Aqua Metals(AQMS) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Aqua Metals, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, financial line items, and key events such as the strategic shift to a capital-light licensing model and recent investment activities Condensed Consolidated Balance Sheets The company's financial position as of June 30, 2021, shows a notable increase in cash and total current assets, alongside a substantial decrease in net property and equipment, reflecting the reclassification of assets held for sale and the recognition of a lease receivable Key Balance Sheet Data (in thousands) | Metric | June 30, 2021 | December 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $10,704 | $6,533 | $4,171 | 63.8% | | Total current assets | $17,155 | $8,358 | $8,797 | 105.2% | | Property and equipment, net | $1,930 | $24,883 | $(22,953) | -92.2% | | Assets held for sale | $4,339 | — | $4,339 | N/A | | Lease receivable, non-current portion | $16,037 | — | $16,037 | N/A | | Total assets | $38,128 | $35,138 | $2,990 | 8.5% | | Total current liabilities | $6,415 | $3,454 | $2,961 | 85.7% | | Total liabilities | $6,432 | $3,999 | $2,433 | 60.8% | | Total stockholders' equity | $31,696 | $31,139 | $557 | 1.8% | - The significant decrease in Property and equipment, net, and the corresponding increase in Assets held for sale and Lease receivable, non-current portion, reflect the company's strategic shift and the lease-to-buy agreement for its TRIC facility[9] Condensed Consolidated Statements of Operations Aqua Metals reported a substantial net loss for both the three and six months ended June 30, 2021, primarily due to a significant loss on disposal of property and equipment and increased cost of product sales, with no product sales revenue in either period Key Operations Data (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product sales | $— | $— | $— | $18 | | Total operating expense | $4,443 | $3,768 | $8,642 | $7,849 | | Loss from operations | $(4,443) | $(3,768) | $(8,642) | $(7,831) | | Loss on disposal of property and equipment | $(4,254) | $— | $(4,254) | $— | | PPP loan forgiveness | $201 | $— | $332 | $— | | Net loss | $(8,016) | $(3,983) | $(12,102) | $(8,410) | | Basic and diluted net loss per share | $(0.12) | $(0.07) | $(0.18) | $(0.14) | - The significant increase in net loss for the three and six months ended June 30, 2021, was largely driven by a $4.254 million loss on disposal of property and equipment, which was not present in the prior year[12] - Product sales remained at zero for the reported periods in 2021, indicating the continued suspension of commercial production following the 2019 fire[12] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased slightly from December 31, 2020, to June 30, 2021, primarily due to significant contributions to additional paid-in capital from stock-based compensation, RSU vesting, stock option exercises, and ATM share sales, which partially offset the period's net loss Key Stockholders' Equity Changes (in thousands) | Metric | December 31, 2020 | June 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :---------------- | :------------ | :--------- | :--------- | | Common Stock Amount | $64 | $69 | $5 | 7.8% | | Additional Paid-in Capital | $196,728 | $209,382 | $12,654 | 6.4% | | Accumulated Deficit | $(165,653) | $(177,755) | $(12,102) | 7.3% | | Total Stockholders' Equity | $31,139 | $31,696 | $557 | 1.8% | - Additional paid-in capital increased by $12,654 thousand, largely driven by $9,328 thousand from ATM share sales and $1,298 thousand from stock-based compensation during the six months ended June 30, 2021[15] - The accumulated deficit increased by $12,102 thousand, directly reflecting the net loss incurred for the six months ended June 30, 2021[15] Condensed Consolidated Statements of Cash Flows Aqua Metals reported a net increase in cash and cash equivalents for the six months ended June 30, 2021, primarily driven by substantial cash provided by financing activities, largely from ATM share sales, which more than offset cash used in operating and investing activities Key Cash Flow Data (Six Months Ended June 30, in thousands) | Activity | 2021 | 2020 | Change ($) | Change (%) | | :---------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Net cash used in operating activities | $(4,940) | $(8,323) | $3,383 | -40.6% | | Net cash (used in) provided by investing activities | $(1,131) | $5,350 | $(6,481) | -121.1% | | Net cash provided by financing activities | $10,242 | $174 | $10,068 | 5786.2% | | Net increase (decrease) in cash and cash equivalents | $4,171 | $(2,799) | $6,970 | -249.0% | | Cash and cash equivalents at end of period | $10,704 | $4,776 | $5,928 | 124.1% | - Cash provided by financing activities surged to $10,242 thousand in H1 2021, primarily from $9,331 thousand in net proceeds from ATM share sales, a significant increase from $174 thousand in H1 