Good day and thank you for standing by. And welcome to Aqua Metals Second Quarter Financial Results. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advise that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Glen Akselrod. Please go ahead.

Thank you, Operator. Welcome to the Aqua Metals Second Quarter 2021 Conference Call. Earlier today Aqua Metals released financial results for the quarter ended June 30, 2021. This release is available on the Investors section of the company’s website at www.aquametals.com. Joining us for today’s call from management is Steve Cotton, President and CEO; as well as Judd Merrill, the company’s Chief Financial Officer. During today’s call, management will be making forward-looking statements. Please refer to the company’s report on the Form 10-Q filed today, July 29, for a summary of the forward-looking statements and the risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Aqua Metals cautions investors not to place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by law. As a reminder, after Steve’s and Judd’s formal remarks we will be taking questions. Questions will be accepted over the telephone from analysts and all other investors can submit a question using the online webinar portal provided in today’s and last week’s press releases. We will take as many questions as we can in our available time slot. And with that, I would like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, please go ahead.

Thank you, Glen. Thank you everybody for joining us today. I’m going to start with slide one and that is -- that we’re leading a revolution in both the lead and lithium battery industries. And I’ll talk about that throughout the presentation. Slide number two is our Safe Harbor, which I won’t read to you and you can refer to any deck that we will have up on the website. Slide three, for those new to our story, as a reminder to those who’ve been following Aqua Metals, I’d like to start with our mission. And that is to provide sustainable metal recycling for materials that are strategic to energy storage applications. What you see behind you is AquaRefining in a still shot of what it looks like to see lead made one atom at a time. In our proven technology, AquaRefining delivers raw materials right back into the manufacturing supply chain in a very clean way and an economical way that can also reduce over reliance on mining to meet demand with the recovery of these metals. Slide number four. This is Aqua Metals at a glance. We have developed AquaRefining, which is a commercially ready sustainable battery recycling technology. AquaRefining is very different than traditional battery recycling technologies and that it uses water instead of fire and organic acids that are biodegradable to create a 99.996% plus ultra-pure lead, which as I mentioned before we do one atom at a time, starting with creating revolution for the $20 billion lead recycling industry. We’re seeking to extend the AquaRefining capabilities to lithium-ion batteries and multi-metal recovery through intellectual property that we’ve already established with AquaRefining and enhanced with our progress towards lithium recycling, strategic investments and research and development on an ongoing basis. We believe that AquaRefining is a…

Thank you, Steve. I will share a few comments related to each of our financial statements. First on slide 10, talking about the balance sheet. As of June 30, 2021 cash and working capital balances were both $10.7 million. That is $10.7 million in cash and $10.7 million in working capital. During the second quarter of 2021, we re-classed certain assets with a net book value of $5.2 million to assets held for sell. These non-core assets are no longer necessary for our future operating plans. Of these assets, we successfully disposed of equipment with a net book value of $0.8 million prior to the end of the quarter, resulting in total assets held for sale of $4.3 million as of June 30, 2021. The previously announced lease-to-buy agreement related to our plant located in Tahoe Reno Industrial Center commenced on April 1, 2021. We accounted for the lease-to-buy agreement as a sale-type lease. As a component of the accounting for this agreement, we recognized the estimated fair value of the land and plant of $17 million as a lease receivable. This is reflected on the company’s condensed consolidated balance sheets and allocated between a current and non-current portion. Another component of the accounting for this agreement was the recognition of a non-cash loss on the sale of plant and equipment of $3.5 million. A significant portion of this amount is $2.5 million of anticipated remaining costs for the repair of damage to the building that was caused by the 2019 fire. The $2.5 million included in accrued expenses as of June 30, 2021. Moving on to slide 11, on the income statement. As we concentrated our efforts on licensing and further enhancing our products offering for future partners, the company did not generate revenue during the second quarter of…

Thank you, sir. [Operator Instructions] Your first question is from Colin Rusch. Your line is open.

And the first license agreement, can you help us understand some of the financial implications for that. And how are cash and cash flows [ph] start coming into the company here over the next couple of quarters from that agreement?

Thanks, Colin. Yeah. So the first agreement, it will be a phased deployment. And so we will see the beginnings of revenue, likely towards the end of the year as we get the equipment up and running and begin collecting royalties. But we’ll be making several tons per day, well, ACME will be making several tons per day. So they won’t be material amounts of revenue in 2021. And as I pointed out in the presentation, it’s really 2022 and beyond where the company will begin to see what I would characterize as material amounts of revenue for equipment and for royalties. But it’s a transition from pre-revenue for equipment and licensing into revenue as we round the bend towards next year, as we deploy the equipment this year and get it operating with our first licensee.

