UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
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)
5370 Kietzke Lane, Suite 201.
Reno, Nevada 89511
(Address of principal executive offices)
(775) 446-4418
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class of stock:
Common Stock
Trading symbol
AQMS
Name of each exchange on which registered:
The Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act:
None
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 ☐ No ☒
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 ☒ No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company (as defined in Rule 12b-2 of the Act):
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
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: $83,299,276.
The number of shares of the registrant’s common stock outstanding as of February 21, 2022 was 71,313,820.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the registrant’s 2022 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days of
the registrant’s year ended December 31, 2021 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
TABLE OF CONTENTS
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 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
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
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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Table of Contents
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 ability to have our Aqua Refining solutions gain market acceptance;
our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
the ability to maximize selling value from licensing our technology and selling our equipment to recyclers of lead-acid batteries, or LABs;
the timing and success of our plan of commercialization;
our ability to demonstrate the operation of our AquaRefining process on a commercial scale;
our ability to successfully apply our AquaRefining technology to the recycling of lithium-ion batteries;
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 Aqua Refining 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.
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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
We were formed as a Delaware corporation on June 20, 2014 for the purpose of engaging in the business of recycling metals through a novel, proprietary and
patent-pending process that we developed and named “AquaRefining”. Since our formation, we have focused our efforts initially on the development and testing of our
AquaRefining process for lead acid batteries, or LAB, and advanced that process by building a demonstration plant located in the Tahoe Reno Industrial Center in
McCarran, Nevada (“TRIC”). We also have developed a business plan which includes equipment supply services and licensing of the AquaRefining technology to recyclers
and began research and development on using the AquaRefining process on lithium ion batteries (LIB) at our Innovation Center also located at TRIC.
We completed the development of our first LAB recycling facility at TRIC and commenced production of battery breaking and limited operations during the first
quarter of 2017. From April 2017 through April 2018, we commenced the shipment of products for sale, consisting of lead compounds as well as plastics and limited
production of lead bullion, including AquaRefined lead. During 2018, we commenced the sale of pure AquaRefined lead in the form of two tonne blocks and AquaRefined
lead in the form of battery manufacturing ready ingots. In November 2018, we received official vendor certification from Clarios for our AquaRefined lead and commenced
shipments directly to Clarios owned and partner battery manufacturing facilities. In 2019, we operated our demonstration AquaRefinery at commercial quantity production
levels and produced over 35,000 AquaRefined ingots by operating the AquaRefinery twenty-four hours a day and seven days a week for sustained periods of time. The
AquaRefining Aqualyzers in operation ran sustained endurance runs for over one month several times.
In order to expand the demonstration AquaRefinery to its full capacity, we chose to idle the AquaRefinery beginning in September 2019 to facilitate contracting
work required to increase the plant capacity planned for late 2019 or early 2020. On the evening of November 29, 2019, a fire occurred in the AquaRefining area of the
recycling facility at TRIC. The cause of the fire was not due to the technology or process of AquaRefining but rather to contracting activities. The Company and the
insurance carriers agreed on a total claim of $30.25 million which was paid in full by the carriers. Plant clean-up and repair of fire damaged areas began in 2021 and were
substantially completed by the end of the year.
Following the November 2019 fire, we have been engaged in the pursuit of our business strategy that is based on the pursuit of licensing opportunities within the
lead battery recycling marketplace. We believe our business strategy will require less space and less equipment and focus on the needs of our future licensees. The capital
light strategy is based on the pursuit of licensing opportunities within the battery recycling marketplace without maintaining and operating a capital-intensive
battery recycling facility. Our capital light business strategy is designed to optimize shareholder value by focusing on equipment supply and licensing opportunities, which
have always been a core part of our business plans.
Our strategy also includes an expansion into lithium-ion battery recycling. In addition to research and development work, we enhanced our strategy by investing
in LINICO Corporation (“LINICO”). We reached a lease-to-buy agreement with LINICO for the Aqua Metals' AquaRefining facility. In February 2021, we announced a
strategic investment in LINICO Corporation of up to $2 million to be paid in Aqua Metals shares and cash for a 10% ownership in LINICO as part of our strategy to
strengthen growth by potentially applying AquaRefining intellectual property to lithium-ion battery recycling while meeting our lead recycling commercial guidance.
Part of the efforts related to our business plan during 2020 and 2021 included additional improvements related to our existing technology. During the first half of
2020, we successfully performed test runs on the first and second iterations of our Aqualyzer as part of our V1.25L program. The program consisted of three iterations that
were classified as V1.25a, V1.25b and the final iteration, V1.25L. During the fourth quarter of 2020, we completed our V1.25L Aqualyzer program on time and under
budget, achieving lead production that is 100% greater compared to the V1.0 Aqualyzer deployed at the AquaRefinery during commercial production in 2018 and 2019. In
August 2021, we announced the completion of the V1.5 Aqualyzer. This latest Aqualyzer configuration has now achieved lead production that is over 300% greater than the
V1.0 Aqualyzer deployed at the AquaRefinery during commercial production in 2018 and 2019. These results are expected to positively impact capital and operating
expenses for the Company’s equipment supply and technology licensing customers. The increase in throughput results in a reduction of more than 60% in the number of
Aqualyzers needed for equivalent lead production delivered by the V1.0 model, reducing capital and labor and footprint requirements. This latest iteration has also increased
electrical efficiency to 97%, which further improves operating costs. In July 2021, we signed our first agreement with ACME Metal Enterprise to deploy AquaRefining
technology and equipment which was shipped in early January 2022 to commence the implementation. ACME Metal Enterprise has long running relationships supplying
specialized alloys to some of the largest battery manufacturers in the world based in the APAC region. One of the goals of the deployment is to further advance a direct to
oxide battery manufacturing process which would eliminate the costly and energy intensive melting and ingotization process and rather take that ultrapure material right
from the Aqualyzers to battery oxide production. We believe that our AquaRefining technology is a commercially attractive proposition in the hands of battery recyclers,
who also typically have access to lower cost feedstock, established offtake contracts and ability to process all materials on site.
In August 2021, we announced that we had established an Innovation Center focused on applying our proven technology to lithium-ion battery recycling research
and development and prototype system activities. Our strategic decision to apply our proven clean, closed-loop hydrometallurgical and electro-chemical recycling
experience to lithium-ion battery recycling is designed to meet the growing demand for critical metals driven by the global transition to electric vehicles, growth in Internet
data centers, and alternative energy applications including solar, wind, and grid-scale storage.
In November 2021, Aqua Metals and LINICO signed a collaboration agreement which sets the parameters for future research and development cooperation, as both
companies expand into lithium-ion battery recycling and advance our technologies designed to recycle lithium-ion batteries cost-effectively and sustainably. Aqua Metals
and LINICO plan to source the necessary lithium-ion feedstock from battery manufacturing scrap and end-of-life cells from various sources, including electric vehicle
battery suppliers interested in participating in the eco-network the two companies announced in 2021. LINICO will process the feedstock into high-quality black mass
utilizing its proprietary process. The resulting black mass will be used as input feedstock for Aqua Metals’ AquaRefining pilot cells intended to create high purity metals
such as nickel, cobalt, and copper as well as other compounds.
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.
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Overview
Aqua Metals is seeking to reinvent lead and other metal recycling with its patented and patent pending AquaRefining™ technology. Aqua Metals is focused on
developing cleaner and safer metals recycling through innovation. We believe our Innovation Center can expand the development of breakthrough technologies for
sustainable metal recycling that can deliver high-value critical minerals back into the manufacturing supply chain while reducing emissions and toxic byproducts and
creating much safer work environments.
Unlike smelting, AquaRefining is a room temperature, water-based process. Aqua Metals has invested in breakthrough metals recycling methodologies that we
believe are environmentally responsible, economically competitive, and will help retain critical strategic metals within the U.S. while lowering reliance on unsafe and toxic
mining operations. Since 2015, Aqua Metals has developed breakthrough metal recycling technologies that utilize a clean, closed-loop process that can produce ultra-high
purity metal. AquaRefining delivers raw materials back into the manufacturing supply chain while reducing emissions and toxic byproducts and creating a safer work
environment. The patented AquaRefining modular systems have already demonstrated how they can reduce environmental impact and scale lead-acid battery recycling
capacity.
AquaRefining for lead uses a bio-degradable aqueous solvent and a novel ambient temperature electro-chemical process to produce lead suitable for use in LAB
production. Our AquaRefining process produces lead with a purity of 99.996+%, making it the purest lead ever made from a recycling technique that is in fact more pure
than lead made from mining processes. We believe that AquaRefining can provide a more efficient production process as compared with alternative methods of producing
equivalent grades of lead. For example, licensing the technology to facilities closest to the source of used LABs is more efficient due to minimization of transportation costs
and supply chain bottlenecks. On this basis, we believe that AquaRefining reduces environmental plant emissions, health concerns and permitting needs compared with lead
smelting. We believe that the combined advantages offered by AquaRefining represent a potential step change in lead recycling technology that includes improved product
quality, advantages in footprint and logistics as well as reduced environmental impact.
The modular nature of AquaRefining makes it possible both to start LAB recycling at a smaller scale than is possible with a typical smelter setup and to add
AquaRefining to existing battery recycling operations to expand production capacity or to reduce smelting processes. Our plan is to pursue the licensing of our
AquaRefining technology. This strategy is designed to supply AquaRefining and supporting equipment to battery recyclers to improve emissions, throughput, and product
quality from their battery recycling operations.
Our Markets
The Lead Market
Lead is a globally traded metal commodity and is the essential component of over 80% of the world’s rechargeable batteries. Lead is globally traded primarily on the
London Metals Exchange (LME), although the smaller Shanghai Metals Exchange (SHME) in China also trades the element. Conventionally in the industry, there are two
separate groupings of lead: i) primary lead which refers to lead produced at primary smelters that use mined lead concentrates (generally lead sulfide) as their major
feedstock, and ii) secondary lead which refers to lead smelters utilizing LABs as their main feed source.
Originally, the majority of the lead used in batteries was sourced from primary smelters but in recent decades, secondary lead has grown to become the dominate
product used. Industry data shows that six million metric tons of lead was produced in 1995, of which approximately 45% was from primary and 55% was from secondary
sources. Twenty years later, by 2015, global lead production had increased to approximately 11 million metric tons, of which more than 65% was secondary. Importantly,
primary lead production had increased only marginally during this period. This marginal increase is partially due to lead-zinc mine deposits being depleted across the globe
in existing mines. As such, an increasing quantity of primary lead is now the predominate byproduct of zinc mining. In recent years, tightening emissions regulations have
forced many U.S. smelters to close.
Lead is an integral component in over a billion electrical storage devices used across the globe, including every car and truck, hybrid and electric vehicle. Lead-based
batteries provide backup power for hospitals, electrify households, and are the primary energy storage mode for buildings, data centers, and telecom. Lead is a finite
resource with rising demand. The lead acid battery market is expected to grow from $46.6 billion in 2015 to $85.5 billion in 2025. Lead batteries are currently the only
100% recyclable batteries available and 80% of the lead used to manufacture new batteries is recycled.
As noted above, although lead is traded as a commodity on the LME/SHME, the major sales are directly between producers/traders and users (whom are typically
battery manufacturers). The LME daily price is used as the benchmark in forming the basis of physical trades, forward contracts, and hedge strategies for both primary and
secondary lead. Based on market and product knowledge with buyers of lead in the U.S. and Global lead markets, different grades (termed alloys) of lead are traded at a
premium to the base LME price. Lead alloys, which are generally specifically designed for the customer, are also sold at a premium above the base LME, whereas
byproducts (generally lead compounds or scrap) are traded at a discount to the LME as they are based on the lead content and its form.
Lead Smelting
Currently, smelters produce virtually all the world’s mined and recycled lead. Smelting is an energy-intensive and, in some poorly managed plants, a highly polluting
process. At its core, smelting is a relatively high temperature (excess of 900°C) metallurgical reduction process in which lead compounds are heated and reacted with various
reducing agents to remove the oxygen, sulfur, and other impurities. The process leaves behind bullion lead and waste slag. In smelting, depending upon the operation, 0.5%
to 5% of the lead can be lost to the “slag”, with the resultant lead bullion containing both wanted and unwanted impurities.
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 less 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.
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Lead Acid Batteries
Although the LAB is one of the earliest battery technologies, in terms of energy capacity deployed and installed manufacturing capacity, it still dominates the battery
industry today. Historically, the largest market for LABs has been as starter batteries for vehicles. However, with the increasing electrical load on modern vehicles and the
adoption of additional “Stop-Start” conventional 12V “starter batteries”, LABs are evolving into more capable and higher value products. At the same time, large new
markets such as Cell Tower, Data Center and Industrial back-up are adding to demand. Consequently, existing LAB production facilities are being expanded and new
facilities are being built.
According to Grand View Research, annual lead acid battery sales are expected to nearly double to $84 billion by 2025, driving demand for lead. Similar prospects for
healthy growth in the lead industry continue to be published and support continued growth in demand for lead for at least the next 20 years. 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 much of the LAB recycling performed outside of the U.S., Canada, the EU, Japan, and Australia 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 less polluting LAB recycling processes.
The Lithium Battery Market
According to our sources, including Goldman Sachs, the global lithium-ion battery market was assessed at approximately USD $ 9 billion in 2020 and is expected to
grow at a compound annual growth rate (CAGR) of 19.0% from 2020 to 2028. The growth of the market is being driven by the growing demand for the lithium-ion battery
in Electric Vehicles (EVs) and grid storage which offers lightweight high-energy density solutions. The market is also being influenced by increased registration of EVs and
a reduction in the price of the lithium-ion battery. Costs have been driven down a long way since 2010, when battery prices were $1,100/kWh, representing a 90% drop over
ten years to about $110/kWh today. Rechargeable battery technologies are becoming key to moving from a fossil-fuel driven economy to an electrified world powered by
renewable energy that can be stored.
More than 15 million tons of lithium-ion batteries are expected to retire between now and 2030. All major car manufacturers are working on providing electric
vehicles and some are moving most of the future production to electric only vehicles.
Lithium Batteries
EV batteries are powered by a battery pack made up of individual cells. Each cell has 4 components: the cathode, anode, separator, and electrolyte. Lithium-ion
batteries use different raw materials for each of the components. The most common material used for the anode is graphite. The most widely used metals for the cathode is
metal oxides that are combinations of lithium, cobalt, nickel, manganese, and aluminum. The electrolyte is generally made using acidic salts and solvents such as sulfuric
acid and there are also solid-state silicon based alternatives on the horizon. The separator is usually created using a porous, polyolefin material like polyethylene or
polypropylene.
Lithium-ion battery recycling is the method of taking EV batteries and splitting it into its components, ultimately into the original raw materials (lithium, nickel,
cobalt, etc.) that can be reused in new batteries. While making lithium-ion batteries for EVs is important to address climate change, the batteries themselves are harmful
to the environment if left in landfills or burned. Currently, 5-7% of lithium-ion batteries are recycled and that must get close to 100% both to avoid another environmental
catastrophe and to recapture the critical minerals in those spent batteries to feed the massive demand growth curve. Battery recycling helps address this problem, but current
pyro-based battery recycling technology (smelting) also creates harmful emissions, potentially creating new climate problems faster than they are being solved. There are
alternative hydro-based technologies being attempted but they are not yet proven and rely on older methodologies that are known to create significant waste streams which
have their own negative environmental and economic impacts.
AquaRefining Process
We developed AquaRefining to be a cleaner and modular alternative to smelting. Our process has two key elements, both of which are integral to our issued patents
and pending-patent applications. The first is our use of a proprietary, non-toxic solvent that dissolves lead compounds. The second is a proprietary electro-chemical process
and Aqualyzer that converts the dissolved lead compounds into high purity lead through a continuous process that is suitable for use in next generation LAB production.
The AquaRefining process begins with the processing of crushed used batteries either in the form of paste (for LAB) or, in the future, black mass (for LIB). The
active materials are first processed to remove sulfur and then dissolved in our solvent. Metals are plated from the solvent using our patented and patent-pending process
allowing the solvent to be reused.
