UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~ 2021

☐	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 of

incorporation or organization)

(I.R.S. Employer

Identification no.)

2500 Peru Dr.

~~1010 Atlantic Avenue~~

~~Alameda, California 94501~~McCarran, Nevada 89437

(Address of principal executive offices, including zip code)

~~(510) 479-7635~~(775) 446-4418

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class of stock:	Trading symbol	Name of each exchange on which registered:
Common Stock	AQMS	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (as defined in Rule 12b-2 of the Act):

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging Growth Company	☐
~~Non-accelerated filer ☐~~		~~Smaller reporting company ☐~~
~~(Do not check if a smaller reporting company)~~
		~~Emerging growth company ☒~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 6, 2017,~~July 26, 2021, there were ~~20,402,454~~69,457,518 outstanding shares of the common stock of Aqua Metals, Inc.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AQUA METALS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

ASSETS
							*June 30, 2021*			*December 31, 2020*
	September 30, 2017			December 31, 2016			*(unaudited)*			*(Note 2)*
		(unaudited)			(Note 2)
ASSETS
Current assets
Cash and cash equivalents	$	17,523		$	25,458		$	10,704		$	6,533
Restricted cash		—			1,124
Accounts receivable		577			—			290			32
Lease receivable, current portion								779			0
Inventory		1,218			59			662			1,091
Assets held for sale								4,339			0
Prepaid expenses and other current assets		856			729			381			702
Total current assets		20,174			27,370			17,155			8,358

Non-current assets
Property and equipment, net		45,485			41,392			1,930			24,883
Intellectual property, net		1,327			1,137			730			819
Investment in LiNiCo								1,500			0
Lease receivable, non-current portion								16,037			0
Other assets		1,219			1,630			776			1,078
Total non-current assets		48,031			44,159			20,973			26,780

Total assets	$	68,205		$	71,529		$	38,128		$	35,138

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	2,380		$	1,572		$	1,236		$	1,552
Accrued expenses		2,045			1,975			4,634			1,253
Deferred rent, current portion		188			177
Lease liability, current portion								545			620
Notes payable, current portion		420			307			0			29
Total current liabilities		5,033			4,031			6,415			3,454

Deferred rent, non-current portion		821			963
Asset retirement obligation		691			—
Lease liability, non-current portion								17			242
Notes payable, non-current portion		8,917			9,238			0			303
Convertible note payable, non-current portion		1,005			307
Total liabilities		16,467			14,539			6,432			3,999

Commitments and contingencies		—			—

Stockholders’ equity
Common stock; $0.001 par value; 50,000,000 shares authorized; 20,400,794 and 17,878,725 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		20			18
Common stock; $0.001 par value; 100,000,000 shares authorized; 68,607,326 and 64,461,065 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively								69			64
Additional paid-in capital		99,529			85,234			209,382			196,728
Accumulated deficit		(47,811	)		(28,262	)		(177,755	)		(165,653	)
Total stockholders’ equity		51,738			56,990			31,696			31,139

Total liabilities and stockholders’ equity	$	68,205		$	71,529		$	38,128		$	35,138

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AQUA METALS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016

Product sales $ 589 $ — $ 1,192 $ —

Operating cost and expense
Cost of product sales 3,140 — 5,671 —
Research and development cost 1,367 1,887 6,538 4,080
General and administrative expense 1,925 1,434 4,897 4,245
Impairment charge — — 2,411 —
Total operating expense 6,432 3,321 19,517 8,325

Loss from operations (5,843 ) (3,321 ) (18,325 ) (8,325 )

Other income and expenses
Interest expense (454 ) (203 ) (1,250 ) (318 )
Interest and other income 7 7 28 22

Total other income (expense), net (447 ) (196 ) (1,222 ) (296 )

Loss before income tax expense (6,290 ) (3,517 ) (19,547 ) (8,621 )

Income tax expense — — (2 ) (1 )

Net loss $ (6,290 ) $ (3,517 ) $ (19,549 ) $ (8,622 )

Weighted average shares outstanding, basic and diluted 20,265,020 15,574,620 19,732,372 14,818,484

Basic and diluted net loss per share $ (0.31 ) $ (0.23 ) $ (0.99 ) $ (0.58 )

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2021*			*2020*			*2021*			*2020*

Product sales	$	0		$	0		$	0		$	18

Operating cost and expense
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
Total operating expense		4,443			3,768			8,642			7,849

Loss from operations		(4,443	)		(3,768	)		(8,642	)		(7,831	)

Other income and (expense)
Insurance proceeds net of related expenses		460			(52	)		448			(255	)
PPP loan forgiveness		201			0			332			0
Loss on disposal of property and equipment		(4,254	)		0			(4,254	)		0
Interest expense		(4	)		(164	)		(9	)		(347	)
Interest and other income		24			3			25			25

Total other income (expense), net		(3,573	)		(213	)		(3,458	)		(577	)

Loss before income tax expense		(8,016	)		(3,981	)		(12,100	)		(8,408	)

Income tax expense		0			(2	)		(2	)		(2	)

Net loss	$	(8,016	)	$	(3,983	)	$	(12,102	)	$	(8,410	)

Weighted average shares outstanding, basic and diluted		68,152,296			60,136,374			67,518,650			59,859,493

Basic and diluted net loss per share	$	(0.12	)	$	(0.07	)	$	(0.18	)	$	(0.14	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AQUA METALS, INC.

Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

~~(Unaudited)~~

Additional Total
Common Stock Paid-in Accumulated Stockholders’
Shares Amount Capital Deficit Equity

Balances, December 31, 2016 17,878,725 $ 18 $ 85,234 $ (28,262 ) $ 56,990

Stock based compensation - stock options — — 592 — 592
Cashless exercise of warrants 1,173,296 1 (1 ) — —
Exercise of warrants to purchase common stock 2,500 — 15 — 15
Exercise of options to purchase common stock 283,310 — 1,068 — 1,068
Common stock issued under Officers and Directors Purchase Plan 182 — 1 — 1
Common stock issued for cash in February 2017 from Johnson Controls, net of $167 transaction cost 939,005 1 10,471 — 10,472
Common stock issued for purchase of Ebonex IPR Limited 123,776 — 2,149 2,149
Net loss — — — (19,549 ) (19,549 )

Balances, September 30, 2017 20,400,794 $ 20 $ 99,529 $ (47,811 ) $ 51,738

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Equity (Deficit)

Balances, March 31, 2021		67,755,336	$	68	$	206,914	$	(169,739	)	$	37,243

Stock-based compensation		—		0		619		0			619
Common stock issued to employees, includes RSUs vesting		300,162		0		0		0			0
Common stock issued upon exercise of employee stock options		2,083		0		3		0			3
Common stock issued upon warrant exercise		0		0		0		0			0
Common stock issued for ATM share sales, net of $67 transaction costs		549,745		1		1,846		0			1,847
Net loss		—		0		0		(8,016	)		(8,016	)

Balances, June 30, 2021		68,607,326	$	69	$	209,382	$	(177,755	)	$	31,696

Balances, December 31, 2020		64,461,065	$	64	$	196,728	$	(165,653	)	$	31,139

Stock-based compensation		—		0		1,298		0			1,298
RSUs issued for consulting services		—		0		34		0			34
Common stock issued to employees, includes RSUs vesting		884,411		1		0		0			1
Common stock issued upon exercise of employee stock options		347,901		0		727		0			727
Common stock issued upon warrant exercise		65,590		0		0		0			0
Common stock issued for ATM share sales, net of $311 transaction costs		2,473,359		3		9,328		0			9,331
Common stock issued related to LiNiCo investment		375,000		1		1,267		0			1,268
Net loss		—		0		0		(12,102	)		(12,102	)

Balances, June 30, 2021		68,607,326	$	69	$	209,382	$	(177,755	)	$	31,696

Balances, March 31, 2020		59,836,897	$	60	$	190,402	$	(144,318	)	$	46,144

Stock-based compensation		—		0		554		0			554
Common stock issued upon RSU vesting		437,199		0		0		0			0
Net loss		—		0		0		(3,983	)		(3,983	)

Balances, June 30, 2020		60,274,096	$	60	$	190,956	$	(148,301	)	$	42,715

Balances, December 31, 2019		57,997,780	$	58	$	189,422	$	(139,891	)	$	49,589

Stock-based compensation		—		0		1,510		0			1,510
Common stock issued upon RSU vesting		2,253,238		2		0		0			2
Common stock issued for consulting services		23,078		0		24		0			24
Net loss		—		0		0		(8,410	)		(8,410	)

Balances, June 30, 2020		60,274,096	$	60	$	190,956	$	(148,301	)	$	42,715

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AQUA METALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine months ended September 30,						*Six Months Ended June 30,*
	2017			2016			*2021*			*2020*
Cash flows from operating activities:
Net loss	$	(19,549	)	$	(8,622	)	$	(12,102	)	$	(8,410	)
Reconciliation of net loss to net cash used in operating activities
Depreciation		2,149			403			724			1,236
Amortization of intellectual property		118			93			90			90
Accretion of asset retirement obligation		21			—			0			24
Fair value of warrants issued for consulting services		—			138
Stock based compensation		592			898
Amortization of debt discount		206			26
Fair value of RSUs issued for consulting services								34			24
Stock-based compensation								1,299			1,510
Amortization of deferred financing costs		63			44			0			18
Non-cash convertible note interest expense		456			197
Impairment of acquired intellectual property		2,411			—
Inventory NRV adjustment								146			0
Loss on disposal of property and equipment								4,254			0
Forgiveness of PPP Loan								(332	)		0
Changes in operating assets and liabilities
Accounts receivable		(577	)		—			(258	)		244
Inventory		(1,159	)		—			283			49
Prepaid expenses and other current assets		150			(80	)		320			733
Accounts payable		1,152			500			222			(1,953	)
Accrued expenses		773			530			680			(1,671	)
Deferred rent		(132	)		71
Other assets and liabilities								(300	)		(217	)
Net cash used in operating activities		(13,326	)		(5,802	)		(4,940	)		(8,323	)

Cash flows from investing activities:
Decrease in restricted cash		1,124			8,263
Purchases of property and equipment, net		(6,618	)		(20,940	)
Other assets		—			(93	)
Intellectual property related expenditures		(436	)		(165	)
Net cash used in investing activities		(5,930	)		(12,935	)
Purchases of property and equipment								(1,217	)		(2,239	)
Proceeds from sale of equipment								275			0
Equipment deposits and other assets								43			(36	)
Insurance proceeds								0			7,625
Investment in LiNiCo								(232	)		0
Net cash (used in) provided by investing activities								(1,131	)		5,350

Cash flows from financing activities:
Proceeds from issuance of common stock, net of transaction costs		11,556			9,167
Proceeds from PPP Loan								0			332
Payments on notes payable		(133	)		—			0			(158	)
Payments on capital leases		(102	)		(21	)
Proceeds from issuance of convertible notes payable, net of issuance costs		—			4,858
Lease of building								184			0
Proceeds from exercise of stock options								727			0
Proceeds from ATM, net								9,331			0
Net cash provided by financing activities		11,321			14,004			10,242			174

Net decrease in cash and cash equivalents		(7,935	)		(4,733	)
Net increase (decrease) in cash and cash equivalents								4,171			(2,799	)
Cash and cash equivalents at beginning of period		25,458			20,141			6,533			7,575

Cash and cash equivalents at end of period	$	17,523		$	15,408		$	10,704		$	4,776

Nine months ended September 30,
2017 2016
Non-cash investing activities
Tenant improvement allowances $ — $ 78

Non-cash financing activities
Capital lease $ — $ 143

Supplemental disclosure of non-cash transactions
Change in property and equipment resulting from change in accounts payable $ (344 ) $ 2,548
Change in property and equipment resulting from change in accrued expenses $ (702 ) $ 123
Decrease in restricted cash resulting from a decrease in accounts payable $ — $ 2,644
Recognition of convertible debt discount $ — $ 4,975
Asset retirement obligation offset with asset retirement cost (property and equipment) $ 670 $ —
Fair value of common stock issued for intellectual property $ 2,149 $ —

	*Six Months Ended June 30,*
	*2021*			*2020*
Supplemental disclosure of cash flows information
Cash paid for income taxes	$	2		$	2
Cash paid for interest	$	0		$	308

Supplemental disclosure of non-cash transactions
Change in accounts receivable resulting from insurance funds held in escrow	$	0		$	4,875
Change in property and equipment resulting from change in accounts payable	$	538		$	(994	)
Change in property and equipment resulting from change in accrued expenses	$	0		$	(287	)
Change in equity resulting from change in accrued expenses	$	0		$	24
Change in investing activity resulting from issuance of equity	$	(1,268	)	$	0

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Aqua Metals, Inc. (the “Company”) was incorporated in Delaware and commenced operations on June 20, 2014 ~~(inception)~~(inception). On January 27, 2015, the Company formed two wholly-owned subsidiaries, Aqua Metals Reno, Inc. (“AMR”), and Aqua Metals Operations, Inc. (collectively, the “Subsidiaries”), both incorporated in Delaware. The Company is ~~reinventing~~engaged in the business of equipment supply, technology licensing and related services for recycling lead through a novel, proprietary and patented process the Company developed and named AquaRefining^™. Prior to November 29, 2019, the Company was engaged in the business of lead recycling ~~with~~through its ~~proprietary~~patented and patent-pending AquaRefining^TM technology. Following a fire at its lead recycling facility on November 29, 2019, the Company has been engaged in the pursuit of licensing opportunities within the lead battery recycling marketplace without maintaining and operating a capital-intensive lead recycling facility.

Unlike smelting, AquaRefining is a room temperature, water-based process that ~~is fundamentally non-polluting. These modular systems allow~~emits less pollution than smelting, the ~~lead-acid battery industry to simultaneously improve environmental impact and scale recycling production to meet demand.~~traditional method of lead recycling. The Company ~~intends~~built its first recycling facility in Nevada’s Tahoe Reno Industrial Center (“TRIC”) in McCarran, Nevada and intended to ~~manufacture the equipment it has developed, and~~ pursue the development of additional lead acid battery recycling facilities ~~both directly and~~based on the Company’s AquaRefining technology, likely through licensing or joint development arrangements. The Company commenced the shipment of products for sale, consisting of lead compounds and plastics in April 2017, and through March 31, 2018 substantially all revenue was derived from the sale of lead compounds and plastics. In April 2018, the Company commenced the limited production of lead bullion, including AquaRefined lead. In July 2018, the Company commenced the sale of pure AquaRefined lead in the form of two tonne blocks and in October 2018, the Company commenced the sale of AquaRefined lead in the form of battery manufacturing ready ingots. In November 2018, the Company received official vendor certification from Clarios for its AquaRefined lead and, in December 2018, the Company commenced shipments directly to Clarios owned and partner battery manufacturing facilities. In 2019, the Company operated its demonstration AquaRefinery at commercial quantity production levels and produced over 35,000 AquaRefined ingots by operating the AquaRefinery 24 hours a day and seven days a week for sustained periods of time. The AquaRefining Aqualyzers produced at or above the target 100 Kg/Hr of production throughput per module of six Aqualyzers or ~16-17 Kg/Hr per Aqualyzer and ran sustained endurance runs for over one month several times.

On the evening of November 29, 2019, a fire occurred in the AquaRefining area of the facility. The fire and related intense heat and smoke caused significant damage to a material amount of equipment in the AquaRefinery area, including all 16 AquaRefining modules, electrical and tank infrastructure, steel superstructure, control wiring and other supporting infrastructure. Following the fire, the Company adopted a capital light strategy designed to optimize shareholder value by focusing on equipment supply and licensing opportunities, which have always been a core part of the Company’s business plans. 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. The Company believes the path of licensing our technology has the potential to maximize shareholder value in that it could be far less capital intensive than a rebuild and could be funded solely or primarily from a combination of cash on hand, insurance proceeds and asset dispositions.

2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, ~~2016,~~2020, and the notes thereto, which are included in the Company’s Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2016,~~2020, as filed with the Securities and Exchange Commission, or the SEC, on ~~March 2, 2017.~~ February 25, 2021. There have been no material changes in the Company’s significant accounting policies during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 except for the addition of Revenue Recognition, Accounts Receivables and Asset Retirement Obligations, as described below.~~2021.

