Aqua Metals, Inc. (NASDAQ:AQMS) Q4 2019 Earnings Conference Call March 11, 2020 4:30 PM ET Company Participants Glen Akselrod - President, Bristol Limited Capital Steve Cotton - President and Chief Executive Officer Judd Merrill - Chief Financial Officer Ben Taecker - Vice President, Engineering and Operations Operator Greetings and welcome to the Aqua Metals 2019 Year End Results and Business Update Conference Call. [Operator Instructions] It is now my pleasure to introduce our host, Glen Akselrod, Spokesp ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Aqua Metals, Inc. pivots to a capital-light licensing model for its AquaRefining™ technology following a 2019 fire that suspended operations - A fire on November 29, 2019, caused significant damage to the AquaRefining area of the TRIC facility, leading to the suspension of all commercial operations[10](index=10&type=chunk) - The company has shifted its strategy to a capital-light model focused on licensing its AquaRefining technology, funded by insurance proceeds, cash on hand, and potential asset sales[14](index=14&type=chunk)[35](index=35&type=chunk) - AquaRefining is a proprietary, room-temperature, water-based electrochemical process that produces lead with a purity of **99.996+%**, which is cleaner and more modular than traditional smelting[18](index=18&type=chunk)[30](index=30&type=chunk) - The company has strategic agreements with Clarios for equipment supply and lead purchase, and with Veolia for plant operations, with negotiations underway to revise them post-fire[38](index=38&type=chunk)[56](index=56&type=chunk) Intellectual Property Portfolio | Type | Status | Jurisdictions | | :--- | :--- | :--- | | Patents | 3 US patents, 24 international patents, 2 allowances | US, EU, Eurasia, Honduras, India, Indonesia, South Korea, Japan, China, Australia, Canada, Africa, Mexico, South Africa, Vietnam, Ukraine | | Patent Applications | 86 pending | US and 20 additional jurisdictions | [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include fire-related insurance uncertainty, operational suspension, unproven licensing model, debt covenants, and Nasdaq delisting - A fire on November 29, 2019, destroyed or impaired substantially all AquaRefining equipment, valued at approximately **$37 million**, with no assurance of full collection of the **$50 million** insurance coverage[72](index=72&type=chunk) - The company has shifted to a capital-light licensing business model, which is less capital-intensive but unproven and its success is not guaranteed[76](index=76&type=chunk) - The company is indebted to Green Bank for approximately **$9.2 million**, secured by all assets, including insurance proceeds, and has required waivers for non-compliance with restrictive covenants[83](index=83&type=chunk)[84](index=84&type=chunk) - Agreements with key partners Clarios and Veolia are at risk due to unmet performance conditions and a declared force majeure, jeopardizing partnerships[82](index=82&type=chunk)[100](index=100&type=chunk) - The company is facing a putative class action and shareholder derivative lawsuit, which could result in substantial costs and divert management resources[114](index=114&type=chunk) - On January 15, 2020, the company received a delisting notice from Nasdaq for its stock price falling below the **$1.00** minimum bid requirement, with a deadline of July 13, 2020, to regain compliance[117](index=117&type=chunk) [Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[128](index=128&type=chunk) [Properties](index=28&type=section&id=Item%202.%20Properties) Aqua Metals owns a 136,750 sq. ft. recycling facility in Nevada and leases executive office space, while subletting its former California office - The company owns a **136,750 sq. ft.** LAB recycling facility on **11.73 acres** in TRIC, McCarran, Nevada[131](index=131&type=chunk) - Executive offices are leased in a **14,016 sq. ft.** space in McCarran, Nevada, with the lease expiring in December 2021[129](index=129&type=chunk) - The former executive office in Alameda, California (**21,697 sq. ft.**) has been sublet, with the sublease expiring in May 2022[130](index=130&type=chunk) [Legal Proceedings](index=31&type=section&id=Item%203.%20Legal%20Proceedings) Aqua Metals is defending against a consolidated class action lawsuit, a shareholder derivative action, and a wrongful termination claim - A consolidated class action lawsuit alleges false and misleading statements between May 19, 2016, and November 9, 2017, with a Second Amended Complaint filed after a partial motion to dismiss[133](index=133&type=chunk) - A consolidated shareholder derivative action alleges breach of fiduciary duties by current and former officers and directors, currently stayed pending a decision in the class action lawsuit[134](index=134&type=chunk) - A former employee has filed a wrongful termination claim with Nevada OSHA, which is currently under investigation[135](index=135&type=chunk) [Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Inapplicable[137](index=137&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, has experienced significant volatility, and has never paid cash dividends - The company's common stock (AQMS) has traded on the NASDAQ Capital Market since July 31, 2015, and has experienced significant price volatility[139](index=139&type=chunk) Common Stock Price Range per Share (2018-2019) | Quarter | 2019 High | 2019 Low | 2018 High | 2018 Low | | :--- | :--- | :--- | :--- | :--- | | First | $4.18 | $1.80 | $3.00 | $1.59 | | Second | $3.10 | $1.51 | $4.14 | $2.26 | | Third | $2.06 | $1.54 | $3.11 | $2.24 | | Fourth | $1.91 | $0.42 | $2.92 | $1.55 | - The company has never declared or paid cash dividends and plans to retain any earnings to finance its business operations[142](index=142&type=chunk) - The company has two equity compensation plans: the 2014 Stock Incentive Plan (**2,113,637 shares reserved**) and the 2019 Stock Incentive Plan (**4,500,000 shares authorized**)[143](index=143&type=chunk)[144](index=144&type=chunk) [Selected Financial Data](index=34&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable to the company - Inapplicable[146](index=146&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The 2019 fire halted operations, prompting a strategic shift; revenues rose 10% to $4.9 million, net loss widened to $44.8 million, liquidity depends on insurance - The November 29, 2019 fire caused an estimated **$37 million** in equipment and plant damage, leading to a suspension of operations and a strategic pivot to a capital-light licensing model[151](index=151&type=chunk)[152](index=152&type=chunk)[155](index=155&type=chunk) Results of Operations (in thousands) | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product sales | $4,874 | $4,449 | $425 | 10% | | Cost of product sales | $24,799 | $22,761 | $(2,038) | (9)% | | Research and development | $1,555 | $4,502 | $2,947 | 65% | | General and administrative | $19,314 | $14,214 | $(5,100) | (36)% | | Loss from operations | $(40,794) | $(37,028) | - | - | | Net loss | $(44,795) | $(40,254) | - | - | - General and administrative expenses increased by **36%** in 2019, primarily due to **$9.0 million** in non-cash expense related to the Veolia agreement and a **$2.8 million** increase in stock-based compensation[164](index=164&type=chunk) Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(25,177) | $(26,318) | | Net cash used in investing activities | $(10,574) | $(3,929) | | Net cash provided by financing activities | $22,434 | $28,346 | - As of December 31, 2019, the company had **$7.6 million** in cash and **$17.7 million** in working