2020[17] - Investing activities shifted from providing $5,350 thousand in H1 2020 (due to insurance proceeds) to using $1,131 thousand in H1 2021, mainly for property and equipment purchases and investment in LiNiCo[17] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of Aqua Metals' accounting policies, financial statement line items, and significant events, including the strategic shift to a capital-light licensing model after a 2019 fire, the lease-to-buy agreement for its facility, recent investments, and financing activities 1. Organization Aqua Metals, Inc. was incorporated in 2014, initially focused on lead recycling using its proprietary AquaRefining™ process. Following a fire in November 2019, the company shifted to a capital-light strategy, focusing on equipment supply and technology licensing, and recently signed an LOI to deploy and license AquaRefining equipment in Taiwan - Aqua Metals transitioned from operating a capital-intensive lead recycling facility to a capital-light strategy focused on equipment supply and technology licensing for its AquaRefining™ process after a November 2019 fire[20][22] - The AquaRefining™ process is a novel, proprietary, and patented room-temperature, water-based method for lead recycling that emits less pollution than traditional smelting[20][21] - On July 1, 2021, the company signed a Letter of Intent (LOI) with ACME Metal Enterprise Co., Ltd. (ACME) to deploy and license AquaRefining equipment at its facility in Keelung, Taiwan[22] 2. Summary of Significant Accounting Policies The company's unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP, with no material changes in significant accounting policies during the reported period. The company operates as one operating and geographic segment and has received $25.0 million in insurance payments related to the 2019 fire, with an additional $5.25 million agreed upon post-quarter end Basis of presentation The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, including all necessary adjustments, and should be read in conjunction with the 2020 annual report on Form 10-K - Financial statements are prepared in accordance with U.S. GAAP and SEC rules, including all necessary normal recurring adjustments[24] - The statements should be read in conjunction with the Company's audited consolidated financial statements for the period ended December 31, 2020, included on Form 10-K[25] Principles of consolidation The condensed consolidated financial statements include the accounts of Aqua Metals, Inc. and its wholly-owned subsidiaries, with all significant inter-company accounts and transactions eliminated - The financial statements include the accounts of the Company and its wholly-owned subsidiaries[28] - Significant inter-company accounts and transactions have been eliminated in consolidation[28] Use of estimates The preparation of financial statements requires management to make estimates and assumptions, particularly regarding long-lived assets, deferred tax assets, stock option expense, and fair value of stock warrants, with actual results potentially differing from these estimates - Management makes estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities[29] - Significant items subject to estimates include the carrying amount and valuation of long-lived assets, valuation allowances for deferred tax assets, stock option expense, and fair value of stock warrants[29] Net loss per share Basic net loss per share is computed by dividing net loss by weighted average common shares outstanding. Diluted net loss per share includes common stock equivalents (options, RSUs, warrants) only when dilutive, which were excluded in the reported periods due to net losses Excluded Potentially Dilutive Securities (as of June 30) | Security Type | 2021 | 2020 | | :------------ | :---------- | :---------- | | Options | 1,038,439 | 1,425,004 | | Unvested RSUs | 4,840,763 | 4,244,003 | | Warrants | 6,372 | 103,500 | | Total | 5,885,574 | 5,772,507 | - The listed potentially dilutive securities were excluded from the diluted net loss per share calculation because their effect was anti-dilutive due to a net loss in the periods presented[30][31] Segment and geographic information The company operates and manages its business as a single operating segment and in one geographic segment - The chief operating decision maker views its operations and manages its business in one operating segment[32] - The Company operates in only one geographic segment[32] Concentration of credit risk Aqua Metals generated no revenue in the six months ended June 30, 2021. In the prior year, 100% of nominal revenue came from one customer, Clarios, with no trade accounts receivable at either period end - No revenue was generated during the six months ended June 30, 2021[35] - Revenue from one customer, Clarios, represented 100% of total revenue ($18,000) for the six months ended June 30, 2020[35] - The Company