Perfect. That’s super helpful. And then, in terms of, kind of quarterly cash burn, what was the cadence of that here over the next three quarters, four quarters?

Yeah. Colin, so the second half of the year is probably going to look a lot like first half in terms of the monthly cash burn and quarterly cash burn. Not a lot of changes in that. But as we go forward into the next year, we are hiring some additional people and adding a little bit more strength to the company. So we’ll see some uptake, it won’t be significant. But it will be meaningful in terms of supporting our go-forward strategy in the licensing. And some of that will be determined as we get more news on additional licenses besides ACME. And some of that will be determined on the timing of how things progress. Sooner, we might feel a little bit quicker uptick in some of those cash needs for employees and support, if it takes a little bit longer than will be pushed out.

Okay. Thanks so much, guys.

Your next question is from Sameer Joshi. Your line is open.

Thanks, guys, and congratulations on your transaction with ACME. Just following up on Colin’s questions a little bit, will you be able to share any little bit more granularity on the number of Aqualyzer during the various phases that you will be deploying in Taiwan for the next several quarters that will be helpful?

Sure. Yeah. So, as I mentioned, the first deployment will be several Aqualyzer and as we’ve noted, we’ve improved the throughput of the Aqualyzer. So they’ll make several tons per day from the get go as we get that equipment up and running. And then as we enter the further phases of the deployment, we’ll go to a larger deployment, particularly as we work with ACME with their connections to global battery manufacturers that they already are doing business with, where they can pull the capabilities of the oxide production and help us move forward with that. We expect to see significant increases in the size of deployment to match the needs that we work together with ACME to identify with their client base. So we’ll see a ramping of phases as we get moving, but the first phase is not a de minimis amount, but it’s a starting point that will be tacked on to and that’s the beauty of AquaRefining to begin with is that it’s the modular system. And we can put modular growth steps and step functions as we continue to expand the facility with ACME as appropriate.

That’s helpful. So then, you mentioned the global reach of ACME. Is there a regional feature to this licensing agreement or is it only focused on Taiwan and maybe some additional regions or is it a global license that is being awarded to ACME?

So the deal that we worked out with ACME is that for Taiwan they are our partners. And in Taiwan, there are global manufacturers of batteries that have facilities in Taiwan and so it’s a busy center for the manufacturing of batteries. And so it’s the access through ACME’s long running relationships at the very highest levels with those types of clients that has a regional Asia-Pac aspect to it, as well as a global aspect, because some of those manufacturers ship their products globally.

Yeah. Understood. Thanks for clarifying that. You mentioned we should expect some new -- further news or more news on the LiNiCo going forward. But is there anything that can be shared now? Is there anything or what -- in other words, what are the next milestones that we should be looking for?

So for -- you mean for the lithium development?

For the -- yes.

Yeah. So LiNiCo is making great progress, preparing what was the AquaRefinery to be the LiNiCo recycling facility. And they’ve announced already that they’re planning on getting some operations up and running late this year and early into next year. Aqua Metals is working with LiNiCo on the adaptation of AquaRefining to add value to the LiNiCo lithium processing facility. They’ve also recently announced the planned throughput of the facility to be quite large and maybe one of the largest lithium facility -- recycler facilities in the world and so we see a great opportunity to continue to partner with LiNiCo to take our AquaRefining technology and deploy the results of our efforts for the multi-metal type of recovery within the facility there. So I would expect further evidencing of the relationship that we have with LiNiCo and with the eco network that we built, which is inclusive of not only LiNiCo, but Comstock, as another owner of LiNiCo and Green Li-ion, who’s another technology provider. What we’re really working towards is feedstock supply partners that want to see their lithium use spent cells, very large corporations go to clean hydrometallurgical processing facilities, as opposed to those that smelt lithium-ion batteries. And so we see great opportunities on that front to expand the eco network that we should be able to evidence in the not so distant future, as well as the buyers or the output high purity metals that we plan to produce along with the cathode ready materials that LiNiCo plans to produce using our and Green Li-ion’s technology. So that’s the path forward that, the nice thing about what we have with this eco network is, there’s -- land is there, the building is there, the process flows are well designed and equipment is getting put in the floor very soon. And so we feel that this eco network is ahead of many of the other players in the lithium space that are a little bit more speculative in nature.

Understood. Thanks for that color. And you mentioned the plant and maybe this question is for Judd. Judd, you mentioned the $4.3 million loss is a one-time loss. Should we expect some more additional one-time losses in 3Q for any additional equipment that you may be disposing off?

Yeah. No. We pretty much -- we move the building asset and land to receivable, so that moved out of fixed asset. And then we moved a little bit of some assets for held for sale, as we -- and there’s the write-off is related partly to the building and the cleanup costs, not clean up, but the repair costs that are part of that equation. And so all of that we feel like is now on the financials and behind us. The only thing I’m left to is to sell some of that equipment and depending on where that comes in, there may be a gain or loss, but we feel like…

Right.