capital, which includes a **$17.4 million** insurance proceeds receivable, and management believes additional capital will be required[167](index=167&type=chunk)[172](index=172&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks relate to interest rate fluctuations on its variable-rate debt and the price volatility of lead - The company is exposed to interest rate risk from its debt with Green Bank, which has a variable rate tied to the prime lending rate[195](index=195&type=chunk) - The company faces market risk from the volatility of lead commodity prices, which affects the cost of raw materials and the sales price of finished products[195](index=195&type=chunk) [Financial Statements and Supplementary Data](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements for 2019 and 2018, reflecting a $44.8 million net loss and the impact of the 2019 fire - The independent auditor, Armanino LLP, issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2019 and 2018[200](index=200&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $7,575 | $20,892 | | Insurance proceeds receivable | $17,446 | $0 | | Total current assets | $27,503 | $22,752 | | Property and equipment, net | $37,643 | $45,548 | | Total assets | $69,454 | $71,371 | | Total current liabilities | $9,810 | $11,799 | | Total liabilities | $19,865 | $21,281 | | Total stockholders' equity | $49,589 | $50,090 | - The November 29, 2019 fire resulted in a write-off of approximately **$22.4 million** in fixed assets, with a net write-off of **$19.9 million** after accounting for accumulated depreciation[257](index=257&type=chunk) - The company repaid its **$5.0 million** convertible note to Interstate Battery in January 2019 for a total of **$6.7 million**, including principal and interest[270](index=270&type=chunk) - The company has a **$10 million** loan with Green Bank, with a balance of **$9.3 million** as of December 31, 2019, and has received waivers for non-compliance with the minimum debt service coverage ratio covenant[274](index=274&type=chunk)[278](index=278&type=chunk) Unaudited Quarterly Revenue 2019 (in thousands) | Quarter | Product Sales | | :--- | :--- | | Q1 2019 | $437 | | Q2 2019 | $1,483 | | Q3 2019 | $2,361 | | Q4 2019 | $593 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=93&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[374](index=374&type=chunk) [Controls and Procedures](index=93&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[376](index=376&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[378](index=378&type=chunk) [Other Information](index=93&type=section&id=Item%209B.%20Other%20Information) The company reported no other information - None[379](index=379&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees](index=94&type=section&id=Item%2010-14) Information for these items is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's 2020 definitive proxy statement[381](index=381&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=95&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and an index of exhibits, including key agreements and Sarbanes-Oxley Act certifications - The financial statements are referenced under Item 8, and no separate financial statement schedules are filed[386](index=386&type=chunk) - The exhibit list includes key agreements such as the Underwriting Agreements, the Amended and Restated Certificate of Incorporation, the Tolling/Lead Purchase and Equipment Supply Agreements with Clarios (formerly Johnson Controls), and the Operations, Maintenance and Management Agreement with Veolia[385](index=385&type=chunk)[390](index=390&type=chunk)[395](index=395&type=chunk) - Certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act are filed as exhibits[397](index=397&type=chunk)[398](index=398&type=chunk)

Financial Data and Key Metrics Changes - For Q3 2019, the company recognized revenue of approximately $2.4 million, a 102% increase compared to $1.2 million in Q3 2018, and a 59% increase from Q2 2019 [10] - Cost of products sold was $8.2 million, up 28% from $6.5 million in the previous year, but cost as a percentage of revenue decreased by 37%, indicating improved efficiency [10] - General and administrative expenses (G&A) for Q3 2019 were $5.1 million, compared to $2.2 million in Q3 2018, with approximately two-thirds of G&A being non-cash expenses [11] - The company reported an operating loss of $11.3 million for Q3 2019, compared to a loss of $8.4 million in Q3 2018, and a net loss of $11.3 million or negative $0.20 per diluted share [12] Business Line Data and Key Metrics Changes - The company is on track to operate all 16 modules simultaneously by the end of 2019, which is expected to significantly increase production capacity [6] - The AquaRefinery is projected to reach a production rate of 40 tonnes of AquaRefined lead per day, plus an additional 40 tonnes of other lead products by mid-2020 [6] Market Data and Key Metrics Changes - The company has received commercial volume shipments orders from its battery manufacturing partner, Clarios, indicating strong market interest in AquaRefined lead [9] - There is ongoing interest from large operators globally in the AquaRefining technology, suggesting a positive market outlook for licensing opportunities [9] Company Strategy and Development Direction - The company aims to maximize shareholder value through various financing options, including debt, equipment leasing, and preselling AquaRefined lead [15] - The strategy includes scaling the plant to full capacity and expanding beyond the current 16 modules, with a focus on operational efficiency and cost management [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to transform lead recycling through innovative technology, positioning Aqua Metals as a leader in the industry [8] - The company is focused on completing capital projects and scaling operations, with expectations of achieving full utilization of the plant by mid-2020 [19] Other Important Information - The company used $6.8 million in cash for operations and $5 million for capital expenditures in Q3 2019, indicating a need for additional capital to support growth [14] - Management confirmed that the drying system will not be completed by year-end but will not affect the operation of the 16 modules [51] Q&A Session Summary Question: Can you discuss the ramp-up cadence after all equipment is installed? - Management indicated that all 16 modules will be running simultaneously by year-end, with scaling expected to begin in early 2020 and reach full utilization by mid-year [19] Question: What are the revenue expectations for Q4? - Management stated that Q4 revenues will focus on completing capital projects, with expectations that revenues will resemble Q1 or better, but not a primary focus [22] Question: How many customers are currently testing lead products? - Currently, Clarios is the primary customer taking lead shipments, with ongoing discussions with other potential partners [24] Question: Is there a buyout clause with Clarios? - Management confirmed there is no buyout option in the agreement with Clarios [33] Question: What is the status of the power supply and its impact on operations? - Management assured that power outages would not significantly impact operations, as the facility can restart quickly after outages [56]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AQMS FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2019 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 001-37515 Aqua Metals, Inc. (Exact name of registrant as specified in its charter) Delaware 47-1169572 (State or other jurisdic ...