Basis of ~~Presentation~~presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards ~~Update (“ASU”~~Updates ("ASU") of the Financial Accounting Standards Board (“FASB”) and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by such accounting principles for complete financial statements. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly each of the condensed consolidated balance sheet as of ~~September~~June 30, ~~2017,~~2021, the condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016,~~2020, the condensed consolidated ~~statement~~statements of ~~stockholders’~~stockholders' equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and June 30, 2020 and the condensed consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016,~~2020, as applicable, have been made. The condensed consolidated balance sheet as of December 31, ~~2016~~2020 has been derived from ~~our~~the Company’s audited financial statements as of such date, but it does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with ~~our~~the Company's audited consolidated financial statements for the period ended December 31, ~~2016,~~2020, which are included on Form ~~10-K~~10-K filed with the Securities and Exchange Commission on ~~March 2, 2017.~~February 25,2021.

The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 are not necessarily indicative of results that may be expected for the year ~~ended~~ ending December 31, ~~2017.~~2021.

Table of Contents

AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its Subsidiaries, both of which are wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount and valuation of long-lived assets, ~~the valuation of conversion features of convertible debt,~~ valuation allowances for deferred tax assets, ~~the determination of fair value of estimated asset retirement obligations,~~ the determination of stock option expense and the determination of the fair value of stock warrants issued. Actual results could differ from those estimates.

~~AQUA METALS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Restricted cash~~

Restricted cash was comprised of funds held in escrow at Green Bank for the purpose of paying for the construction of the lead recycling plant building in McCarran, Nevada. As of September 30, 2017, the building has been completed and the funds have been dispersed.

~~Accounts receivable~~

The Company sells its products to large well-established companies and extends credit without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. In the event that payment of a customer’s account receivable is doubtful, the Company would reserve the receivable under an allowance for doubtful accounts. As of September 30, 2017, the Company believes that all receivables will be collected and, therefore, has not created any reserve for doubtful accounts.

~~Asset retirement obligations~~

The Company records the fair value of estimated asset retirement obligations associated with tangible long-lived assets in the period incurred. Retirement obligations associated with long-lived assets are those for which there is an obligation for closures and/or site remediation at the end of the assets’ useful lives. These obligations are initially estimated based on discounted cash flow estimates and are accreted to full value over time through charges to operating expense. In addition, asset retirement costs are capitalized as part of the related asset’s carrying value and are depreciated on a straight-line basis over the assets’ respective useful lives.

~~Revenue Recognition~~

~~The Company records revenue recognition in accordance with ASC 606,~~~~Revenue from Contracts with Customers~~.ASC 606 provides a single comprehensive model for the recognition of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) with the customer, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. ASC 606 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

~~Stock-based compensation~~

~~The Company recognizes compensation expense for stock-based compensation in accordance with ASC 718~~~~Compensation – Stock Compensation~~. For employee stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes-Merton method for stock options; the expense is recognized over the service period for awards to vest.

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted average number of ~~vested~~common shares outstanding during the period. Diluted net loss per share is computed by ~~giving effect~~dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method or the if-converted method, as applicable. For purposes of this calculation, stock options, restricted stock units (RSUs) and warrants to ~~all potential dilutive common securities, including convertible notes, options and warrants. Potential dilutive common shares include the dilutive effect of the~~purchase common stock underlying in-the-money stock options as is calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option and the average amount of compensation cost, if any, for future services that the Company has not yet recognized when the option is exercised, are ~~assumed~~considered to be ~~used to repurchase shares in the current period.~~

~~AQUA METALS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~For all periods presented in this report, convertible notes,~~common stock ~~options,~~equivalents and ~~warrants were not~~are only included in the ~~computation~~calculation of diluted net loss per share ~~because such inclusion would have had an~~when their effect is dilutive. The following shares underlying outstanding convertible notes, stock options, RSUs and warrants to purchase common stock were antidilutive ~~effect.~~due to a net loss in the periods presented and, therefore, were excluded from the dilutive securities computation for the six months ended June 30, as indicated below.

	Nine months ended
	September 30,				June 30,
Excluded potentially dilutive securities (1):	2017		2016		2021		2020

Convertible note - principal		702,247		702,247
Consulting warrants to purchase common stock		—		473,864
Options to purchase common stock		624,329		870,528		1,038,439		1,425,004
Unvested restricted stock units						4,840,763		4,244,003
Financing warrants to purchase common stock		2,340,828		3,295,258		6,372		103,500
Total potential dilutive securities		3,667,404		5,341,897		5,885,574		5,772,507

(1)

~~(1)~~

The number of shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the period end. Such amounts have not been adjusted for the treasury stock method or weighted average outstanding calculations as required if the securities were dilutive.

Segment and geographic information

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The ~~Company~~chief operating decision maker views its operations and manages its business in one operating segment, and the Company operates in only one geographic segment.

Table of Contents

AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Concentration of credit risk

~~Substantially all~~The Company did not generate revenue during the six months ended June 30, 2021. Revenue from one customer, Clarios (successor of ~~our revenue and accounts receivable for the three and nine-month period ended September 30, 2017 is attributable to~~ Johnson Controls Battery Group, Inc.), represented 100% of total revenue for the six months ended June 30, 2020, which totaled $18,000 for the sale of inventory during the first quarter of 2020. The Company did not have a trade accounts receivable balance as of June 30, 2021 or December 31, 2020. The accounts receivable balance on the Company's condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 consisted of amounts due from the return or sale of inventory and proceeds from assets held for sale.

Recent accounting pronouncements

~~In February 2016, the FASB issued ASU 2016-02 -~~~~Leases~~ (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.

There were no ~~other~~ recent accounting pronouncements or changes in accounting pronouncements during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 that are of significance or potential significance to the Company.

~~3. Revenue recognition~~

Insurance Proceeds

~~Revenues are recognized when control~~On November 29, 2019, there was a fire in the AquaRefining area of the ~~promised goods or services is transferred to customers, in an amount that reflects the consideration~~TRIC facility. As of June 30, 2021, the Company ~~expects to be entitled to~~had received $25.0 million in ~~exchange for those goods or services. Generally, this occurs with the delivery~~insurance payments as a result of the ~~Company’s products, primarily hard lead, lead compounds~~fire damage. Insurance proceeds of $1.4 million collected during the second quarter of 2021 were recorded as other income and ~~plastics,~~netted against related expenses. Subsequent to ~~customers. Sales, value add,~~quarter end, the Company and ~~other taxes, if any, that are~~the insurance carriers agreed on a payment of an additional $5.25 million. This payment represents the final expected payment from insurance bringing the total collected ~~concurrent with revenue-producing activities are excluded~~ from ~~revenue as they are subsequently remitted~~insurance to governmental authorities. Incidental items that are immaterial in the context of the contract are recognized as expense. Freight and shipping costs related to the transfer of the Company’s products to customers are included in revenue and cost of product sales. Payment on invoices is generally due within 30 days of the invoice.approximately $30.25 million.

~~AQUA METALS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~3. Revenue Recognition

The Company ~~generates~~has historically generated revenues by recycling lead acid batteries (“LABs”) and selling the recovered lead to its customers. Primary components of the recycling process include sales of recycled lead consisting of lead compounds, ingoted hard lead and ingoted AquaRefined lead as well as plastics. The Company commenced the shipment of products for sale, consisting of lead compounds and plastics, in April 2017, and ~~to the date of this report~~ through March 31, 2018, all revenue ~~has been~~was derived from the sale of lead compounds and plastics. In April 2018, the Company began shipping lead bullion in addition to lead compounds and plastics. In June 2018, the Company began shipping high purity lead from its AquaRefining process.

~~Arrangements with Multiple Performance Obligations~~

Contracts with customers may include multiple performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company ~~expects that many~~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. The nominal revenue generated during the six months ended June 30, 2020 resulted from the sale of our contracts will have a single performance obligation as the promise to transfer the individual goods or services will not be separately identifiable from other promises in the contracts and therefore, not distinct. For contracts with multiple performance obligations, revenue will be allocated to each performance obligation based on the Company’s best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling prices is based on prices charged separately to customers or expected cost-plus margin.

~~Revenue from~~inventory. Historically, Company products transferred to customers at a single point in time ~~as noted above with the delivery of the Company’s products to customers,~~ accounted for 100% of ~~our revenue during the three and nine months ended September 30, 2017.~~its revenue.

~~Practical Expedients and Exemptions~~4. Lease Receivable

The Company ~~does not disclose~~has entered into an Industrial Lease Agreement with LINICO Corporation, a Nevada corporation, or LiNiCo, dated February 15, 2021 pursuant to which the Company has leased to LiNiCo its 136,750 square foot recycling facility at TRIC. The lease commenced April 1, 2021 and expires on March 31, 2023. During the lease term, LiNiCo has the option to purchase the land and facilities at a purchase price of $14.25 million if the option is exercised and the sale is completed by October 1, 2022 and $15.25 million if the option is exercised and the sale is completed after October 1, 2022 and prior to March 31, 2023. The purchase option is subject to LiNiCo’s payment of a nonrefundable deposit of $1.25 million by October 15, 2021 and a second nonrefundable deposit of $2 million by November 22, 2022, both of which will be applied towards the purchase price. The lease agreement is a triple-net lease pursuant to which LiNiCo is responsible for all fixed costs, including maintenance, utilities, insurance, and property taxes. The lease agreement provides for LiNiCo’s monthly lease payments starting at $68,000 per month and increasing to $100,640 in the last six months of the lease. The lease agreement allows the Company to retain the use of a portion of the facility for the Company's ongoing research and development activities, including operation of the lab and the use of office space.

With respect to the portion of the facility that was damaged in the November 2019 fire, consisting of approximately 30,000 square feet, the Company is obligated to complete the clean-up of the damaged area, at the Company's expense, by July 31, 2021 and repair all damage to the damaged area, at the Company's expense, by November 15, 2021. With regard to the equipment on-site at TRIC, the Company has granted LiNiCo the right of first offer to purchase any equipment the Company offers for sale. The lease agreement contains customary representations, warranties and indemnities on the part of both parties.

The Company accounted for the Industrial Lease and Option to Purchase Agreement as a sales-type lease. As a component of the accounting for the agreement, the Company recognized the estimated fair market value of ~~unsatisfied performance obligations~~the land and plant of $17.0 million as a lease receivable, which is reflected on the Company's condensed consolidated balance sheets. The implied interest rate of 0.5% was utilized for ~~(i) contracts with an original expected length~~the amortization of ~~one year or less~~the scheduled building lease/purchase payments outlined in the agreement. The Company applies the monthly payments received as a reduction to lease receivable and ~~(ii) contracts for which we recognize revenue at~~interest income. The interest income recognized from the ~~amount~~agreement is included in "Interest and other income" on the Company's condensed consolidated statements of operations. For the three months ended June 30, 2021, the Company recognized a reduction in the lease receivable balance of approximately $184,000 and recorded $20,000 of interest income related to ~~which we have the right to invoice for services performed.~~this agreement.

4.5. Inventory

Inventory consisted of the following (in thousands):

September 30, 2017 December 31, 2016

Finished goods $ 15 $ —
Work in process 70 —
Raw materials 1,133 59
$ 1,218 $ 59

	June 30, 2021		December 31, 2020

Finished goods	$	2	$	2
Work in process		245		247
Raw materials		415		842
Total inventory	$	662	$	1,091

Table of Contents

AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(Unaudited)~~6. Assets Held for Sale

5.Assets are classified as held for sale when, among other factors, they are identified and marketed for sale in their present condition, management is committed to their disposal, and the sale of the asset is probable within one year. For the three months ended June 30, 2021, the Company classified certain assets with a net book value of $5.2 million to assets held for sale. Management believes these assets are no longer necessary for the Company's future operating plans. Also, during the quarter ended June 30, 2021, the Company sold assets held for sale with a book value of $0.8 million. These assets were comprised of a battery breaker and related equipment.

7. Property and ~~equipment,~~Equipment, net

Property and equipment, net, consisted of the following (in thousands):

	Useful Life		September 30,			December 31,			Useful Life
Asset Class	(Years)		2017			2016			(Years)		June 30, 2021			December 31, 2020

Operational equipment		3-10	$	15,773		$	15,132			3 - 10	$	1,435		$	12,126
Lab equipment		5		646			547			5		511			524
Computer equipment		3		175			140			3		178			222
Office furniture and equipment		5		321			298			3		215			221
Leasehold improvements		5-7		1,408			1,408
Land		—		1,047			1,047			-		0			1,047
Building		39		24,687			21,962			39		0			19,508
Asset Retirement Cost		20		670			—
Equipment under construction				3,672			1,635					1,715			3,597
				48,399			42,169					4,054			37,245
Less: accumulated depreciation				(2,914	)		(777	)				(2,124	)		(12,362	)

			$	45,485		$	41,392
Total property and equipment, net											$	1,930		$	24,883

~~Depreciation~~Property and equipment depreciation expense was ~~$762,000~~$0.3 million and ~~$2,149,000~~$0.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively, and ~~$205,000~~$0.5 million and ~~$403,000~~$1.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively. ~~The building is a 136,750 square foot lead acid battery recycling plant located in McCarran, Nevada.~~ Equipment under construction is ~~primarily AquaRefining modules~~comprised of various components being manufactured or installed by the ~~Company to be used in the McCarran, Nevada recycling plant.~~Company.

Certain costs necessary to make the recycling facility ready for its intended use have been capitalized, including interest expense on notes payable. Capitalized interest totaled $153,000 and $456,000 for the three and nine months ended September 30, 2016, respectively. Capitalization

Table of ~~interest ceased upon completion of the building in early November 2016.~~

~~6. Intellectual Property~~

On April 13, 2017, the Company entered into an agreement to purchase all of the capital shares of Ebonex IPR Limited, a company registered in England and Wales. Ebonex IPR Limited is a pre-revenue IP-based company that has developed patented technology in the field of advanced materials and manufacturing methods for advanced lead acid batteries. Total consideration was $2.5 million, consisting of cash, transaction costs and 123,776 shares of the Company’s common stock, which at the time had a closing market price of $17.36 per share. In accordance with ASC Topic 805-50, “Business Combinations – Related Issues”, the Company accounted for the transaction as an asset acquisition and allocated the consideration to the relative fair value of the assets acquired. The Company determined that the transaction was an asset acquisition rather than a business combination following the guidance in the above-mentioned standard. In order to be treated as a business combination, the acquired assets and assumed liabilities must constitute a business. A business requires a set of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. Ebonex IPR Limited has no processes such as strategic management processes, operational processes, or employees. Further, Ebonex IPR Limited provides no goods or services to customers, nor has it any investment or other revenues. Therefore, the Company concluded that the acquired assets and assumed liabilities do not constitute a business and are instead treated as an asset acquisition. Assets acquired consisted of a patent portfolio. The fair value of the patent portfolio, of $112,000, was determined by management with the assistance of an independent valuation specialist using an income approach. Included in the purchase were certain fixed assets that have been determined by management to have no immediate value and were not considered in the valuation of Ebonex IPR.

The Company initially recorded the transaction as an increase of $2.5 million to intellectual property, net on the balance sheet. Subsequently, due to the fair value of the patent portfolio being significantly less than total consideration, the early development stage of the technology acquired and the uncertainties inherent in research and development, in connection with the preparation of the Form 10-Q for the three-month period ended June 30, 2017, the Company recorded a non-cash impairment charge of $2.4 million for the period ended June 30, 2017.

Contents

AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The remaining $112,000 is being amortized straight-line over a 10-year period.~~

~~7. Asset Retirement Obligation~~

ASC Topic 410-20, “Asset Retirement and Environmental Obligations, Asset Retirement Obligations” requires the recording of a liability in the period in which an asset retirement obligation (ARO) is incurred, in an amount equal to the discounted estimated fair value of the obligation that is capitalized. In each subsequent fiscal quarter, this liability is accreted up to the final retirement cost. The determination of the ARO is based on an estimate of the future cost to remove and decontaminate the McCarran facility upon closure. The actual costs could be higher or lower than current estimates. The discounted estimated fair value of the closure costs is $670,000 and the obligation was recorded as of March 31, 2017, when the obligation was deemed to have occurred. Offsetting this ARO is, as noted in Note 5 above, an asset retirement cost of the same amount that has been capitalized. The estimated fair value of the closure costs is based on vendor quotes to remove and decontaminate the McCarran facility in accordance with the Company’s closure plan as filed with the State of Nevada in its “Application for the Recycling of Hazardous Waste, by Written Determination” in 2016. Accretion of the ARO for the three and nine months ended September 30, 2017 was $11,000 and $21,000, respectively.