Our AquaRefining process can generate lead and lead-based products, including high purity lead, lead alloys and lead compounds which are primarily intended for the
LAB industry. We are also exploring higher value lead-based products which may offer performance and life-cycle benefits to the LAB industry. We also believe that our
AquaRefining process can be used to generate metals, such as nickel and cobalt from lithium-ion recycled batteries.
A significant benefit of our AquaRefining process is that it is capable of producing higher yields of higher purity thus higher value product than that derived from
primary smelters with product from secondary sources. As indicated above, primary grade lead is generally sold directly to battery companies.
Another significant benefit of our process is that we designed our AquaRefining equipment to be manufactured on a purpose-built production line in standard sized
Aqualyzers. 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 eight metric tons per day to more than 800 metric tons per day all based on our recently enhanced standard Aqualyzer. We have also developed an
integrated software and portal called PureMetrics that keeps track of lead production and key operating metrics.
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 battery recycling operations with less
regulatory cost and burden than smelting operators due to the nature of our process. One of our key initiatives is and will be to educate regulators and the public as to the
environmental benefits of AquaRefining. We believe that we have the potential to develop a business model that offers the opportunity to conduct, in an environmentally
friendly manner, an important recycling activity that historically has been conducted in an often highly polluting manner.
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Our Business Model
Overall, our objective is to progress the lead and lithium-ion recycling industry from one which is based solely on smelting to one which is either supplemented or
produced solely by AquaRefining. The business model that we are currently most focused on is the supply of AquaRefining and supporting equipment and services to third
parties to use in their recycling operations on a licensing model with running royalties to Aqua Metals for lead and other battery metals produced. We are currently focused
on licensing our technology for lead and developing our solution for lithium-ion batteries.
The market for lead and other lithium-ion batteries are global in scale but local in nature and execution, with large differences in local regulation, custom and practice,
and access to transportation and electricity costs. In some regions, it is highly regulated, and in others it is not. Consequently, we are evolving our business model to
commercialize our technology optimally across multiple locations.
In the U.S. and similarly regulated countries, our plan is to supply AquaRefining technology to battery recycling facilities, both directly and in association with third
parties through joint ventures, licensing, and direct sales. We intend to license our lead battery technology to multiple existing battery recyclers. For example, in July 2021
we signed our first agreement with ACME Metal Enterprise to deploy AquaRefining technology and equipment which was shipped in early January 2022 to commence the
implementation. We intend to continue to develop our Aqua Refining technology for the recycling of lithium-ion batteries and the licensing of such technology to parties in
the LIB industry. In August 2021, we announced that we had established an Innovation Center focused on applying our proven technology to lithium-ion battery recycling
research and development and prototype system activities. Our strategic decision to apply our proven clean, closed-loop hydrometallurgical and electro-chemical recycling
experience to lithium-ion battery recycling is designed to meet the growing demand for critical metals driven by the global transition to electric vehicles, growth in Internet
data centers, and alternative energy applications including solar, wind, and grid-scale storage. In November 2021, Aqua Metals and LINICO signed a collaboration
agreement which sets the parameters for future research and development cooperation, as both companies’ expand into lithium-ion battery recycling and advance our
technologies designed to recycle lithium-ion batteries cost-effectively and sustainably. Aqua Metals and LINICO plan to source the necessary lithium-ion feedstock from
battery manufacturing scrap and end-of-life cells from various sources, including electric vehicle battery suppliers interested in participating in the eco-network the two
companies announced in 2021. LINICO will process the feedstock into high-quality black mass utilizing its proprietary process. The resulting black mass will be used as
input feedstock for Aqua Metals’ AquaRefining pilot cells intended to create high purity metals such as nickel, cobalt, and copper as well as other compounds.
Competition
At the present time, our primary competition in the production of lead comes from operators of existing smelters and other parties heavily invested in the existing
supply chain for smelting. Our approach to this competition is to make AquaRefining available for the conversion of existing smelter-based facilities. However, it is prudent
to assume that outside of our strategic relationships, a conversion to AquaRefining may be resisted by some of the incumbent lead producers. Competition in the supply of
lead from such incumbents may come in the form of price competition for lead produced. However, to the extent we are successful with partners in being a producer of high-
quality lead without the regulatory costs or burden associated with smelting, we believe that we may be able to compete effectively with smelting as the preferred method of
recycling lead, particularly in the more regulated jurisdictions where environmental and worker safety practices are evolving towards improving both conditions.
Secondary competition comes from other alternatives to lead smelting that are electro-chemical based. There are a few groups that have run lab scale and bench tests
but to date, no alternate technology has been commercialized to produce large quantities of consistent quality lead whereas Aqua Metals has already done so.
Our development of recycling technology for lithium-ion batteries is a unique approach to extracting the high-value metals compared to the array of other potential
solutions under development. Currently, smelting is the only commercially proven process for recycling Lithium-ion batteries. The smelting process utilizes multiple high
emissions steps to produce battery ready materials. Over the next decade and beyond, when the volume of used batteries becomes significant, smelting will likely not be a
viable solution due to the negative environmental impact and likelihood of regulatory restrictions on emissions. The other technologies currently under development utilize a
predominately hydrometallurgical approach that consumes significant amounts of chemicals to extract the metals resulting in high cost and excessive waste streams. Our
approach is a hybrid of hydrometallurgical and electrowinning processes similar to the process we have commercialized for lead, we call it “Li AquaRefining”. We believe,
and early R&D supports, that Li AquaRefining requires less chemicals, produces less waste streams, and creates higher purity products at a lower cost as compared to both
smelting and standard hydrometallurgy.
The lithium-ion battery recycling market is significantly different from that of the lead recycling market in that it is a nascent industry. With no predominant
technology to displace, our goal is to enable new and existing recyclers across the globe with Li AquaRefining as a best-in-class solution for meeting the supply chain
demands of the lithium-ion battery industry as well as meeting the environmental needs of the planet and the corporations seeking to achieve net zero emissions.
Licensing of our Technology
Our recycling facility located at Tahoe-Reno Industrial Center was used in the previous years to prove out our AquaRefining process. During this time, we began
continuous production of AquaRefined lead and sold it at a premium to the London Metals Exchange ("LME"). We also received approved lead supplier status from Clarios,
and we shipped approximately 35,000 ingots directly to their battery manufacturing facility. We have invested over $200 million towards commercialization, with 82 patents
issued or allowed and 54 patent applications pending in the U.S. and internationally for lead and other metals.
In July 2021, we signed our first agreement with ACME Metal Enterprise to deploy AquaRefining technology and equipment, which was shipped in early January
2022 to commence the implementation. We believe that our AquaRefining technology will be a commercially attractive proposition in the hands of battery recyclers, who
typically have access to lower cost feedstock and ability to process all materials on site through a furnace.
We have been engaged in the pursuit of a business strategy that is based on the pursuit of licensing opportunities within the lead battery recycling marketplace
without maintaining and operating a capital-intensive lead recycling facility. Our capital light business strategy is designed to optimize shareholder value by focusing on
equipment supply and licensing opportunities, which have always been a core part of our business plans. We believe this path has the potential to maximize shareholder
value in that it could be far less capital intensive than a plant rebuild.
Revenues related to the licensing of our technology may include engineering services, equipment supply and recurring running royalties on lead production.
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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
endeavor to generate and protect our intellectual property assets through a series of patents, trademarks, internal and external policy and procedures and contractual
provisions.
Patent Portfolio
Currently, we have secured 8 US patents, 63 international patents, and 3 allowances (two international, one US). In addition to the US patents, we have international
patents/allowances in the African Regional Intellectual Property Organization, African Intellectual Property Organization, Australia, Canada, Chile, China, the Eurasian
Patent Organization, European Union, Honduras, India, Indonesia, Japan, Malaysia, Mexico, Peru, South Korea, South Africa, Ukraine, and Vietnam. We also have 56 US
and foreign patent applications pending with patent applications pending in 21 additional non-US jurisdictions across eight distinct patent applications relating to certain
elements of the technology underlying our AquaRefining process and related apparatus and chemical formulations. The claims of the granted patents substantially address
the same subject matter and are drawn to various aspects of processing lead materials using an aqua refining process. Differences in the claim number and scope are due to
local rules and practice.
We intend to continue to prepare and file domestic and foreign patent applications covering expanding aspects and applications of our technology, as circumstances
warrant.
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. Competitors may work around our patents, so they are not infringing. Our patent
portfolio and our existing policy and procedures safeguarding our trade secrets nonetheless may face challenges so that our competitors can copy our AquaRefining process.
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Trademark Portfolio
We have filed for trademark registration in the US and foreign countries for the following trademarks:
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AQUA METALS (US and 14 foreign countries)
AQUAREFINING (US and 10 foreign countries)
AQMS (US only)
AQUAFIT (US only)
Trade Secrets and Contract Protection
We have developed our internal policy and procedures in safeguarding our trade secrets and proprietary information. Our procedures 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.
Government Regulation
Our operations and the operations of our licensees in the United States will be subject to the federal, state, and local environmental, health and safety laws applicable
to the reclamation of LABs and Lithium based batteries. While the reclamation process itself is generally not subject to federal permitting requirements, depending on how
any particular operation is structured, our facilities and the facilities of our licensees 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 batteries on-site should that
become necessary. We may face opposition from local residents or public interest groups to the installation and operation of our or our licensee's 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 and the operations of our licensees 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, acids, and other metals involved in 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 and the operations of our licensees involves 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 and the operations of our licensees also pose a risk of releases of hazardous substances, such as lead, acids, and other metals related to
lithium batteries 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 and our licensees 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 licensed 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 South America, Taiwan 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.
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Employees
As of the date of this report, we employ 23 people on a full-time basis. None of our employees are represented by a labor union.
Financial and Segment Information
We operate our business as a single segment, as defined by generally accepted accounting principles. Our financial information is included in the consolidated financial
statements and the related notes.
Available Information
Our website is located at www.aquametals.com and our investor relations website is located at https://ir.aquametals.com/. Copies of our Annual Report on Form 10-
K, Quarterly Report on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such
material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website that contains our SEC filings. The
address of the site is www.sec.gov. Further, 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 contents of our website are not
intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites
are intended to be inactive textual references only.
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Item 1A.
Risk Factors
Investing in our common stock involves a high degree of risk. Before purchasing our common stock, you should read and consider carefully the following risk
factors as well as all other information contained in this report, including our consolidated financial statements and the related notes. Each of these risk factors, either
alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common
stock. There may be additional risks that we do not presently know of or that we currently believe are immaterial, which could also impair our business and financial
position. If any of the events described below were to occur, our financial condition, our ability to access capital resources, our results of operations and/or our future
growth prospects could be materially and adversely affected and the market price of our common stock could decline. As a result, you could lose some or all of any
investment you may make in our common stock.
Risks Relating to Our Business
We have experienced a fire at our TRIC facility which has caused significant damage and, as a result of the fire, we revised our plans for the
commercialization of our AquaRefining technologies. However, there can be no assurance that such plans will be successful. On the evening of November 29, 2019, a
fire occurred at our LAB recycling facility at TRIC. The cause of ignition is likely related to on-site contractor work that was being performed on the day of the fire. The fire
was substantially contained to the AquaRefining area of the plant, however the fire destroyed or impaired beyond recovery substantially all of the AquaRefining equipment,
including all 16 AquaRefining modules, control wiring and other supporting infrastructure.
When we designed and developed TRIC, we did so at a time when our business model assumed that TRIC would be the first of many LAB recycling facilities
owned and operated by us. Commencing in 2017, we began to shift our focus away from the development of additional Company-owned LAB recycling facilities and
towards the licensing of our AquaRefining technology to partners engaged in LAB recycling. We continued to develop TRIC as a LAB recycling facility for purposes of
demonstrating AquaRefining on a commercial scale. However, as a result of the fire and our high costs of capital, we decided that the cost of restoring TRIC to its pre-fire
state would not be the best use of our available cash and that we may be able to achieve the benefits of operating 16 AquaRefining modules, namely the demonstration of
the scalability of our AquaRefining technologies, through a less costly commercialization program. Commencing in early 2020, we began to focus on licensing opportunities
within the $20+ billion lead battery recycling marketplace and in February 2021 we entered into a triple-net lease-to-buy agreement with respect to TRIC. We believe this
path is far less capital intensive than a rebuild of TRIC to its pre-fire state and we believe this plan could be funded in part from cash on hand and asset disposition of the
AquaRefinery. However, there can be no assurance that our revised business model will be successful or that we will acquire the additional capital sufficient to fund our
revised business plan.
We have initiated the research and development of the application of our AquaRefining technology to the recycling and recovery of lithium-ion batteries,
however there can be no assurance that our efforts will be successful. In September 2021, we announced the establishment of our Innovation Center, in McCarran,
Nevada, focused on applying our AquaRefining technology to lithium-ion battery recycling research and development and prototype system activities. Earlier in 2021, we
filed a provisional patent for recovering high-value metals from recycled lithium-ion batteries to complement the patents for AquaRefining. Based on early phase testing, we
believe we may be able to apply our AquaRefining methodology, used for plating ultra-high purity lead, to plating the metals found in lithium-ion batteries such as cobalt,
nickel, and copper. Lithium and manganese will be recovered in other forms. However, we have only recently begun to conduct research and development in the recycling of
lithium-ion batteries, and there can be no assurance that our efforts will be successful or that we will be able to conduct the recycling and recovery of the high value metals
from lithium-ion batteries on a commercial scale.
Our business strategy includes licensing arrangements and entering into joint ventures and strategic alliances, however as of the date of this report we have no
such agreements in place and there can be no assurance we will be able to do so. 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 primarily 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, and, subject to our
successful research and development, lithium-ion batteries, including ACME Metal Enterprise Co., Ltd., among others. In July 2021, we entered into an agreement with
ACME Metal Enterprise Co., Ltd to deploy and potentially license our AquaRefining equipment at ACME’s LAB recycling facility in Keelung, Taiwan. The agreement
provides for a phased deployment of our AquaRefining technology at ACME’s Taiwan facility, the joint development of processing AquaRefined briquettes into battery
ready oxide material and potentially an exclusive license of our AquaRefining technology to ACME for all of Taiwan. Although we are currently seeking to negotiate
agreements with others, as of the date of this report, we have not entered into any such licensing, joint venture or strategic alliance agreements, apart from our agreement
with ACME, and there can be no assurance that we will be able to do so on terms that benefit us, if at all. Our ability to enter into licensing, joint ventures and strategic
relationships with third parties will depend on our ability to demonstrate the technological and commercial advantages of our AquaRefining process, of which there can be
no assurance. Also, even if we are able to enter into licensing, joint venture or strategic alliance agreements, there can be no assurance that we will be able to obtain the
expected benefits of any such arrangements. In addition, licensing programs, joint ventures and strategic alliances may involve significant other risks and uncertainties,
insufficient revenue generation to offset liabilities assumed and expenses associated with the transaction, potential additional challenges in protecting our intellectual
property, 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.
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Since we have a limited operating history and have only recently commenced revenue producing operations, it is difficult for potential investors to evaluate our
business. We formed our corporation in June 2014. From inception through December 31, 2021, we generated a total of $11.7 million of revenue, all of which was derived
primarily from the sale of lead compounds and plastics and, to a lesser extent, the sale of lead bullion and AquaRefined lead. To date, our operations have primarily
consisted of the development, testing, and limited operations of our AquaRefining process, the construction of our initial LAB recycling facility at TRIC, the continuing
development of our LAB recycling operations at TRIC and limited revenue producing operations as we brought those LAB recycling operations online. As a result of the
November 2019 fire at TRIC, we have suspended all plant-based revenue producing operations, entered into a lease-to-buy agreement with respect to TRIC and have shifted
our business model to focus exclusively on the licensing of our AquaRefining technology to partners engaged in LAB recycling and, subject to our successful research and
development, lithium-ion batteries. As of the date of this report, we are unable to estimate when we expect to commence any meaningful commercial or revenue producing
operations from our licensing model. 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, including, without
limitation:
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the timing and success of our plan of commercialization and the fact that we have suspended operations at TRIC;
our ability to demonstrate that our AquaRefining technology can be operated on a commercial scale;
our ability to license our AquaRefining process and sell our AquaRefining equipment to ACME Metal Enterprise Co., Ltd and other recyclers of LABs; and
our ability to realize the expected benefits of our strategic partnerships and successfully apply our AquaRefining technology to the plating of high value metals found
in lithium-ion batteries, including cobalt, nickel, and copper.