Financial Data and Key Metrics Changes - For Q2 2019, the company recognized revenue of approximately $1.5 million, a significant increase from $483,000 in Q2 2018, reflecting the initiation of 24x7 operations [12] - Cost of product sales increased to $7.2 million from $4.6 million year-over-year, but costs related to revenue generation decreased by 52% [12][13] - The net loss for Q2 2019 was $10.5 million, or a negative $0.21 per diluted share, compared to a net loss of $9.9 million, or a negative $0.33 per diluted share in Q2 2018 [14] Business Line Data and Key Metrics Changes - AquaRefined lead production saw a 458% increase over Q1, while lead bullion metal production increased by 352%, leading to a 438% overall production increase from Q1 to Q2 [7][12] - The company moved to 24x7 operations with its initial four modules, up from 24x4 operations, achieving a record production level [9][12] Market Data and Key Metrics Changes - The partnership with Clarios is progressing, with specific performance metrics agreed upon for the existing AquaRefinery, which are conditions precedent to shipping equipment [10] - The company is preparing for the delivery of equipment for Phase 2 of its capital program, expected to further boost electrolyte recovery and increase yield later in 2019 [9][10] Company Strategy and Development Direction - The company aims to scale production by optimizing Phase 1 equipment and expects to continue increasing module utilization [17] - Phase 2 of the capital projects plan is critical for enhancing contribution margin and scaling the plant to 16 modules [17] - The company is focused on achieving higher-margin licensing revenue beginning as early as 2020 through its partnership with Clarios [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving production targets and highlighted the importance of strategic partnerships and operational improvements [18] - The company anticipates a decrease in cash burn as production ramps up, with cash needs expected to decline as operations scale [16][33] Other Important Information - The company had $27.3 million in cash and cash equivalents as of June 30, 2019, including approximately $20.3 million net received from a public offering [14] - General and administrative expenses for Q2 2019 were the lowest in the last six quarters, excluding non-cash items [13] Q&A Session Summary Question: What is the cadence towards cash break-even? - Management indicated that cash break-even is expected to be reached once the company scales to 16 modules, with cash burn decreasing throughout the year [21] Question: Can you provide an update on the Clarios relationship? - Discussions with Clarios are ongoing regarding performance metrics and the overall joint development agreement, with expectations to have more information early next year [23] Question: What was the July output in terms of tonnage? - July output was similar to June due to maintenance issues unrelated to AquaRefining, but the overall trend remains positive [25] Question: How many modules are needed for positive gross margin contribution? - The company stated that 16 modules are required to reach breakeven, with positive margins expected beyond that [31] Question: What is the impact of Phase 2 on lead recovery? - Phase 2 is expected to significantly improve electrolyte recovery and contribute to higher margins, with a goal of reaching up to 100% recovery by 2020 [35][49] Question: How is the relationship with Interstate? - The relationship with Interstate remains strong, with them being a significant investor and feedstock supplier [59]

PART I - FINANCIAL INFORMATION This section presents Aqua Metals, Inc.'s unaudited condensed consolidated financial statements and management's discussion for the quarter ended June 30, 2019 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Aqua Metals, Inc.'s unaudited condensed consolidated financial statements and detailed notes for the quarter ended June 30, 2019 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of Aqua Metals' financial position, detailing assets, liabilities, and equity as of June 30, 2019 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :-------------------------- | :------------ | :---------------- | | Total Assets | $83,729 | $71,371 | | Total Current Assets | $30,647 | $22,752 | | Cash and Cash Equivalents | $27,312 | $20,892 | | Total Liabilities | $19,114 | $21,281 | | Total Stockholders' Equity | $64,615 | $50,090 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines Aqua Metals' financial performance, including product sales, net loss, and loss per share for the periods ended June 30, 2019 Product Sales (in thousands) | Period | 2019 | 2018 | Change (%) | | :------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | $1,483 | $483 | 207.0% | | Six Months Ended June 30 | $1,920 | $2,209 | (13.1)% | Net Loss (in thousands) | Period | 2019 | 2018 | | :------------------------- | :------- | :------- | | Three Months Ended June 30 | $(10,501) | $(9,927) | | Six Months Ended June 30 | $(22,209) | $(17,459) | Basic and Diluted Net Loss Per Share | Period | 2019 | 2018 | | :------------------------- | :----- | :----- | | Three Months Ended June 30 | $(0.21) | $(0.33) | | Six Months Ended June 30 | $(0.47) | $(0.59) | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section details changes in Aqua Metals' stockholders' equity, including public offerings and share issuances, for the periods ended June 30, 2019 - Total Stockholders' Equity **increased from $50,090 thousand** as of December 31, 2018, to **$64,615 thousand** as of June 30, 2019[5](index=5&type=chunk) - The company issued **5,175,000 common shares** in a January 2019 public offering, generating **$9.1 million in net proceeds**, and **11,000,000 common shares** in a May 2019 public offering, generating **$20.3 million in net proceeds**[5](index=5&type=chunk) - Significant share issuances during the six months ended June 30, 2019, included shares for RSU vesting, consulting services, and agreements with Veolia and Clarios[5](index=5&type=chunk)[7](index=7&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes Aqua Metals' cash inflows and outflows from operating, investing, and financing activities for the periods ended June 30, 2019 Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2019 | 2018 | | :-------------------------- | :------- | :------- | | Net cash used in operating activities | $(11,831) | $(12,182) | | Net cash used in investing activities | $(4,299) | $(2,391) | | Net cash provided by financing activities | $22,550 | $28,539 | - Cash and cash equivalents **increased to $27,312 thousand** at the end of June 30, 2019, from **$20,892 thousand** at the beginning of the period[10](index=10&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for Aqua Metals' financial statements, covering accounting policies, assets, liabilities, equity, and contingencies [1. Organization](index=11&type=section&id=1.