The Company has entered into a facility closure trust agreement for the benefit of the Nevada Division of Environmental Protection (NDEP), an agency of the Nevada Division of Conservation and Natural Resources. Funds deposited in the trust are to be available, when and if needed, for potential decontamination and hazardous material cleanup in connection with the closure and/or post-closure care of the facility. The trustee will reimburse the Company or other persons as specified by the NDEP from the fund for closure and post-closure expenditures in such amounts as the NDEP shall direct in writing. $100,000 was contributed to the trust fund on October 31, 2016 and is included in other assets on the condensed consolidated balance sheet; $350,000 will be due and payable on October 31, 2017, and $220,000 will be due on October 31, 2018.

~~8. Convertible Note~~

~~The convertible note payable is with Interstate Battery Systems International, Inc. (Interstate Battery) and is comprised of the following (in thousands):~~

September 30, December 31,
2017 2016

Convertible note payable $ 5,000 $ 5,000
Accrued interest 799 343
Deferred financing costs, net (79 ) (115 )
Note discount (4,715 ) (4,921 )

Convertible note payable, non-current portion $ 1,005 $ 307

The convertible note payable bears interest at 11% per annum and is due May 25, 2019. The original note discount was calculated as the allocated fair value of the warrants issued in connection with the transaction, which included the issuance of common stock, warrants and the convertible note, as well as the allocated fair value of the embedded conversion feature, subject to limitations on the absolute amount of discount attributable to the convertible notes and its allocated value. The discount is being amortized using the effective interest method over the three-year term of the note, maturing on May 24, 2019.

~~9. Notes Payable~~

AMR entered into a $10,000,000 loan with Green Bank on November 3, 2015. The term of the loan is twenty-one years. During the first twelve months, only interest was payable and thereafter monthly payments of interest and principal are due. The interest rate will adjust on the first day of each calendar quarter to the greater of six percent (6%) or two percent (2%) per annum above the minimum prime lending rate charged by large U.S. money center commercial banks as published in the Wall Street Journal. The terms of the Loan Agreement contain various affirmative and negative covenants. Among them, AMR must maintain a minimum debt service coverage ratio of 1.25 to 1.0 (beginning with the twelve-month period ending March 31, 2017), a maximum debt-to-net worth ratio of 1.0 to 1.0 and a minimum current ratio of 1.5 to 1.0. AMR was in compliance with all but the minimum debt service coverage ratio covenant as of and for the three month periods ended March 31, June 30 and September 30, 2017. AMR has received a waiver for the minimum debt service coverage ratio covenant for the periods ending March 31, June 30, and September 30, 2017.

The net proceeds of the loan were used for the construction of the Company’s lead acid recycling operation McCarran, Nevada. Collateral for this loan is AMR’s accounts receivable, goods, equipment, fixtures, inventory, accessions and a certificate of deposit in the amount of $1,000,000.

The loan is guaranteed by the United States Department of Agriculture Rural Development (“USDA”), in the amount of 90% of the principal amount of the loan. The Company paid a guarantee fee to the USDA in the amount of $270,000 at the time of closing and will be required to pay to the USDA an annual fee in the amount of 0.50% of the guaranteed portion of the outstanding principal balance of the loan as of December 31 of each year.

The Thermo Fisher Financial Service obligations relate to capital leases. The costs associated with obtaining the Green Bank loan were recorded as a reduction to the carrying amount of the note and are being amortized as interest expense within the condensed consolidated statements of operations over the twenty-one year life of the loan.

On February ~~7, 2017,~~ 15, 2021, the Company entered into a Series A Preferred Stock Purchase Agreement with ~~Johnson Controls pursuant to which~~LINICO Corporation, a Nevada Corporation, or LiNiCo, that provided for the ~~Company issued and sold to a wholly-owned subsidiary~~Company's issuance of ~~Johnson Controls International plc,~~375,000 shares (“~~Johnson Controls”~~Aqua Shares”)~~, 939,005~~ of the Company's common stock in consideration of LiNiCo’s issuance of 1,500 shares of its Series A Preferred Stock, at a stated aggregate value of $1,500,000, along with a three-year warrant (“Series A Warrant”) to purchase an additional 500 shares of LiNiCo Series A Preferred Stock at an exercise price of $1,000 per share. The 1,500 shares of the Series A Preferred Stock represents approximately 9% of LiNiCo common stock on a fully diluted basis, before giving effect to the Company's exercise of the Series A Warrant or any other outstanding warrants of LiNiCo.

The Company accounted for the LiNiCo investment under ASC 321, Investments-Equity Securities, using the measurement alternative of recording at cost as the investment in LiNiCo doesn’t have a readily determinable fair value.

The LiNiCo Series A Preferred Stock is senior to all other capital stock of LiNiCo with regard to dividends and distributions upon liquidation, dissolution and sale of the company. Each share of LiNiCo Series A Preferred Stock is entitled to one vote per share and votes with the common stock on all matters, subject to certain protective provisions that require the approval of the holders of the Series A Preferred Stock voting as a class. The Series A Preferred Stock accrues a cumulative dividend of 8% per annum on the original stated value of $1,000 per share, and all accrued and unpaid dividends on the Series A Preferred Stock must be paid in full prior to the payment of any dividends on any other shares of LiNiCo capital stock. In the event of any liquidation or dissolution of LiNiCo, which would include a sale of LiNiCo, the holders of the Series A Preferred Stock shall receive the return of their stated value of $1,000 per share plus all accrued and unpaid dividends prior to any distribution to the holders of any other capital stock of LiNiCo, following which the holders of the Series A Preferred Stock shall participate in the distribution of any remaining assets with the holders of the junior stock on an as-converted basis. The Series A Preferred Stock is convertible into shares of LiNiCo common stock at ~~$11.33 per~~the Company's option and is automatically converted into LiNiCo common stock upon the election of the holders of a majority of the LiNiCo Series A Preferred Stock or upon a qualifying IPO of LiNiCo common stock. The Series A Preferred Stockholders are also provided with preemptive rights allowing them the right to purchase their proportional share ~~for the gross proceeds~~ of ~~approximately $10.6 million. Costs incurred in connection with the transaction, primarily legal fees, totaled approximately $167,000.~~ certain future LiNiCo equity issuances.

The Series A Preferred Stock Purchase Agreement includes customary representations, warranties, and covenants by ~~Johnson Controls~~LiNiCo and the ~~Company, and an indemnity from~~Company.

As LiNiCo’s sale of the 375,000 of Aqua Shares resulted in net proceeds to LiNiCo that were less than $1,500,000, the Company was required to pay LiNiCo the difference of $232,000 in ~~favor of Johnson Controls.~~cash.

In connection with the investment transactions, the Company also entered into an Investors Rights Agreement and a Voting Agreement, each dated February ~~7, 2017 with Johnson Controls~~ 15, 2021, pursuant to which LiNiCo granted the Company ~~granted Johnson Controls~~ customary demand and piggyback registration rights, ~~limited board observation~~information rights and ~~limited preemptive rights allowing Johnson Controls~~ the right to ~~purchase its proportional share~~nominate one person to the LiNiCo board of ~~certain future equity issuances by~~directors as long as the ~~Company. The board observation and preemptive rights shall expire~~Company is the owner of at least 10% of the LiNiCo common stock on a fully-diluted basis.

Comstock Mining Inc., a Nevada corporation (NYSE-MKT: LODE), is the ~~earlier~~beneficial owner of ~~(i) such time as Johnson Controls no longer owns~~approximately 50% of the ~~acquired~~common shares ~~or (ii)~~of LiNiCo. The Company's Chief Financial Officer, Judd Merrill, is a member of the ~~termination~~board of ~~both the Tolling/Lead Purchase Agreement and Equipment Supply Agreement.~~directors of Comstock Mining.

~~There were no sales commissions paid by~~Accrued liabilities consist of the ~~Company in connection with the sale~~following (in thousands):

~~Warrants exercised~~The Company currently maintains one finance lease for equipment and two operating leases for real estate. The finance lease is immaterial to the Company's condensed consolidated financial statements. The operating leases have terms of 76 and 42 months and include one or more options to extend the duration of the agreements. These operating leases are included in "Other assets" on the Company's condensed consolidated balance sheets and represent the Company's right to use the underlying assets for the term of the leases. The Company's obligation to make lease payments are included in "Lease liability, current portion" and "Lease liability, non-current portion" on the Company's condensed consolidated balance sheets. The Company recognized sublease income of approximately $127,000 and $255,000 for the three and six months ended June 30, 2021. The Company recognized sublease income of approximately $108,000 and $216,000 for the three and six months ended June 30, 2020.

Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, as of June 30, 2021, total right-of-use assets were approximately $0.46 million and operating lease liabilities were approximately $0.54 million. As of June 30, 2020, the Company's total right-of-use assets were approximately $0.96 million and operating lease liabilities were approximately $1.12 million.

Information related to the Company's right-of-use assets and related lease liabilities were as follows (in thousands):

Future maturities of lease liabilities as of June 30, 2021 are as follows (in thousands):

Note: Excludes a finance lease with a current liability of $6 and a non-current liability of $17.

On May 7, 2020, the Company received loan proceeds in the amount of approximately $332,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans to qualifying businesses. The loans and accrued interest are forgivable if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The Company used the loan proceeds for purposes consistent with the PPP requirements and applied for loan forgiveness. During the six months ended June 30, 2021, both of the Company's two PPP loans totaling $332,000 were forgiven.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, 1,175,796~~2021, the Company issued 825,540 shares ~~were~~of common stock upon vesting of Restricted Stock Units ("RSUs") granted by the Company to management and employees.

During the six months ended June 30, 2021, the Company issued, ~~pursuant to cash and cashless warrant exercises as detailed below. Generally,~~when the ~~warrants specify using the preceding five-day~~five-day average of closing prices for the Company’s common stock ~~in the calculation of common stock to be issued pursuant to a cashless exercise.~~

~~Warrants to purchase~~was $3.95 per share, 5,371 shares of the Company’s common stock atpursuant to a ~~weighted average~~cashless exercise of a warrant for 10,350 shares of the Company’s common stock with an exercise price of ~~$8.45~~$1.90 per share.

During the six months ended June 30, 2021, the Company issued, when the five-day average of closing prices for the Company’s common stock was $6.20 per share, ~~are as follows.~~60,219 shares of the Company’s common stock pursuant to a cashless exercise of a warrant for 86,778 shares of the Company’s common stock with an exercise price of $1.90 per share.

During the six months ended June 30, 2021, the Company issued 58,871 shares of common stock upon vesting of RSUs granted to Board members.

During the six months ended June 30, 2021, the Company issued 375,000 shares of common stock pursuant to the Series A Preferred Stock ~~based~~Purchase Agreement, with LiNiCo, dated February 15, 2021.

During the six months ended June 30, 2021, the Company issued 347,901 shares of common stock upon stock option exercises.

During the six months ended June 30, 2021, the Company issued 2,473,359 shares of common stock pursuant to the At The Market Issuance Sales Agreement for net proceeds of $9.3 million.

The stock-based compensation expense ~~attributable to option grants~~ was allocated as follows:

There were 0 options issued during the three and six months ended June 30, 2021 or the three and six months ended June 30, 2020.

~~The following assumptions~~In February 2021, the Company granted 25,000 RSUs, all of which were ~~used in the Black-Scholes-Merton pricing model~~subject to ~~estimate the~~vesting, with a grant fair value of ~~options granted~~$151,500 to a contractor. The shares vest in three tranches 1) upon the signing of a licensing agreement 2) delivery of a final engineering package, and 3) full handover of project to site owner. NaN shares vested during the ~~periods presented.~~

~~The Company issued 247,976 and 283,310 shares of common stock for the three and nine~~six months ended ~~September~~June 30, ~~2017, respectively, upon stock option exercises.~~

In ~~July 2017,~~ May 2021, the Company granted ~~49,751 restricted stock units (RSUs)~~81,883 RSUs, all of which were subject to vesting, with a grant ~~date~~ fair value of ~~$581,000~~$235,000 to ~~its Chief Financial Officer as part of his employment agreement. 16,584 RSUs will~~Board members. The shares vest ~~on each July 31, 2018~~in 12 equal installments over a one-year period. 13,648 shares vested during the six months ended June 30, 2021.

13. Commitments and ~~July 31, 2019 and the remaining 16,583 RSU’s will vest on July 31, 2020.~~Contingencies

As of the date of this report, Interstate Battery has raised a claim that the Company is in technical breach of a negative covenant under the Interstate Battery convertible loan. The claimed breach relates to the Company’s failure to obtain Interstate Battery’s prior written consent to its acquisition of Ebonex IPR, Ltd. The Company is in negotiations with Interstate Battery to resolve the claim and the Company believes it will be able to resolve that matter. However, in the event the Company is unable to resolve the claim, Interstate Battery may declare a default under the loan and attempt to accelerate the payment of all amounts thereunder. There can be no assurance we will be able to resolve this matter or that Interstate Battery will not declare a default under the loan and attempt to accelerate the payment of all amounts thereunder. The Company estimates that resolving the claim of breach will result in a charge of $0.6 million. The Company has recorded $0.6 million in general and administrative expense for the three and nine months ended September 30, 2017 with the offset in accrued liabilities.

Pursuant to the Johnson Controls Investor Rights Agreement, the Company has agreed to compensate Johnson Controls should either Stephen Clarke, the Company’s current chief executive officer, or Selwyn Mould, the Company’s current chief operating officer, no longer hold such positions or no longer devote substantially all of their business time and attention to the Company, whether as a result of resignation, death, disability or otherwise (such an event referred to as a “key-man event”). The Company has agreed to pay Johnson Controls $1.0 million per occurrence, if either officer is subject to a key-man event during the 18 months following February 7, 2017. The Company also agreed to pay Johnson Controls $1.0 million if either or both key-man events occur after 18 months and prior to 30 months following February 7, 2017.

The Company has evaluated subsequent events through the date which the condensed consolidated financial statements were available to be issued.

On July 1, 2021, the Company signed a Letter of Intent with ACME Metal Enterprise Co., Ltd. (ACME) to deploy and license AquaRefining equipment at its facility in Keelung, Taiwan. On July 28, 2021, the Company signed a definitive agreement with ACME to deploy and license AquaRefining equipment at its facility in Keelung, Taiwan.

Insurance Payment

Subsequent to quarter end, the Company and the insurance carriers agreed on a payment of an additional $5.25 million. This payment represents the final expected payment from insurance bringing the total collected from insurance to approximately $30.25 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 filed with the SEC on ~~March 2, 2017,~~February 25, 2021, or our Annual Report.

In this report we make, and from time to time we otherwise make written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in our documents, reports, filings with the SEC, and news releases, and in written or oral presentations made by officers or other representatives to analysts, stockholders, investors, news organizations and others, and in discussions with management and other of our representatives.

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties, including those risks included below in Part II, Item 1 “Risk Factors”. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

General

Aqua Metals (NASDAQ:AQMS) is ~~reinventing~~engaged in the business of equipment supply, technology licensing and related services for recycling lead ~~recycling with its~~through a novel, proprietary and patented process we developed and named AquaRefining^™ ~~technology.~~. AquaRefining is a room temperature, ~~water-based~~water and organic acid-based process that greatly reduces environmental emissions. Lead is ~~fundamentally non-polluting. Our~~a globally traded commodity with a worldwide market value in excess of $20 billion. We believe our suite of patented and patent pending AquaRefining ~~modular systems~~technologies will allow the lead-acid battery industry to simultaneously improve the environmental impact of lead recycling and scale recycling production to meet demand. ~~Aqua Metals is based~~Furthermore, our AquaRefining technologies result in ~~Alameda, California, and has built its first recycling facility in Nevada’s Tahoe Reno Industrial Complex.~~high purity lead. We were formed as a Delaware corporation on June 20, 2014 and since our formation, we have focused our efforts on the development and testing of our AquaRefining process, the construction of our initial lead acid battery, or LAB, recycling facility inat the Tahoe ~~Regional~~Reno Industrial Center, or TRIC, located in McCarran, Nevada ~~(“TRIC”),~~and commercializing the ~~continuing development of our LAB recycling operations at TRIC as we bring those LAB recycling operations online.~~AquaRefining process.