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.
Our business is dependent upon our successful implementation of novel technologies and processes and there can be no assurance that we will be able to
implement such technologies and processes in a manner that supports the successful commercial roll-out of our business model. While much of the technology and
processes involved in lead recycling operations are widely used and proven, our AquaRefining process is largely novel and, to date, has been demonstrated on a modest scale
of operations. While we have shown that our proprietary technology can produce AquaRefined lead on a small scale, we had just begun to demonstrate that we can produce
AquaRefined lead on a commercial scale prior to the November 2019 fire at TRIC. Further, as we endeavored to complete our AquaRefining production line, we
continuously encountered unforeseen complications that delayed the ramping up of our AquaRefining modules and the integration of our AquaRefining process with the
traditional lead recycling operations. There can be no assurance that we will not encounter similar unforeseen complications as we pursue our revised business model.
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, 2021, we had total cash of $8.1 million and working capital of $8.4 million. As of the date of this report, we believe that we may require
additional capital in order to fund our current level of ongoing costs and our proposed business plan over the next 12 months as we move forward with our licensing
strategy. We intend to acquire the necessary capital though the possible sale of certain equipment and assets at TRIC. However, there can be no assurance that we will be
able to acquire proceeds from the sale of TRIC in amounts sufficient to fund the capital requirements or, if we are successful, that we will not require additional capital. If
needed, we may seek funding through the sale of equity or debt financing. Funding that includes the sale of our equity may be dilutive. If such funding 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 may be adversely affected by the recent coronavirus outbreak. In December 2019, a novel strain of coronavirus was reported to have surfaced in
Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified. At
this time, we and most of our partners and suppliers are subject to travel restrictions, shelter in place requirements and limited, if any, operations. The outbreak and any
preventative or protective actions that we or our partners and suppliers may take in respect of this coronavirus may result in a period of disruption to work in progress. Our
partners’ and suppliers’ businesses could be disrupted, and our ongoing V1.5 operations and license negotiations could be negatively affected. Any resulting financial
impact cannot be reasonably estimated at this time but may materially affect our business and financial condition. The extent to which the coronavirus impacts our results
will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the
coronavirus and the actions to contain the coronavirus or treat its impact, among others.
Our business model is new and has not been proven by us or anyone else. We are engaged in the business of producing recycled lead and, subject to our
successful research and development, lithium-ion batteries through a novel, and proven on a modest scale, 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 or lithium-ion batteries in commercial quantities other than by way of smelting. In addition, neither we nor anyone else has ever successfully built a production line that
commercially recycles LABs without smelting. Further, there can be no assurance that either we or our licensees will be able to produce AquaRefined lead or lithium-ion
batteries in commercial quantities at a cost of production that will provide us and our proposed licensees 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.
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Even if our licensees are successful in recycling lead or lithium-ion batteries using our processes, there can be no assurance that the AquaRefined lead or
other recycled metals will meet the certification and purity requirements of our potential customers. A key component of our business plan is the production of recycled
lead through our AquaRefining process of the highest purity (at least 99.99% pure lead), which we refer to as AquaRefined lead. We believe that our AquaRefined lead will
provide our licensees with a revenue premium over the market price of lead on the London Metal Exchange, or LME, and, more importantly, the ability to produce
AquaRefined lead will be vital to confirming the efficacy and relevancy of our proprietary technology. Our licensees and their customers will require that our AquaRefined
lead meet certain minimum purity standards and, in all likelihood, require independent assays to confirm the lead’s purity. As of the date of this report, we have produced
limited quantities of AquaRefined lead and in November 2018, Clarios confirmed its approval of the purity of our AquaRefined lead by providing to us official vendor
approval to receive finished lead at its manufacturing facilities. However, we have not produced AquaRefined lead in significant commercial quantities and there can be no
assurance that our licensees will be able to do so or, if our licensees are able to produce AquaRefined lead in significant commercial quantities, that such lead will continue
to meet the required purity standards of their customers. Further, while we believe we may be able to apply our AquaRefining methodology to plating the metals found in
lithium-ion batteries, such as cobalt, nickel, and copper, we have only recently begun to conduct research and development in the recycling of lithium-ion batteries, and there
can be no assurance that our efforts will be successful or that we will be able to conduct the recycling and recovery of the high value metals from lithium-ion batteries on a
commercial scale.
While we have been successful in producing AquaRefined lead in small volumes, there can be no assurance that either we or our licensees will be able to
replicate the process, along with all of the expected economic advantages, on a large commercial scale either for us or our prospective licensees . Our commercial
operations have primarily involved the production of lead compounds and plastics from recycled LABs, and more recently, the sale of lead bullion and AquaRefined lead. In
April 2018, we commenced the limited production of cast lead bullion (mixture of lead purchased to prime the kettles and AquaRefined lead from our AquaRefining
process), and in June 2018, we commenced the sale of pure AquaRefined lead in the form of two tonne blocks. While we believe that our development, testing and limited
production to date has validated the concept of our AquaRefining process, the limited nature of our operations to date are not sufficient to confirm the economic returns on
our production of recycled lead. Further, we have not engaged in any commercial operations in the area of recycling of lithium-ion batteries. There can be no assurance that
our licensees will be able to produce AquaRefined lead or high value metals from lithium-ion batteries in commercial quantities at a cost of production that will provide us
and our proposed licensees with an adequate profit margin.
Our business may be negatively affected by labor issues and higher labor costs. Our ability to maintain our workforce depends on our ability to attract and retain
new and existing employees. As of the date of this report, none of our employees are covered by collective bargaining agreements and we consider our labor relations to be
acceptable. However, we could experience workforce dissatisfaction which could trigger bargaining issues, employment discrimination liability issues as well as wage and
benefit consequences, especially during critical operation periods. We could also experience a work stoppage or other disputes which could disrupt our operations and could
harm our operating results. In addition, legislation or changes in regulations could result in labor shortages and higher labor costs. There can be no assurance that we may not
experience labor issues that negatively impact our operations or results of operations.
Our intellectual property rights may not be adequate to protect our business. As of the date of this report, we have secured granted/allowed patents in the
following countries/regions: U.S. (9837689, 10316420, 10340561, 10665907, 10689769, 10793957, 11028460, 11072864, allowed 20190267681), Canada (2930945,
2968064, 3007101, allowed 2986022), China (107849634, 108603242, 109183069, 201480071929.1, ZL201580062811.7, ZL201680041571.7, ZL201680041600.X),
Europe (3072180, 3221918, 3294916, 3294929, 3483305), Brazil (BR 11 2016 011396-9, BR 11 2017 024433-0), Eurasia (32371, 35532, 36722), South Africa
(2016/04083, 2017/08454, 2017/08455, 2017/04123, 2018/04384), South Korea (10-1739414, 10-1882932, 10-1926033, 10-2096976, 10-2242697, 10-2274210, 10-
2310653), Honduras (80-2019), India (318321, 364173, 369304), Indonesia (IDP000061176, IDP000066550, IDP000074882, IDP000077702), Japan (6173595, 6592088,
6775006, 6805240, 6861773, 6944453), Malaysia (MY-181071-A, MY-185652-A), Mexico (357027, 387016), OAPI (17808, 19078, 18736), Peru (649-2016), Ukraine
(118037, 119580, 124142, 124145, 124523), Vietnam (22588, 1-2017-05043 allowed) Australia (2014353227, 2015350562, 2016260407, 2016260408, 2016362502,
2017213449), ARIPO (AP4995, AP 5559, AP 5946), and Chile (61.519, 62.308).
We also have further patent applications pending in the United States and numerous corresponding patent applications pending in 20 additional jurisdictions
relating to certain elements of the technology underlying our AquaRefining process and related apparatus and chemical formulations. However, no assurances can be given
that any patent issued, or any patents issued on our current and any future patent applications, will be sufficiently broad to adequately protect our technology. In addition, we
cannot assure you that any patents issued now or in the future will not be challenged, invalidated, or circumvented.
Even patents issued to us 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.
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Our agreement with Clarios has been terminated. In February 2017, we entered into an equipment supply agreement pursuant to which, among other things, we
agreed to work with Clarios on the development of a program for the conversion of Clarios and certain strategic partners of Clarios’ existing lead smelters throughout North
and South America, China and Europe to a lead recycling process utilizing our AquaRefining technology and equipment, know-how and services. In September 2021,
Clarios elected to terminate the equipment supply agreement.
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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 $2,429 per tonne in August
2021 to a low of $1,961 per tonne in March 2021 because of fluctuations in the market. Lead price per tonne was approximately $2,305 at the end of December 2021. 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 downturn 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 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 licensing or joint venture arrangements with local partners who will be primarily responsible for the day-to-day
operations. Any expansion outside of the U.S. 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;
diminished ability to protect 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;
compliance with the Federal Corrupt Practices Act and other anti-corruption laws;
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;
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• market disruptions created by public health crises in regions outside the United States;
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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.
U.S. government regulation and environmental, health and safety concerns may adversely affect our business. Our operations and the operations of our licensees
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 including the
Occupational Safety and Health Act ("OSHA") of 1970 and comparable state statutes. Our facilities and the facilities of our licensees will have to obtain environmental
permits or approvals to expand, including those associated with air emissions, water discharges, and waste management and storage. We and our licensees may face
opposition from local residents or public interest groups to the installation and operation of our respective facilities. In addition to permitting requirements, our operations
and the operations of our licensees 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.
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We and our licensees are also subject to inspection from time to time by various federal, state and local environmental, health and safety regulatory agencies and,
as a result of these inspections, we and our licensees may be cited for certain items of non-compliance. For example, in August 2018, the Nevada Occupational Safety and
Health Administration, or Nevada OSHA, delivered to us a citation and notification of penalty. The citation listed a number of items related to our compliance with Nevada
OSHA’s Lead Standard. We reached a settlement agreement with Nevada OSHA on the amount of penalties associated with the citation. We also agreed to engage a lead
compliance expert to audit our facility at TRIC for compliance with all provision of the Lead Standard and to generate a written report with findings of any noncompliance,
recommended corrective actions, and a time frame to correct the findings of noncompliance. We agreed with Nevada OSHA to correct all findings of noncompliance within
the time frame proposed by the lead compliance expert in their report. The lead compliance expert has been engaged, has visited the facility at TRIC and has completed the
written report. We have corrected all findings of noncompliance in a timely manner.
Failure to comply with the requirements of federal, state and local environmental, health and safety laws could subject our business and the businesses of our
licensees to significant penalties (civil or criminal) and other sanctions that could adversely affect our business. In addition, in the event we are unable to operate and expand
our AquaRefining process and operations as safe and environmentally responsible, we and our licensees may face opposition from local governments, residents or public
interest groups to the installation and operation of our facilities.
The development of new AquaRefining technology by us or our partners or licensees, and the dissemination of our AquaRefining process will depend on our
ability to acquire necessary permits and approvals, of which there can be no assurance. As noted above, our AquaRefining processes will have to obtain environmental
permits or approvals to operate, including those associated with air emissions, water discharges, and waste management and storage. In addition, we expect that any use of
AquaRefining operations at our partner's facilities will require additional permitting and approvals. Failure to secure (or significant delays in securing) the necessary permits
and approvals could prevent us and our partners and licensees from pursuing additional AquaRefining expansion, and otherwise adversely affect our business, financial
results and growth prospects. Further, the loss of any necessary permit or approval could result in the closure of an AquaRefining facility and the loss of our investment
associated with such facility.
Our business involves the handling of hazardous materials and we may become subject to significant fines and other liabilities in the event we mishandle those
materials. The nature of our operations involves 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. 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, or 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. Any such liability could result in judgments or settlements that restrict our
operations in a manner that materially adversely effects our operations and could result in fines, penalties or awards that could materially impair our financial condition and
even threaten our continued operation as a going concern.
We will be subject to foreign government regulation and environmental, health and safety concerns that may adversely affect our business. 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 U.S., 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.
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.
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Risks Related to Owning Our Common Stock
The market price of our shares may be subject to fluctuation and volatility. You could lose all or part of your investment. The market price of our common stock
is subject to wide fluctuations in response to various factors, some of which are beyond our control. Since January 1, 2020, the reported high and low sales prices of our
common stock have ranged from $0.33 to $8.06 through February 24, 2022. The market price of our shares on the NASDAQ Capital Market may fluctuate as a result of a
number of factors, some of which are beyond our control, including, but not limited to:
•
•
•
•
•
•
•
•
•
actual or anticipated variations in our and our competitors’ results of operations and financial condition;
changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts;
development of technological innovations or new competitive products by others;
regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products;
our sale or proposed sale, or the sale by our significant stockholders, of our shares or other securities in the future;
changes in key personnel;
success or failure of our research and development projects or those of our competitors;
the trading volume of our shares; and
general economic and market conditions and other factors, including factors unrelated to our operating performance.
These factors and any corresponding price fluctuations may materially and adversely affect the market price of our shares and result in substantial losses being
incurred by our investors. In the past, following periods of market volatility, public company stockholders have often instituted securities class action litigation. If we were
involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and
trading volume could decline. The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or
our business. If industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us
downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these
analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and
trading volume to decline. In addition, independent industry analysts may provide reviews of our AquaRefining technology, as well as competitive technologies, and
perception of our offerings in the marketplace may be significantly influenced by these reviews. We have no control over what these industry analysts report, and because
industry analysts may influence current and potential customers, our brand could be harmed if they do not provide a positive review of our products and platform
capabilities or view us as a market leader.
We may be at an increased risk of securities class action litigation. Historically, securities class action litigation has often been brought against a company
following a decline in the market price of its securities. This risk is especially relevant for us because early-stage companies have experienced significant stock price
volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
In 2017, a securities class action lawsuit and shareholder derivative lawsuit were filed against us. In 2021, we were able to settle both actions through our issuance of
$500,000 of our common shares and our adoption of limited corporate governance reforms, however we incurred significant legal costs in defending both actions and our
management was required to devote significant time in managing the defense of the actions.
We maintain director and officer insurance that we regard as reasonably adequate to protect us from potential claims; however, we are responsible for meeting
certain deductibles under the policies and, in any event, we cannot assure you that the insurance coverage will adequately protect us from claims made. Further, the costs of
insurance may increase and the availability of coverage may decrease. As a result, we may not be able to maintain our current levels of insurance at a reasonable cost, or at
all, which might make it more difficult to attract qualified candidates to serve as executive officers or directors.
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Future sales of substantial amounts of our common stock, or the possibility that such sales could occur, could adversely affect the market price of our common
stock. We cannot predict the effect, if any, that future issuances or sales of our securities or the availability of our securities for future issuance or sale, will have on the
market price of our common stock. Issuances or sales of substantial amounts of our securities, or the perception that such issuances or sales might occur, could negatively
impact the market price of our common stock and the terms upon which we may obtain additional equity financing in the future.
We have not paid dividends in the past and have no plans to pay dividends. We plan to reinvest all of our earnings, to the extent we have earnings, in order to
pursue our business plan 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.
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 provide for cumulative voting rights;
establish an advance notice procedure for stockholders' proposals to be brought before an annual meeting, including proposed nominations of persons for election to
our board of directors, 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.
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
of our directors, officers or other employees.
Item 1B.
Unresolved Staff Comments
None.
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Item 2.
Properties
Our executive offices are presently located in 4,183 square feet of class A office space in Reno, Nevada. We lease this facility at a lease rate of approximately
$11,000 per month. The lease term began in September, 2021 and expires September 30, 2024.
Our executive offices were previously located in 21,697 square feet of office and industrial space in a multi-building commercial project known as “Marina
Village” located in Alameda, California. The lease term is 76 months, commencing February 1, 2016, and expiring May 31, 2022. We sublet the property with the sublease
commencing on February 4, 2019 and expiring May 31, 2022. Subsequent to year end, the lease on this building was terminated.
