Aqua Metals, Inc. (AQMS) Q2 2016 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Aqua Metals’ Second Quarter 2016 Corporate Update Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today August 10, 2016. Before we get started, I’d like to turn the call over to Greg Falesnik from MZ North America, the Company's Investor Relations firm who will read a disclaimer about forward-looking statements. Please go ahead.

Thank you, Operator. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the Federal Securities Laws regarding Aqua Metals. Forward-looking statements include statements about plans, objectives, goals, strategies, future events and performance and underlying assumptions and other statements that are different than historical fact. In the forward-looking statements during this conference call include statements concerning our intentions, expectations and believes regarding anticipated growth; market penetration and trends in our business; the timing and success of our plan of commercialization; our ability to operate our AquaRefining process on a commercial scale; our ability to maintain our competitive technological advantages against competitors in our industry; our ability to have our technology solutions gain market acceptance; our ability to maintain, protect and enhance our intellectual property and our expectations concerning our relationships with suppliers, partners and other third parties. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that and may result in expectation not being realized, and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements. Potential risks and uncertainties include the fact that the company has not yet commenced revenue producing operations or developed its initial commercial recycling facility, thus subjecting the company to all of the risks inherent in a pre-revenue start-up; risk related to Aqua Metals’ ability to raise sufficient capital as when needed; to develop and operate its recycling facilities; changes in the federal, state and foreign laws regulating the recycling of lead-acid batteries, the company’s ability to protect its proprietary technology, trade secrets and know-how and other risks disclosed in the risk factors included in the Annual Report on Form 10-K filed with the SEC on March 28, 2016. All such forward-looking statements whether written or oral made on behalf of the company are expressly qualified by the cautionary statements and such forward-looking statements are subject to risks and uncertainties, and we caution you not to place undue reliance on these. At this time, I’d like to turn the call over to Dr. Stephen Clarke, the Company’s Chairman and CEO. Steve, the floor is yours.

Thank you, Greg and welcome everybody to the Q2 earnings call for Aqua Metals. The thing I wanted to talk about today is what we have done and what we’re going to do and it's very incredible to realize it just precisely, a year and 12 days we completed our IPO and raised the funds to build the world's AquaRefinery and that’s what I'm going to talk about today. So really of the point, the earnings call that we have done so far have been about our plans and what are we going to do and starting with this one, this earnings call, the thing really is what have we done and how do we expand from there. So that’s basically the two things that we’re going to be talking about today. What have we achieved and how do we go to business beyond this. So with that said I will just move ahead to the Safe Harbor statement and just wait a couple of seconds to just make sure you’re all aware and that you heard Greg read to you most of it. So moving on, as I said earlier it's almost exactly 12 months ago we had just completed our IPO and Tom [indiscernible] Steve and I and about 50 other people standing on a 12 acre patch of dirt in the desert and that photograph is taken exactly the same spot. I think [indiscernible] summed it up when he gave a look at [Technical Difficulty] the other said, wow, just wow look at what fileld. I think it's pretty incredible. It's hard to imagine the speed of development that we have achieved anywhere even in China and I think it's a testament of the hard work of everybody involved not only in the Aqua Metals but the contractors that we have worked with and certainly the State of Nevada and State County of regulators that we have worked with, it's just being an incredible journey. So basically the world's first AquaRefinery is now opening for business. As we have said it's planned to be a 160 tons of lead produce per day, it's going to start with 80 tons of lead output by Q4, 2016 and then have a 160 tons of lead output by 2018. The lead that we produce 50% of that will be refined alloys for specific applications within lead acid batteries, 50% of it will be pure and ultra-pure led also primarily uses the active material in lead acid batteries. The key point that only is it building build but I will show you in a few slides that all of the key equipment is installed and were installed largely on schedule and we have also recruited a very experienced and capable operations team and they are onsite and they are leading the commissioning activities and I will expand on both the key members of the team and the commissioning as we move on. So I'm trying to summarize here just a couple of key points, really the key point is that we have done the heavy lifting and we now have all the permits that are in-place that we require to operate and that was no easy task. It's county state federal regulators to secure permits appropriate to [indiscernible] and