We ~~have~~ completed the development of our first LAB recycling facility at Nevada’s Tahoe Reno Industrial Center, or TRIC, in McCarran, Nevada and commenced production of battery breaking and limited operations during the first quarter of 2017. ~~The TRIC facility will produce recycled lead, consisting of lead compounds, ingoted hard lead and ingoted AquaRefined lead as well as plastic. We~~In April 2017, we commenced the shipment of products for sale, consisting of lead compounds ~~and plastics in~~as well as plastics. In April ~~2017 and to~~2018, we commenced the ~~date~~limited production of ~~this report all revenue has been derived from~~lead bullion, including AquaRefined lead. In July 2018, we commenced the sale of pure AquaRefined lead ~~compounds~~in the form of two tonne blocks and, ~~plastics.~~

~~As of~~in October 2018, we commenced the date of this report, all 16 AquaRefining modules planned for TRIC have been delivered. Eight are in-place and fully assembled of which four are being used to produce small quantities of lead and to complete the evaluation of operating parameters. The final eight modules are in-place and undergoing final assembly. We expect to have all 16 modules assembled and operational by the end of 2017. We expect to continue to produce limited quantitiessale of AquaRefined lead in the ~~fourth quarter~~form of ~~2017 and~~battery manufacturing ready ingots. In November 2018, we ~~expect to commence the commercial production of~~ received official vendor certification from Clarios for our AquaRefined lead and in December 2018, we commenced shipments directly to Clarios owned and partner battery manufacturing facilities. In 2019, we operated our demonstration AquaRefinery at commercial quantity production levels and produced over 35,000 AquaRefined ingots by ~~December 31, 2017, however~~operating the AquaRefinery 24 hours a day and 7 days a week for sustained periods of time. The AquaRefining Aqualyzers produced at or above the target 100 Kg/Hr of production throughput per module of six Aqualyzers or ~16-17 Kg/Hr per Aqualyzer and ran sustained endurance runs for over one month several times.

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In order to expand the demonstration AquaRefinery to its full capacity, we chose to idle the AquaRefinery beginning in September 2019 to facilitate contracting work required to increase the plant capacity planned for late 2019 or early 2020. On the evening of November 29, 2019, a fire occurred in the AquaRefining area of the recycling facility at TRIC. The cause of the fire was not due to the ~~delays~~technology or process of AquaRefining but rather to contracting activities. The fire and ~~unforeseen issues~~related intense heat and smoke caused significant damage to a material amount of equipment in the ~~completion of the AquaRefining production line we have experienced to date, there can be no assurance that we will not encounter additional delays and issues. Weexpect a ramp-up of AquaRefined lead production during 2018.~~

~~Since January 1, 2016, we have engaged in the following financing transactions:~~

~~Interstate Battery Investment~~. On May 18, 2016, we entered into definitive agreements with Interstate Battery System International, Inc. (“Interstate Battery”) and other investors for the sale of approximately $15.1 million of our equity and debt securities,AquaRefinery area, including a $10.0 million investment by Interstate Battery, the largest independent battery distributor in North America. At the same time, we also entered into a supply agreement with Interstate Battery pursuant to which Interstate Battery will supply us with used LABs as feedstock for our AquaRefineries. The investment transactions closed on May 24, 2016.

~~Pursuant to the investment agreements with Interstate Battery, Interstate Battery:~~

●

~~Purchased 702,247 shares of our common stock at $7.12 per share for the gross proceeds of approximately $5.0 million; and~~

●

Loaned us $5.0 million pursuant to a secured convertible promissory note in the original principal amount of $5.0 million. The note bears interest at the rate of eleven percent (11%) per annum, compounding monthly, and all interest shall be payable upon the earlier of maturity or conversion of the principal amount. The outstanding principal is convertible into our common shares at a conversion price of $7.12 per share. Our obligations under the loan are secured by a second priority lien interest on our assets, other than our intellectual property. The loan will mature on May 18, 2019. As of the date of this report, Interstate Battery has raised a claim that we are in technical breach of a negative covenant under loan. The claimed breach relates to our failure to obtain Interstate Battery’s prior written consent to our acquisition of Ebonex IPR, Ltd. We are in negotiations with Interstate Battery to resolve the claim and we believe we will be able to resolve the matter. However, in the event we are unable to resolve this matter, Interstate Battery may declare a default under the loan and attempt to accelerate the payment of all amounts thereunder. There can be no assurance we will be able to resolve this matter or that Interstate Battery will not declare a default under the loan and accelerate the payment of all amounts thereunder. The Company estimates that resolving the claim will result in a charge of $0.6 million. The Company has recorded the $0.6 million in general and administrative expenses as of September 30, 2017 with the offset in accrued liabilities.

~~In connection with the agreements, we granted Interstate Battery warrants to purchase our common stock, including:~~

●

~~a fully vested warrant to purchase 702,247 shares of our common stock, at an exercise price of $7.12 per share, expiring on May 24, 2018, and~~

●

~~a warrant to purchase 1,605,131 shares of our common stock, at an exercise price of $9.00 per share, vesting on November 16, 2016 and expiring on May 24, 2019.~~

We granted Interstate Battery customary demand and piggyback registration rights, limited board observation rights over the next three years and limited preemptive rights allowing it to purchase its proportional share of certain future equity issuances by us over the next three years. We included all of the Interstate Battery shares in our Form S-3 Registration Statement filed with the Securities and Exchange Commission on August 1, 2016.

Concurrent with the Interstate Battery investments, we also entered into a definitive agreement with certain accredited investors to sell approximately $5.1 million of our common stock through National Securities Corporation as placement agent. Pursuant to this agreement, we sold 719,333 of shares of our common stock, at the price of $7.12 per share, for gross proceeds of approximately $5.1 million.

~~Public Offering~~. On November 21, 2016, we completed a public offering of 2.3 million shares of our common stock, at the public offering price of $10.00 per share, for gross proceeds of $23.0 million. The completed offering includes shares issued by the exercise in full of the underwriter’s overallotment option. After the payment of underwriter discounts and offering expenses we received net proceeds of approximately $21.5 million. In connection with the underwriting agreement, we issued a warrant for 33,450 shares of our common stock, at an exercise price of $10.00 per share, exercisable commencing on May 20, 2017 and expiring on November 21, 2019.

~~Johnson Controls Investment~~. In connection with our entry into the equipment supply agreement and tolling/lead purchase agreement with Johnson Controls, on February 7, 2017, we entered into a stock purchase agreement with Johnson Controls pursuant to which we sold to Johnson Controls 939,005 shares of our common stock at $11.33 per share for the gross proceeds of approximately $10.6 million. We granted Johnson Controls customary demand and piggyback registration rights, limited board observation rights and limited preemptive rights allowing it to purchase its proportional share of certain future equity issuances by us. We included all of the Johnson Controls shares in our Form S-3 Registration Statement filed with the Securities and Exchange Commission on February 27, 2017.

~~Plan of Operations~~

~~Our plan of operations for the 12-month period following the date of this report is to complete by year end the assembly and commissioning of~~ all 16 AquaRefining modules, ~~planned~~electrical and tank infrastructure, steel superstructure, control wiring and other supporting infrastructure. The floor to ceiling firewall between the AquaRefining area and the rest of the plant isolated the worst of the damage to the AquaRefining area. The firewall also spared material damage to much of the key front-end process equipment, such as the battery breaker/separation system, concentrate production area, kettles and ingot casting, water treatment and recovery and other important areas of the plant. The administrative office area also remained intact.

As of June 30, 2021, we have received approximately $25.0 million of insurance proceeds from our insurance carriers related to the November 2019 fire event. Subsequent to quarter end, the Company and the insurance carriers agreed on a payment of an additional $5.25 million. This payment represents the final expected payment from insurance bringing the total collected from insurance to approximately $30.25 million.

During the first half of 2020, we successfully performed test runs on the first and second iterations of our Aqualyzer as part of our V1.25L program. The program consists of three iterations that are classified as V1.25a, V1.25b and the final iteration, V1.25L, the latter of which will be used to create the AquaRefining Aqualyzer package for ~~TRIC~~our equipment supply and licensing offerings. During the fourth quarter of 2020, we completed our V1.25L Aqualyzer program on time and under budget, achieving lead production that is 100% greater compared to ~~ramp up~~ the V1.0 Aqualyzer deployed at the AquaRefinery during commercial production in 2018 and 2019. The Company previously guided a 20% increase of ~~AquaRefined~~throughput, yet the V.125L Aqualyzer surpassed that guidance by 500%. The V1.25L program concluded with a multi-day 24/7 endurance run that ended on December 24, 2020. These results should positively impact capital and operating expenses for our future equipment supply and licensee customers. The doubling of throughput results in a 50% reduction in the number of Aqualyzers needed for equivalent lead production. V1.25L also has a lower build cost and reduced assembly time compared to the V1.0 Aqualyzer, which correlates to a 50% decrease in capital expenditures for Aqua Metals equipment installations. In addition, Aqualyzer operating expenses have been reduced by greater than 60% compared to the V1.0 Aqualyzer, with the combined impact of improvements in automation and increased throughput. The current design has a single button start and stop functionality with no manual interaction required during ~~2018.~~ operation, along with automated maintenance capability. The 60% reduction in operating expenses and 50% reduction in capital expenditures greatly exceeds the targets that were set in early 2020.

Our ~~12-month plan~~business model focus is on global licensing opportunities to incorporate AquaRefining in the recycling industry.

We have been engaged in the pursuit of ~~operations also includes~~a capital light strategy that is based on the pursuit of licensing opportunities within the lead battery recycling marketplace without maintaining and operating a capital-intensive lead recycling facility. Our capital light business strategy is designed to optimize shareholder value by focusing on equipment supply and licensing opportunities, which have always been a core part of our ~~proposal~~business plans. On July 1, 2021, the Company signed a Letter of Intent (LOI) with ACME Metal Enterprise Co., Ltd. (ACME) to ~~provide planning, engineering, technical assistance,~~deploy and license AquaRefining equipment at its facility in Keelung, Taiwan. The Company believes the path of licensing our technology has the potential to maximize shareholder value in that it could be far less capital intensive than a rebuild and could be funded solely or primarily from a combination of cash on hand, insurance proceeds and asset dispositions.

During the three months ended June 30, 2021, we issued 549,745 shares of common stock pursuant to an At the Market Issuance Sales Agreement ("ATM") for net proceeds of $1.8 million.

Plan of Operations

We have been engaged in the pursuit of a capital light strategy that is based on the pursuit of licensing opportunities within the lead battery recycling marketplace without maintaining and operating a capital-intensive lead recycling facility. We believe our capital light business strategy will require less space and less equipment and ~~other~~focus on the needs of our future licensees. We have accelerated our capital light business strategy, designed to optimize shareholder value by focusing on equipment supply and licensing opportunities, which have always been a core part of our business plans. We believe this path has the potential to maximize shareholder value as we focus on the shift to an equipment plus services supplier and licensor of our technology.

Our capital light strategy is consistent with our long-held business strategy and objectives. When we designed and developed TRIC in ~~support~~2016, we did so at a time when our business model assumed that TRIC would be the first of many LAB recycling facilities owned and operated by us. Commencing in 2017, we began to shift our focus away from the ~~addition~~development of ~~an AquaRefining facility to a battery~~additional Company-owned LAB recycling ~~facility owned by Johnson Controls. This proposed work is expected to produce a blueprint for further additions of AquaRefining~~ facilities ~~under a proposed definitive development agreement with Johnson Controls pursuant to which we will collaborate with Johnson Controls for the conversion of Johnson Controls’~~ and certain strategic partners’ of Johnson Controls existing lead smelters to a lead recycling process utilizing our proprietary AquaRefining technology and equipment, know-how and services. Our 12-month plan of operations includes our continued pursuit oftowards the licensing of our AquaRefining technology to partners engaged in LAB recycling. During 2020, we completed the V1.25L Aqualyzer program and achieved a 100% improvement in lead production throughput, in addition to improved equipment and operating costs. We believe that our results of operations and improvements to our Aqualyzers, to date, can demonstrate to potential licensees the value proposition of our AquaRefining technologies. We believe that our AquaRefining technology would be a commercially attractive valuable proposition in the hands of battery recyclers, who typically have access to lower cost feedstock and ability to process all materials on site through a furnace.

Our capital light strategy also includes an expansion into lithium-ion battery recycling ~~technology~~by investing in LINICO Corporation (“LiNiCo”). The Company and LiNiCo reached a lease-to-buy agreement for the Aqua Metals' AquaRefining facility. Aqua Metals has committed a $1.5 million investment, paid in Aqua Metals shares and $232,000 in cash, for an ownership share in LiNiCo of approximately 9%, as part of our strategy to strengthen growth by potentially applying AquaRefining intellectual property to lithium-ion battery recycling while meeting its lead recycling commercial guidance. We believe that expanding our patented AquaRefining hydrometallurgical approach to recycling the high-value metals of lithium-ion batteries is a smart, long-term strategy for Aqua Metals and the creation of shareholder value.

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Results of Operations

We have not engaged in commercial operations since the 2019 fire at our TRIC facility other than the sale of inventory, and since that time our operations have been devoted to improvements to our AquaRefining processes and equipment ~~to third parties and the expansion~~in furtherance of our ~~own production capacity. Finally, our 12-month plan of operations includes~~capital light strategy. We did not incur revenue during the ~~pursuit~~three and ~~evaluation of additional strategic relationships to support the expansion of our own facilities and/or the provision of equipment~~six months ended June 30, 2021 and ~~services to third parties. Additional funding will be required to expand our own production of AquaRefined lead beyond that provided by~~2020, other than nominal revenue generated during the first 16 modules at TRIC and to expand into the business of supplying equipment and services to third parties. There can be no assurance that we will be able to acquire the necessary funding on commercially reasonable terms or at all. There can also be no assurance we will be able to conclude the proposed development agreement with Johnson Controls.

~~Results of Operations~~

~~During the second~~ quarter of ~~2017, we began shipments~~2020 from the sale of ~~lead compounds and plastics to customers.~~inventory. The following table summarizes our results of operations with respect to the items set forth below for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 together with the dollar and percentage ~~change~~changes in those items (in thousands).

Three months ended September 30, Nine months ended September 30,
Favorable % Favorable %
2017 2016 (Unfavorable) Change 2017 2016 (Unfavorable) Change

Product sales $ 589 $ — $ 589 — $ 1,192 $ — $ 1,192 —
Cost of product sales 3,140 — (3,140 ) — 5,671 — (5,671 ) —
Research and development cost 1,367 1,887 520 27.56 % 6,538 4,080 (2,458 ) 60.25 %
General and administrative expense 1,925 1,434 (491 ) 34.24 % 4,897 4,245 (652 ) 15.36 %
Impairment charge — — — — 2,411 — (2,411 ) —
Total operating expense $ 6,432 $ 3,321 $ (3,111 ) 93.68 % $ 19,517 $ 8,325 $ (11,192 ) 134.44 %

	Three Months Ended June 30,										Six Months Ended June 30,
					Favorable			%							Favorable			%
	2021		2020		(Unfavorable)			Change			2021		2020		(Unfavorable)			Change

Product sales	$	—	$	—	$	—			n/a		$	—	$	18	$	(18	)		(100.0	)%
Cost of product sales		2,138		1,306		(832	)		63.7	%		3,749		2,760		(989	)		35.8	%
Research and development cost		176		217		41			(18.9	)%		465		459		(6	)		1.3	%
General and administrative expense		2,129		2,245		116			(5.2	)%		4,428		4,630		202			(4.4	)%
Total operating expense	$	4,443	$	3,768	$	(675	)		17.9	%	$	8,642	$	7,849	$	(793	)		10.1	%

As mentioned ~~above,~~previously, historical product sales ~~consisting~~prior to the reported periods have consisted of high-purity lead from our AquaRefining process as well as lead bullion, lead compounds and ~~plastics began in April 2017.~~ plastics. Other than sales from inventory, we do not expect to generate revenue from operations until such time as we enter into a commercial license for our AquaRefining technology and equipment.