We have developed and lease an Innovation Center focused on applying Aqua Metals technology to lithium-ion battery recycling. We lease this facility at a lease
rate of approximately $11,000 per month. The original lease term expired on December 31, 2021 but was renewed for a three year period which commenced on January 1,
2022 and expire on December 31, 2024.
We have developed and own a 136,750 square foot LAB recycling facility on 11.73 acres of land located in TRIC, a 107,000-acre park located nine miles east of
Reno, Nevada on I-80. We have entered into an Industrial Lease Agreement with LINICO Corporation, or LiNiCo, dated February 15, 2021, pursuant to which we have
leased the TRIC facility to LiNiCo. The lease commences April 1, 2021 and expires on March 31, 2023. During the lease term, LiNiCo has the option to purchase the land
and facilities at a purchase price of $14.25 million if the option is exercised and the sale is completed by October 1, 2022, and $15.25 million if the option is exercised and
the sale is completed after October 1, 2022, and prior to March 31, 2023. The purchase option is subject to LiNiCo’s payment of a nonrefundable deposit of $1.25 million by
October 15, 2021, and a second nonrefundable deposit of $2 million by November 22, 2022, both of which will be applied towards the purchase price. LiNiCo made the first
deposit of $1.25 million in early October 2021. The lease agreement is a triple-net lease pursuant to which LiNiCo is responsible for all fixed costs, including maintenance,
utilities, insurance, and property taxes. The lease agreement provides for LiNiCo’s monthly lease payments starting at $68,000 per month and increasing to $100,640 in the
last six months of the lease. The lease agreement allows us to retain the use of a portion of the facility for our ongoing research and development activities, including
operation of the lab and the use of office space.
With respect to the portion of the facility that was damaged in the November 2019 fire, consisting of approximately 30,000 square feet, we our obligated to
complete the clean-up of the damaged area, at our expense. As of the date of this report all clean up and repair on the building was substantially completed. The lease
agreement contains customary representations, warranties, and indemnities on the part of both parties.
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Item 3.
Legal Proceedings
Beginning on December 15, 2017, three purported class action lawsuits were filed in the United Stated District Court for the Northern District California against us
and certain of our former executive officers. On March 23, 2018, the cases were consolidated under the caption In Re: Aqua Metals, Inc. Securities Litigation Case No 3:17-
cv-07142. The complaint, as amended, alleged the defendants made false and misleading statements concerning our lead recycling operations and conducted deceptive site
visits in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder and seeks to hold the individual
defendants as control persons pursuant to Section 20(a) of the Exchange Act. The Amended Complaint also alleges a violation of Section 11 of the Securities Act of 1933
(“Securities Act”) based on alleged false and misleading statements concerning our lead recycling operations contained in, or incorporated by reference in, our Registration
Statement on Form S-3 filed in connection with our November 2016 public offering. In July 2021, the parties entered into a stipulation for settlement of all claims based on
the payment of a cash amount to the plaintiffs to be funded by Aqua Metals’ insurance carriers, plus $500,000 to be paid to the plaintiffs by Aqua Metals in cash or common
shares, at Aqua Metals’ option.
Beginning on February 2, 2018, five purported shareholder derivative actions were filed in the United States District Court for the District of Delaware against us
and certain of our current and former executive officers and directors. On May 3, 2018, the cases were consolidated under the caption In re Aqua Metals, Inc. Stockholder
Derivative Litigation, Case No. 1:18-cv-00201-LPS (D. Del.). The complaints were filed by persons claiming to be stockholders of Aqua Metals and generally alleged that
certain of our officers and directors breached their fiduciary duties to us by violating the federal securities laws and exposing us to possible financial liability. In July 2021,
the parties entered into a stipulation for settlement of all claims based on our adoption of certain corporate governance reforms. On November 9, 2021, the Court approved
the stipulation for settlement and on January 21, 2022 we filed a Current Report on Form 8-K disclosing the corporate reforms we adopted pursuant to the stipulation for
settlement.
In October 2021, we filed an action against Johnson Controls Fire Protections, LP (“Defendant”) relating to its involvement in the November 2019 fire at our TRIC
facility (Aqua Metals, Inc., et. al v. Johnson Controls Fire Protections, LP, Second Judicial District of the State of Nevada CV21-01891). The Defendant had been retained
by Aqua Metals to maintain and service a fire protection system at TRIC. Our complaint alleges that when the fire broke out, the fire protection system for which the
Defendant was responsible failed to operate properly, thus leading to fire loss that could have been avoided had the system responded properly. Our complaint alleges
Defendant’s liability for a portion of the fire loss based on Defendant’s negligence, breach of contract and other causes of action.
We are not party to any other legal proceedings. We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business.
As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with
certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows.
Item 4.
Mine Safety Disclosures
Inapplicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has traded on the NASDAQ Capital Market under the symbol “AQMS.”
Holders of Record
As of February 24, 2022, there were eight holders of record of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We presently intend to retain earnings, if any, 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 2,113,637 shares of our common stock under the plan. All of our
officers, directors, employees and consultants 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.
In 2019, our board of directors adopted the Aqua Metals, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). A total of 11,500,000 shares of common stock was
authorized for issuance pursuant to the 2019 Plan. The 2019 Plan provides for the following types of stock-based awards: incentive stock options; non-statutory stock
options; restricted stock; and performance stock. The 2019 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.
The following table sets forth the number and weighted-average exercise price of securities to be issued upon exercise of outstanding options and warrants, and the
number of securities remaining available for future issuance, under our equity compensation plan at December 31, 2021.
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-
Average Exercise
Price of
Outstanding
Options and
Warrants
5,433,587 (1) $
846,372 (2) $
4.44
4.48
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
compensation
Plans
1,668,001
(1) Includes 186,712 shares relating to outstanding options and 5,246,875 relating to restricted stock units under our stock-based compensation plans.
(2) Consists of warrants issued in connection with financing activities and 840,000 shares relating to outstanding options granted in reliance on Nasdaq Rule 5635(c)(4) .
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Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 6.
Reserved
None.
21
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Aqua Metals (NASDAQ: AQMS) is engaged in the business of equipment supply, technology licensing and related services to recyclers across the globe. Our
recycling process is a patented hydrometallurgical technology that is a novel, proprietary and patented process we developed and named AquaRefining. AquaRefining is a
room temperature, water and organic acid-based process that greatly reduces environmental emissions. The modular Aqualyzers cleanly generate ultra-pure metal one atom
at a time, closing the sustainability loop for the rapidly growing energy storage economy. Our process was originally designed for lead recycling. Lead is a globally traded
commodity with a worldwide market value in excess of $20 billion. We believe our suite of patented and patent pending AquaRefining technologies will allow the lead-acid
battery industry to simultaneously improve the environmental impact of lead recycling and scale recycling production to meet demand. Furthermore, our AquaRefining
technologies result in high purity lead. We are also applying our commercialized clean, water-based recycling technology principles to develop the cleanest and most cost-
efficient recycling solution for lithium-ion batteries. We believe our process can produce higher quality products at a lower operating cost without the damaging effects of
furnaces and greenhouse emissions. Aqua Metals estimates its total addressable market for lithium-ion battery recycling will be approximately $9 billion by 2025.
We were formed as a Delaware corporation on June 20, 2014 for the purpose of engaging in the business of recycling metals through a novel, proprietary and
patent-pending process that we developed and named “AquaRefining”. Since our formation, we have focused our efforts initially on the development and testing of our
AquaRefining process for lead acid batteries, or LAB, and advanced that process by building a demonstration plant located in the Tahoe Reno Industrial Center in
McCarran, Nevada (“TRIC”). We have also developed a business plan which focuses equipment supply services and licensing of the AquaRefining technology to recyclers
and began research and development on using the AquaRefining process on lithium-ion batteries at our Innovation Center also located at TRIC.
We completed the development of our first LAB recycling facility at TRIC, in McCarran, Nevada and commenced production of battery breaking and limited
operations during the first quarter of 2017. From April 2017 through April 2018, we commenced the shipment of products for sale, consisting of lead compounds as well as
plastics and limited production of lead bullion, including AquaRefined lead. During 2018, we commenced the sale of pure AquaRefined lead in the form of two tonne blocks
and AquaRefined lead in the form of battery manufacturing ready ingots. In November 2018, we received official vendor certification from Clarios for our AquaRefined
lead and commenced shipments directly to Clarios owned and partner battery manufacturing facilities. In 2019, we operated our demonstration AquaRefinery at commercial
quantity production levels and produced over 35,000 AquaRefined ingots by operating the AquaRefinery twenty-four hours a day and seven days a week for sustained
periods of time. The AquaRefining Aqualyzers in operation ran sustained endurance runs for over one month several times.
In order to expand the demonstration AquaRefinery to its full capacity, we chose to idle the AquaRefinery beginning in September 2019 to facilitate contracting
work required to increase the plant capacity planned for late 2019 or early 2020. On the evening of November 29, 2019, a fire occurred in the AquaRefining area of the
recycling facility at TRIC. The cause of the fire was not due to the technology or process of AquaRefining but rather to contracting activities. The Company and the
insurance carriers agreed on a total claim of $30.25 million which was paid in full by the carriers. Plant clean-up and repair of fire damaged areas began in 2021 and were
substantially completed by the end of the year.
Following the November 2019 fire, we have been engaged in the pursuit of our business strategy that is based on the pursuit of licensing opportunities within the
lead battery recycling marketplace. We believe our business strategy will require less space and less equipment and focus on the needs of our future licensees. The capital
light strategy is based on the pursuit of licensing opportunities within the battery recycling marketplace without maintaining and operating a capital-intensive
battery recycling facility. Our capital light business strategy is designed to optimize shareholder value by focusing on equipment supply and licensing opportunities, which
have always been a core part of our business plans.
During the first half of 2020, we successfully performed test runs on the first and second iterations of our Aqualyzer as part of our V1.25L program. The program
consists of three iterations that are classified as V1.25a, V1.25b and the final iteration, V1.25L. During the fourth quarter of 2020, we completed our V1.25L Aqualyzer
program on time and under budget, achieving lead production that is 100% greater compared to the V1.0 Aqualyzer deployed at the AquaRefinery during commercial
production in 2018 and 2019. In August 2021, we announced the completion of the V1.5 Aqualyzer. This latest Aqualyzer configuration has now achieved lead production
that is over 300% greater than the V1.0 Aqualyzer deployed at the AquaRefinery during commercial production in 2018 and 2019. These results are expected to positively
impact capital and operating expenses for the Company’s equipment supply and technology licensing customers. The increase in throughput results in a reduction of more
than 60% in the number of Aqualyzers needed for equivalent lead production delivered by the V1.0 model, reducing capital and labor and footprint requirements. This latest
iteration has also increased electrical efficiency to 97%, which further improves operating costs.
In February 2021, we announced a strategic investment in LINICO Corporation of up to $2 million to be paid in Aqua Metals shares and cash for a 10% ownership
in LINICO as part of our strategy to strengthen growth by potentially applying AquaRefining intellectual property to lithium-ion battery recycling while meeting our lead
recycling commercial guidance. In August 2021, we announced that we had established an Innovation Center focused on applying our proven technology to lithium-ion
battery recycling research and development and prototype system activities. Our strategic decision to apply our proven clean, closed-loop hydrometallurgical and electro-
chemical recycling experience to lithium-ion battery recycling is designed to meet the growing demand for critical metals driven by the global transition to electric vehicles,
growth in Internet data centers, and alternative energy applications including solar, wind, and grid-scale storage.
In November 2021, Aqua Metals and LINICO signed a collaboration agreement which sets the parameters for future research and development cooperation, as both
companies’ expand into lithium-ion battery recycling and advance our technologies designed to recycle lithium-ion batteries cost-effectively and sustainably. Aqua Metals
and LINICO plan to source the necessary lithium-ion feedstock from battery manufacturing scrap and end-of-life cells from various sources, including electric vehicle
battery suppliers interested in participating in the eco-network the two companies announced in 2021. LINICO will process the feedstock into high-quality black mass
utilizing its proprietary process. The resulting black mass will be used as input feedstock for Aqua Metals’ AquaRefining pilot cells intended to create high purity metals
such as nickel, cobalt, and copper as well as other compounds.
Our business model focus is on global licensing opportunities to incorporate AquaRefining in the recycling industry.
We have been engaged in the pursuit of a business strategy that is based on the pursuit of licensing opportunities within the battery recycling marketplace without
maintaining and operating a capital-intensive lead recycling facility. Our capital light business strategy is designed to optimize shareholder value by focusing on equipment
supply and licensing opportunities, which have always been a core part of our business plans. On July 29, 2021, the Company signed a Definitive Agreement with ACME
Metal Enterprise Co., Ltd. (ACME) to deploy AquaRefining equipment at its facility in Keelung, Taiwan. We believe the path of licensing our technology has the potential
to maximize shareholder value in that it could be far less capital intensive than our operation of one or more recycling facilities and could be funded in part from a
combination of cash on hand and asset dispositions.
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During the year ended December 31, 2021, we issued 2,995,430 shares of common stock pursuant to an At the Market Issuance Sales Agreement ("ATM") for net
proceeds of $10.2 million.
Results of Operations for the Fiscal Year Ended December 31, 2021 Compared to the Fiscal Year Ended December 31, 2020
During the years ended December 31, 2021 and December 31, 2020, revenue resulted from the sale of inventory consisting of lead compounds that were generated
during operation of the TRIC facility and prior to the November 2019 fire at our TRIC facility. During the years ended December 31, 2021 and December 31, 2020, product
sales consisted of lead bullion, lead compounds and plastics that were generated through the AquaRefining process. The following table summarizes results of operations
with respect to the items set forth below for the twelve months ended December 31, 2021 together with the percentage change from the twelve months ended December 31,
2020 for those items (in thousands).
Product sales
Cost of product sales
Research and development cost
General and administrative expense
Total operating expense
Year ended December 31,
2021
2020
Favorable
(Unfavorable)
%
Change
$
$
173 $
7,017
933
9,688
17,638 $
108 $
5,476
1,027
8,998
15,501 $
65
(1,541)
94
(690)
(2,137)
60%
(28)%
9%
(8)%
(14)%
Except for nominal sales of inventory, we did not generate revenue during the years ended December 31, 2021 and December 31, 2020. Plant activity during 2021
consisted of the operation and testing of our improved Aqualyzers.
Cost of product sales includes raw materials, supplies and related costs, salaries and benefits, consulting and outside services costs, depreciation and amortization
costs, insurance, travel and overhead costs. Cost of product sales increased approximately 28% for the twelve months ended December 31, 2021, as compared to the twelve
months ended December 31, 2020. Cost of product sales increased during 2021 as a result of plant clean-up costs in preparation for the lease and eventual sale of the TRIC
facility.
Research and development cost included expenditures related to the improvement of the AquaRefining technology. During the twelve months ended December 31,
2021, research and development costs decreased approximately 9% from the comparable period in 2020. Research and development is a key part of our business strategy and
includes our focus on improving the Company's proprietary technology for LAB recycling and advancing our research related to the application of AquaRefining to
recycling lithium-ion batteries.
General and administrative expense increased approximately 8% for the twelve months ended December 31, 2021 compared to the twelve months ended December
31, 2020. Increases in general and administrative expenses included changes in stock-based compensation, in addition to an increase in legal expenses and insurance
premiums.
The following table summarizes our other income and interest expense for the years ended December 31, 2021 and December 31, 2020 together with the
percentage change in those items (in thousands).