we’re going to take a couple of slides just to go through one of the key points in there and correct some misunderstanding and misinformation that’s out there regarding AquaRefinery versus smelting, but the bottom line is we have a Class 2 air permit [ph] and we’re not subjecting niche up [ph]. For those of you not in the environmental world, having niche up permitted facilities along an arduous process that makes an environmental standard, it's entirely appropriate for a smelter and entirely inappropriate for electrochemical based refining process and achieving that agreement with the regulators and have a Class 2 air permit in place is a massive benefit towards demonstrate a massive of our technology over smelting. The other point is that we also did not and do not require a requite permit [ph] to operate on our Nevada facility. Not necessarily the case for every state, requite permit is not particularly difficult but they are time consuming and if we’re have been required to requite permit which we didn’t we did and neither did the county state or the regulators would have delayed our opening. So we have the permits that were required to operate in hand. And what came out of that is some fairly significant ongoing regulatory outreach. We started to get the word out lead is a cost effective alternative to smelting and what we’re finding is that it's been incredibly well-received by state and federal and also regulators and the way this is kind of [Technical Difficulty] what we’re learning is that enforcement actions against conventional smelters are paid to the increasing and just two weeks ago, I think it's two weeks ago there is new reaction on the last remaining smelter on the West Coast, so there is a real need for an alternative to smelting. What we now understand is that our permitting advantages are actually part of our core IP and in a simple sense obtaining all the required permits in a short time scale validated everything that we believed and explained about the benefits or permitting side of our technology and along the way we established some really I'm precedence that should help us accelerate the roll out on expansion of the business. So the next two slides I'm just going to talk about something that keeps cropping up. We have heard a number of times that maybe AquaRefinery should be subject to niche up and we have also heard that our (inaudible) metal or that’s the same as melting so why aren't you? That’s going to terrified you all with a couple of flow diagrams that explain in simple terms smelting and AquaRefinery. So, the slide that I'm showing now is a simplified diagram of actually the best in class smelter based battery recycling and there is a picture that I want to point here. The first one is you can see two horizontal streams of actions, usually I see batteries come in they get broken, sorted and into plastic and sulphuric acid, that generates two off-streams lead paste and metallic lead. Lead paste then desulphurized and then the desulphurized paste is dried and then it goes into charge preparation which is the handling of dry lead dusty powders, then it's turned into a feedstock which is also a dry dusty powder and it finally goes into smelting and out of that comes led which is sent to ingoting and sold the secondary lead. There is a bottom stream on there that show metallic lead coming out of the breaker and going directly to ingoting. As I said earlier this is somewhat idolized version of the best in class [Technical Difficulty]. The vast majority of smelters in the world are particularly those outside of the U.S., don’t include all of those features and some of the missing features desulphurization in which sulphur come out of the charge before smelting. If you don’t take the sulphur out what you get out of your smelting operation is a large amount of SO2 and other acid rain gases. Outside of the U.S. the gap is still there, at the end the often in [indiscernible] as well and that’s capson [ph] as well and that’s where you get lead dosed, greenhouse gases and also the SO2 and the other gases and then another point that is almost universally missing is the stream of metallic lead that by passes the smelting. In fact the vast majority of smelters all of the lead whether it's lead paste that needs to be turned back to lead actually the metallic lead itself goes through the top processors and enters the smelter. And last but not least, I want to point out that smelting occurs at $1400 centigrade, so in simple terms it's a difference between smelting is about a 1000 degree centigrade. Lead melts at 450c, it smelts at 1400c, lead boils at 1700c and that’s important because at 1400 centigrade starting to volatize in layman's terms evaporate the lead which means the -- it forms a lead dust which will we measure [ph] in diameter and extremely difficult to filter. So most of the environmental changes associated with smelter derive from the fact that the lead dried and all the work leading into the actual smelting operation itself involves handling dry lead containing dusts and the operations downstream of the smelter involve handling gas at 1400c that contain lead dust and other toxic materials that we do our best to filter in the west than often in other countries there is no attempt to do anything with it. So that is smelting and in the U.S. there is an environmental standard that is referred niche up that was developed to help manage all of the [Technical Difficulty] associated with dealing with dry, dusty lead powders and the off-gases that come from a smelter. So that’s