Cost of product sales ~~consists of all operating costs incurred at our~~McCarran facility following the commencement of product sales. Costs incurred at the McCarran facility prior to commencement of sales are included in research and development costs. Cost of product sales for the three and nine months ended September 30, 2017 includes raw materials, supplies and related costs, salaries and benefits, consulting and outside services costs, inventory adjustments, depreciation and amortization costs and insurance, travel and overhead costs. ~~There are no comparatives~~Cost of product sales increased approximately 64% and 36% for the ~~previous periods.~~three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020. The increase in cost of product sales was a result of plant clean-up costs, in preparation for the lease and eventual sale of the facility.

Research and development cost included ~~TRIC operating cost prior~~expenditures related to the ~~commencement~~improvement of ~~product sales, including cost incurred~~the AquaRefining technology related to ~~prepare~~ our ~~TRIC plant for operations.~~lead recycling process and initial development of our lithium recycling process. During the three months ended ~~September~~June 30, ~~2017,~~2021, research and development ~~costs~~cost decreased ~~by 28%~~$41,000 or 19% over the comparable period in ~~2016~~2020. This modest decrease was driven by the Company's efforts to control costs while continuing to maintain and ~~increased by 60% for~~advance our proprietary AquaRefining technology. For the ~~nine~~six months ended ~~September~~June 30, ~~2017 over the comparable period in 2016. At September 30, 2016, we had 16 employees in the TRIC facility and we focused on building the plant (cost included in~~2021, research and development expense). At the end of September 2017, we had 35 employees at the TRIC and are focused on recycling lead operations as well as continuing to commission various processes within the plant (cost included in research and development expense until product sales began, at which point forward they were included in cost of product sales). The decline in research and development expense in the three-month period ended September 30, 2017 asdevelopments costs remained essentially even with a 1% increase compared to the prior year period is primarily associated with the cost of the TRIC facility being included in cost of product sales rather than research and development subsequent to the commencement of product sales during the second quarter of 2017. The increase in research and development cost during the nine-month periodsix months ended ~~September~~June 30, 2017 versus the prior period is due to increased level of operations and commissioning of our plant in TRIC. We expect that research and development expenses will decrease from the current level going forward as all the costs related to TRIC will be included in cost of product sales.2020.

General and administrative expense ~~has increased~~was fairly consistent with a decrease of approximately 5% and 4% for the three and ~~nine-month periods~~six months ended ~~September~~June 30, 2017 versus September 30, 2016, primarily due to our $0.6 million accrual for estimated cost to resolve a claim of breach of a negative covenant in our convertible loan agreement with Interstate Battery.

~~As described above in Note 6~~2021, respectively, compared to the ~~Condensed Consolidated Financial Statements, in April 2017, we acquired all of the capital shares of Ebonex IPR Limited for consideration of $2.5 million, consisting of cash, transaction costs~~three and 123,776 shares of our common stock. The principal asset of Ebonex IPR Limited consisted of a patent portfolio with an independent fair value of $112,000. Included in the purchase were certain fixed assets that have been determined by management to have no immediate value and were not considered in the valuation of Ebonex IPR.

Due to the fair value of the patent portfolio being significantly less than total consideration, the early development stage of the technology acquired and the uncertainties inherent in research and development, we recorded a non-cash impairment charge of $2.4 million for the periodsix months ended ~~September~~June 30, ~~2017.~~2020.

The following table summarizes our other income and interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 together with the dollar and percentage ~~change~~changes in those items (in thousands).

Three months ended September 30, Nine months ended September 30,
Favorable % Favorable %
2017 2016 (Unfavorable) Change 2017 2016 (Unfavorable) Change
Other (expense) income

Interest expense (454 ) (203 ) $ (251 ) 123.65 % (1,250 ) (318 ) $ (932 ) 293.08 %
Interest and other income 7 7 $ — 0.00 % 28 22 $ 6 27.27 %

	Three Months Ended June 30,												Six Months Ended June 30,
							Favorable			%									Favorable			%
	2021			2020			(Unfavorable)			Change			2021			2020			(Unfavorable)			Change
Other income and (expense)

Insurance proceeds net of related expenses	$	460		$	(52	)	$	512			(984.6	)%	$	448		$	(255	)	$	703			(275.7	)%
PPP loan forgiveness		201			—			201			n/a			332			—			332			n/a
Loss on disposal of property and equipment		(4,254	)		—			(4,254	)		n/a			(4,254	)		—			(4,254	)		n/a
Interest expense		(4	)		(164	)		160			(97.6	)%		(9	)		(347	)		338			(97.4	)%
Interest and other income		24			3			21			700.0	%		25			25			—			0.0	%
Total other income (expense), net	$	(3,573	)	$	(213	)	$	3,360			(1,577	)%	$	(3,458	)	$	(577	)	$	2,881			(499.3	)%

~~Interest~~Insurance proceeds net of related expenses resulted from collection and payment activity that began in 2020 following the November 2019 fire. The change from period to period is due to the timing of insurance payments and associated fire clean-up expenses. Both of the Company's two PPP loans totaling $332,000 received in May of 2020 have been forgiven. One of the PPP loans for $131,000 was forgiven in January of 2021 and the second PPP loan for $201,000 was forgiven in May of 2021. Aqua Metals recognized a loss on the sale of assets held for sale of approximately $4.3 million during the three months ended June 30, 2021. This amount was comprised of a $3.5 million loss recognized in conjunction with the accounting for the lease to purchase arrangement for the Company's McCarran, Nevada facility. The loss on sale of assets held for sale also included $0.7 million resulting from the sale of a battery breaker and related equipment. Aqua Metals recognized interest expense of $4,000 and $9,000 for the three and six months ended June 30, 2021, respectively. The decrease in interest expense from the comparable prior year periods is due to the Company retiring the Veritex loan during the fourth quarter of 2020 and being essentially debt free since that time. Aqua Metals recognized approximately $24,000 and $25,000 in interest and other income during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 relates primarily~~2021, respectively. This compares to ~~the $5.0 million Interstate Battery convertible note~~interest and ~~the $10.0 million notes payable, amortization~~other income of ~~debt issuance costs incurred in connection with both of these notes, as well as an accrual~~$3,000 and $25,000 for ~~the USDA guarantee fee on the $10.0 million note to Green Bank. Interest relating to the $10.0 million notes payable during~~ the three and ~~nine-month period~~six months ended ~~September~~June 30, ~~2016 was capitalized as part~~2020, respectively. The increase in interest and other income for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 is primarily due to the payments received for the lease of the ~~building cost of~~McCarran, Nevada plant pursuant to the ~~TRIC facility in the amount of $153,000 and $456,000, respectively. Interest capitalization ceased upon completion of the building in November 2016.~~lease to purchase agreement that commenced on April 1, 2021.

The note discount associated with the Interstate Battery convertible note is being amortized using the effective interest method over the three-year term of the note, maturing on May 24, 2019. Using the effective interest method results in higher expense in later periods. Thus, non-cash interest expense associated with the note discount amortization will be $360,000 in 2017, $2.0 million in 2018 and $2.6 million in 2019.

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Liquidity and Capital Resources

As of ~~September~~June 30, ~~2017,~~2021, we had ~~cash~~total assets of $38.1 million and ~~cash equivalents~~working capital of ~~$17.5 million as compared to $25.5 million of cash and cash equivalents as of December 31, 2016.~~$10.7 million.

The following table summarizes our cash ~~used in~~provided by (used in) operating, investing and financing activities (in thousands):

Nine months ended September 30,
2017 2016

Net cash used in operating activities (13,326 ) (5,802 )
Net cash used in investing activities (5,930 ) (12,935 )
Net cash provided by financing activities 11,321 14,004

	Six Months Ended June 30,
	2021			2020

Net cash used in operating activities	$	(4,940	)	$	(8,323	)
Net cash (used in) provided by investing activities	$	(1,131	)	$	5,350
Net cash provided by financing activities	$	10,242		$	174

Net cash used in operating activities

Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 was ~~$13.3~~$4.9 million and ~~$5.8~~$8.3 million, respectively. Net cash used in operating activities during each of these periods consisted primarily of our net loss adjusted for ~~noncash~~non-cash items such as depreciation, amortization and stock-based compensation charges, loss on the sale of property and ~~the impairment charge~~equipment, as well as net changes in working capital. ~~The primary reason for the increase in net~~Net cash used in operating activities ~~is due to our larger net~~for the six months ended June 30, 2021 reflected a non-cash adjustment of $4.3 million for the disposal of property and equipment. No loss ~~reflecting our increased operating expenses. As noted above, our operations~~on disposal of property and equipment adjustment was recognized during the ~~first nine~~six months of 2016 were focused on building the plant at TRIC, whereas during 2017 our focus has been on commissioning and commencing recycling operations at TRIC. The building at TRIC was completed in November 2016.ended June 30, 2020.

Net cash used in and provided by investing activities

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016~~2021 was ~~$5.9~~$1.1 million and ~~$12.9~~consisted mainly of $1.2 million ~~respectively.~~for the purchase of property and equipment and $0.2 million utilized toward the investment in LiNiCo. Net cash ~~used in~~provided by investing activities ~~during each of these periods consists~~for the six months ended June 30, 2020 was $5.4 million and consisted primarily of $7.6 million in insurance proceeds partially offset by $2.2 million for purchases of ~~fixed assets related to~~property and equipment accrued in the ~~build out of our TRIC recycling facility in Nevada and, to a lesser extent, our corporate headquarters during 2016.~~prior quarter.

Net cash provided by and used in financing activities

Net cash provided by financing activities of $10.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 consists~~2021 consisted of ~~$10.5~~$9.3 million in net proceeds from the ~~issuance~~sale of ~~common stock~~Aqua Metals shares pursuant to ~~Johnson Controls~~the ATM and ~~$1.1~~$0.7 million of proceeds from ~~the exercise of~~ stock options ~~partially offset by lease and debt payments.~~exercises. Net cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016 consisted~~2020 was approximately $0.2 million, consisting of ~~$9.1~~$0.3 million ~~net~~from PPP loan proceeds ~~from the issuance of common stock to Interstate Battery and other investors through our placement agent, National Securities Corporation; and $4.9~~partially offset by $0.2 million ~~net proceeds from the Interstate Battery convertible note.~~for payments on debt.

As of June 30, 2021, we had total cash of $10.7 million and working capital of $10.7 million. As of the date of this report, we believe that ~~our working capital is sufficient to fund the commissioning and commencement of commercial operations of at least 16 AquaRefining modules and our commercial operations at TRIC. However,~~ we ~~will~~may require additional capital ~~within~~in order to fund our current level of ongoing costs and our proposed business plan over the next 12 months in order to increase production of AquaRefined lead at TRIC beyond that planned for 16 modules, to work with Johnson Controls on equipment integration and licensing to third parties and to fund our continued losses from operations until such time as we ~~are able to achieve positive cash flow from operations.~~execute on our capital light licensing strategy. We intend to acquire the necessary capital though the recovery of remaining insurance proceeds on our fire related claims, the possible sale of certain equipment and assets at TRIC, and the collection of funds from the lease and sale of our plant. However, there can be no assurance that such funds will be available. If needed, we may seek ~~additional funds~~funding through ~~various~~the sale of equity or debt financing, ~~sources,~~ including the sale of our ~~equity and debt securities, licensing fees for~~common shares through our ~~technology, joint ventures with capital partners and/or project financing~~current at-the-market offering. Funding that includes the sale of our ~~recycling facilities. However, there can~~equity may be ~~no guarantees that such funds will be available on commercially reasonable terms, if at all.~~dilutive. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations. Additionally, Aqua Metals Reno, or AMR, was not in compliance with its minimum debt service coverage ratio covenant as of and for the three month periods ended March 31, June 30, and September 30, 2017 on its loan from Green Bank. AMR received a waiver for the minimum debt service coverage ratio covenant for the periods ended March 31, June 30, and September 30, 2017. While we expect to continue to receive waivers from Green Bank for non-compliance with such covenant, there is no guarantee that we will receive such waivers. If Green Bank determines not to grant us a waiver for non-compliance in the future, we would be in default of the loan and Green Bank would be able to accelerate the payment of all amounts under the loan. In addition, a failure by Green Bank to provide us with the required waiver could also constitute a default under our $5 million loan with Interstate Battery and allow it to accelerate the payment of all amounts thereunder.

Table of the date of this report, Interstate Battery has raised a claim that we are in technical breach of a negative covenant under our $5 million loan from Interstate Battery. The claimed breach relates to our failure to obtain Interstate Battery’s prior written consent to our acquisition of Ebonex IPR, Ltd. We are in negotiations with Interstate Battery to resolve the claim and we believe we will be able to resolve the claim. However, in the event we are unable to resolve the matter, Interstate Battery may declare a default under the loan and attempt to accelerate the payment of all amounts thereunder. There can be no assurance we will be able to resolve the claim of breach or that Interstate Battery will not declare a default under the loan and attempt to accelerate the payment of all amounts thereunder.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market ~~Risks~~Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, ~~has~~ evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based on ~~this~~that evaluation, management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2021.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the ~~three-month~~six month period ended ~~September~~June 30, ~~2017~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Beginning on December 15, 2017, three purported class action lawsuits were filed in the United Stated District Court for the Northern District California against us and certain of our former executive officers. On March 23, 2018, the cases were consolidated under the caption In Re: Aqua Metals, Inc. Securities Litigation Case No 3:17-cv-07142. The complaint, as amended, alleged the defendants made false and misleading statements concerning our lead recycling operations and conducted deceptive site visits in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder and seeks to hold the individual defendants as control persons pursuant to Section 20(a) of the Exchange Act. The Amended Complaint also alleges a violation of Section 11 of the Securities Act of 1933 (“Securities Act”) based on alleged false and misleading statements concerning our lead recycling operations contained in, or incorporated by reference in, our Registration Statement on Form S-3 filed in connection with our November 2016 public offering. In July 2021, the parties entered into a stipulation for settlement of all claims based on the payment of a cash amount to the plaintiffs to be funded by Aqua Metals’ insurance carriers, plus $500,000 to be paid to the plaintiffs by Aqua Metals in cash or common shares, at Aqua Metals’ option. The stipulation for settlement is subject to the approval of the Court.

Beginning on February 2, 2018, five purported shareholder derivative actions were filed in the United States District Court for the District of Delaware against us and certain of our current and former executive officers and directors. On May 3, 2018, the cases were consolidated under the caption In re Aqua Metals, Inc. Stockholder Derivative Litigation, Case No. 1:18-cv-00201-LPS (D. Del.). The complaints were filed by persons claiming to be stockholders of Aqua Metals and generally alleged that certain of our officers and directors breached their fiduciary duties to us by violating the federal securities laws and exposing us to possible financial liability. In July 2021, the parties entered into a stipulation for settlement of all claims based on our adoption of certain corporate governance reforms. The stipulation for settlement is subject to the approval of the Court.

We are not party to any other legal proceedings. We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows.

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Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. Before purchasing our common stock, you should read and consider carefully the following risk factors as well as all other information contained in this report, including our consolidated financial statements and the related notes. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we currently believe are ~~numerous~~immaterial, which could also impair our business and ~~varied risks, known and unknown, that may prevent us from achieving our goals.~~financial position. If any of ~~these risks actually~~the events described below were to occur, our ~~business,~~ financial condition, orour ability to access capital resources, our results of ~~operation may~~operations and/or our future growth prospects could be materially and adversely ~~affected. In such case,~~affected and the ~~trading~~market price of our common stock could ~~decline and investors~~decline. As a result, you could lose some or all ~~or part~~ of ~~their investment.~~any investment you may make in our common stock.