%20Organization) This note describes Aqua Metals, Inc.'s incorporation, its lead recycling business using AquaRefining technology, and operational milestones - Aqua Metals, Inc. was incorporated in Delaware on June 20, 2014, and is engaged in lead recycling using its patented AquaRefining™ technology[12](index=12&type=chunk) - The company commenced product shipments (lead compounds, plastics, cast lead bullion, high-purity lead) from its McCarran, Nevada facility between April 2017 and June 2018[12](index=12&type=chunk) - In early 2019, the company began scaling its AquaRefining plant, including equipment installation and commissioning of AquaRefining modules[12](index=12&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and policies used in preparing Aqua Metals' financial statements, including revenue recognition and lease accounting - The financial statements are prepared in accordance with U.S. GAAP and SEC rules, with all necessary adjustments for fair presentation[14](index=14&type=chunk) - The company adopted ASU 2016-02, Leases (ASC 842), on January 1, 2019, recognizing approximately **$1.6 million in right-of-use assets** and **$1.8 million in operating lease liabilities**[25](index=25&type=chunk) - Revenues from Clarios represented **59% of total revenue** for the three and six months ended June 30, 2019, and **71% of accounts receivable** as of June 30, 2019[23](index=23&type=chunk) [3. Revenue Recognition](index=14&type=section&id=3.%20Revenue%20Recognition) This note details Aqua Metals' revenue generation from recycling lead-acid batteries and selling recovered lead products and plastics - Revenue is generated from recycling lead acid batteries (LABs) and selling recovered lead products (compounds, ingoted hard lead, AquaRefined lead) and plastics[27](index=27&type=chunk) - **100% of revenue** for the three and six months ended June 30, 2019 and 2018, was from products transferred to customers at a single point in time upon delivery[28](index=28&type=chunk) [4. Inventory](index=14&type=section&id=4.%20Inventory) This note provides a breakdown of Aqua Metals' inventory, including finished goods, work in process, and raw materials Inventory (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :---------------- | :------------ | :---------------- | | Finished goods | $326 | $43 | | Work in process | $604 | $164 | | Raw materials | $812 | $558 | | **Total inventory** | **$1,742** | **$765** | [5. Property and Equipment, net](index=15&type=section&id=5.%20Property%20and%20Equipment,%20net) This note details Aqua Metals' property and equipment, including ongoing construction of AquaRefining modules and depreciation expenses - Total Property and Equipment, net, **increased to $47,630 thousand** as of June 30, 2019, from **$45,548 thousand** as of December 31, 2018[31](index=31&type=chunk) - Equipment under construction, primarily AquaRefining modules, **increased to $8,951 thousand** as of June 30, 2019, from **$7,892 thousand** as of December 31, 2018[31](index=31&type=chunk) - Depreciation expense was **$0.9 million** for the three months and **$1.7 million** for the six months ended June 30, 2019[31](index=31&type=chunk) [6. Asset Retirement Obligation](index=15&type=section&id=6.%20Asset%20Retirement%20Obligation) This note explains Aqua Metals' liability for future closure costs of its McCarran facility and contributions to a trust fund - The company records a liability for asset retirement obligations (ARO) based on the discounted estimated fair value of future closure costs for the McCarran facility, estimated at **$0.7 million** as of March 31, 2017[32](index=32&type=chunk) - Accretion of the ARO for the three and six months ended June 30, 2019, was approximately **$11,000** and **$23,000**, respectively[32](index=32&type=chunk) - **$670,000** has been contributed to a facility closure trust fund for the benefit of the Nevada Division of Environmental Protection (NDEP)[35](index=35&type=chunk) [7. Convertible Note Payable](index=16&type=section&id=7.%20Convertible%20Note%20Payable) This note details the repayment of Aqua Metals' convertible note payable with Interstate Battery Systems International, Inc - The convertible note payable with Interstate Battery Systems International, Inc. was fully repaid on January 24, 2019, for **$6.7 million**, including outstanding principal and interest[37](index=37&type=chunk) - Upon repayment, the remaining discount of **$2.6 million** and deferred financing expenses of **$20,000** were amortized to interest expense[37](index=37&type=chunk) - As of June 30, 2019, there was **no outstanding convertible note payable**[36](index=36&type=chunk) [8. Notes Payable](index=16&type=section&id=8.%20Notes%20Payable) This note describes Aqua Metals' loan with Green Bank, including its USDA guarantee and compliance with debt covenants - Aqua Metals Reno, Inc. (AMR) has a **$10 million loan** with Green Bank, guaranteed by the United States Department of Agriculture Rural Development (USDA) for **90% of the principal**[38](index=38&type=chunk)[41](index=41&type=chunk) - AMR was not in compliance with the minimum debt service coverage ratio covenant from March 31, 2017, through June 30, 2019, but received waivers for these periods[38](index=38&type=chunk) Notes Payable (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :-------------------------- | :------------ | :---------------- | | Current portion | $272 | $311 | | Non-current portion | $8,549 | $8,600 | [9. Leases](index=17&type=section&id=9.%20Leases) This note outlines Aqua Metals' finance and operating leases, including right-of-use assets and lease liabilities - The company maintains one finance lease for equipment and two operating leases for real estate, with terms of **76 and 42 months**[44](index=44&type=chunk) - As of June 30, 2019, total right-of-use assets were approximately **$1.42 million** and operating lease liabilities were approximately **$1.63 million**[45](index=45&type=chunk) Lease Liabilities Maturities (in thousands) as of June 30, 2019 | Period | Amount | | :--------------------------------------- | :----- | | Due in 12-month period ended June 30, 2020 | $633 | | 2021 | $652 | | 2022 | $560 | | Less imputed interest | $(213) | | **Total lease liabilities** | **$1,632** | [10. Stockholders' Equity](index=18&type=section&id=10.