smelting. Remember what now to AquaRefinery and it's really idealized flow chart, this is exactly what we have built. So similarly the front-end used lead acid batteries coming to breaking sorting and that gives us plastic sulphuric acid and then we do separate the lead paste which is the lead oxides and lead sulphates from the metallic lead and we only process the lead paste through the AquaRefinery process. So we don’t waste any energy taking perfectly good metallic lead and smelting it or processing in any other we turn, the metallic lead into ingots, boiling ingots in process and then if we look at the AquaRefinery part, where we’re fundamentally different is that the breaking, the lead paste, the desulphurization and the AquaRefinery is all done as a lead process which has no ability to generate dust and then the AquaRefinery lead goes into ingoting that produces either primary lead or high value lead products that we’re looking at downstream and the metallic lead which comes from lead grid and top lead is separately -- turned into secondary lead. So we have two outputs, primary lead, what we’re calling secondary lead. From a pricing standpoint primary lead typically attracts a significant premium of LME spot prices and what we have identified here is secondary lead is actually lead alloys produced for specific applications in lead acid battery and also attract something of premium of spot light prices. So what I'm trying to do here is really bring out the difference between smelting and AquaRefinery and this is the basis of why the decision was made that we’re not regulated on the niche out that we’re completely different process, that’s really important. The fact that we achieved our permits as quickly as we did has set a huge precedent for how we roll-out our business I think on all of the parts of the U.S. and indeed all the parts of the world. So moving on, the other thing -- one of several milestones is we actually built and shipped first hacker refining module in June which pretty much when we said we would do. The photograph on the left is the two banks and three electrolyzer, the electrolyzer are the white boxes -- two of those make six electrolyzer on two skid which is one module. That was delivered to the [indiscernible] complex later that day, my photograph on the left, I jumped in my car and beat the truck to trick to take a photograph of it, arising and being installed in the AquaRefinery. So things are really starting together now. We have now got four modules on site and an additional 12 modules at various stages of assembly here in our facility. So we held an open day on July 28th and we choose to do this because this is the latest week we’re doing -- before we start commissioning and when you’re commissioning a large chemical facility which essentially what an AquaRefinery facility is there are all kinds of operations going on that you don’t really want to have people wandering around, you’re building and testing processes in a very nature testing of processes, they don’t always work, we’re not expecting to always work, right. So we choose to have our open day on July 28. As I mentioned we had all of the key equipment is in place there. The battery breaker, the ingot casting machine, the ingot parts for AquaRefinery modules. Photograph on the top left shows Selwyn Mould, COO thanking the hard work of our team and contractors and the regulators that are doing that. The photograph in the middle on the top is sharp, it doesn’t show too well but back is the battery breaking and separations equipment. The photograph on the top right is a fully automated and [indiscernible] ingot production facility. The further half on the bottom-left is the AquaRefinery hall doesn’t show all for AquaRefinery modules in place, we can see two of them there and the last two are shots of the thank you party and the musical act. There is an interesting story about that last part and it's kind of a metaphor for what we’re doing. Things often go wrong and part of the skill is how you react to things that go wrong and lead guitarist of the band in charge. So one of our chemical engineers stood in and was Jimmy Page for the day, the band is a Led Zeppelin Tribute band which was always kind of appropriate for us as a business but that metaphor is for real. Things aren't perfect when you’re commissioning a large facility. Things do go wrong and our skillset is managing two of the common things that go wrong and deal with it. So, that lead me to a nice intro to our estimated commissioning and ramp up schedule. We have really broken this out into commission and production ramp up. What I need to mention is that this activity is being managed on site by Michael Krickel who is the plant manager and Mike we recruited from [indiscernible] Brothers, prior to that he has worked with a number of other large lead battery recycling and lead smelting companies. Mike literally wrote the book on smelting and battery recycling. He has built and commissioned five battery recycling facilities and has recruited a team of experts and really people with [indiscernible] just how much leadership they have done in the battery recycling business around the world and this is his schedule and so in terms of the timeline we broke it out to August, September, October through the end of the year. The first part is about commissioning the key components we really can see it's a really six [ph] systems that we need to have up and running, those are the ingot and refining, the battery breaking, desulphurization, the backhouse that manages the air emissions