did not have a trade accounts receivable balance as of June 30, 2021, or December 31, 2020[35] Recent accounting pronouncements There were no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2021, that were significant to the company - No material changes in significant accounting policies during the three and six months ended June 30, 2021[23] - There were no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2021, that are of significance or potential significance to the Company[36] Insurance Proceeds As of June 30, 2021, Aqua Metals had received $25.0 million in insurance payments for the November 2019 fire. Subsequent to quarter-end, an additional $5.25 million was agreed upon, bringing the total collected to approximately $30.25 million - Total insurance payments received as of June 30, 2021, for the November 2019 fire: $25.0 million[36] - Subsequent to quarter-end, an additional $5.25 million payment was agreed upon with insurance carriers[36] - The total collected from insurance is expected to be approximately $30.25 million[36] 3. Revenue Recognition Historically, Aqua Metals generated revenues by recycling lead-acid batteries and selling recovered lead and plastics. However, the company was not in commercial production during the three and six months ended June 30, 2021, or the comparable 2020 periods, with nominal 2020 revenue from inventory sales - The Company was not in commercial production during the three and six months ended June 30, 2021, or during the three and six months ended June 30, 2020[38] - Nominal revenue generated during the six months ended June 30, 2020, resulted from the sale of inventory[38] - Historically, 100% of the Company's revenue came from products transferred to customers at a single point in time, including recycled lead (compounds, hard lead, AquaRefined lead) and plastics[37][38] 4. Lease Receivable Aqua Metals entered a sales-type lease agreement with LiNiCo Corporation for its TRIC facility, commencing April 1, 2021, with LiNiCo having an option to purchase the property for $14.25-$15.25 million. The company recognized a $17.0 million lease receivable and $20,000 in interest income for Q2 2021 - Aqua Metals leased its 136,750 square foot recycling facility at TRIC to LiNiCo Corporation under an Industrial Lease Agreement, commencing April 1, 2021, and expiring March 31, 2023[39] - LiNiCo has an option to purchase the land and facilities for $14.25 million (by Oct 1, 2022) or $15.25 million (after Oct 1, 2022, by Mar 31, 2023), subject to nonrefundable deposits[39] - The agreement was accounted for as a sales-type lease, recognizing an estimated fair market value of $17.0 million as a lease receivable, and $20,000 of interest income was recorded for the three months ended June 30, 2021[41] 5. Inventory Total inventory decreased from $1,091 thousand at December 31, 2020, to $662 thousand at June 30, 2021, primarily due to a reduction in raw materials Inventory (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :------------ | :------------ | :---------------- | | Finished goods | $2 | $2 | | Work in process | $245 | $247 | | Raw materials | $415 | $842 | | Total inventory | $662 | $1,091 | - Total inventory decreased by $429 thousand (-39.3%) from December 31, 2020, to June 30, 2021, mainly driven by a $427 thousand reduction in raw materials[42] 6. Assets Held for Sale Aqua Metals classified $5.2 million of assets as held for sale during Q2 2021, believing them unnecessary for future operations, and sold assets with a book value of $0.8 million, including a battery breaker - For the three months ended June 30, 2021, the Company classified certain assets with a net book value of $5.2 million as held for sale, as management believes these assets are no longer necessary for future operating plans[44] - During the same quarter, the Company sold assets held for sale with a book value of $0.8 million, which included a battery breaker and related equipment[44] 7. Property and Equipment, net Property and equipment, net, significantly decreased from $24,883 thousand at December 31, 2020, to $1,930 thousand at June 30, 2021, primarily due to the reclassification of land, building, and operational equipment, likely related to the lease-to-buy agreement and assets held for sale Property and Equipment, net (in thousands) | Asset Class | June 30, 2021 | December 31, 2020 | | :------------------------ | :------------ | :---------------- | | Operational equipment | $1,435 | $12,126 | | Land | $— | $1,047 | | Building | $— | $19,508 | | Equipment under construction | $1,715 | $3,597 | | Total property and equipment, net | $1,930 | $24,883 | - The net book value of property and equipment decreased by $22,953 thousand (-92.2%) from December 31, 2020, to June 30, 2021, largely due to the reclassification of land, building, and operational equipment[46] - Depreciation expense for the six months ended June 30, 2021, was $0.5 million, a decrease from $1.0 million in the comparable 2020 period[46] 8. Investments Aqua Metals invested $1.5 million in LiNiCo Corporation, receiving 1,500 shares of Series A Preferred Stock (approx. 