…that balance fairly represents what we think the market value is as of the day of the financials.

Right. Right. And one -- thanks for that. One last one, there was some recovery of the PPP or rather forgiveness of the PPP loan this quarter as well. Do we expect any additional forgiveness or has everything been forgiven so far?

Yeah. So everything on the PPP, those have been forgiven, it was a little over $300,000. So we’re seeing that money last year and the forgiveness that came in two different pieces, because we have the Reno Inc and then operating company. But both those loans have been forgiven and so that’s completely off. So there’s absolutely zero debt on the company’s financials.

Great. Okay. Thanks for that. Congratulations and good luck.

Thank you.

Thank you very much.

Your next question is from Shawn Severson. Your line is open.

Great. Thanks, guys. Steve I was wondering, maybe explain why this seemed to be first one, what was unique about this with ACME that it moves so quickly and the circumstances around as that brought it forward?

So, that -- good question, Shawn. So we’ve actually known ACME for quite some time and they’ve expressed interest in our technology, because long ago they chose not to smelt. And ACME has been in the business of refining lead bullion into specialized alloys for these very large clients that they have and have always been interested in finding a clean way to produce the pure lead for those same clients. And so the AquaRefining capabilities that we’ve developed not only in our operations in our AquaRefinery, but as we improve it to the Version 1.25 and the real customer ready product really got the conversations on a fast track, with their interest in being the first customer to move forward as quickly as possible. So we’ve worked out those arranges with them. The nice thing about ACME is that they are nimble and quick moving, but they also have very strategic relationships with some of those large battery manufacturers. So that’s what we see is kind of unique about the deal, in the sense that they are a fast moving, well connected, strong track record supplier to those types of organizations in a very fast growing market in Asia-Pac to help us as well.

And with that in mind, with so many new technologies, everybody wants to be second, not first, right, in adoption. So how does -- how do you think this impacts those other transactions potentially in the pipeline in terms of how this is viewed and assume that helps accelerate, but just what do you think the takeaway is going to be in the next year in the pipeline that you are talking about?

Sure. You’ve got six people standing up on the cliff, who’s going to go first and jump into the ocean. And when the first one goes, it’s likely that others will follow. I’ve seen this in prior companies in my career, with newer technologies, they get adopted and you gain that momentum factor. The ability even in Asia-Pac region to have a showcase facility, where we can show people in that region the AquaRefining at its finest is certainly going to help. But even before we ramp that facility up in the coming months, I believe that the robust sales funnel that we have, seeing that we’ve consummated the relationship with another entity and another party with great credibility in the industry, certainly helps progress those discussions. So we do see a momentum breaker of getting that first one is really breaking inertia. And then once you break inertia, you can start to propagate, that’s our plan.

Will you be able to retain any additional information? I talked specifically about some of the technology. But obviously, when you roll out at scale like that, there’s going to be some learning curves, right? You’re going to discover things and there’s going to be data to mine or even be able to keep and utilize and leverage all of that and that you’ll be closely engaged with them?

Yeah. So it is joint development, but the IP rights associated with the joint development are assigned back to Aqua Metals. But of course, ACME will enjoy the licensing of that IP throughout Taiwan. So it’s a real win-win situation. So there’s no potential conflict in that IP. And we’ve worked that all out with them and feel very confident that we’ll be able to jointly develop, particularly this second methodology that we’ve already developed the first methodology to go direct to oxide, because that truly is transformational to the link between recycling lead batteries, as well as frankly, lithium-ion batteries. If you can take pure metals and go direct oxide from a multi-level environment, as well as the lead environment. It’s also quite exciting. So we see great opportunity in that and it really kind of fits in with our overall concept of eco network with lithium. It’s also the same with lead, it takes multiple companies to innovate and sold and put together a better way and so that’s what we really well matched for with ACME.

Okay. Thanks, guys. Congratulations.

Thank you.

Steve, it’s Glen here. We’ve got a few questions in the online queue. I think most of the questions have been covered by the prior Q&A, except for one, which is and I’ll just sum it up in generality, because we’ve got a few questions on this. But can you just comment or update the current status of the Clarios relationship?

Sure. So, Clarios has been going through an IPO process. I think we all saw that news today that that’s been put on hold. But there -- it’s still in a quiet period. And so really the only comment that I can make on Clarios is refer to our Q4 filing and you can see the status of the relationship in the Q filing.

Perfect. I don’t see any more questions in the queue. I think we’re ready to end the call.

This concludes today’s conference call. Thank you for participating. You may now disconnect.

Thank you, everyone.