Risks Relating to Our Business

We have experienced a fire at our TRIC facility which has caused significant damage and, as a result of the fire, we revised our plans for the commercialization of our AquaRefining technologies. However, there can be no assurance that such plans will be successful. On the evening of November 29, 2019, a fire occurred at our LAB recycling facility at TRIC. The cause of ignition is likely related to on-site contractor work that was being performed on the day of the fire. The fire was substantially contained to the AquaRefining area of the plant, however the fire destroyed or impaired beyond recovery substantially all of the AquaRefining equipment, including all 16 AquaRefining modules, control wiring and other supporting infrastructure.

When we designed and developed TRIC, we did so at a time when our business model assumed that TRIC would be the first of many LAB recycling facilities owned and operated by us. Commencing in 2017, we began to shift our focus away from the development of additional Company-owned LAB recycling facilities and towards the licensing of our AquaRefining technology to partners engaged in LAB recycling. We continued to develop TRIC as a LAB recycling facility for purposes of demonstrating AquaRefining on a commercial scale. However, as a result of the fire and our high costs of capital, we decided that the cost of restoring TRIC to its pre-fire state would not be the best use of our available cash and that we may be able to achieve the benefits of operating 16 AquaRefining modules, namely the demonstration of the scalability of our AquaRefining technologies, through a less costly commercialization program. Commencing in early 2020, we began to focus on licensing opportunities within the $20+ billion lead battery recycling marketplace and in February 2021 we entered into a triple-net lease-to-buy agreement with respect to TRIC. We believe this path is far less capital intensive than a rebuild of TRIC to its pre-fire state and we believe this plan could be funded solely or primarily from cash on hand plus any further insurance proceeds and asset disposition of the AquaRefinery. However, there can be no assurance that our revised business model will be successful or that we will acquire the additional capital sufficient to fund our revised business plan.

Our business strategy includes licensing arrangements and entering into joint ventures and strategic alliances, however as of the date of this report we have no such agreements in place and there can be no assurance we will be able to do so. Failure to successfully integrate such licensing arrangements, joint ventures, or strategic alliances into our operations could adversely affect our business. We propose to commercially exploit our AquaRefining process primarily by licensing our technology to third parties and entering into joint ventures and strategic relationships with parties involved in the manufacture and recycling of LABs, including ACME Metal Enterprise Co., Ltd. and Clarios, among others. In July 2021, we entered into a nonbinding letter of intent with ACME Metal Enterprise Co., Ltd to deploy and license our AquaRefining equipment at ACME’s facility in Keelung, Taiwan. The letter of intent provides 60 days to finalize the definitive agreement and includes terms for licensing and a phased deployment of our AquaRefining technology, and the joint development of processing AquaRefined briquettes into battery ready oxide material, however there can be no assurance that we will be able to conclude a definitive agreement with ACME or do so on terms that benefit us, if at all. Although we are currently seeking to negotiate agreements with Clarios and others, as of the date of this report, we have not entered into any such licensing, joint venture or strategic alliance agreements, apart from our equipment supply agreement with Clarios, and there can be no assurance that we will be able to do so on terms that benefit us, if at all. Our ability to enter into licensing, joint ventures and strategic relationships with third parties will depend on our ability to demonstrate the technological and commercial advantages of our AquaRefining process, of which there can be no assurance. Also, even if we are able to enter into licensing, joint venture or strategic alliance agreements, there can be no assurance that we will be able to obtain the expected benefits of any such arrangements. In addition, licensing programs, joint ventures and strategic alliances may involve significant other risks and uncertainties, insufficient revenue generation to offset liabilities assumed and expenses associated with the transaction, potential additional challenges in protecting our intellectual property, and unidentified issues not discovered in our due diligence process, such as product quality, technology issues and legal contingencies. In addition, we may be unable to effectively integrate any such programs and ventures into our operations. Our operating results could be adversely affected by any problems arising during or from any licenses, joint ventures or strategic alliances.

Since we have a limited operating history and have only recently commenced revenue producing operations, it is difficult for potential investors to evaluate our ~~business~~business. .We formed our corporation in June ~~2014 and only commenced revenue producing operations in the first quarter of 2017.~~2014. From inception through ~~September~~June 30, ~~2017,~~2021, we ~~have~~ generated a total of ~~$1.2~~$11.5 million of revenue, all of which was derived primarily from the sale of lead compounds and plastics ~~during~~and, to a lesser extent, the ~~nine-month period ended September 30, 2017.~~sale of lead bullion and AquaRefined lead. To date, our operations have primarily consisted of the development and testing and limited operations of our AquaRefining process, the construction of our initial LAB recycling facility ~~in Tahoe Regional Industrial Center, McCarran, Nevada (“TRIC”),~~at TRIC, the continuing development of our LAB recycling operations at TRIC and limited revenue producing operations as we ~~bring~~brought those LAB recycling operations online. As a result of the November 2019 fire at TRIC, we have suspended all plant-based revenue producing operations, entered into a lease-to-buy agreement with respect to TRIC and have shifted our business model to focus exclusively on the licensing of our AquaRefining technology to partners engaged in LAB recycling. As of the date of this report, we are unable to estimate when we expect to commence any meaningful commercial or revenue producing operations from our licensing model. Our limited operating history makes it difficult for potential investors to evaluate our technology or prospective operations. As an ~~early stage~~early-stage company, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new business, including, without limitation:

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the timing and success of our plan of commercialization and the fact that we ~~continue to experience delays in completing our LAB recycling~~have suspended operations at TRIC;

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•

our ability to ~~bring modules online and ramp up production;~~

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~~our ability to profitably operate~~demonstrate that our AquaRefining ~~process~~technology can be operated on a commercial scale;

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our ability to license our AquaRefining process and sell our AquaRefining equipment to ACME Metal Enterprise Co., Ltd and other recyclers of LABs; and

•

our ability to realize the expected benefits of our strategic ~~partnership~~partnerships with ~~Johnson Controls;~~

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~~our ability to procure LABs in sufficient quantities at competitive prices; and~~

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~~our ability to receive proper certification from~~Clarios and ~~meet the requirements of our customers regarding the purity of our AquaRefined lead.~~BASF.

Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability.

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Our business is dependent upon our successful implementation of novel technologies and processes and there can be no assurance that we will be able to implement such technologies and processes in a manner that supports the successful commercial roll-out of our business model. While much of the technology and processes involved in lead recycling operations are widely used and proven, our AquaRefining process is largely novel and, to date, has been demonstrated on a modest scale of operations. While we have shown that our proprietary technology can produce AquaRefined lead on a small scale, we had just begun to demonstrate that we can produce AquaRefined lead on a commercial scale prior to the November 2019 fire at TRIC. Further, as we endeavored to complete our AquaRefining production line, we continuously encountered unforeseen complications that delayed the ramping up of our AquaRefining modules and the integration of our AquaRefining process with the traditional lead recycling operations. There can be no assurance that we will not encounter similar unforeseen complications as we pursue our revised business model.

We ~~will~~may need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.As of ~~September~~June 30, ~~2017,~~2021, we had total ~~assets~~cash of ~~$68.2~~$10.7 million and working capital of ~~$15.1~~$10.7 million. As of the date of this report, we believe that ~~our working capital is sufficient to fund the commissioning and commencement of commercial operations of at least 16 AquaRefining modules and our commercial operations. However,~~ we ~~believe that we will~~may require additional capital ~~within~~in order to fund our current level of ongoing costs and our proposed business plan over the next 12 months in order to increase production of AquaRefined lead at TRIC beyond that planned for 16 modules, to work with Johnson Controls on equipment integration and licensing to third parties and to fund our continued losses from operations until such time as we ~~are able to achieve positive cash flow from operations.~~move forward with our capital light licensing strategy. We intend to ~~seek additional~~acquire the necessary capital though the recovery of remaining insurance proceeds on our fire related claims, the possible sale of certain equipment and assets at TRIC, and the collection of funds ~~through various financing sources, including~~from the sale of our ~~equity and debt securities, licensing fees for our technology, joint ventures with capital partners and/or project financing of our recycling facilities.~~plant. However, there can be no assurance that ~~such funds~~we will be ~~available on commercially reasonable terms,~~able to acquire proceeds from these sources in amounts sufficient to fund the capital requirements or, if ~~at all.~~we are successful, that we will not require additional capital. If needed, we may seek funding through the sale of equity or debt financing, including the sale of our common shares through our current at-the-market offering. Funding that includes the sale of our equity may be dilutive. If such funding is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations, in which case you may lose your entire investment.

Our business may be adversely affected by the recent coronavirus outbreak. In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified. At this time, we and most of our partners and suppliers are subject to travel restrictions, shelter in place requirements and limited, if any, operations. The outbreak and any preventative or protective actions that we or our partners and suppliers may take in respect of this coronavirus may result in a period of disruption to work in progress. Our partners’ and suppliers’ businesses could be disrupted, and our ongoing V1.25L operations and license negotiations could be negatively affected. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business and financial condition. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

We have elected not to renew our current agreement with Veolia and it is unlikely that we will continue to partner with Veolia. In February 2019, we entered into an Operations, Management and Maintenance Agreement with Veolia North America Regeneration Services, LLC, or Veolia. Pursuant to the Agreement, Veolia agreed to provide development of operations programs, start-up of new equipment and operations, maintenance and management services at our AquaRefining facility at TRIC. As a result of the November 2019 fire at TRIC, we have suspended all operations at TRIC pending our clean-up of the fire damage and development of our plan for resuming operations. In January 2020, we declared a force majeure under the Veolia Operations, Management and Maintenance Agreement and suspended payments to Veolia thereunder. The Veolia Operations, Management and Maintenance Agreement included an initial term expiring March 6, 2021 and an automatic renewal provision unless either party elects not to renew. We elected not to renew the Veolia Operations, Management and Maintenance Agreement and the agreement terminated on March 6, 2021.

Our business model is new and has not been proven by us or anyone else.We are engaged in the business of producing recycled lead through a novel, and ~~unproven~~proven on a modest scale, technology. While the production of recycled lead is an established business, to date all recycled lead has been produced by way of traditional smelting processes. To our knowledge, no one has successfully produced recycled lead in commercial quantities other than by way of smelting. In addition, ~~our lead recycling production line at TRIC is the first-of-its-kind and~~ neither we nor anyone else has ever successfully built a production line that commercially recycles LABs without smelting. While we have commenced limited lead recycling operations at our TRIC facility, to date all revenues have been derived from the sale of lead compounds and plastics and we have not commenced the commercial production of AquaRefined lead. Further, there can be no assurance that either we or our licensees will be able to produce AquaRefined lead in commercial quantities at a cost of production that will provide us and our proposed licensees with an adequate profit margin. The uniqueness of our AquaRefining process ~~and our production line at TRIC~~ presents potential risks associated with the development of a business model that is untried and unproven.

~~Certain industry participants may have the ability to restrict our access to used LABs and otherwise focus significant competitive pressure on us~~. We believe that our primary competition will come from operators of existing smelters and other parties invested in the existing supply chain for smelting, both of which may resist the change presented by our AquaRefining process. Competition from such incumbents may come in the form of restricted access to used LABs. We believe that LAB manufacturers who also maintain their own smelting operations control a significant part of the market for used LABs. We will require access to used LABs at market prices in order to carry out our business plan. If those LAB manufacturers and others involved in the reverse supply chain for used LABs attempt to restrict our access to used LABs, that may adversely affect our prospects and future growth. There can be no assurance that we will be able to effectively withstand the pressures applied by our competition.

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Even if weour licensees are successful in recycling lead using our processes, there can be no assurance that the AquaRefined lead will meet the certification and purity requirements of our potential customers.A key component of our business plan is ~~to produce~~the production of recycled lead through our AquaRefining process of the highest purity (at least 99.99% pure lead), which we refer to as AquaRefined lead. We believe that our AquaRefined lead will provide usour licensees with a revenue premium over the ~~highest gross profit margin~~market price of lead on the London Metal Exchange, or LME, and, more importantly, ~~our~~the ability to produce AquaRefined lead will be vital to confirming the efficacy and relevancy of our proprietary technology. Our licensees and their customers will require that our AquaRefined lead meet certain minimum purity standards and, in all likelihood, require independent assays to confirm the lead’s purity. As of the date of this report, we have produced limited quantities of AquaRefined ~~lead.~~lead and in November 2018, Clarios confirmed its approval of the purity of our AquaRefined lead by providing to us official vendor approval to receive finished lead at its manufacturing facilities. However, we have not produced AquaRefined lead in significant commercial quantities and there can be no assurance that weour licensees will be able to do so or, if weour licensees are able to produce AquaRefined lead in significant commercial quantities, that such lead will continue to meet the required purity standards of ~~our~~their customers. If we are unable to commercially produce AquaRefined lead that meets the purity stands established by our customers, our entire business plan may be invalidated and you may suffer the loss of your entre investment.

While we have been successful in producing AquaRefined lead in small volumes, there can be no assurance that either we or our licensees will be able to replicate the process, along with all of the expected economic advantages, on a large commercial scale either for us or our prospective licensees. While we have been successful in producing AquaRefined lead in small volumes, there can be no assurance that we will be able to replicate the process, along with all of the expected economic advantages, on a commercial scale. As of the date of this report, ourOur commercial operations have primarily involved the production of lead compounds and plastics from recycled LABs, and more recently, the sale of lead bullion and AquaRefined lead. In April 2018, we ~~have not~~ commenced the ~~commercial~~limited production of cast lead bullion (mixture of lead purchased to prime the kettles and AquaRefined ~~lead.~~lead from our AquaRefining process), and in June 2018, we commenced the sale of pure AquaRefined lead in the form of two tonne blocks. While we believe that our development, testing and limited production to date has validated the concept of our AquaRefining process, the limited nature of our operations to date are not sufficient to confirm the economic returns on our production of recycled lead. There can be no assurance that ~~the commencement of commercial production of AquaRefined lead at~~ our ~~TRIC facility will not incur unexpected costs or setbacks that might restrict the desired scale of our intended operations or that we~~licensees will be able to produce AquaRefined lead in commercial quantities at a cost of production that will provide us and our proposed licensees with an adequate profit margin.

~~We have completed the construction of~~Our business may be negatively affected by labor issues and higher labor costs. Our ability to maintain our ~~initial LAB recycling facility at TRIC, however we have been delayed in the completion of~~workforce depends on our ~~lead recycling operations at TRIC~~ability to attract and ~~we may encounter further delays.~~ ~~We completed the construction of our initial LAB recycling facility at TRIC in August 2016~~retain new and commenced the limited production of recycled lead in January 2017. However, as of the date of this report, our commercial operations have involved the production of lead compounds and plastics from recycled LABs and we have not commenced the commercial production of AquaRefined lead.existing employees. As of the date of this report, all 16 AquaRefining modules planned for TRIC have been delivered. Eight are in-place and fully assembled of which four are commissioned. The final eight modules are in-place and undergoing final assembly. We have been delayed in the installation and commissioningnone of our ~~AquaRefining modules and the completion of our lead recycling operations at TRIC~~employees are covered by collective bargaining agreements and we ~~continue~~consider our labor relations to ~~conduct refinements to the production line~~be acceptable. However, we could experience workforce dissatisfaction which could trigger bargaining issues, employment discrimination liability issues as well as wage and benefit consequences, especially during critical operation periods. We could also experience a work stoppage or other disputes which could disrupt our operations and could harm our operating results. In addition, legislation or changes in ~~order to accommodate commercial production of AquaRefined lead. We expect to commence the commercial production of AquaRefined lead by December 31, 2017, however, due to the delays~~regulations could result in labor shortages and ~~unforeseen issues in the completion of the AquaRefining production line we have experienced to date, there~~higher labor costs. There can be no assurance that we will not encounter additional delays and issues. In addition, since our lead recycling production line at TRIC is the first-of-its-kind, neither we nor anyone else has ever built a facility of this nature and there can be no assurance that we willmay not experience ~~continuing operational delays and~~labor issues ~~including significant downtime from time to time, as we progress into the commercial production of AquaRefined lead. There can be no assurance~~ that ~~the commencement of commercial AquaRefining operations at our TRIC facility will not incur unexpected costs or hurdles that might restrict the desired scale of our intended operations or~~ negatively impact our ~~projected gross profit margin.~~

~~Our outstanding debt may make it difficult for us obtain additional financing using our future operating cash flow.~~We currently have a substantial amount of indebtedness, including approximately $9.9 million owed to Green Bank and approximately $5.8 million owed to Interstate Battery as of the date of this report. Such indebtedness could limit our ability to borrow additional funds to fund operations or ~~expansion or increase the cost~~results of ~~any such borrowing, or both. Our inability to conduct additional debt financing could:~~

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~~limit our flexibility in developing our business operations and planning for, or reacting to, changes in our business;~~

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~~increase our vulnerability to, and reduce our flexibility to respond to, general adverse economic and industry conditions; and~~

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~~place us at a competitive disadvantage as compared to our competitors that are not as highly leveraged.~~

~~Any of these or other consequences or events could have a material adverse effect on our ability to finance our business and our~~ operations.