9% ownership) and a three-year warrant, accounted for at cost. The investment involved issuing 375,000 shares of Aqua Metals common stock and a $232,000 cash payment to LiNiCo - On February 15, 2021, Aqua Metals invested $1.5 million in LiNiCo Corporation, receiving 1,500 shares of Series A Preferred Stock and a three-year warrant to purchase an additional 500 shares[49] - The investment represents approximately 9% of LiNiCo common stock on a fully diluted basis and was accounted for at cost under ASC 321, Investments-Equity Securities[49][50] - Consideration for the investment included the issuance of 375,000 shares of Aqua Metals common stock and a cash payment of $232,000 to LiNiCo[49][52] 9. Accrued Liabilities Total accrued liabilities significantly increased from $1,253 thousand at December 31, 2020, to $4,634 thousand at June 30, 2021, primarily driven by a new accrued liability for building repair Accrued Liabilities (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :----------------------- | :------------ | :---------------- | | Building repair | $2,547 | $— | | Property and equipment related | $1,321 | $715 | | Payroll related | $727 | $479 | | Use tax accrual | $10 | $1 | | Other | $29 | $58 | | Total accrued liabilities | $4,634 | $1,253 | - The total accrued liabilities increased by $3,381 thousand (+269.8%) from December 31, 2020, to June 30, 2021, largely due to the recognition of $2,547 thousand for building repair[55] 10. Leases Aqua Metals maintains one immaterial finance lease and two operating leases for real estate, with remaining terms of 76 and 42 months. As of June 30, 2021, total right-of-use assets were $0.46 million and operating lease liabilities were $0.54 million, with sublease income recognized in both 2021 and 2020 Lease Information (in thousands) | Metric | June 30, 2021 | June 30, 2020 | | :-------------------------------- | :------------ | :------------ | | Total right-of-use assets | $460 | $960 | | Operating lease liabilities | $539 | $1,120 | | Sublease income (six months ended) | $255 | $216 | - As of June 30, 2021, the weighted-average remaining lease term for operating leases was 0.7 years, with a weighted-average discount rate of 9.66%[60] - Operating lease liabilities due in the 12-month period ended June 30, 2022, totaled $561 thousand, with an imputed interest of $(22) thousand, resulting in current operating lease liabilities of $539 thousand[61] 11. Notes Payable All notes payable, primarily from the Paycheck Protection Program (PPP) loans totaling $332,000, were forgiven during the six months ended June 30, 2021, resulting in no outstanding notes payable at period end Notes Payable (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :----------------------- | :------------ | :---------------- | | Notes payable, current portion | $— | $29 | | Notes payable, non-current portion | $— | $303 | | Total notes payable | $— | $332 | - Both of the Company's two PPP loans, totaling $332,000, were forgiven during the six months ended June 30, 2021, eliminating all outstanding notes payable[63] 12. Stockholders' Equity During the six months ended June 30, 2021, Aqua Metals issued a significant number of common shares through RSU vesting, cashless warrant exercises, an investment in LiNiCo, stock option exercises, and ATM share sales, contributing to an increase in additional paid-in capital. Stock-based compensation expense for the period was $1,298 thousand Shares issued Aqua Metals issued over 4 million common shares in the first half of 2021, primarily through ATM sales (2.47 million shares for $9.3 million net proceeds), RSU vesting (884,411 shares), and stock option exercises (347,901 shares), and 375,000 shares for the LiNiCo investment - Issued 2,473,359 shares of common stock through At The Market (ATM) share sales, generating net proceeds of $9.3 million during the six months ended June 30, 2021[65] - Issued 884,411 shares of common stock upon vesting of Restricted Stock Units (RSUs) granted to management, employees, and Board members[64][65] - Issued 375,000 shares of common stock related to the LiNiCo investment and 347,901 shares upon stock option exercises[65] Stock-based compensation Stock-based compensation expense for the six months ended June 30, 2021, was $1,298 thousand, primarily allocated to general and administrative expenses, a decrease from $1,510 thousand in the prior year. No options were issued in either period Stock-based Compensation Expense (in thousands) | Allocation | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------- | :----------------------------- | :----------------------------- | | Cost of product sales | $47 | $44 | | Research and development cost | $53 | $120 | | General