Other (expense) income
Insurance proceeds net of related expenses
Impairment expense
PPP loan forgiveness
Loss on disposal of property and equipment
Interest expense
Interest and other income
Year ended December 31,
2021
2020
Favorable
(Unfavorable)
%
Change
$
$
$
$
$
$
4,794 $
(545) $
332 $
(5,665) $
(21) $
379 $
2,946 $
(11,741) $
— $
— $
(1,620) $
48 $
1,848
11,196
332
(5,665)
1,599
331
63%
95%
n/a
n/a
(99)%
690%
Insurance proceeds net of related expenses resulted from collection and payment activity that began in 2020 following the November 2019 fire. The change from
period to period is due to the timing of insurance payments and associated fire clean-up expenses. Both of the Company's two PPP loans totaling $332,000 received in
May 2020 have been forgiven. One of the PPP loans for $131,000 was forgiven in January 2021 and the second PPP loan for $201,000 was forgiven in May 2021. In
conjunction with our year-end accounting, we recognized a non-cash impairment charge for the years ended December 31, 2021 and December 31, 2020 of $0.5 million and
$11.7 million, respectively, subsequent to an analysis of our fixed assets and a write down to fair market values. We recognized a loss on the sale of assets held for sale of
approximately $1.4 million during the year ended December 31, 2021 as the result of disposals completed in conjunction with the plant clean-up. In addition, we recognized
a loss on the sale of assets of $3.5 million recognized in conjunction with the accounting for the lease to purchase arrangement for the Company's McCarran, Nevada facility.
The loss on sale of assets held for sale also included $0.7 million resulting from the sale of a battery breaker and related equipment. We recognized interest expense of
$21,000 for the year ended December 31, 2021, compared to $1.6 million for the comparable period of 2020. The decrease in interest expense from the prior year is due to
the retirement of the Veritex loan during the fourth quarter of 2020 and being debt free since that time. We recognized $379,000 in interest and other income during the year
ended December 31, 2021. This compares to interest and other income of $48,000 for the year ended December 31, 2020. The primary driver of the increase in interest and
other income was due to the payments received for scrap material salvaged during the plant clean-up process and payments for electricity credits.
Liquidity and Capital Resources
As of December 31, 2021, we had total assets of $33.3 million and working capital of $8.4 million.
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The following table summarizes our cash provided by (used in) operating, investing and financing activities (in thousands):
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Net cash used in operating activities
Year ended December 31,
2020
2021
$
$
$
(7,615) $
(2,228) $
11,447 $
(11,029)
6,633
3,354
Net cash used in operating activities for the years ended December 31, 2021 and December 31, 2020 was $7.6 million and $11.0 million, respectively. Net cash
used in operating activities during each of these periods consisted primarily of our net loss adjusted for noncash items such as depreciation, amortization, and stock-based
compensation charges as well as net changes in working capital. During the year ended December 31, 2021, we recognized a $5.7 million loss on disposal of property and
equipment. During the year ended December 31, 2021, we recognized $0.5 million expense for impairment on assets held for sale. During the year ended December 31,
2020, we recognized an $11.7 million expense for impairment on fixed assets and $0.5 million for the elimination of our asset retirement obligation.
Net cash provided by (used in) investing activities
Net cash used in investing activities for the year ended December 31, 2021 was $2.2 million compared to net cash provided by investing activities of $6.6 million
for the year ended December 31, 2020. Net cash in investing activities during each of these periods consists primarily of purchases of fixed assets and insurance proceeds
received respectively.
Net cash provided by financing activities
Net cash provided by financing activities for the year ended December 31, 2021 consisted of $10.2 million net proceeds from ATM shares sales. Net cash provided
by financing activities for the year ended December 31, 2020 consisted of $3.7 million in net proceeds from ATM share sales.
As of December 31, 2021, we had total cash of $8.1 million and working capital of $8.4 million. As of the date of this report, we believe that we may require
additional capital in order to fund our current level of ongoing costs over the next twelve months and move forward with our current business strategy. There can be no
assurance that we will be able to acquire the necessary funding on commercially reasonable terms or at all. We intend to seek funds through the possible sale of equipment,
lease revenue, licensing revenue and collection on the sale of the building. However, there can be no assurance that such funds will be available. If needed, we may seek
funding through the sale of equity or debt financing. Funding that includes the sale of our equity may be dilutive. 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.
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Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts 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 estimated asset
retirement obligations, the determination of stock option expense, and the determination of the fair value of stock warrants issued. Our actual results could differ from these
estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K, we believe that the following accounting policies are the most critical to assist stockholders and investors reading the consolidated financial statements in fully
understanding and evaluating our financial condition and results of operations.
Accounts receivable
We have historically sold our products to large well-established companies and extend credit without requiring collateral, based on an ongoing evaluation of the
customer’s business prospects and financial condition. In the event that payment of a customer’s account receivable is doubtful, we would reserve the receivable under an
allowance for doubtful accounts.
Inventory
Inventory is stated at the lower of cost or net realizable value. Inventory cost is recorded on a first-in, first-out basis using the weighted average method. Net
realizable value is determined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
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. We periodically
evaluate our property and equipment assets for indications that the carrying amount of an asset may not be recoverable. At December 31, 2021, management compared the
carrying value of the assets held for sale against current fair market values. We determined the carrying value needed to be reduced to align with current fair market values.
We recognized a $0.5 million impairment of assets held for sale during 2021. At December 31, 2020, management reviewed the remaining estimated lives of our 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. We evaluate the need to record impairment during each reporting period. We determined that the remaining useful lives of the equipment has decreased
due to our focus on a capital light strategy. We recognized a $11.7 million impairment during 2020. The impairment expense included a write-down of $7.7 million to
equipment under construction that was not yet capitalized. In addition, certain other equipment was written down by $4.0 million to fair values, resulting in the acceleration
to depreciation for identified assets.
Intangible and other long-lived assets
The intangible assets consist of a patent application contributed to us by five founding stockholders, patent applications for technology developed by us and
trademark applications. The useful life of the intangible assets has been determined to be ten years and the assets are being amortized. We periodically evaluate our
intangible and other long-lived assets for indications that the carrying amount of an asset may not be recoverable. In reviewing for impairment, we compare 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, we routinely review the remaining estimated lives of our 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. We evaluate the need to record
impairment during each reporting period. No impairment has been recorded. We determined that the estimated life of the intellectual property properly reflected the current
remaining economic life of the asset.
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Revenue recognition
The Company records revenue recognition in accordance with ASC 606, Revenue from Contracts with Customers. ASC 606 provides a single comprehensive
model for the recognition of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of
contract(s), which includes (1) identifying the contract(s) with the customer, (2) identifying the separate performance obligations in the contract, (3) determining the
transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. ASC
606 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and
quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a
contract.
Insurance proceeds
On November 29, 2019, there was a fire in the Aqua Refining area of the TRIC facility. The Company recorded an insurance proceeds receivable balance of
$19.9 million during the fourth quarter of 2019, which was limited by GAAP accounting standards to the net book value of assets written off as a result of the fire. The
insurance proceeds receivable balance has been reduced to zero as insurance payments have exceeded the total established insurance proceeds receivable amount. Any
amounts received in excess of that total are reported as other income. As of December 31, 2021, the Company has received $30.25 million in insurance payments as a result
of the fire damage. The Company does not expect any additional insurance payments related to this matter.
Research and development
Research and development expenditures are expensed as incurred.
Income taxes
We account 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. We established 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.
We recognize 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.
Stock-based compensation
We recognize compensation expense for stock-based compensation in accordance with ASC 718 “Compensation – Stock Compensation.” For employee stock-
based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes-Merton method for stock options; the expense is recognized over the
service period for awards to vest.
The estimation of stock-based awards that will ultimately vest requires judgment and to the extent actual results or updated estimates differ from the original
estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected
forfeitures, including types of awards, employee class and historical experience.
Recent accounting pronouncements
See discussion of recent accounting pronouncements in Note 2 of the Consolidated Financial Statements located in Item 8 in this Annual Report.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2021 and the effect such obligations are expected to have on our liquidity and cash
flow in the future years (in thousands):
Operating leases
Finance leases
Operating lease obligations
Total
Less than
1 year
1 to 3
years
3 to 5
years
More than
5 years
$
$
593
174
767
$
$
357 $
61
418 $
236 $
113
349 $
— $
—
— $
—
—
—
We currently have three operating leases for real estate. We lease our Reno and McCarran, Nevada and Alameda, California spaces under non-cancelable operating leases.
The Reno, Nevada lease expires in 2024 and the Alameda, California lease will expire in May of 2022. On February 4, 2019, we entered into a sublease agreement effective
as of February 1, 2019 for the Alameda, California facility. The term of the sublease commenced on February 4, 2019, and ends on May 31, 2022, in conjunction with
our master lease. Subsequent to year end, the lease on Alameda, California facility was terminated. The initial lease term for our mixed office and warehouse space in
McCarran, Nevada expired on December 31, 2021. We elected to exercise our first extension option provided for in the McCarran, Nevada lease agreement, which
extended the current term of the lease to December 31, 2024.
Finance lease obligation
We currently maintain two finance leases for equipment. In November, we entered into a finance lease for a modular laboratory which expires in October of 2024. Our
second finance lease is for warehouse equipment.
Notes payable
We do not have a current notes payable balance. The notes payable balance for year ended December 31, 2020 is related to Payment Protection Program (PPP) loans. See
Note 13 in the accompanying notes to the consolidated financial statements for additional information.
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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We do not enter into financial instruments for trading or speculative purposes. Our cash, cash equivalents and restricted cash balances as of December 31, 2021
consisted of cash and cash equivalents. During 2020, our primary exposure to market risk was interest expense related to our debt with Veritex Bank. The interest rate on this
loan was adjusted on the first day of each calendar quarter equal to the 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 by the Wall Street Journal. However, we paid off the entire amount due to Veritex in December 2020
and no longer are exposed to this risk. We experience market risk with respect to the volatility of lead commodity prices. The purchase price of our primary raw material
used lead acid batteries (used LABs), and the sales price of our lead-based finished products are based on commodity pricing. Due to the relatively short turnaround between
the purchase of used LABs and the sale of our finished goods, we believe the risk is minimized.
28
Table of Contents
Item 8.
Financial Statements and Supplementary Data
Index To Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 32)
Consolidated Balance Sheets at December 31, 2021 and December 31, 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and December 31, 2020
Consolidated Statements of Changes In Stockholders’ Equity for the years ended December 31, 2021 and December 31, 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and December 31, 2020
Notes to Consolidated Financial Statements
29
Page
30
32
33
34
35
37
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Aqua Metals, Inc. and Subsidiaries:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Aqua Metals, Inc. and Subsidiaries (collectively the "Company") as of December 31, 2021 and 2020, the
related consolidated statements of operations, stockholders' equity and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to
be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved especially
challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures
to which it relates.
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Table of Contents
Valuation of Assets Held for Sale — Refer to Note 6 to the Consolidated Financial Statements
Critical Audit Matter Description
As described in Note 6 to the consolidated financial statements, the Company has classified assets as held for sale due to the assets being identified and marketed for sale in
their present condition, management committing to their disposal, and the sale of the assets is probable within a year. As of December 31, 2021, these assets have a value of
$2.6 million.
Given these factors and assumptions, the related audit effort to evaluate management's valuation of assets held for sale was extensive and required a high degree of auditor
judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company's property and equipment impairment methodology included the following:
● We obtained the Company's valuation report, selected a sample of assets held for sale and utilized specialists to perform the following procedures:
o
o
o
Evaluated the reasonableness of the assumptions, data, methodology and models used in the valuation report.
Performed corroborative calculations for the various analyses, confirming that the methodologies, inputs and calculations appeared accurate.
Performed appropriate mathematical checks and benchmarking analyses related to the assumptions, data, methodology and models used in the
valuation report.
● We assessed any changes in valuation of assets held for sale since the date of the valuation report by performing the following procedures:
o Obtained any sales agreements and support for assets sold subsequent to year end.
o
Evaluated other evidence and economic circumstances related to the asset types.
We have served as the Company's auditor since 2014.
February 24, 2022
/s/ ArmaninoLLP
San Ramon, California
31
Table of Contents
Current assets
Cash and cash equivalents
Accounts receivable
Lease receivable, current portion
Inventory
Assets held for sale
Prepaid expenses and other current assets
Total current assets
Non-current assets
Property and equipment, net
Intellectual property, net
Investment in LINICO
Lease receivable, non-current portion
Other assets
Total non-current assets
Total assets
AQUA METALS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
ASSETS
December 31,
2021
December 31,
2020
$
$
$
8,137 $
269
920
123
2,633
356
12,438
2,367
640
1,500
15,528
796
20,831
33,269 $
685 $
3,005
388
—
4,078
1,328
330
—
5,736
70
211,309
(183,846)
27,533
6,533
32
—
1,091
—
702
8,358
24,883
819
—
—
1,078
26,780
35,138
1,552
1,253
620
29
3,454
—
242
303
3,999
64
196,728
(165,653)
31,139
35,138
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued expenses
Lease liability, current portion
Notes payable, current portion
Total current liabilities
Building purchase deposit
Lease liability, non-current portion
Notes payable, non-current portion
Total liabilities
Commitments and contingencies
Stockholders’ equity
Common stock; $0.001 par value; 100,000,000 shares authorized; 70,416,552 and 64,461,065 shares issued and
outstanding as of December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
33,269 $
The accompanying notes are an integral part of these consolidated financial statements.
32
AQUA METALS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Table of Contents
Product sales
Operating cost and expense
Cost of product sales
Research and development cost
General and administrative expense
Total operating expense
Loss from operations
Other income and expense
Insurance proceeds net of related expenses
Impairment expense
PPP loan forgiveness
Loss on disposal of property and equipment
Interest expense
Interest and other income
Total other expense, net
Loss before income tax expense
Income tax expense
Net loss
Weighted average shares outstanding, basic and diluted
Basic and diluted net loss per share
Year ended December 31,
2020
2021
$
173 $
108
7,017
933
9,688
17,638
5,476
1,027
8,998
15,501
(17,465)
(15,393)
4,794
(545)
332
(5,665)
(21)
379
(726)
2,946
(11,741)
—
—
(1,620)
48
(10,367)
(18,191)
(25,760)
(2)
(2)
(18,193) $
(25,762)
70,002,180
60,861,450
(0.26) $
(0.42)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
33
Table of Contents
AQUA METALS, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
Common Stock
Shares
Amount
Additional Paid-
in Capital
Accumulated
Deficit
Total
Stockholders'
Equity (Deficit)
December 31, 2019
57,997,780
$
58
$
189,422
$
(139,891) $
49,589
Stock-based compensation
Common stock issued upon RSU vesting
Common stock issued for consulting services
Common stock issued for ATM share sales, net of $216 transaction costs
Net loss
—
3,178,337
67,522
3,217,426
—
—
3
—
3
—
3,569
—
64
3,673
—
—
—
—
—
(25,762)
3,569
3
64
3,676
(25,762)
Balances, December 31, 2020
64,461,065
$
64
$
196,728
$
(165,653) $
31,139
Stock-based compensation
Common stock issued upon RSU vesting
Common stock issued upon exercise of employee stock options
Common stock issued upon warrant exercise
Common stock issued for consulting services
Common stock issued for ATM share sales, net of $339 transaction costs
Common stock issued related to LINICO investment
Net loss
—
2,114,396
347,901
65,590
57,170
2,995,430
375,000
—
—
2
—
—
—
3
1
—
2,199
—
727
—
225
10,163
1,267
—
—
—
—
—
—
—
—
(18,193)
2,199
2
727
—
225
10,166
1,268
(18,193)
Balances, December 31, 2021
70,416,552
$
70
$
211,309
$
(183,846) $
27,533
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
AQUA METALS, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net loss
Reconciliation of net loss to net cash used in operating activities
Depreciation
Amortization of intellectual property
Accretion of asset retirement obligation
Fair value of common stock issued for consulting services
Stock-based compensation
Amortization of deferred financing costs
Inventory NRV adjustment
Loss on disposal of property and equipment
Forgiveness of PPP loan
Impairment of equipment
Retirement of asset retirement obligation
Changes in operating assets and liabilities
Accounts receivable
Inventory
Prepaid expenses and other current assets
Accounts payable
Accrued expenses
Other assets and liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of equipment
Equipment deposits and other assets
Insurance proceeds
Investment in LINICO
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from PPP loan
Payments on notes payable
Lease of building
Proceeds from exercise of stock options
Proceeds from ATM, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Year ended December 31,
2020
2021
$
(18,193) $
(25,762)
1,140
180
—
225
2,201
—
146
5,665
(332)
545
—
(237)
822
345
8
378
(508)
(7,615)
(2,350)
275
79
—
(232)
(2,228)
—
—
553
728
10,166
11,447
1,604
6,533
8,137 $
2,231
180
45
64
3,572
607
—
90
—
11,741
521
212
166
280
(2,000)
(2,448)
(528)
(11,029)
(3,363)
162
(4)
9,838
—
6,633
332
(654)
—
—
3,676
3,354
(1,042)
7,575
6,533
35
$
Table of Contents
AQUA METALS, INC.