~~We are subject to restrictive debt covenants that may limit our ability to run our business, finance our capital needs and pursue business opportunities and activities~~.As of the date of this report, we are indebted to Green Bank for approximately $9.9 million and Interstate Battery for approximately $5.8 million, all of which is secured by liens or substantially all of our assets. The credit agreements governing such indebtedness contain covenants that limit our ability to take certain actions. These covenants could limit our ability to finance our future operations and capital needs and our ability to pursue business opportunities and activities that may be in our interest. If we breach any of these covenants, the debt holder could declare a default under the credit agreement, in which case all of the indebtedness may then become immediately due and payable. In addition, any default under one credit agreement could lead to an acceleration of debt under the other credit agreement pursuant to cross-acceleration or cross-default provisions. If the debt under either credit agreement is accelerated, we may not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, since all of the indebtedness to Green Bank and Interstate Battery is secured by substantially all of our assets, a default under either credit facility could enable the debtholder to foreclose on its security interest and attempt to seize our assets. The affirmative and negative debt covenants could materially adversely impact our ability to operate and finance our business. In addition, our default under any of these covenants could subject us to accelerated debt payments or foreclosure proceedings that could threaten our ability to continue as a going concern.

~~Interstate Battery currently claims that we are in breach of a negative covenant with Interstate Battery and we have not been able to comply with our debt service covenant with Green Bank~~. As of the date of this report, Interstate Battery has raised a claim that we are in technical breach of a negative covenant under our loan with Interstate Battery. The claimed breach relates to our failure to obtain Interstate Battery’s prior written consent to our acquisition of Ebonex IPR, Ltd. We are in negotiations with Interstate Battery to resolve the claim and we believe we will be able to resolve the matter. However, in the event we are unable to resolve the matter, Interstate Battery may declare a default under the loan and attempt to accelerate the payment of all amounts thereunder. There can be no assurance we will be able to resolve the claimed breach or that Interstate Battery will not declare a default under the loan and attempt to accelerate the payment of all amounts thereunder. In addition, our credit agreement with Green Bank requires, among other affirmative and negative covenants, that we maintain a minimum debt service coverage ratio of 1.25 to 1.0 beginning with the twelve-month period ending March 31, 2017. We failed to meet the minimum debt service coverage ratio covenant as of March 31, June 30 and September 30, 2017, and we were required to obtain a waiver of the minimum debt service coverage ratio covenant from Green Bank for such periods. There can be no assurance that Green Bank will provide waivers of this covenant, or any other covenant that we may fail to satisfy, going forward. Our default under either the Interstate Battery or Green Bank loan covenants could subject us to accelerated debt payments or foreclosure proceedings that could threaten our ability to continue as a going concern.

Our intellectual property rights may not be adequate to protect our business.

As of the date of this report, we have secured ~~international~~granted/allowed patents in the following countries/regions: U.S. (9837689, 10665907, 10793957, 10689769, 10340561, 10316420, 11028460, and allowed 20190301031), Canada (2930945, 2968064), China (201480071929.1, 107849634, 201680041600.X, 201680041571.7, 201580062811.7, and allowed 108603242), Europe (3072180, 3294916, 3221918, 3483305, 3294929), Eurasia (32371, 35532, 36722), South Africa (2016/04083, 2017/08454, 2017/08455, 2017/04123, 2018/04384), South Korea ~~(Korea Patent No. 10-1739414)~~(101739414, 101882932, 101926033, 102096976, 102274210, and 102242697), Honduras (80-2019), India (318321, 369304, and 364173), Indonesia (IDP000061176, IDP000066550, allowed 2018/12329), Japan ~~(Japan Patent No. 6173595)~~(6173595, 6805240, 6775006, 6592088, and 6861773), Malaysia (MY-181071-A), Mexico (357027), OAPI (17808, 19078, 18736), Ukraine (118037, 119580, and allowed a 2017-12366, and a 2018-07365), Vietnam (22588) Australia ~~(Australia Patent No. AU2014353227)~~(2014353227, 2015350562, 2016260407, 2017213449, and 2016260408), ARIPO (4995 and 5559), and ~~secured allowances in South Africa~~Chile (62.308 and ~~the United States for “Devices and Method for Smelterless Recycling of Lead Acid Batteries.”~~ 61.519).

We also have ~~six~~further patent applications pending in the United States and 47numerous corresponding patent applications pending in ~~20 other~~18 additional jurisdictions relating to certain elements of the technology underlying our AquaRefining process and related apparatus and chemical formulations. However, no assurances can be given that any patent issued, or any patents issued on our current and any future patent applications, will be sufficiently broad to adequately protect our technology. In addition, we cannot assure you that any patents issued now or in the future will not be challenged, invalidated, or circumvented.

Even patents issued to us may not stop a competitor from illegally using our patented processes and materials. In such event, we would incur substantial costs and expenses, including lost time of management in addressing and litigating, if necessary, such matters. Additionally, we rely upon a combination of trade secret laws and nondisclosure agreements with third parties and employees having access to confidential information or receiving unpatented proprietary know-how, trade secrets and technology to protect our proprietary rights and technology. These laws and agreements provide only limited protection. We can give no assurance that these measures will adequately protect us from misappropriation of proprietary information.

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Our processes may infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions.The applied science industry is characterized by frequent allegations of intellectual property infringement. Though we do not expect to be subject to any of these allegations, any allegation of infringement could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause suspension of operations or force us to enter into royalty, license, or other agreements rather than dispute the merits of such allegation. If patent holders or other holders of intellectual property initiate legal proceedings, we may be forced into protracted and costly litigation. We may not be successful in defending such litigation and may not be able to procure any required royalty or license agreements on acceptable terms or at all.

There can be no assurance that we will be able to negotiate our key agreement with ~~Johnson Controls~~Clarios on commercially reasonable terms, or at all. In February 2017, we entered into a series of agreements with ~~Johnson Controls,~~Clarios, including an equipment supply agreement pursuant to which, among other things, we agreed to work with ~~Johnson Controls~~Clarios on the development of a program for the conversion of ~~Johnson Controls~~Clarios and certain strategic partners of ~~Johnson Controls’~~Clarios’ existing lead smelters throughout North and South America, China and Europe to a lead recycling process utilizing our AquaRefining technology and equipment, know-how and services. The equipment supply agreement discusses the development of the conversion program in general terms and contemplates that the parties will enter into a definitive development program agreement that is based on the general terms set forth in the equipment supply agreement and provides more detailed terms and conditions, including the economic obligations and rights of each party. ~~In September 2017,~~We have agreed not to license our AquaRefining technology and equipment to third parties in the aforementioned regions until such time as we ~~commenced discussions with Johnson Controls concerning~~and Clarios have agreed on certain matters relating to the initial conversion of a Clarios facility. Pursuant to amendments to the equipment supply agreement entered into in June 2019 and June 2021, the parties have agreed to use good faith, commercial best-efforts to conclude the discussion and negotiation of, and enter into, a development program agreement no later than the 90th day following our satisfaction of certain performance criteria agreed upon by Clarios and us, however asthose performance conditions were based on the operation of 16 AquaRefining modules at TRIC, which is unlikely. However, pursuant to the ~~date~~June 2021 amendment, Clarios agreed to remove the restriction on our ability to sell AquaRefining equipment or license our AquaRefining technology to third-parties pending the conclusion of ~~this report our discussions with Johnson Controls concerning the~~a development program agreement ~~remain preliminary in nature.~~with Clarios. There can be no assurance that we will be able to negotiate and conclude a definitive development program agreement with ~~Johnson Controls~~Clarios on commercially reasonable terms, or at all.

We are dependent on a limited number of suppliers of certain materials used in our AquaRefining process and our inability to obtain these materials as and when needed could cause a material disruption in our operations.Our AquaRefining process involves a significant number of elements, chemicals, solvents and other materials, in addition to used LABs. There are a limited number of suppliers of certain materials used in our AquaRefining process and we have no agreements in place for our supply of such materials. Our ability to conduct our AquaRefining process on a commercial scale will depend significantly on obtaining timely and adequate supply of these materials on competitive terms. Our inability to source these materials on a timely and cost-efficient manner could interrupt our operations, significantly limit our revenue sales and increase our costs. This factor could also impair our ability to meet our commitments to supply our customers. Our inability to obtain these materials as and when needed could cause a material disruption in our operations.

~~If we are unable to manage future expansion effectively, our business, operations and financial condition may suffer significantly, resulting in decreased productivity~~. If our AquaRefining process proves to be commercially viable, growth and expansion activities could place a significant strain on our managerial, administrative, technical, operational and financial resources. Our organization, procedures and management may not be adequate to fully support the expansion of our operations or the efficient execution of our business strategy. If we are unable to manage future expansion effectively, our business, operations and financial condition may suffer significantly, resulting in decreased productivity.

~~Certain industry participants may have the ability to restrict our access to used LABs and otherwise focus significant competitive pressure on us~~. We believe that our primary competition will come from operators of existing smelters and other parties invested in the existing supply chain for smelting, both of which may resist the change presented by our AquaRefining process. Competition from such incumbents may come in the form of restricted access to used LABs. We believe that LAB manufacturers who also maintain their own smelting operations control approximately 50% of the market for used LABs. We will require access to used LABs at market prices in order to carry out our business plan. If those LAB manufacturers and others involved in the reverse supply chain for used LABs attempt to restrict our access to used LABs that may adversely affect our prospects and future growth. There can be no assurance that weClarios will ~~be able~~maintain the same level of interest in and commitment to ~~effectively withstand~~ the ~~pressures applied by our competition.~~

~~We may experience significant fluctuations in raw material prices and the price~~proposed joint development of our ~~principal product, either~~AquaRefining technologies. On May 1, 2019, Johnson Controls International plc announced that it had completed the sale of ~~which~~its battery group assets, formerly held by Johnson Controls Battery Group, Inc., to Brookfield Business Partners L.P. The acquired battery group assets now operates under the name Clarios. The agreements and proposed business projects between us and Johnson Controls Battery Group, Inc. (collectively, the "Aqua Metals Collaboration") are now under the control of Clarios, and that certain members of the former management of Johnson Controls Battery Group, Inc. are now employed in similar capacities by Clarios. We have also been advised that Clarios and Brookfield Business Partners L.P. have expressed their interest in continuing the Aqua Metals Collaboration initiated by us and Johnson Controls Battery Group, Inc. Although there can be no assurance that Clarios currently has, and/or will maintain, the same level of interest in our joint collaboration as its predecessor, as Clarios could, for example, no longer have an interest in our technologies or have competing priorities, we currently have no reason to believe that Clarios and Brookfield Business Partners L.P. have lost interest. In addition, the change of control of the battery group may cause disruptions and distractions that adversely affect its ability to further the Aqua Metals Collaboration. For these and other reasons, Johnson Controls’ sale of its battery group assets to Brookfield Business Partners L.P. could possibly have a material adverse effect on ~~our liquidity, growth prospects and results of operations~~. ~~Used LABs are our primary raw material and we believe that in recent years~~ the cost of used LABs has been volatile at times. In addition, we believe that the cost of used LABs can be seasonal, with prices trending lower in the winter months (as automobile owners increase their purchase of new LABs, thereby putting a greater number of used LABs on the market) and trend higher in the spring (as the purchase of new LABs, and supply of used LABs, decreases). Our principal product, recycled lead, has also experienced price volatility from time to time as well. For example, the market price of lead on the London Metal Exchange, or LME, during 2015 and 2016 ranged from $1,554 to $2,456 per tonne. While we intend to pursue supply and tolling arrangements as appropriate to offset any price volatility, the volatile nature of prices for used LABs and recycled lead could have an adverse impact on our liquidity, growth prospects and results of operations.Aqua Metals Collaboration.

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Global economic conditions could negatively affect our prospects for growth and operating results.Our prospects for growth and operating results will be directly affected by the general global economic conditions of the industries in which our suppliers, partners and customer groups operate. We believe that the market price of our principal product, recycled lead, is relatively volatile and reacts to general global economic conditions. Lead prices decreased from $2,139 per tonne on May 5, 2015 to a low of $1,554 per tonne on November 23, 2015 because of fluctuations in the market. ~~A month later, the price per tonne increased back up to $1,801 per tonne; the~~Lead price per tonne was ~~$1,983 on December 31, 2016.~~approximately $1,775 at the end of March 2021. Our business will be highly dependent on the economic and market conditions in each of the geographic areas in which we operate. These conditions affect our business by reducing the demand for LABs and decreasing the price of lead in times of economic ~~down turn~~downturn and increasing the price of used LABs in times of increasing demand of LABs and recycled lead. There can be no assurance that global economic conditions will not negatively impact our liquidity, growth prospects and results of operations.

We are subject to the risks of conducting business outside the United States.A part of our strategy involves our pursuit of growth opportunities in certain international market locations. We intend to pursue licensing or joint venture arrangements with local partners who will be primarily responsible for the day-to-day operations. Any expansion outside of the US will require significant management attention and financial resources to successfully develop and operate any such facilities, including the sales, supply and support channels, and we cannot assure you that we will be successful or that our expenditures in this effort will not exceed the amount of any resulting revenues. Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

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increased cost of enforcing our intellectual property rights;

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diminished ability to protect our intellectual property rights;

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heightened price sensitivities from customers in emerging markets;

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our ability to establish or contract for local manufacturing, support and service functions;

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localization of our LABs and components, including translation into foreign languages and the associated expenses;

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compliance with multiple, conflicting and changing governmental laws and regulations;

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compliance with the Federal Corrupt Practices Act and other anti-corruption laws;

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foreign currency fluctuations;

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laws favoring local competitors;

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weaker legal protections of contract terms, enforcement on collection of receivables and intellectual property rights and mechanisms for enforcing those rights;

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market disruptions created by public health crises in regions outside the United States;

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difficulties in staffing and managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions;

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issues related to differences in cultures and practices; and

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changing regional economic, political and regulatory conditions.

U.S. ~~Government~~government regulation and environmental, health and safety concerns may adversely affect our business.Our operations and the operations of our licensees in the United States will be subject to the ~~Federal, State~~federal, state and local environmental, health and safety laws applicable to the reclamation of lead acid ~~batteries.~~batteries including the Occupational Safety and Health Act ("OSHA") of 1970 and comparable state statutes. Our facilities and the facilities of our licensees will have to obtain environmental permits or approvals to ~~operate,~~expand, including those associated with air emissions, water discharges, and waste management and storage. We and our licensees may face opposition from local residents or public interest groups to the installation and operation of our respective facilities. Failure to secure (or significant delays in securing) the necessary approvals could prevent us from pursuing some of our planned operations and adversely affect our business, financial results and growth prospects. In addition to permitting requirements, our operations and the operations of our licensees are subject to environmental health, safety and transportation laws and regulations that govern the management of and exposure to hazardous materials such as the lead and acids involved in battery reclamation. These include hazard communication and other occupational safety requirements for employees, which may mandate industrial hygiene monitoring of employees for potential exposure to lead.