and administrative expense | $1,198 | $1,346 | | Total | $1,298 | $1,510 | - Total stock-based compensation expense decreased by $212 thousand (-14.0%) for the six months ended June 30, 2021, compared to the prior year[68] - No options were issued during the three and six months ended June 30, 2021, or the comparable periods in 2020[68] Restricted stock units In February 2021, 25,000 RSUs were granted to a contractor, vesting upon licensing agreement, engineering package delivery, and project handover. In May 2021, 81,883 RSUs were granted to Board members, vesting in twelve equal installments over one year, with 13,648 shares vested during the six months ended June 30, 2021 - 25,000 RSUs with a grant fair value of $151,500 were granted to a contractor in February 2021, vesting upon specific project milestones (licensing agreement, engineering package, project handover)[71] - 81,883 RSUs with a grant fair value of $235,000 were granted to Board members in May 2021, vesting in twelve equal installments over a one-year period[71] - 13,648 shares from Board member RSU grants vested during the six months ended June 30, 2021, while no shares from the contractor grant vested in this period[71] 13. Commitments and Contingencies The company refers to Item 1. Legal Proceedings for information on legal matters - For details regarding legal proceedings, refer to Item 1. Legal Proceedings[72] 14. Subsequent Events Subsequent to June 30, 2021, Aqua Metals signed a definitive agreement with ACME Metal Enterprise Co., Ltd. to deploy and license AquaRefining equipment in Taiwan, following an LOI. Additionally, the company reached a final agreement with insurance carriers for an additional $5.25 million payment, bringing total fire-related insurance proceeds to approximately $30.25 million - On July 28, 2021, Aqua Metals signed a definitive agreement with ACME Metal Enterprise Co., Ltd. to deploy and license AquaRefining equipment at its facility in Keelung, Taiwan[74] - Subsequent to quarter-end, the Company and insurance carriers agreed on an additional $5.25 million payment, bringing the total collected from insurance for the 2019 fire to approximately $30.25 million[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Aqua Metals' financial condition and operational results, highlighting the strategic shift to a capital-light licensing model for its AquaRefining™ technology after the 2019 fire. It details the improved Aqualyzer technology, the lease-to-buy agreement for the TRIC facility, and the investment in LiNiCo for lithium-ion battery recycling, while acknowledging the absence of commercial revenue and the need for additional capital Cautionary Statement This section contains forward-looking statements about the company's business and prospects, which involve risks and uncertainties, including those detailed in the 'Risk Factors' section. Investors are cautioned that actual results may differ, and the company does not undertake to update these statements - The report contains forward-looking statements regarding business and prospects, identified by phrases like 'will likely result,' 'are expected to,' 'believes,' 'expects,' etc[78] - Future results involve risks and uncertainties, including those detailed in Part II, Item 1A 'Risk Factors'[79] - No assurance can be given that forward-looking statements will be achieved, and the company does not undertake any obligation to update them[79] General Aqua Metals (NASDAQ: AQMS) specializes in lead recycling using its patented AquaRefining™ process, which is a room-temperature, water-based technology with reduced environmental emissions and high-purity lead output. Following a 2019 fire at its TRIC facility, the company shifted to a capital-light strategy focused on licensing and equipment supply, having successfully completed the V1.25L Aqualyzer program with 100% increased throughput and significant cost reductions - Aqua Metals is engaged in equipment supply, technology licensing, and related services for lead recycling through its proprietary AquaRefining™ process[80] - Following a November 2019 fire at its TRIC facility, the company adopted a capital-light strategy focusing on licensing opportunities and equipment supply[83][86][87] - The V1.25L Aqualyzer program, completed in Q4 2020, achieved 100% greater lead production throughput, a 50% reduction in Aqualyzers needed, a 50% decrease in capital expenditures, and over 60% reduction in operating expenses compared to the V1.0 Aqualyzer[85] Plan of Operations Aqua Metals is pursuing a capital-light strategy focused on licensing its AquaRefining technology globally, aiming to maximize shareholder value by becoming an equipment and services supplier. This strategy includes expanding into lithium-ion battery recycling through a $1.5 million investment in LiNiCo Corporation, which also involves a lease-to-buy agreement for Aqua Metals' TRIC facility - The Company's