%20Stockholders'%20Equity) This note details Aqua Metals' public offerings, share issuances, and stock-based compensation expenses - The company completed public offerings in January and May 2019, issuing **5,175,000 shares for $9.1 million net proceeds** and **11,000,000 shares for $20.3 million net proceeds**, respectively[49](index=49&type=chunk)[50](index=50&type=chunk) - During the six months ended June 30, 2019, the company issued **597,485 shares to Veolia North America Regeneration Services, LLC** and **807,436 shares to Clarios** to settle a key-man penalty claim[51](index=51&type=chunk)[52](index=52&type=chunk)[72](index=72&type=chunk) Stock-based Compensation Expense (in thousands) | Period | 2019 | 2018 | | :------------------------- | :----- | :----- | | Three Months Ended June 30 | $930 | $348 | | Six Months Ended June 30 | $1,998 | $492 | [11. Commitments and Contingencies](index=21&type=section&id=11.%20Commitments%20and%20Contingencies) This note describes Aqua Metals' financial commitments, including key-man penalty settlements and ongoing legal proceedings - The company paid a one-time fee of **$0.5 million** to Interstate Battery on February 20, 2019, related to the key-man provision associated with Mr. Mould's resignation[71](index=71&type=chunk) - Aqua Metals settled a **$2.0 million key-man penalty claim** from Clarios (due to executive resignations) by issuing **807,436 shares of common stock** in June 2019[72](index=72&type=chunk) - The company is a defendant in a consolidated securities class action lawsuit and a consolidated shareholder derivative action, both alleging false and misleading statements and breach of fiduciary duties, which the company intends to vigorously defend[74](index=74&type=chunk)[75](index=75&type=chunk) [12. Subsequent Events](index=25&type=section&id=12.%20Subsequent%20Events) This note confirms Aqua Metals' evaluation of events occurring after the reporting period up to the financial statement issuance date - The company evaluated subsequent events through the date the condensed consolidated financial statements were available to be issued[78](index=78&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Aqua Metals' financial condition, operational results, technology, and strategic initiatives for the quarter ended June 30, 2019 [General](index=26&type=section&id=General) This section introduces Aqua Metals' AquaRefining technology, operational scaling efforts, and strategic partnership with Veolia - Aqua Metals is engaged in lead recycling through its novel, proprietary, and patented AquaRefining™ technology, which is a room temperature, water and organic acid-based process designed to reduce environmental emissions and produce high-purity lead[83](index=83&type=chunk) - The company is operating up to **four AquaRefining modules 24/7** and plans to roll out an additional **8 modules (9-16)** to utilize up to **50% of current plant capacity**, aiming for all **16 modules to operate 24/7 by the end of 2019**[87](index=87&type=chunk) - Phase One of the capital improvement program was completed in March 2019, improving electrolyte recovery from **67% to 75% of target** in Q2 2019, with a goal of **100% recovery** upon Phase Two completion in H2 2019[88](index=88&type=chunk) - In February 2019, Aqua Metals signed an Operations, Maintenance and Management Agreement with Veolia North America Regeneration Services LLC to provide operational expertise and manage the McCarran facility, with Veolia assuming primary responsibility for scaling the facility[91](index=91&type=chunk) [Plan of Operations](index=28&type=section&id=Plan%20of%20Operations) This section outlines Aqua Metals' 12-month operational plan, including module rollout, production ramp-up, and technology licensing goals - The 12-month plan includes completing the commercial roll-out of all **16 AquaRefining modules** at TRIC and ramping up production, followed by installing an additional **16 modules**, subject to capital availability[96](index=96&type=chunk) - The company aims to improve plant economics by processing more metallic lead recovered from batteries in-house and utilizing a newly commissioned third kettle in the refining area[97](index=97&type=chunk) - Aqua Metals plans to license its technology and provide services for an AquaRefining facility to Clarios, and is discussing a definitive development program agreement[98](index=98&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section analyzes Aqua Metals' financial performance, including product sales, research and development, and general and administrative expenses Product Sales (in thousands) | Period | 2019 | 2018 | Change (%) | | :------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | $1,483 | $483 | 207.0% | | Six Months Ended June 30 | $1,920 | $2,209 | (13.1)% | - Research and development costs **decreased by 72%** for the three months and **64%** for the six months ended June 30, 2019, reflecting a shift from R&D to scaled production and a **25% reduction in R&D staffing**[103](index=103&type=chunk) - General and administrative expense **increased by 11%** for the three months and **47%** for the six months ended June 30, 2019, primarily due to non-cash expenses related to the Veolia agreement (**$3.7 million**) and stock-based compensation (**$1.6 million increase**)[104](index=104&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Aqua Metals' financial position, cash flow, and capital needs for ongoing operations and future expansion - As of June 30, 2019, the company had total assets of **$83.7 million** and working capital of **$22.0 million**[109](index=109&type=chunk) Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2019 | 2018 | | :-------------------------- | :------- | :------- | | Operating Activities | $(11,831) | $(12,182) | | Investing Activities | $(4,299) | $(2,391) | | Financing Activities | $22,550 | $28,539 | - Net cash provided by financing activities in H1 2019 included **$9.1 million** from the January public offering and **$20.3 million** from the May public offering, offset by a **$6.7 million payoff** of the Interstate Battery convertible note[112](index=112&type=chunk) - The company believes current working capital is sufficient for TRIC operations for the next twelve months but will require additional capital for production increases beyond 16 modules and to fund continued losses[115](index=115&type=chunk) [Off-Balance Sheet Arrangements](index=32&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that Aqua Metals does not have any off-balance sheet financing arrangements - The company does not have any off-balance sheet financing arrangements[117](index=117&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Aqua Metals' primary market risk exposure is interest expense on its Green Bank debt, which has a variable interest rate - The primary exposure to market risk is