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We and our licensees are also subject to inspection from time to time by various federal, state and local environmental, health and safety regulatory agencies and, as a result of these inspections, we and our licensees may be cited for certain items of non-compliance. For example, in August 2018, the Nevada Occupational Safety and Health Administration, or Nevada OSHA, delivered to us a citation and notification of penalty. The citation listed a number of items related to our compliance with Nevada OSHA’s Lead Standard. We reached a settlement agreement with Nevada OSHA on the amount of penalties associated with the citation. We also agreed to engage a lead compliance expert to audit our facility at TRIC for compliance with all provision of the Lead Standard and to generate a written report with findings of any noncompliance, recommended corrective actions, and a time frame to correct the findings of noncompliance. We agreed with Nevada OSHA to correct all findings of noncompliance within the time frame proposed by the lead compliance expert in their report. The lead compliance expert has been engaged, has visited the facility at TRIC and has completed the written report. We have corrected all findings of noncompliance in a timely manner.

Failure to comply with ~~these~~the requirements of federal, state and local environmental, health and safety laws could subject our business and the businesses of our licensees to significant penalties (civil or criminal) and other sanctions that could adversely affect our business.

In addition, in the event we are unable to ~~present~~operate and ~~operate~~expand our AquaRefining process and operations as safe and environmentally responsible, we and our licensees may face opposition from local governments, residents or public interest groups to the installation and operation of our facilities.

The development of new AquaRefining technology by us or our partners or licensees, and the dissemination of our AquaRefining process will depend on our ability to acquire necessary permits and approvals, of which there can be no assurance. As noted above, our AquaRefining processes will have to obtain environmental permits or approvals to operate, including those associated with air emissions, water discharges, and waste management and storage. In addition, we expect that any use of AquaRefining operations at our partner's facilities will require additional permitting and approvals. Failure to secure (or significant delays in securing) the necessary permits and approvals could prevent us and our partners and licensees from pursuing additional AquaRefining expansion, and otherwise adversely affect our business, financial results and growth prospects. Further, the loss of any necessary permit or approval could result in the closure of an AquaRefining facility and the loss of our investment associated with such facility.

Our business involves the handling of hazardous materials and we may become subject to significant fines and other liabilities in the event we mishandle those materials. The nature of our operations involves risks, including the potential for exposure to hazardous materials such as lead, that could result in personal injury and property damage claims from third parties, including employees and neighbors, which claims could result in significant costs or other environmental liability. Our operations also pose a risk of releases of hazardous substances, such as lead or acids, into the environment, which can result in liabilities for the removal or remediation of such hazardous substances from the properties at which they have been released, liabilities which can be imposed regardless of fault, and our business could be held liable for the entire cost of cleanup even if we were only partially responsible. We are also subject to the possibility that we may receive notices of potential liability in connection with materials that were sent to third-party recycling, treatment, and/or disposal facilities under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, ~~(“CERCLA”),~~or CERCLA, and comparable state statutes, which impose liability for investigation and remediation of contamination without regard to fault or the legality of the conduct that contributed to the contamination, and for damages to natural resources. Liability under CERCLA is retroactive, and, under certain circumstances, liability for the entire cost of a cleanup can be imposed on any responsible party. Any such liability could result in judgments or settlements that restrict our operations in a manner that materially adversely effects our operations and could result in fines, penalties or awards that could materially ~~impairs~~impair our financial condition and even threaten our continued operation as a going concern.

We will be subject to foreign government regulation and environmental, health and safety concerns that may adversely affect our business. As our business expands outside of the United States, our operations will be subject to the environmental, health and safety laws of the countries where we do business, including permitting and compliance requirements that address the similar risks as do the laws in the United States, as well as international legal requirements such as those applicable to the transportation of hazardous materials. Depending on the country or region, these laws could be as stringent as those in the ~~US,~~U.S., or they could be less stringent or not as strictly enforced. In some countries in which we are interested in expanding our business, such as Mexico and China, the relevant environmental regulatory and enforcement frameworks are in flux and subject to change. Compliance with these requirements will cause our business to incur costs, and failure to comply with these requirements could adversely affect our business.

In the event we are unable to present and operate our AquaRefining process and operations as safe and environmentally responsible, we may face opposition from local governments, residents or public interest groups to the installation and operation of our facilities.

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Risks Related to Owning Our Common Stock

~~Our common stock.~~The market price of our shares may be subject to fluctuation and volatility. You could lose all or part of your investment ~~Our common stock has traded on the Nasdaq Capital Market, under the symbol “AQMS”, since July 31, 2015. Since that date,~~. The market price of our common stock ~~has at times been relatively thinly traded and~~is subject to ~~price volatility. There can be no assurance that we will be able~~wide fluctuations in response to ~~successfully maintain a liquid market for~~various factors, some of which are beyond our ~~common shares. The stock market in general,~~control. Since April 1, 2020, the reported high and ~~early stage public companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance~~low sales prices of such companies. If we are unable to develop and maintain a liquid market for our common shares, you may not be able to sell your common shares at prices you consider to be fair or at times that are convenient for you, or at all.

~~Control by management and others may limit your ability to influence the outcome of director elections and other transactions requiring stockholder approval~~. As of the date of this report, our directors and executive officers beneficially own approximately 12.9% of our outstanding common stock. In addition, two other stockholders, Johnson Controls and Interstate Battery, together, beneficially own an additional 19.5%. As a result, such persons acting together will have significant influence over corporate actions requiring stockholder approval, including the following actions:

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~~to elect or defeat the election of our directors;~~

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~~to amend or prevent amendment of our certificate of incorporation or bylaws;~~

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~~to effect or prevent a merger, sale of assets or other corporate transaction; and~~

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~~to control the outcome of any other matter submitted to our stockholders for vote.~~

Such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

~~We are an “emerging growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make~~ our common stock ~~less attractive~~have ranged from $0.35 to ~~investors~~. We$8.06 through July 29, 2021. The market price of our shares on the NASDAQ Capital Market may fluctuate as a result of a number of factors, some of which are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”beyond our control, including, but not limited to:

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~~not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;~~

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~~reduced disclosure obligations regarding executive compensation~~actual or anticipated variations in our ~~periodic reports~~ and ~~proxy statements;~~our competitors’ results of operations and financial condition;

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~~exemptions from~~changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts;

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development of technological innovations or new competitive products by others;

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regulatory developments and the ~~requirements~~decisions of ~~holding a nonbinding advisory vote on executive compensation and stockholder~~regulatory authorities as to the approval or rejection of ~~any golden parachute payments; and~~

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~~extended transition periods available for complying with~~ new or ~~revised accounting standards.~~modified products;

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our sale or proposed sale, or the sale by our significant stockholders, of our shares or other securities in the future;

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changes in key personnel;

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success or failure of our research and development projects or those of our competitors;

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the trading volume of our shares; and

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general economic and market conditions and other factors, including factors unrelated to our operating performance.

WeThese factors and any corresponding price fluctuations may materially and adversely affect the market price of our shares and result in substantial losses being incurred by our investors. In the past, following periods of market volatility, public company stockholders have ~~chosen~~often instituted securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.

If securities or industry analysts do not continue to ~~“opt out” of the extended transition periods available for complying with new~~publish research or revised accounting standards, but we intend to take advantage of all of the other benefits available under the JOBS Act, including the exemptions discussed above. We cannot predict if investors will findpublish inaccurate or unfavorable research about our ~~common~~business, our stock ~~less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active~~price and trading volume could decline. The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline. In addition, independent industry analysts may provide reviews of our AquaRefining technology, as well as competitive technologies, and perception of our offerings in the marketplace may be ~~more volatile.~~significantly influenced by these reviews. We have no control over what these industry analysts report, and because industry analysts may influence current and potential customers, our brand could be harmed if they do not provide a positive review of our products and platform capabilities or view us as a market leader.

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We will remain an “emerging growth company until 2020, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value

Future sales of substantial amounts of our common stock, or the possibility that ~~is held by non-affiliates exceeds $700 million as~~such sales could occur, could adversely affect the market price of our common stock. We cannot predict the effect, if any, ~~June 30.~~that future issuances or sales of our securities or the availability of our securities for future issuance or sale, will have on the market price of our common stock. Issuances or sales of substantial amounts of our securities, or the perception that such issuances or sales might occur, could negatively impact the market price of our common stock and the terms upon which we may obtain additional equity financing in the future.

~~Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it~~. Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our reporting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

We have not paid dividends in the past and have no plans to pay dividends.We plan to reinvest all of our earnings, to the extent we have earnings, in order to ~~develop~~pursue our ~~recycling centers~~business plan and cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to receive cash dividends on our common stock.

~~Shares eligible for future sale may adversely affect the market for our common stock~~. Of the 20,402,454 shares of our common stock outstanding as of the date of this report, approximately 17,411,694 shares are held by “non-affiliates” and are freely tradable without restriction pursuant to Rule 144. In addition, in August 2016, we filed with the SEC a Registration Statement on Form S-3 for purposes of registering the resale of 3,711,872 shares of restricted common stock sold to Interstate Battery in May 2016, including 3,009,625 shares of common stock issuable to Interstate Battery upon exercise of its warrants and conversion of its convertible note, and in February 2017, we filed with the SEC a Registration Statement on Form S-3 for purposes of registering the resale of the 939,005 shares of restricted common stock we sold to Johnson Controls in February 2017. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common stock.

Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable.Provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. The provisions in our certificate of incorporation and bylaws:

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limit who may call stockholder meetings;

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do not permit stockholders to act by written consent;

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do not provide for cumulative voting rights;

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establish an advance notice procedure for stockholders' proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors, and

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provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.

In addition, Section 203 of the Delaware General Corporation Law may limit our ability to engage in any business combination with a person who beneficially owns 15% or more of our outstanding voting stock unless certain conditions are satisfied. This restriction lasts for a period of three years following the share acquisition. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.

Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company.Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us or any our directors, officers or other employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us or any our directors, officers or other employees governed by the internal affairs doctrine. This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers or other employees.

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Item 6. Exhibits

Exhibit No.	Description	~~Description~~		Method of Filing

3.1		First Amended and Restated Certificate of Incorporation of the Registrant		Incorporated by reference from the Registrant’s Registration Statement on Form S-1 filed on July 22, 2015.
3.2
~~3.2~~		Second Amended and Restated Bylaws of the Registrant	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on September 27. 2018.
3.3	Certificate of Amendment to First Amended and Restated Certificate of Incorporation of the Registrant	Incorporated by reference from the Registrant’s Registration Statement on Form S-1 filed on June 9, 2015.
3.4
~~3.3~~		Certificate of Amendment to the First Amended and Restated Certificate of Incorporation ~~of the Registrant~~		~~Incorporated by reference from the Registrant’s Registration Statement on Form S-1 filed on June 9, 2015.~~

10.1*		~~Executive Employment Agreement dated July 14, 2017 between Mark Weinswig and Registrant~~		Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed on ~~August~~May 9, ~~2017.~~2019
10.1
10.2*		~~Aqua Metals, Inc. Officer~~Third Amendment to Equipment Supply Agreement dated June 30, 2021 between the Registrant and ~~Director Share Purchase Plan~~Clarios, LLC		Filed electronically herewith
31.1
~~31.1~~		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed electronically herewith
31.2
~~31.2~~		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed electronically herewith
32.1
~~32.1~~		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).		Filed electronically herewith

101.INS		Inline XBRL Instance Document		Filed electronically herewith
101.SCH
~~101.SCH~~		Inline XBRL Taxonomy Extension Schema Document		Filed electronically herewith
101.CAL
~~101.CAL~~		Inline XBRL Taxonomy Extension Calculation Linkbase Document		Filed electronically herewith
101.LAB
~~101.LAB~~		Inline XBRL Taxonomy Extension Label Linkbase Document		Filed electronically herewith
101.PRE
~~101.PRE~~		Inline XBRL Taxonomy Extension Presentation Linkbase Document		Filed electronically herewith
101.DEF
~~101.DEF~~		Inline XBRL Taxonomy Extension Definition Linkbase Document		Filed electronically herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Indicates management compensatory plan, contract or arrangement.

Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		AQUA METALS, INC.

Date:	~~November 9, 2017~~ July 29, 2021	By:	/s/ Stephen ~~R. Clarke~~Cotton
			Stephen ~~R. Clarke,~~Cotton,
			President, ~~and~~ Chief Executive Officer and Director (Principal Executive Officer)

Date:	July 29, 2021	By:	/s/ Judd Merrill
~~Date:~~	~~November 9, 2017~~	~~By:~~	~~/s/ Mark Weinswig~~ Judd Merrill,
			~~Mark Weinswig,~~
			Chief Financial Officer
			(Principal Financial Officer)

		Page

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	~~Condensed Consolidated Balance Sheets~~	1

	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	~~Condensed Consolidated Statement of Stockholders’Equity~~	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 14

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19 18
Item 4.	Controls and Procedures	18

~~Item 4.~~	~~Controls and Procedures~~	19

	PART II - OTHER INFORMATION
Item 1A1.	~~Risk Factors~~Legal Proceedings	20 19
Item 1A.	Risk Factors	20
Item 6.	Exhibits	27 28

	June 30, 2021
Weighted-average remaining lease term (in years)		0.7
Weighted-average discount rate		9.66	%

Date of		Average Closing				Warrant		Common
Warrant		Market Price		Exercise Price		Shares		Shares
Exercise		Per Share		Per Share		Exercised		Issued

	2/10/2017	$	11.016	$	0.0034375		392,728		392,605
	2/13/2017	$	13.062	$	3.00		25,119		19,349
	2/13/2017	$	13.062	$	6.00		72,420		39,154
	2/15/2017	$	16.768	$	6.00		65,177		41,856
	2/16/2017	$	16.768	$	6.00		35,000		22,470
	3/17/2017	$	20.262	$	6.00		2,500		2,500
	3/20/2017	$	20.304	$	3.00		226,068		192,666
	3/20/2017	$	20.304	$	6.00		586,596		413,253
	4/3/2017	$	19.148	$	0.0034375		43,636		43,628
	4/11/2017	$	17.920	$	6.00		12,500		8,315

							1,461,744		1,175,796

	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016

Expected stock volatility		70.7% - 71.4	%		72.9% - 73.9	%		70.7% - 72.7	%		72%-80	%
Risk free interest rate		1.50% - 1.65	%		0.92% - 1.02	%		1.38% - 1.79	%		0.92%-1.77	%
Expected years until exercise		3.5			3.5			2.5-3.5			2.5-3.5
Dividend yield		0	%		0	%		0	%		0	%

					Additional						Total
	Common Stock				Paid-in			Accumulated			Stockholders’
	Shares		Amount		Capital			Deficit			Equity

Balances, December 31, 2016		17,878,725	$	18	$	85,234		$	(28,262	)	$	56,990

Stock based compensation - stock options		—		—		592			—			592
Cashless exercise of warrants		1,173,296		1		(1	)		—			—
Exercise of warrants to purchase common stock		2,500		—		15			—			15
Exercise of options to purchase common stock		283,310		—		1,068			—			1,068
Common stock issued under Officers and Directors Purchase Plan		182		—		1			—			1
Common stock issued for cash in February 2017 from Johnson Controls, net of $167 transaction cost		939,005		1		10,471			—			10,472
Common stock issued for purchase of Ebonex IPR Limited		123,776		—		2,149						2,149
Net loss		—		—		—			(19,549	)		(19,549	)

Balances, September 30, 2017		20,400,794	$	20	$	99,529		$	(47,811	)	$	51,738

	*June 30, 2021*		*December 31, 2020*

Building repair	$	2,547	$	0
Property and equipment related		1,321		715
Payroll related		727		479
Use tax accrual		10		1
Other		29		58
	$	4,634	$	1,253

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Cash paid for operating lease liabilities	$	164	$	160	$	327	$	318
Operating lease cost	$	144	$	144	$	289	$	289

Due in 12-month period ended June 30, 2022	$	561
Less imputed interest	$	(22	)
Total lease liabilities	$	539

Current operating lease liabilities	$	539
Non-current operating lease liabilities	$	0
	$	539

Exercise Price		Expiration		Shares Subject to purchase
per Share		Date		at September 30, 2017

$	7.12		5/18/2018		702,247
$	9.00		5/18/2019		1,605,131
$	10.00		11/21/2019		33,450
					2,340,828

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cost of product sales	$	16	$	22	$	47	$	44
Research and development cost		11		15		53		120
General and administrative expense		592		517		1,198		1,346
Total	$	619	$	554	$	1,298	$	1,510