plan of operations is centered on a capital-light strategy, pursuing global licensing opportunities for its AquaRefining technology to become an equipment and services supplier[89][90] - This strategy includes an expansion into lithium-ion battery recycling through a $1.5 million investment in LiNiCo Corporation, which also involves a lease-to-buy agreement for Aqua Metals' TRIC facility[91] - Improvements from the V1.25L Aqualyzer program, including 100% increased lead production throughput and reduced costs, are expected to demonstrate the value proposition to potential licensees[90] Results of Operations Aqua Metals had no commercial revenue in Q2 2021 or Q2 2020 (except nominal inventory sales in Q1 2020) due to the 2019 fire. The company reported increased operating expenses, primarily due to higher cost of product sales from plant clean-up, and a significant net loss driven by a $4.3 million loss on disposal of property and equipment. Insurance proceeds and PPP loan forgiveness provided some offset Key Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product sales | $— | $— | $— | $18 | | Cost of product sales | $2,138 | $1,306 | $3,749 | $2,760 | | Research and development cost | $176 | $217 | $465 | $459 | | General and administrative expense | $2,129 | $2,245 | $4,428 | $4,630 | | Loss on disposal of property and equipment | $(4,254) | $— | $(4,254) | $— | | PPP loan forgiveness | $201 | $— | $332 | $— | | Interest expense | $(4) | $(164) | $(9) | $(347) | - Cost of product sales increased by 63.7% for the three months ended June 30, 2021, primarily due to plant clean-up costs in preparation for the facility's lease and eventual sale[95] - A $4.254 million loss on disposal of property and equipment was recognized during the three months ended June 30, 2021, including a $3.5 million loss from the lease-to-purchase arrangement for the McCarran facility[99] Liquidity and Capital Resources As of June 30, 2021, Aqua Metals had $10.7 million in cash and working capital. The company believes it will require additional capital for its capital-light licensing strategy over the next 12 months, intending to secure funds from remaining insurance proceeds, asset sales, and plant lease/sale, but may also seek equity or debt financing, which could be dilutive Liquidity and Capital Resources (in thousands) | Metric | June 30, 2021 | | :----------------------- | :------------ | | Total cash | $10,704 | | Working capital | $10,700 | - Net cash provided by financing activities for the six months ended June 30, 2021, was $10,242 thousand, primarily from $9,331 thousand in net proceeds from ATM share sales[105] - The company anticipates needing additional capital over the next 12 months to fund its capital-light licensing strategy and plans to acquire it through remaining insurance proceeds, asset sales, and funds from the plant lease/sale, with potential for dilutive equity or debt financing[106] Off-Balance Sheet Arrangements Aqua Metals does not have any off-balance sheet financing arrangements - The Company does not have any off-balance sheet financing arrangements[108] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is marked as 'Not applicable' in the report, indicating no quantitative or qualitative disclosures about market risk are provided - This section is marked as 'Not applicable'[108] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021. There were no material changes in internal control over financial reporting during the six-month period Evaluation of Disclosure Controls and Procedures Management, with CEO and CFO participation, evaluated and concluded that disclosure controls and procedures were effective as of June 30, 2021 - 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, 2021[108] Changes in Internal Control Over Financial Reporting There were no changes in internal control over financial reporting during the six months ended June 30, 2021, that materially affected or are reasonably likely to materially affect it - There were no changes in internal control over financial reporting that occurred during the six month period ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[109] PART II - OTHER INFORMATION Item 1. Legal Proceedings Aqua Metals is involved in two class action lawsuits: a securities litigation alleging false statements and a shareholder derivative action alleging breach of fiduciary duties. Both cases reached stipulations for settlement in July 2021, subject to court approval, involving a cash payment (partially insurance-funded) for the securities case and corporate governance reforms for the derivative case - A consolidated securities class action lawsuit, 'In Re: Aqua Metals, Inc. Securities Litigation,' alleges false and misleading statements and deceptive site visits[111] - In July 2021, parties entered a stipulation for settlement for the securities lawsuit, involving a cash payment to plaintiffs funded by