interest expense related to the variable-rate debt with Green Bank[117](index=117&type=chunk) - The company experiences potential market risk from the volatility of lead commodity prices, affecting both the purchase price of used LABs and the sales price of finished lead products, but the short turnaround time minimizes this risk[117](index=117&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that Aqua Metals' disclosure controls and procedures were effective as of June 30, 2019, with no material changes in internal control [Evaluation of Disclosure Controls and Procedures](index=32&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms management's conclusion that Aqua Metals' disclosure controls and procedures were effective as of June 30, 2019 - Management, with the participation of the chief executive officer and chief financial officer, concluded that disclosure controls and procedures were effective as of June 30, 2019[118](index=118&type=chunk) [Changes in Internal Control Over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that there were no material changes in Aqua Metals' internal control over financial reporting during the quarter ended June 30, 2019 - There were no changes in internal control over financial reporting during the three-month period ended June 30, 2019, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[119](index=119&type=chunk) PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Aqua Metals is involved in securities class action and shareholder derivative lawsuits, which the company intends to vigorously defend - A consolidated securities class action lawsuit is pending against the company and former executive officers, alleging false and misleading statements concerning lead recycling operations[121](index=121&type=chunk) - A consolidated shareholder derivative action is pending against the company and certain current/former officers and directors, alleging breach of fiduciary duties[122](index=122&type=chunk) - The company denies the claims in both lawsuits and intends to vigorously defend the actions, acknowledging that litigation outcomes are uncertain and could materially affect its financial position[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks associated with investing in Aqua Metals' common stock, covering business-related and stock ownership risks [Risks Related to Our Business](index=34&type=section&id=Risks%20Related%20to%20Our%20Business) This section details business-specific risks, including reliance on unproven technology, need for capital, Veolia dependency, debt covenants, and environmental regulations - The company has a limited operating history and relies on novel and unproven AquaRefining technology, making it difficult for investors to evaluate its business and posing risks to commercial scale implementation and profitability[126](index=126&type=chunk)[127](index=127&type=chunk)[138](index=138&type=chunk) - Aqua Metals will require additional capital to increase production and fund continued losses, with no guarantee that such financing will be available on reasonable terms[128](index=128&type=chunk)[129](index=129&type=chunk) - The business is substantially dependent on its agreement with Veolia for operations and future expansion, with risks including failure to realize expected benefits, inability to negotiate long-term agreements, or Veolia's termination of the agreement due to financing issues[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - The company is subject to restrictive covenants on its Green Bank loan, including a minimum debt service coverage ratio for which waivers have been received but are not guaranteed in the future, risking default and accelerated payments[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) - Operations are subject to extensive environmental, health, and safety regulations, with risks of non-compliance, fines, and liabilities for mishandling hazardous materials, which could materially affect the business[160](index=160&type=chunk)[161](index=161&type=chunk)[166](index=166&type=chunk) [Risks Related to Owning Our Common Stock](index=41&type=section&id=Risks%20Related%20to%20Owning%20Our%20Common%20Stock) This section outlines risks associated with Aqua Metals' common stock, including litigation, price volatility, and implications of its 'emerging growth company' status - Pending securities class action and shareholder derivative lawsuits could divert resources, incur substantial costs, and materially adversely affect the business and financial condition[168](index=168&type=chunk) - The common stock is thinly traded and subject to price volatility, with no assurance of maintaining a liquid market, potentially leading to difficulty selling shares and increased litigation risk[171](index=171&type=chunk) - As an 'emerging growth company' under the JOBS Act, the company benefits from reduced disclosure requirements, which may make its common stock less attractive to investors and hinder capital raising efforts[172](index=172&type=chunk)[174](index=174&type=chunk) - The company has no plans to pay dividends in the foreseeable future, intending to reinvest all earnings into business development[175](index=175&type=chunk) - Provisions in the company's charter documents and Delaware law may inhibit takeovers, potentially entrenching management and depriving stockholders of a control premium[177](index=177&type=chunk)[179](index=179&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and certifications - The exhibits include corporate governance documents such as the First Amended and Restated Certificate of Incorporation and the Second Amended and Restated Bylaws[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) - Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are filed[186](index=186&type=chunk) - XBRL Instance Document and various XBRL Taxonomy Extension documents are included[186](index=186&type=chunk)

Aqua Metals, Inc. (NASDAQ:AQMS) Q1 2019 Corporate Update Call May 14, 2019 4:30 PM ET Company Participants Alison Ziegler - Managing Director, Darrow Associates Steve Cotton - President & Chief Executive Officer Judd Merrill - Chief Financial Officer Conference Call Participants Ilya Grozovsky - National Securities Operator Thank you for standing by. This is the conference operator. Welcome to the Aqua Metals First Quarter 2019 Corporate Update Call. As a reminder, all participants are in listen-only mode a ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AQMS FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2019 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 001-37515 Aqua Metals, Inc. (Exact name of registrant as specified in its charter) Delaware 47-1169572 (State or other jurisdiction ...