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes
Non-cash financing activities
Fair value of common stock issued to consultants
Supplemental disclosure of non-cash transactions
Change in property and equipment resulting from change in accounts payable
Change in property and equipment resulting from change in accrued expenses
Change in equity resulting from change in accrued expenses
Change in investing activity resulting from issuance of equity
Change in other assets to extinguish notes payable
Change in insurance proceeds receivable resulting from insurance funds held in escrow
Year ended December 31,
2020
2021
21 $
2 $
1,044
2
91 $
64
875 $
— $
— $
(1,268) $
— $
— $
1,280
431
24
—
8,653
7,938
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
36
Table of Contents
1. Organization and Operations
AQUA METALS, INC.
Notes to Consolidated Financial Statements
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. (collectively, the “Subsidiaries”), both incorporated in Delaware. The
Company is engaged in the business of equipment supply, technology licensing and related services for recycling lead through a novel, proprietary and patented process the
Company developed and named AquaRefining™. Prior to November 29, 2019, the Company was engaged in the business of lead recycling through its patented and patent
pending AquaRefining technology. Following a fire at its lead recycling facility on November 29, 2019, the Company's business model has transitioned to a focus on global
licensing opportunities to incorporate AquaRefining in the recycling industry.
Unlike smelting, AquaRefining is a room temperature, water-based process that emits less pollution than smelting, the traditional method of lead recycling. The Company
built its recycling facility in Nevada’s Tahoe Reno Industrial Center (“TRIC”) in McCarran, Nevada. The Company commenced the shipment of products for sale,
consisting of lead compounds and plastics in April 2017, and through March 31, 2018 substantially all revenue was derived from the sale of lead compounds and plastics. In
April 2018, the Company commenced the limited production of lead bullion, including AquaRefined lead. In July 2018, the Company commenced the sale of pure
AquaRefined lead in the form of two tonne blocks and in October 2018, the Company commenced the sale of AquaRefined lead in the form of battery manufacturing ready
ingots. In November 2018, the Company received official vendor certification from Clarios for its AquaRefined lead and, in December 2018, the Company commenced
shipments directly to Clarios owned and partner battery manufacturing facilities. In 2019, the Company operated its demonstration AquaRefinery at commercial quantity
production levels and produced over 35,000 AquaRefined ingots by operating the AquaRefinery 24 hours a day and seven days a week for sustained periods of time. The
AquaRefining Aqualyzers produced at or above the target 100 Kg/Hr of production throughput per module of six Aqualyzers or ~ 16-17 Kg/Hr per Aqualyzer and ran
sustained endurance runs for over one month several times.
During the first half of 2020, we successfully performed test runs on the first and second iterations of our Aqualyzer as part of our V1.25L program. The program consists of
three iterations that are classified as V1.25a, V1.25b and the final iteration, V1.25L. During the fourth quarter of 2020, we completed our V1.25L Aqualyzer program on time
and under budget, achieving lead production that is 100% greater compared to the V1.0 Aqualyzer deployed at the AquaRefinery during commercial production in 2018 and
2019. In August 2021, we announced the completion of the V1.5 Aqualyzer. This latest Aqualyzer configuration has now achieved lead production that is over 300% greater
than the V1.0 Aqualyzer deployed at the AquaRefinery during commercial production in 2018 and 2019. These results are expected to positively impact capital and
operating expenses for the Company’s equipment supply and technology licensing customers. The increase in throughput results in a reduction of more than 60% in the
number of Aqualyzers needed for equivalent lead production delivered by the V1.0 model, reducing capital and labor and footprint requirements. This latest iteration has
also increased electrical efficiency to 97%, which further improves operating costs.
In February 2021, we announced a strategic investment in LINICO Corporation of up to $2 million to be paid in Aqua Metals shares and cash for a 10% ownership in
LINICO as part of our strategy to strengthen growth by potentially applying AquaRefining intellectual property to lithium-ion battery recycling while meeting our lead
recycling commercial guidance. In August 2021, we announced that we had established an Innovation Center focused on applying our proven technology to lithium-ion
battery recycling research and development and prototype system activities. Our strategic decision to apply our proven clean, closed-loop hydrometallurgical and electro-
chemical recycling experience to lithium-ion battery recycling is designed to meet the growing demand for critical metals driven by the global transition to electric vehicles,
growth in Internet data centers, and alternative energy applications including solar, wind, and grid-scale storage.
I n November 2021, Aqua Metals and LINICO signed a collaboration agreement which sets the parameters for future research and development cooperation, as both
companies’ expand into lithium-ion battery recycling and advance our technologies designed to recycle lithium-ion batteries cost-effectively and sustainably. Aqua Metals
and LINICO plan to source the necessary lithium-ion feedstock from battery manufacturing scrap and end-of-life cells from various sources, including electric vehicle
battery suppliers interested in participating in the eco-network the two companies announced in 2021. LINICO will process the feedstock into high-quality black mass
utilizing its proprietary process. The resulting black mass will be used as input feedstock for Aqua Metals’ AquaRefining pilot cells intended to create high purity metals
such as nickel, cobalt, and copper as well as other compounds.
Our business model focus is on global licensing opportunities to incorporate AquaRefining in the recycling industry.
We have been engaged in the pursuit of our business strategy that is based on the pursuit of licensing opportunities within the battery recycling marketplace without
maintaining and operating a capital-intensive lead recycling facility. Our capital light business strategy is designed to optimize shareholder value by focusing on equipment
supply and licensing opportunities, which have always been a core part of our business plans. On July 29, 2021, the Company signed a Definitive Agreement with ACME
Metal Enterprise Co., Ltd. (ACME) to deploy AquaRefining equipment at its facility in Keelung, Taiwan. We believe the path of licensing our technology has the potential
to maximize shareholder value in that it could be far less capital intensive than our operation of one or more recycling facilities and could be funded in part from a
combination of cash on hand and asset dispositions.
Liquidity and Management Plans
The Company generated revenues of $0.2 million and $0.1 million during the years ended December 31, 2021 and December 31, 2020, respectively. The Company had net
losses of $18.2 million and $25.8 million for the years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, the Company’s cash
balance was $8.1 million. As of the date of this report, the Company believes it may require additional capital, in order to fund its current level of ongoing costs over the
next twelve months and move forward with its licensing strategy.
2.
Summary of Significant Accounting Policies
Basis of presentation and consolidation
The accompanying consolidated financial statements include those of Aqua Metals, Inc. and its subsidiaries, after elimination of all intercompany accounts and transactions.
The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).
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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, valuation allowances
for deferred tax assets, the determination of fair value of estimated asset retirement obligations, 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.
Accounts receivable
The Company has traditionally sold its products to large well-established companies and extends credit without requiring collateral, based on an ongoing evaluation of the
customer’s business prospects and financial condition. In the event that payment of a customer’s account receivable is doubtful, the Company would reserve the receivable
under an allowance for doubtful accounts. As of December 31, 2021, the Company had a trade accounts receivable balance of $17,000 and has not created a reserve for
doubtful accounts. The total accounts receivable balance as of December 31, 2021 and December 31, 2020 consisted of proceeds from the sale of equipment and from the
sale or return of inventory.
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost is recorded on a first-in, first-out basis using the weighted average method. Net realizable value is
determined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company
records a write-down, if necessary, to reduce the carrying value of inventory to its net realizable value. The effect of these write-downs is to establish a new cost basis in the
related inventory, which is not subsequently written up.
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.
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. We periodically evaluate our
property and equipment assets for indications that the carrying amount of an asset may not be recoverable. At December 31, 2021, management compared the carrying value
of the assets held for sale against current fair market values. We determined the carrying value needed to be reduced to align with current fair market values. We recognized
a $0.5 million impairment of assets held for sale during the period. At December 31, 2020, management reviewed the remaining estimated lives of our 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. We evaluate the need to record impairment during each reporting period. We determined that the remaining useful lives of the equipment had decreased
due to our focus on a capital light strategy. We recognized a $ 11.7 million impairment during the period ended December 31, 2020. The impairment expense included a
write-down of $7.7 million to equipment under construction that was not yet capitalized. In addition, certain other equipment was written down by $4.0 million to fair
values, resulting in the acceleration to depreciation for identified assets.
Intangible and other long-lived assets
Intangible assets consist of patent applications contributed to the Company by five founding stockholders and patent applications for technology developed by the Company.
The useful life of this intellectual property has been determined to be ten years and the assets are being amortized straight-line over this period. 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. As of December 31, 2021, the Company determined that the estimated life of the intellectual property
properly reflected the current remaining economic life of the asset.
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Revenue recognition
The Company records revenue in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. ASC 606 provides a single
comprehensive model for the recognition of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-
specific guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when
considering the terms of contract(s), which includes (1) identifying the contract(s) with the customer, (2) identifying the separate performance obligations in the contract, (3)
determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is
satisfied. ASC 606 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain
or fulfill a contract.
Revenue is generally recognized with the delivery of the Company’s products, primarily hard lead, lead compounds and plastics, to customers. Sales, value add, and other
taxes, if any, that are collected concurrent with revenue-producing activities are excluded from revenue as they are subsequently remitted to governmental authorities.
Incidental items that are immaterial in the context of the contract are recognized as expense. Freight and shipping costs related to the transfer of the Company’s products to
customers are included in revenue and cost of product sales. Payment on invoices is generally due within 30 days of the invoice.
Arrangements with Multiple Performance Obligations
Contracts with customers may include multiple performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the
customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the
performance obligation is satisfied. The Company expects that many of our contracts will have a single performance obligation as the promise to transfer the individual
goods or services will not be separately identifiable from other promises in the contracts and therefore, not distinct. For contracts with multiple performance obligations,
revenue will be allocated to each performance obligation based on the Company’s best estimate of the standalone selling price of each distinct good or service in the
contract. The primary method used to estimate standalone selling prices is based on prices charged separately to customers or expected cost-plus margin. At present, the
Company does not have any arrangements with multiple performance obligations.
Significant Judgments
The Company estimates variable consideration for arrangements where the transaction price is not fully determinable until the completion of yield testing. The Company
estimates variable consideration at the most likely amount to which it expects to be entitled and includes estimated amounts in revenue to the extent it is probable that a
significant reversal of revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Adjustments to revenue is recognized in
the period when the uncertainty is resolved. To date, any adjustments to estimates have not been material.
Practical Expedients and Exemptions
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for
which we recognize revenue at the amount to which we have the right to invoice for services performed.
Insurance proceeds
On November 29, 2019, there was a fire in the Aqua Refining area of the TRIC facility. As of December 31, 2021, the Company had received a total of $30.25 million in
insurance payments as a result of the fire damage. Insurance proceeds of approximately $6.9 million collected during the year ended December 31, 2021, were recorded as
other income and netted against related expenses. The Company does not expect any additional insurance payments as a result of the 2019 fire.
Research and development
Research and development expenditures are expensed as incurred.
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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.
Fair value measurements
The carrying amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, 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, and lease liabilities also approximates
fair value since these instruments bear market rates of interest or are calculated using 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 fair 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.
There are no assets or liabilities that are measured at fair value on a recurring basis at December 31, 2021 or December 31, 2020.
Stock-based compensation
The Company recognizes compensation expense for stock-based compensation in accordance with ASC 718 “Compensation – Stock Compensation.” For employee stock-
based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes-Merton method for stock options; the expense is recognized
over the service period for awards to vest.
The estimation of stock-based awards that will ultimately vest requires judgment and to the extent actual results or updated estimates differ from the original estimates, such
amounts are recorded as a cumulative adjustment in the period estimates are revised.
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Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted average number of vested shares outstanding during the period. Diluted net loss per share is
computed by giving effect to all potential dilutive common securities, including convertible notes, options and warrants. Potential dilutive common shares include the
dilutive effect of the common stock underlying in-the-money stock options and is calculated based on the average share price for each period using the treasury stock
method. Under the treasury stock method, the exercise price of an option and the average amount of compensation cost, if any, for future services that the Company has not
yet recognized when the option is exercised, are assumed to be used to repurchase shares in the current period.
For all periods presented in this report, convertible notes, stock options, and warrants were not included in the computation of diluted net loss per share because such
inclusion would have had an antidilutive effect.
Excluded potentially dilutive securities (1):
Options to purchase common stock
Unvested restricted stock
Financing warrants to purchase common stock
Total potential dilutive securities
Year Ended December 31,
2020
2021
1,026,712
5,246,875
6,372
6,279,959
1,387,673
5,624,166
103,500
7,115,339
(1) The number of shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the period end. Such amounts have not
been adjusted for the treasury stock method or weighted average outstanding calculations as required if the securities were dilutive.
Segment and Geographic Information
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed
by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in
one operating segment, and the Company operates in only one geographic segment.
Concentration of Credit Risk
The Company generated revenue of $173,000 for the year ended December 31, 2021, all for the sale of inventory to P. Kay Metals. Revenue for the year ended December
31, 2020 totaled $108,000, for the sale of inventory. Revenue from P. Kay Metals and Clarios (successor of Johnson Controls Battery Group, Inc.) represented 84% and
16%, respectively, of total revenue for the year ended December 31, 2020. The Company's trade accounts receivable balance was $17,000 as of December 31, 2021. The
Company did not have a trade receivable balance as of December 31, 2020. The accounts receivable balance on the Company's consolidated balance sheets as of December
31, 2021 and December 31, 2020, consisted of proceeds from the sale of equipment and from the return or sale of inventory.
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Recent accounting pronouncements
There were no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2021 that are of significance or potential
significance to the Company.
3.
Revenue recognition
The Company has historically generated revenues by recycling lead acid batteries (“LABs”) and selling the recovered lead to its customers. Primary components of the
recycling process include sales of recycled lead consisting of lead compounds, ingoted hard lead and ingoted AquaRefined lead as well as plastics. The Company
commenced the shipment of products for sale, consisting of lead compounds and plastics, in April 2017, and through March 31, 2018, all revenue was derived from the sale
of lead compounds and plastics. In April 2018, the Company began shipping lead bullion in addition to lead compounds and plastics. In June 2018, the Company began
shipping high purity lead from its AquaRefining process.
The Company was not in commercial production in 2021. The nominal revenue generated during the years ended December 31, 2021 and December 31, 2020, resulted from
the sale of inventory. Revenue from products transferred to customers at a single point in time with the delivery of the Company’s products to customers accounted for 100%
of our revenue during the years ended December 31, 2021 and December 31, 2020.
4.
Lease Receivable
The Company has entered into an Industrial Lease Agreement with LINICO Corporation, a Nevada corporation, or ("LINICO"), dated February 15, 2021 pursuant to which
the Company has leased to LINICO the 136,750 square foot recycling facility at TRIC. The lease commenced April 1, 2021 and expires on March 31, 2023. During the
lease term, LINICO has the option to purchase the land and facilities at a purchase price of $14.25 million if the option is exercised and the sale is completed by October 1,
2022 and $15.25 million if the option is exercised and the sale is completed after October 1, 2022 and prior to March 31, 2023. The purchase option is subject to LINICO’s
payment of a nonrefundable deposit of $1.25 million, which was paid on October 15, 2021, and a second nonrefundable deposit of $2.0 million by November 22, 2022, both
of which will be applied towards the purchase price. The lease agreement is a triple-net lease pursuant to which LINICO is responsible for all fixed costs, including
maintenance, utilities, insurance, and property taxes. The lease agreement provides for LINICO’s monthly lease payments starting at $ 68,000 per month and increasing to
$100,640 in the last six months of the lease.