insurance carriers plus $500,000 from Aqua Metals (cash or common shares), subject to court approval[111] - A consolidated shareholder derivative action, 'In re Aqua Metals, Inc. Stockholder Derivative Litigation,' alleges breach of fiduciary duties by officers and directors, with a stipulation for settlement in July 2021 based on corporate governance reforms, subject to court approval[112] Item 1A. Risk Factors This section outlines significant risks to Aqua Metals' business, including the impact of the 2019 fire and the uncertainty of its revised capital-light licensing strategy, the unproven commercial scale of its novel AquaRefining technology, the need for additional financing, and potential adverse effects from global economic conditions, intellectual property challenges, and regulatory compliance, especially in international expansion Risks Relating to Our Business Key business risks include the uncertainty of the revised capital-light licensing strategy post-2019 fire, the unproven commercial scalability of AquaRefining technology, the need for additional financing, potential adverse effects from the coronavirus outbreak, and challenges in securing licensing agreements and strategic partnerships. The company also faces risks related to intellectual property protection, potential infringement claims, and compliance with environmental, health, and safety regulations, particularly with hazardous materials and international operations - The revised capital-light business model, focusing on licensing AquaRefining technology after the 2019 fire, is not assured of success, and the company may require additional capital that might not be available[116][123] - The AquaRefining process is novel and has only been demonstrated on a modest scale; there is no assurance it can be replicated commercially with adequate profit margins by the company or its licensees[122][126][129] - The company faces risks in securing and integrating licensing arrangements, joint ventures, or strategic alliances, with no assurance of concluding definitive agreements or achieving expected benefits[117][135] - Intellectual property rights may not adequately protect the business, with risks of challenges, invalidation, circumvention, and costly disputes over infringement claims[131][132][134] - Operations are subject to federal, state, and local environmental, health, and safety laws, with risks of significant penalties, liabilities from mishandling hazardous materials (e.g., lead, acids), and opposition to facility operations[140][145] Risks Related to Owning Our Common Stock The market price of Aqua Metals' common stock is highly volatile and subject to various factors, potentially leading to substantial investor losses. Future sales of common stock could negatively impact the market price, and the company has no plans to pay dividends. Charter documents and Delaware law may also inhibit favorable takeovers - The market price of Aqua Metals' common stock is subject to wide fluctuations due to factors like operational results, analyst recommendations, technological innovations, and general economic conditions, potentially leading to substantial investor losses[149] - Future issuances or sales of substantial amounts of common stock, or the perception of such sales, could negatively impact the market price and terms for future equity financing[153] - The company has not paid and does not plan to pay dividends, intending to reinvest all earnings to pursue its business plan and cover operating costs[154] - Provisions in the company's charter documents and Delaware law may delay or discourage transactions involving a change in control, potentially depriving stockholders of a premium for their shares[155][156] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's amended certificate of incorporation and bylaws, the third amendment to the equipment supply agreement with Clarios, and various certifications required by the Sarbanes-Oxley Act and Inline XBRL documents - Key exhibits include the Third Amendment to Equipment Supply Agreement dated June 30, 2021, between Aqua Metals and Clarios, LLC[159] - Corporate governance documents such as the First Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws are filed[159] - Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, along with Inline XBRL documents, are included[160][161][162][163] SIGNATURES The report is signed by Stephen Cotton, President, Chief Executive Officer and Director (Principal Executive Officer), and Judd Merrill, Chief Financial Officer (Principal Financial Officer), on July 29, 2021, certifying its submission in accordance with the Exchange Act - The report is signed by Stephen Cotton, President, Chief Executive Officer and Director (Principal Executive Officer)[165] - The report is also signed by Judd Merrill, Chief Financial Officer (Principal Financial Officer)[165] - The signing date for the report is July 29, 2021[165]