Aqua Metals (NASDAQ:AQMS) Q4 2018 Corporate Update Conference Call February 28, 2019 4:30 PM ET Company Participants Alison Ziegler - MD, Darrow Associates Steve Cotton - President and CEO Judd Merrill - CFO Conference Call Participants Colin Rusch - Oppenheimer & Company Ilya Grozovsky - National Securities Bhakti Pavani - Alliance Global Partners David Green - Special Situation Fund Operator Thank you for standing by. This is the conference operator. Welcome to the Aqua Metals Fourth Quarter 2018 Corporat ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Aqua Metals commercializes its proprietary AquaRefining technology for lead recycling, operating its TRIC facility and licensing the process - The company's core technology is AquaRefining, a patented, room-temperature, water-based process for recycling lead-acid batteries (LABs), positioned as an environmentally superior alternative to traditional smelting[7](index=7&type=chunk)[13](index=13&type=chunk) - The first recycling facility at the Tahoe Regional Industrial Center (TRIC) in McCarran, Nevada, commenced limited operations in Q1 2017 and began selling pure AquaRefined lead ingots in October 2018[8](index=8&type=chunk) - In February 2019, Aqua Metals entered into a significant agreement with Veolia North America to provide operations, maintenance, and management services for the TRIC facility, aiming to scale the plant to its full 16-module capacity[9](index=9&type=chunk)[10](index=10&type=chunk) - The business model is twofold: 1) expanding its own recycling operations at the TRIC plant, and 2) supplying AquaRefining equipment and services to third parties, such as Johnson Controls, on a licensing basis[16](index=16&type=chunk)[32](index=32&type=chunk) - The company holds a significant intellectual property portfolio, including **1 US patent**, **13 international patents**, and **90 pending patent applications** related to the AquaRefining process[55](index=55&type=chunk) - Key strategic agreements underpin the business, including a supply and offtake agreement with Johnson Controls (which accounted for **88% of 2018 revenue**) and a used battery supply agreement with Interstate Battery[45](index=45&type=chunk)[49](index=49&type=chunk)[53](index=53&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from its limited operating history, unproven AquaRefining technology, reliance on third parties, and need for additional financing - The business is dependent on the successful implementation of its novel and unproven AquaRefining technology on a commercial scale, which has already faced unforeseen complications and delays[71](index=71&type=chunk) - The company requires additional financing to execute its business plan and fund continued operating losses, with no assurance such funding will be available on reasonable terms[72](index=72&type=chunk) - A significant operational risk is the dependency on Veolia North America for the management and operation of the TRIC facility, with failure to negotiate a long-term agreement potentially disrupting operations[73](index=73&type=chunk)[74](index=74&type=chunk) - Competition from established smelter operators, who may restrict access to the supply of used lead-acid batteries, poses a significant threat to the company's operations[80](index=80&type=chunk) - The company is a defendant in a putative consolidated class action lawsuit and a shareholder derivative lawsuit, which could result in substantial costs and divert management resources[106](index=106&type=chunk) - The company is subject to restrictive covenants under its credit agreement with Green Bank, where a breach could lead to default and acceleration of approximately **$9.5 million** in debt[75](index=75&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section is not applicable as the company reports no unresolved staff comments - There are no unresolved staff comments[119](index=119&type=chunk) [Properties](index=31&type=section&id=Item%202.%20Properties) The company owns a 136,750 square foot recycling facility in McCarran, Nevada, and leases executive office space in the same location - The company owns its primary operational asset: a **136,750 square foot** LAB recycling facility on **11.73 acres** in McCarran, Nevada (TRIC)[122](index=122&type=chunk) - Executive offices are located in a leased **14,016 square foot** space in McCarran, Nevada, with the lease expiring in December 2021[120](index=120&type=chunk) - The former **21,697 square foot** office in Alameda, California, has been sublet as of February 2019[121](index=121&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) The company is defending against a consolidated class action lawsuit and a shareholder derivative action alleging securities law violations and breach of fiduciary duties - The company is a defendant in a consolidated class action lawsuit (In Re: Aqua Metals, Inc. Securities Litigation) alleging violations of Sections 10(b) and 11 of the Securities Acts[124](index=124&type=chunk) - The company and certain current and former officers and directors are defendants in a consolidated shareholder derivative action (In re Aqua Metals, Inc. Stockholder Derivative Litigation) alleging breach of fiduciary duties[125](index=125&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is inapplicable to the company's operations - This section is inapplicable[127](index=127&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Repurchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under "AQMS", has experienced volatility, and the company has no plans to pay cash dividends - Common stock trades on the NASDAQ Capital Market under the symbol **"AQMS"**[130](index=130&type=chunk) Quarterly Common Stock Price Range (2018) | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | | First | 3.00 | 1.59 | | Second | 4.14 | 2.26 | | Third | 3.11 | 2.24 | | Fourth | 2.92 | 1.55 | - The company has never declared or paid cash dividends and intends to retain any future earnings to finance operations[133](index=133&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2018) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price ($) | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by stockholders | 950,691 | 4.18 | 805,749 | | Not approved by stockholders | 3,180,828 | 6.57 | — | [Selected Financial Data](index=34&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five years of consolidated financial data, reflecting the company's early, pre-profitable stage with increasing revenues but also substantial net losses Selected Consolidated Statements of Operations Data (in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Product sales | $4,449 | $2,088 | $0 | | Loss from operations | $(37,028) | $(24,858) | $(12,958) | | Net loss | $(40,254) | $(26,580) | $(13,557) | | Basic and diluted net loss per share | $(1.18) | $(1.31) | $(0.89) | Selected Consolidated Balance Sheet Data (in thousands) | | As of Dec 31, 2018 | As of Dec 31, 2017 | | :--- | :--- | :--- | | Cash, cash