With respect to the portion of the facility that was damaged in the November 2019 fire, consisting of approximately 30,000 square feet, the Company was obligated to
complete the clean-up of the damaged area, at the Company's expense and repair all damage to the damaged area, at the Company's expense. Repairs and clean up were
substantially completed by the end of 2021. With regard to the equipment on-site at TRIC, the Company granted LINICO the right of first offer to purchase any equipment
the Company offers for sale. The lease agreement contains customary representations, warranties and indemnities on the part of both parties. Subsequent to year end,
LINICO purchased approximately $0.8 million of equipment.
The Company accounted for the Industrial Lease and Option to Purchase Agreement as a sales-type lease. As a component of the accounting for the agreement, the Company
recognized the estimated fair market value of the land and plant of $17.0 million as a lease receivable, which is reflected on the Company's condensed consolidated balance
sheets. The implied interest rate of 0.5% was utilized for the amortization of the scheduled building lease/purchase payments outlined in the agreement. The Company
applies the monthly payments received as a reduction to lease receivable and interest income. The interest income recognized from the agreement is included in "Interest and
other income" on the Company's condensed consolidated statements of operations. For the year ended December 31, 2021, the Company recognized a reduction in the lease
receivable balance of approximately $553,000 and recorded $59,000 of interest income related to this agreement.
5.
Inventory, net
Inventory consisted of the following (in thousands):
Finished goods
Work in process
Raw materials
December 31,
2021
2020
$
$
28 $
9
86
123 $
2
247
842
1,091
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6.
Assets Held for Sale
Assets are classified as held for sale when, among other factors, they are identified and marketed for sale in their present condition, management is committed to their
disposal, and the sale of the asset is probable within one year. Management believes these assets are no longer necessary for the Company's future operating plans. As of
December 31, 2021, Aqua Metals had assets with a book value of $2.6 million classified as assets held for sale.
At December 31, 2021, the Company compared the carrying value of the assets held for sale against current fair market values. We determined the carrying value needed to
be reduced to align with current fair market values. We recognized a $0.5 million impairment of assets held for sale during the period.
7.
Property and equipment, net
Property and equipment, net, consisted of the following (in thousands):
Asset Class
Useful Life
(Years)
December 31,
2021
2020
Operational equipment
Lab equipment
Computer equipment
Office furniture and equipment
Land
Building
Asset retirement cost
Equipment under construction
Less: accumulated depreciation
3 - 10 $
5
3
3
—
39
20
1,539 $
530
8
91
—
—
—
1,328
3,496
(1,129)
$
2,367 $
12,126
524
222
221
1,047
19,508
—
3,597
37,245
(12,362)
24,883
Property and equipment depreciation expense was $0.6 million and $1.9 million for the years ended December 31, 2021 and December 31, 2020, respectively. Equipment
under construction is comprised of various components being manufactured or installed by the Company.
On November 29, 2019, there was a fire in the AquaRefining area of the plant. As a result of the fire, during the year ended December 31, 2020, the Company wrote off
approximately $22.4 million of fixed assets that were damaged. These assets consisted of operational equipment, building and equipment under construction. The disposal
of the fire damaged fixed assets included a decrease of accumulated depreciation of $2.5 million. The net write-off of fixed assets totaled $19.9 million. Further, during the
year ended December 31, 2020, the Company conducted a review of its fixed assets for impairment and as a result, recognized an impairment expense of $11.7 million with
respect to the write-down of equipment to fair values. The impairment expense included a write-down of $7.7 million to equipment under construction that was not yet
capitalized. In addition, certain other equipment was written down by $4.0 million to fair values, resulting in the acceleration to depreciation for identified assets.
8.
Intellectual Property
Intellectual property, net, is comprised of the following (in thousands):
Intellectual property
Accumulated amortization
Intellectual property, net
Aggregate amortization expense for both of the years ended December 31, 2021 and December 31, 2020 was $0.2 million.
43
2021
2020
$
$
1,794 $
(1,154)
640 $
1,794
(975)
819
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Estimated future amortization is as follows as of December 31, 2021 (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total estimated future amortization
9.
Investments
$
$
179
179
135
70
51
26
640
On February 15, 2021, the Company entered into a Series A Preferred Stock Purchase Agreement with LINICO Corporation, that provided for the Company's issuance of
375,000 shares (“Aqua Shares”) of the Company's common stock in consideration of LINICO’s issuance of 1,500 shares of its Series A Preferred Stock, at a stated
aggregate value of $1,500,000, along with a three-year warrant (“Series A Warrant”) to purchase an additional 500 shares of LINICO Series A Preferred Stock at an exercise
price of $1,000 per share. Subsequent to year end the Company exercised the warrant for all 500 LINICO Series A Preferred shares. The 2,000 shares of the Series A
Preferred Stock represents approximately 12% of LINICO common stock on a fully diluted basis.
The Company accounted for the LINICO investment under ASC 321, Investments-Equity Securities, using the measurement alternative of recording at cost as the
investment in LINICO doesn’t have a readily determinable fair value.
The LINICO Series A Preferred Stock is senior to all other capital stock of LINICO with regard to dividends and distributions upon liquidation, dissolution and sale of the
company. Each share of LINICO Series A Preferred Stock is entitled to one vote per share and votes with the common stock on all matters, subject to certain protective
provisions that require the approval of the holders of the Series A Preferred Stock voting as a class. The Series A Preferred Stock accrues a cumulative dividend of 8% per
annum on the original stated value of $1,000 per share, and all accrued and unpaid dividends on the Series A Preferred Stock must be paid in full prior to the payment of any
dividends on any other shares of LINICO capital stock. In the event of any liquidation or dissolution of LINICO, which would include a sale of LINICO, the holders of the
Series A Preferred Stock shall receive the return of their stated value of $1,000 per share plus all accrued and unpaid dividends prior to any distribution to the holders of any
other capital stock of LINICO, following which the holders of the Series A Preferred Stock shall participate in the distribution of any remaining assets with the holders of
the junior stock on an as-converted basis. The Series A Preferred Stock is convertible into shares of LINICO common stock at the Company's option and is automatically
converted into LINICO common stock upon the election of the holders of a majority of the LINICO Series A Preferred Stock or upon a qualifying IPO of LINICO common
stock. The Series A Preferred Stockholders are also provided with preemptive rights allowing them the right to purchase their proportional share of certain future LINICO
equity issuances.
The Series A Preferred Stock Purchase Agreement includes customary representations, warranties, and covenants by LINICO and the Company.
As LINICO’s sale of the 375,000 of Aqua Shares resulted in net proceeds to LINICO that were less than $1,500,000, the Company was required to pay LINICO the
difference of $232,000 in cash.
In connection with the investment transactions, the Company also entered into an Investors Rights Agreement and a Voting Agreement, each dated February 15, 2021,
pursuant to which LINICO granted the Company customary demand and piggyback registration rights, information rights and the right to nominate one person to the
LINICO board of directors as long as the Company is the owner of at least 10% of the LINICO common stock on a fully-diluted basis.
Comstock Mining Inc., a Nevada corporation (NYSE-MKT: LODE), is the beneficial owner of approximately 88% of the common shares of LINICO. The Company's Chief
Financial Officer, Judd Merrill, is a member of the board of directors of Comstock Mining.
10.
Other Assets
Other assets consist of the following (in thousands):
Alameda and Nevada facilities Right of Use Assets (1)
Equipment deposits (2)
Other assets
Total other assets, non-current
(1) See Footnote 12.
(2) Deposits for equipment to be acquired and utilized at the Company's Innovation Center or customer locations.
44
December 31,
2021
2020
514
217
65
796 $
716
258
104
1,078
$
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11.
Accrued liabilities
Accrued liabilities consist of the following (in thousands):
Property and equipment related
Class action settlement
Payroll related
Professional services
Other
12.
Leases
December 31,
2021
2020
$
$
2,242 $
500
180
56
27
3,005 $
715
—
479
—
59
1,253
As of December 31, 2021, the Company maintained three operating leases for real estate. The Company's operating leases have terms of 76, 42 and 37 months and include
one or more options to extend the duration of the agreements. These operating leases are included in "Other assets" on the Company's December 31, 2021 consolidated
balance sheet and represent the Company's right to use the underlying assets for the term of the leases. The Company's obligation to make lease payments are included in
"Lease liability, current portion" and "Lease liability, non-current portion" on the Company's December 31, 2021 consolidated balance sheet. The Company recognized
sublease income of $509,000 and $433,000 for the twelve months ended December 31, 2021 and December 31, 2020, respectively.
Based on the present value of the lease payments for the remaining lease term of the Company's existing operating leases, as of December 31, 2021, total right-of-use assets
were approximately $0.5 million and operating lease liabilities were approximately $0.6 million. As of December 31, 2020, total right-of-use assets were approximately $0.7
million and operating lease liabilities were approximately $0.8 million. The right-of-use assets are reported in "Other Assets" in the condensed consolidated balance sheet.
The Company currently maintain two finance leases for equipment. In November 2021, the Company entered into a finance lease for a modular laboratory which expires in
October of 2024. The second finance lease is for warehouse equipment that expires in September of 2023.
Information related to the Company's right-of-use assets and related lease liabilities were as follows (in thousands):
Cash paid for operating lease liabilities
Operating lease cost
Cash paid for finance lease liabilities
Interest expense
Weighted-average remaining lease term (Years) - operating leases
Weighted-average discount rate - operating leases
Weighted-average remaining lease term (Years) - finance leases
Weighted-average discount rate - finance leases
Maturities of lease liabilities as of December 31, 2021 were as follows (in thousands):
Due in 12-month period ended December 31,
2022
2023
2024
Less imputed interest
Total lease liabilities
Current lease liabilities
Non-current lease liabilities
45
Twelve Months Ended Twelve Months Ended
December 31, 2021 December 31, 2020
642
694 $
$
577
621 $
$
$
$
26 $
3 $
7
1
December 31, 2021
1.6
7.41%
2.3
7.52%
Operating Leases
Finance Leases
357 $
134 $
102 $
593 $
(32) $
561 $
337 $
224 $
561 $
61
68
45
174
(17)
157
51
106
157
$
$
$
$
$
$
$
$
$
Table of Contents
13.
Notes Payable
On May 7, 2020, the Company received loan proceeds in the amount of approximately $332,000 under the Paycheck Protection Program (“PPP”). The PPP, established as
part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans to qualifying businesses. The loans and accrued interest are forgivable if
the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The Company used the loan proceeds
for purposes consistent with the PPP requirements and applied for loan forgiveness. During the year ended December 31, 2021, both of the Company's two PPP loans
totaling $332,000 were forgiven.
Notes payable is comprised of the following (in thousands):
Notes payable, current portion
Paycheck Protection Program
Notes payable, non-current portion
Paycheck Protection Program
14. Stockholders’ Equity
Authorized capital
December 31,
2021
2020
$
$
$
$
— $
— $
— $
— $
29
29
303
303
The authorized capital stock of the Company consists of 100,000,000 shares of common stock, par value $0.001 per share. In the event of liquidation of the Company,
dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common
stock are fully paid and non-assessable.
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.
46
Table of Contents
Other shares issued
During the year ended December 31, 2020, the Company issued 691,820 shares of common stock upon vesting of Restricted Stock Units ("RSUs") granted by the Company.
During the year ended December 31, 2020, the Company issued 1,776,680 shares of common stock granted to Company employees.
During the year ended December 31, 2020, the Company issued 356,492 shares of common stock upon vesting of RSUs granted to Board members.
During the year ended December 31, 2020, the Company issued 347,892 shares of common stock to a prior Company executive to fulfill obligations related to a separation
agreement.
During the year ended December 31, 2020, the Company issued 67,522 shares of common stock to a consultant to fulfill obligations related to a consulting agreement.
During the year ended December 31, 2020, the Company issued 5,453 shares of common stock pursuant to the Officers and Directors Purchase Plan for proceeds of $5,750.
During the year ended December 31, 2020, the Company issued 3,217,426 shares of common stock pursuant to the At The Market Issuance Sales Agreement for net
proceeds of $3.7 million.
During the year ended December 31, 2021, the Company issued 2,005,258 shares of common stock upon vesting of RSUs granted by the Company to management and
employees.
During the year ended December 31, 2021, the Company issued, when the five-day average of closing prices for the Company’s common stock was $3.95 per
share, 5,371 shares of the Company’s common stock pursuant to a cashless exercise of a warrant for 10,350 shares of the Company’s common stock with an exercise price
of $1.90 per share.
During the year ended December 31, 2021, the Company issued, when the five-day average of closing prices for the Company’s common stock was $6.20 per
share, 60,219 shares of the Company’s common stock pursuant to a cashless exercise of a warrant for 86,778 shares of the Company’s common stock with an exercise price
of $1.90 per share.
During the year ended December 31, 2021, the Company issued 109,138 shares of common stock upon vesting of RSUs granted to Board members.
During the year ended December 31, 2021, the Company issued 57,170 shares of common stock to a consultant to fulfill obligations related to a consulting agreement.
During the year ended December 31, 2021, the Company issued 375,000 shares of common stock pursuant to the Series A Preferred Stock Purchase Agreement, with
LINICO, dated February 15, 2021.
During the year ended December 31, 2021, the Company issued 347,901 shares of common stock upon stock option exercises.
During the year ended December 31, 2021, the Company issued 2,995,430 shares of common stock pursuant to the At The Market Issuance Sales Agreement for net
proceeds of $10.2 million.
47
Table of Contents
Warrants outstanding
Warrants outstanding to purchase shares of the Company’s common stock at a weighted average exercise price of $1.90 per share are as follows.
Exercise Price per Share
Expiration Date
Shares Subject to Purchase
at December 31, 2021
$
1.90
1/22/2024
6,372
Stock-based compensation
In 2014, the Board of Directors adopted the Company’s stock incentive plan (the “2014 Plan”). The 2014 Plan was most recently amended and restated effective as of the
Company’s 2017 Annual Stockholders’ Meeting. A total of 2,113,637 shares of common stock was authorized for issuance pursuant to the 2014 Plan at the time of its most
recent amendment and restatement in 2017. 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.
In 2019, the Board of Directors adopted the Company’s stock incentive plan (the “2019 Plan”). The 2019 Plan was most recently amended and restated effective as of the
Company’s 2020 Annual Stockholders’ Meeting. A total of 11,500,000 shares of common stock was authorized for issuance pursuant to the 2019 Plan. The 2019 Plan
provides for the following types of stock-based awards: incentive stock options; non-statutory stock options; restricted stock; and performance stock. The 2019 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.
Stock-based compensation expense recorded was allocated as follows (in thousands):
Cost of product sales
Research and development cost
General and administrative expense
Total
48
Year ended December 31,
2020
2021
$
$
73 $
77
2,051
2,201 $
90
183
3,296
3,569
Table of Contents
The risk-free interest rate assumption was based on the United States Treasury’s zero-coupon bonds with maturities similar to those of the expected term of the award being
valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted-average expected life of the
options was calculated using the simplified method as prescribed by the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 107 and No. 110
(“SAB No. 107 and 110”). This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the
Company’s limited historical data, the estimated volatility also reflects the application of SAB No. 107 and 110, using the weighted average of the Company’s historical
volatility and the historical volatility of several unrelated public companies within the recycling industry. Forfeitures are recognized as they occur.
The following table summarizes the stock-based compensation plan activity and related information through December 31, 2021.
Balance at December 31, 2019
Authorized
Granted
Exercised/ Released
Forfeited
Issued to fulfill obligations for separation agreements
Balance at December 31, 2020
Granted
Exercised/ Released
Forfeited
Balance at December 31, 2021
Number of
Shares
Available for
Grant
Options Outstanding
RSUs Outstanding
Weighted-
Average
Exercise
Price Per
Share
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Per Share
Number of
RSUs
2,402,326
7,000,000
(8,056,280)
—
2,253,925
(201,101)
3,398,870
(1,803,172)
—
72,303
1,668,001
3,463,692 $
—
—
—
(2,076,019)
—
1,387,673 $
—
(347,901)
(13,060)
1,026,712 $
3.71
—
—
—
3.59
—
3.89
—
2.09
8.71
4.44
259,792 $
—
8,056,280
(2,514,000)
(177,906)
—
5,624,166 $
1,803,172
(2,121,220)
(59,243)
5,246,875 $
1.83
—
0.64
0.72
0.50
—
0.66
1.63
0.91
0.83
1.07
There were 347,901 common shares issued related to option exercises during the year ended December 31, 2021 and no option exercises during the year ended December
31, 2020.
