates management compensatory plan, contract or arrangement.
36
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 28, 2016
AQUA METALS, INC.
By:
/s/ Stephen R. Clarke
Stephen R. Clarke,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Stephen R. Clarke
Stephen R. Clarke
/s/ Thomas Murphy
Thomas Murphy
/s/Vincent L. DiVito
Vincent L. DiVito
/s/Mark Slade
Mark Slade
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
March 28, 2016
Chief Financial Officer and Director
March 28, 2016
(Principal Financial and
Accounting Officer)
Director
Director
37
March 28, 2016
March 28, 2016
EXHIBIT 31.1
I, Stephen R. Clarke, certify that:
(1) I have reviewed this annual report on Form 10-K of Aqua Metals, Inc.;
CERTIFICATIONS
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 28, 2016
AQUA METALS, INC.
By:
/s/ Stephen R. Clarke
Stephen R. Clarke, Chief Executive Officer
EXHIBIT 31.2
I, Thomas Murphy, certify that:
(1) I have reviewed this annual report on Form 10-K of Aqua Metals, Inc.;
CERTIFICATIONS
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 28, 2016
AQUA METALS, INC.
By:
/s/ Thomas Murphy
Thomas Murphy, Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Aqua Metals, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2015 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen R. Clarke, the Chief Executive Officer,
and Thomas Murphy, the Chief Financial Officer, of the Company, respectively, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
By:
/s/ Stephen R. Clarke
Stephen R. Clarke
Title: Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Thomas Murphy
Thomas Murphy
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 28, 2016
Dated: March 28, 2016
This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not
for any other purpose.