equivalents | $20,892 | $22,793 | | Total assets | $71,371 | $74,442 | | Working capital | $10,953 | $21,850 | | Total stockholders' equity | $50,090 | $58,965 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses AquaRefining commercialization, noting increased revenues and operating losses, and outlines funding strategies including recent public offerings and the Veolia agreement - The company's goal is to operate all **16 installed AquaRefining modules** on a 24/7 basis by the end of 2019, but it has experienced delays and unforeseen issues in ramping up production[145](index=145&type=chunk) - In June 2018, the company completed a public offering raising approximately **$26.6 million** in net proceeds, followed by another public offering in January 2019 raising approximately **$9.1 million** net[149](index=149&type=chunk)[150](index=150&type=chunk) - The 12-month plan of operations focuses on the commercial roll-out of the **16 AquaRefining modules** at TRIC, managed by Veolia, and pursuing licensing opportunities, particularly with Johnson Controls[151](index=151&type=chunk)[153](index=153&type=chunk)[156](index=156&type=chunk) Comparison of Operations (FY 2018 vs. FY 2017, in thousands) | Item | 2018 | 2017 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product sales | $4,449 | $2,088 | $2,361 | 113% | | Cost of product sales | $22,761 | $9,541 | $(13,220) | (139)% | | General & administrative expense | $14,214 | $6,891 | $(7,323) | (106)% | | Total operating expense | $41,477 | $26,946 | $(14,531) | (54)% | - The increase in G&A expense in 2018 was primarily due to a **$2.5 million** accrual for key man penalties, **$1.5 million** in legal and proxy fees related to lawsuits and activist investors, and **$1.8 million** in severance accruals for former executives[163](index=163&type=chunk) Summary of Cash Flows (in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(26,318) | $(19,002) | $(11,121) | | Net cash used in investing activities | $(3,929) | $(9,775) | $(29,606) | | Net cash provided by financing activities | $28,346 | $24,988 | $35,501 | [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk from variable-rate debt and significant commodity price risk affecting both raw materials and finished lead products - The company is exposed to interest rate risk from its variable-rate loan with Green Bank[204](index=204&type=chunk) - The company experiences market risk from the volatility of lead commodity prices, which affects both the purchase price of used LABs and the sales price of its finished products[204](index=204&type=chunk) [Financial Statements and Supplementary Data](index=47&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, highlighting the company's developmental stage, financial performance, balance sheet, and key notes on revenue concentration and subsequent events Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $20,892 | $22,793 | | Total current assets | $22,752 | $25,684 | | Property and equipment, net | $45,548 | $45,733 | | **Total assets** | **$71,371** | **$74,442** | | **Liabilities & Equity** | | | | Total current liabilities | $11,799 | $3,834 | | Total liabilities | $21,281 | $15,477 | | **Total stockholders' equity** | **$50,090** | **$58,965** | Consolidated Statements of Operations (in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Product sales | $4,449 | $2,088 | $— | | Cost of product sales | $22,761 | $9,541 | $— | | Loss from operations | $(37,028) | $(24,858) | $(12,958) | | Net loss | $(40,254) | $(26,580) | $(13,557) | | Basic and diluted net loss per share | $(1.18) | $(1.31) | $(0.89) | - Johnson Controls Battery Group, Inc. represented **88% of total revenue in 2018** and **96% in 2017**, indicating a high concentration of credit risk[257](index=257&type=chunk) - The company accrued **$2.0 million** for key-man penalties claimed by Johnson Controls following the resignations of the CEO and COO, and agreed to pay Interstate Battery a **$0.5 million** fee related to a similar provision[280](index=280&type=chunk)[357](index=357&type=chunk)[359](index=359&type=chunk) - Subsequent to year-end, the company completed a public offering for **$9.1 million** in net proceeds (Jan 2019), repaid its **$6.7 million** convertible debt to Interstate Battery (Jan 2019), and entered into a major Operations, Management and Maintenance contract with Veolia (Feb 2019)[389](index=389&type=chunk)[390](index=390&type=chunk)[393](index=393&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=89&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This section is not applicable as the company reports no changes in or disagreements with its accountants - There were no changes in or disagreements with accountants on accounting and financial disclosure[398](index=398&type=chunk) [Controls and Procedures](index=89&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes - Management concluded that disclosure controls and procedures were effective as of December 31, 2018[400](index=400&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2018[402](index=402&type=chunk) [Other Information](index=89&type=section&id=Item%209B.%20Other%20Information) This section details significant post-fiscal year-end events, including a two-year operations agreement with Veolia involving stock and warrant issuance, and amended executive employment agreements - On February 28, 2019, the company entered into a significant agreement with Veolia to provide operational, maintenance, and managerial services for the TRIC facility[404](index=404&type=chunk) - As consideration for the Veolia agreement, Aqua Metals will issue **2,350,000 common shares** in installments and warrants to purchase **4,000,000 shares** at exercise prices of **$5.00** and **$7.00**[410](index=410&type=chunk) - The employment agreement for CEO Stephen Cotton was amended to increase his salary to **$450,000** and grant him options to purchase **1,260,000 shares** of common stock[411](index=411&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=91&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders [Executive Compensation](index=91&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=91&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders [Certain Relationships and Related Transactions, and Director Independence](index=91&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders [Principal Accountant Fees and Services](index=91&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders Part IV [Exhibits and Financial Statement Schedules](index=92&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the 10-K, including material contracts and corporate governance documents - This section contains the index of all exhibits filed with the 10-K, including material contracts such as agreements with Johnson Controls, Interstate Battery, and Veolia, as well as employment agreements and corporate governance documents[417](index=417&type=chunk)[419](index=419&type=chunk)[432](index=432&type=chunk)