Additional information related to the status of options at December 31, 2021 is as follows:
Outstanding
Vested and exercisable
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Life (Years)
Shares
Aggregate
Intrinsic Value
(in thousands)
1,026,712 $
1,026,712 $
4.44
4.44
2.02 $
2.02 $
—
—
49
Table of Contents
The intrinsic value of options is the fair value of the Company’s stock at December 31, 2021 less the per share exercise price of the option multiplied by the number of
shares.
As of December 31, 2021, there is approximately $3.3 million of total unrecognized compensation cost related to the unvested share-based (option and RSU) compensation
arrangements granted under the stock-based compensation plans. The remaining unrecognized compensation cost will be recognized over a weighted-average period of 2.4
years.
The following table summarizes information about stock options outstanding as of December 31, 2021:
Options Outstanding
Options Exercisable
Range of Exercise Prices
$1.60 - $2.79
$2.80 - $4.50
$4.51 - $7.50
$7.51 - $12.55
$12.56 - $24.81
Number of
Shares
106,361
468,364
420,000
23,653
8,334
Weighted-
Average
Remaining
Contractual
Life
(Years)
Weighted-
Average
Remaining
Contractual
Life
(Years)
Number of
Shares
1.86
2.73
1.33
1.06
1.84
106,361
468,364
420,000
23,653
8,334
1.86
2.73
1.33
1.06
1.84
2.02
1,026,712
2.02
1,026,712
50
Table of Contents
2020 Restricted shares
In March 2020, the Company granted 830,000 restricted shares, all of which were subject to vesting, with a grant fair value of $280,000 to employees. The shares vest
in three equal annual installments over a three-year period.
Total intrinsic value of Restricted Shares outstanding at December 31, 2021 was $2.5 million.
2020 Restricted stock units
In March 2020, the Company granted 1,293,164 RSUs, all of which were subject to vesting, with a grant fair value of $440,000 to employees. The shares vest in six equal
semi-annual installments over a three-year period.
In May 2020, the Company issued 1,970,475 RSUs, that were originally granted in March 2020, but were subject to approval of the amendment of the 2019 stock incentive
plan at the Annual Shareholders Meeting. All of the RSUs were subject to vesting, with a grant fair value of $ 670,000 to employees. The shares vest in six equal semi-annual
installments over a three-year period.
I n May 2020, the Company granted 17,500 RSUs, all of which were subject to vesting, with a grant fair value of $16,000 to an employee. The shares vest
in three equal installments over a three-year period.
In August 2020, the Company granted 367,500 RSUs, all of which were subject to vesting, with a grant fair value of $380,000 to employees. The shares vest upon the
signing of a licensing agreement.
In December 2020, the Company granted 1,714,252 RSUs, all of which were subject to vesting, with a grant fair value of $1,971,000 to employees. The shares vest
in six equal semi-annual installments over a three-year period.
Total intrinsic value of RSUs vested and released during 2021 was $2.1 million. Intrinsic value of RSUs outstanding at December 31, 2020 was $14.4 million.
2021 Restricted stock units
I n February 2021, the Company granted 25,000 RSUs, all of which were subject to vesting, with a grant fair value of $151,500 to a contractor. The shares vest
in three tranches 1) upon the signing of a licensing agreement, 2) delivery of a final engineering package, and 3) full handover of project to site owner.
I n May 2021, the Company granted 81,883 RSUs, all of which were subject to vesting, with a grant fair value of $235,000 to Board members. The shares vest
in twelve equal installments over a one-year period.
I n September 2021, the Company granted 12,111 RSUs, all of which were subject to vesting, with a grant fair value of $25,000 to employees. The shares vest
in six equal installments over a three-year period.
I n October 2021, the Company granted 4,673 RSUs, all of which were subject to vesting, with a grant fair value of $10,000 to employees. The shares vest
in six equal installments over a three-year period.
In December 2021, the Company granted 1,652,517 RSUs, all of which were subject to vesting, with a grant fair value of $2,420,000 to employees. The shares vest
in six equal semi-annual installments over a three-year period.
Total intrinsic value of RSUs vested and released during 2021 was $6.9 million. Intrinsic value of RSUs outstanding at December 31, 2021 was $6.5 million.
Reserved shares
At December 31, 2021, the Company has reserved shares of common stock for future issuance as follows:
Equity Plan
Subject to outstanding options and restricted shares
Available for future grants
Officer and Director Purchase Plan
Warrants
51
Number of Shares
6,273,587
1,668,001
237,382
6,372
8,185,342
Table of Contents
15.
Commitments and Contingencies
Lease commitments
On August 7, 2015, the Company signed a lease for 21,697 square feet of mixed office and manufacturing space in Alameda, California. The Company entered into a
sublease agreement dated February 4, 2019 for the Alameda facility. The term of the sublease commenced on February 4, 2019, and ends on May 31, 2022, in conjunction
with the master lease. Total base rent payable by the sublessee through the end of the term of the sublease is approximately $0.2 million. However, subsequent to year end
the lease was terminated.
In July 2018, the Company signed a lease for 14,016 square feet of mixed office and warehouse space in McCarran, Nevada. The initial lease term for this facility expired on
December 31, 2021 and has been extended to the current maturity date of December 31, 2024.
In September 2021, the Company entered into a lease for 4,183 square feet of office space in Reno, Nevada. The lease term for this facility expires on September 30, 2024.
We currently maintain two finance leases for equipment. In November 2021, we entered into a finance lease for a modular laboratory which expires in October of 2024. Our
second finance lease is for warehouse equipment, which is deemed immaterial to the Company's Consolidated Balance Sheets.
The future minimum payments related to these operating and leases are as follows as of December 31, 2021 (in thousands):
2022
2023
2024
Total minimum lease payments
Legal proceedings
See Item 3. Legal Proceedings
16.
Related Party Transactions
Operating Leases
Finance Leases
$
$
$
$
357 $
134 $
102 $
593 $
61
68
45
174
The Company has 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.
52
Table of Contents
17.
Income Taxes
Loss before income tax expense consists of the following (in thousands):
US
Foreign
Total
The components of the provision for income tax expense consist of the following (in thousands):
Current
Federal
State
Deferred
Federal
State
Total provision for income taxes
Reconciliation of the statutory federal income tax rates consist of the following :
Tax at federal statutory rate
State tax, net of federal benefit
Change in rate
Valuation allowance
Impairment charge of acquired IP
Excess benefits from equity compensation
Other
Provision for taxes
53
$
$
$
$
Year ended December 31,
2020
2021
(18,191) $
—
(18,191) $
(25,760)
—
(25,760)
Year ended December 31,
2020
2021
— $
2
—
—
2 $
Year ended December 31,
2021
2020
21.00%
(0.01)%
(0.08)%
(19.59)%
0.38%
(0.35)%
(1.36)%
(0.01)%
—
2
—
—
2
21.00%
0.05%
0.00%
(15.54)%
—%
(5.66)%
0.14%
(0.01)%
Table of Contents
The components of deferred tax assets (liabilities) included on the consolidated balance sheet are as follows (in thousands):
Deferred tax assets
Capitalized start-up costs
Credits
Fixed assets
Net operating losses
Others
Total gross deferred tax assets
Valuation allowance
Total gross deferred tax assets (net of valuation allowance)
Deferred tax liabilities
Patents
Fixed assets
Beneficial conversion feature - debt discount
Total gross deferred tax liabilities
Net deferred tax assets
As of December 31,
2021
2020
$
$
$
$
3,147 $
380
1,367
28,762
744
34,400
(34,281)
119 $
(119) $
—
—
(119)
— $
3,461
402
2,160
25,116
553
31,692
(30,717)
975
(156)
—
(819)
(975)
—
Based on the available objective evidence at this time, management believes that it is more likely than not that the net deferred tax assets of the Company will not be
realized. Accordingly, management has applied a full valuation allowance against net deferred tax assets at both December 31, 2021 and December 31, 2020. The net
valuation allowance increased by approximately $3.8 million during the year ended December 31, 2021. The increase in net valuation allowance primarily relates to net
operating losses generated during 2021.
The Company has Federal and California net operating loss carryforwards of approximately $135.6 million and $4.1 million, respectively, which will begin to expire in
December 31, 2034 for Federal and California purposes.
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.
At December 31, 2021, the Company had research and development credits carryforward of approximately $0.4 million and $0.5 million 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.
The Company’s policy is to account for interest and penalties as income tax expense. As of December 31, 2021, 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, 2021, the Company’s total amount of
unrecognized tax benefit was approximately $0.5 million, none of which will affect the effective tax rate, if recognized. The Company does not expect its unrecognized
benefits to change materially over the next twelve months.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. The CARES Act, among other things, includes provisions
relating to refundable payroll tax credits, deferment of employer side payroll tax, Paycheck Protection Program, net operating loss carryback periods, and modifications to
the net interest deduction limitations. The most significant impact to the Company from the CARES Act relates to the Paycheck Protection Program and deferment of
employer side payroll tax.
The Company files income tax returns with the United States federal government and the State of California. The Company’s tax returns for all prior years from the
Company's inception in 2014 remain open to audit for Federal and California purposes.
18.
401(k) Savings Plan
The Company maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees
who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax or after tax basis. Beginning in
January 2021, the Plan included employer matching contributions.
19.
Subsequent Events
The Company has evaluated subsequent events through the date which the consolidated financial statements were available to be issued.
The Company held a warrant (“Series A Warrant”) to purchase an additional 500 shares of LINICO Series A Preferred Stock at an exercise price of $1,000 per share.
Subsequent to year end, the Company exercised the warrant for all 500 LINICO Series A Preferred shares. Following the exercise, the Company held a total of 2,000 shares
of the Series A Preferred Stock representing approximately 12% of LINICO common stock on a fully diluted basis.
Subsequent to the year end, the Alameda lease was terminated.
54
Table of Contents
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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, 2021
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, 2021 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.
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined under Rule 13a-15(f) under the
Exchange Act. Our management has assessed the effectiveness of our internal controls over financial reporting as of December 31, 2021 based on the framework established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our internal control system was
designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. An
internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material
misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2021, and based on that evaluation, management concluded that our internal control over
financial reporting was effective as of December 31, 2021.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this annual report.
Item 9B.
Other Information
None.
55
Table of Contents
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Inapplicable.
56
Table of Contents
PART III
The information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our 2021 fiscal year
pursuant to Regulation 14A for our 2022 Annual Meeting of Stockholders, or the 2022 Proxy Statement, and the information to be included in the 2022 Proxy Statement is
incorporated herein by reference.
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item will be contained in the 2022 Proxy Statement and is hereby incorporated by reference.
Item 11.
Executive Compensation
The information required by this item will be contained in the 2022 Proxy Statement and is hereby incorporated by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in the 2022 Proxy Statement and is hereby incorporated by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in the 2022 Proxy Statement and is hereby incorporated by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this item will be contained in the 2022 Proxy Statement and is hereby incorporated by reference.
57
Table of Contents
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
3.1
First Amended and Restated Certificate of Incorporation of the Registrant
3.2
Third 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.
Incorporated by reference from the Registrant’s Current Report on Form 8-K
filed on January 21, 2022.
3.3
3.4
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.
Certificate of Amendment to the First Amended and Restated Certificate of
Incorporation
Incorporated by reference from the Registrant’s Quarterly Report on Form 10-
Q filed on May 9, 2019.
4.1
Specimen Certificate representing shares of common stock of Registrant
4.9
Warrant dated January 22, 2019 issued to National Securities Corporation
4.10
Description of Capital Stock
Incorporated by reference from the Registrant’s Registration Statement on
Form S-1 filed on July 20, 2015.
Incorporated by reference from the Registrant’s Current Report on Form 8-K
filed January 17, 2019
Incorporated by reference from the Registrant’s Annual Report on Form 10-K
filed on February 25, 2022
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. Amended and Restated 2014 Stock Incentive Plan
Incorporated by reference from the Registrant’s Proxy Statement on Form
DEF 14A filed on April 24, 2017.
10.3
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.
10.10*
Aqua Metals, Inc. Officer and Director Share Purchase Plan
Incorporated by reference from the Registrant’s Quarterly Report on Form 10-
Q filed on November 9, 2017.
58
Table of Contents
10.15*
10.17*
Employment Agreement dated May 2, 2018 between the Registrant and
Stephen Cotton
Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on May 2, 2018.
Employment Agreement dated November 4, 2018 between the Registrant
and Judd Merrill
Incorporated by reference from the Registrant’s Annual Report on Form 10-K
filed on February 28, 2019.
10.19*
Aqua Metals 2019 Stock Incentive Plan
21.1
List of subsidiaries of Registrant.
23.1
Consent of Armanino LLP, Independent Registered Public Accounting
Firm.
Incorporated by reference from the Registrant's Definitive Proxy Statement
filed on March 4, 2019
Filed electronically herewith.
Filed electronically herewith.
31.1
Certification under Section 302 of the Sarbanes-Oxley Act of 2002.
Filed electronically herewith.
31.2
Certification under Section 302 of the Sarbanes-Oxley Act of 2002.
Filed electronically herewith.
32.1
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350.
Filed electronically herewith.
101.INS
Inline XBRL Instance Document
Filed electronically herewith
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed electronically herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed electronically herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Filed electronically herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed electronically herewith
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed electronically herewith
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in
Exhibit 101).
Filed electronically herewith
* Indicates management compensatory plan, contract or arrangement.
+ Certain portions of the exhibit have been omitted pursuant to Registrant’s confidential treatment request filed with the Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. The omitted text has been filed separately with the Commission.
59
Table of Contents
Item 16.
Form 10-K Summary
Not provided
60
Table of Contents
SIGNATURES
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.
Date: February 24, 2022
AQUA METALS, INC.
By:
/s/ Stephen Cotton
Stephen Cotton,
President and 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 Cotton
Stephen Cotton
/s/ Judd Merrill
Judd Merrill
/s/ S. Shariq Yosufzai
S. Shariq Yosufzai
/s/Vincent L. DiVito
Vincent L. DiVito
/s/ Edward Smith
Edward Smith
/s/ Peifang Zhang
Peifang Zhang
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and
Accounting Officer
Date
February 24, 2022
February 24, 2022
Director, Chairman of the Board
February 24, 2022
Director
Director
Director
61
February 24, 2022
February 24, 2022
February 24, 2022
The following are the wholly-owned subsidiaries of Aqua Metals, Inc.:
Aqua Metals Reno, Inc., a Delaware Corporation
Aqua Metals Operations, Inc., a Delaware Corporation
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
To the Board of Directors and
Stockholders of Aqua Metals, Inc. and Subsidiaries:
We consent to the incorporation by reference in the registration statements (Nos. 333-211810, 333-218709, 333-220171, 333-232148 and 333-248112 ) on Form S-8 and
(Nos. 333-212808, 333-213501, 333-216250, 333-231355 and 333-235238 ) on Form S-3 of Aqua Metals, Inc. of our report dated February 24, 2022, with respect to the
consolidated financial statements of Aqua Metals, Inc. and subsidiaries as of December 31, 2021 and December 31, 2020, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021.
/s/ Armanino LLP
San Ramon, CA
February 24, 2022
Exhibit 31.1
I, Stephen Cotton, 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: February 24, 2022
AQUA METALS, INC.
By:
/s/ Stephen Cotton
Stephen Cotton, Chief Executive Officer
Exhibit 31.2
I, Judd Merrill, 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: February 24, 2022
AQUA METALS, INC.
By:
/s/ Judd Merrill
Judd Merrill, 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, 2021 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Stephen Cotton, the Chief Executive Officer, and Judd Merrill, 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.
2.
By:
Title:
By:
Title:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Stephen Cotton
Stephen Cotton
Chief Executive Officer
(Principal Executive Officer)
/s/ Judd Merrill
Judd Merrill
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: February 24, 2022
Dated: February 24, 2022
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.