from the ingot process. The water treatment facility that manages any emission from our AquaRefinery and the AquaRefinery module themselves and we pretty much to commission a sequence. We’re not going to put or give advice on precise states, some of that order may change but that’s our plan and we’re on schedule for it. We have got it all of it, they are managing their own site. We have got a pretty extensive start of sub-contractors to help with the commissioning work and we’re recruiting day shift supervisors and having them start in September. We bring our day shift operators on site and train them up in early October. So by the beginning of November we’re targeting to be somewhere around 20 tons a day of lead production by the beginning of December to be a 40 tons a day of lead production and by the end of the year at 80 tons of lead production and essentially what we’re doing is scaling by adding shifts, the facility will be a 24 hour day, seven day a week, 52 weeks of the year operation running four shifts rotating. So the scale of these about getting the process up and running and then adding shifts. So one of the things since we started was building strategic relationships and we talked before about the strength of our relationship with Wirtz manufacturing and they supply the battery breaking systems and supply rather the battery breaking ingoting and sort of water treatment facilities. Our ongoing and strong relationship with Battery Systems, Inc. second largest distributor and collector of batteries in North America, they became our second strategic investor in our IPO in 2015 and not coincidentally they operate at 200,000 square foot warehouse less than a 100 wards from our facility from which they can supply dead batteries to us. And then speak to the fact that we brought on Board inter-state batteries in May of this year, they are the largest distributor and the collector of batteries in the U.S. Their initial tool is to provide a $1 million batteries a year to help with our scale up and they became our first strategy investor with a fairly significant $10 million investor structure straight equity and convertible in May of this year. What I can say is what's happened since then is that and from down to commitment of Battery Systems and in particular in say batters, that’s driven a phenomenal level of credibility and interest in our technology and we’re now in pretty significant discussions with multiple additional strategic partners. Moving on to expanding the business, supplying license modules to third parties is and always has been our primary business objective. To do that we believe strongly that you have to build out and operate first. If you look at any of the technological advances and step changes in commodity materials you will see there is a 100% correlation between those who build, operate and commercialize their own equipment first and success. So that’s what we choose and our stated objective is to expand our own capacity to 800 tons a day on 4 to 5 facilities and the point that needs to be made that we’re planning to do that primarily using debt finance and I will speak a little bit more about that later on and the idea of that decline [ph] that is 800 tons a day, we would be at about 2% of global and we think that gives us pretty serious commercial validation and credibility, they also gives us distributed training facilities to support our licensing model. In that we plan to expand the Tahoe-Reno facility to a 160 tons a day by 2018 and we have already got debt financing options that we’re discussing with debt financing providers for that. And then continuing our own build out we have now got plans for a second sight, at very advanced stage. In discussions we supply off-take and financing partners and that’s looking pretty exciting. Providing AquaRefinery equipment on a fully serviced licensing model it's at stage and that’s going to run in parallel, we’re not planning to wait until we have built out all of our four to five facilities. Initially I thought we would have to just to gain the credibility but what we’re finding is massive support and alternative to smelting. So we’re at a point now where a substantial majority of North America battery manufacturers and lead smelters have visited facility and I mean a substantial majority and what the feedback we’re getting as Selwyn said it, wow, the cost quality and environmental permitting advantage is not lost on anybody and we’re getting really serious interest. So we have been approached by interested parties in not only America but also in Europe, South America, China and India and in China and India we’re contemplating what we call a master license relationship instead of attempting to license individual companies we were looking towards partnering with a large well-established player in each country and license through them and basically partner with people with the track record of operating successfully in India or China and repatriating funds from those operations and mostly importantly not being copied, ripped off and managing the IP and we have identified two potential partners or rather we have been approached by two potential partners, the China and one for India that check -- all of those boxes. So on that basis we’re both the U.S. and non-U.S. licensing roll-out. What we said the interested parties is that we’re not planning to ship any modules until quarter three of 2017 not because we can't but we just thing it's prudent to have gone to six, seven months of operating experience under our belt before we do that. Right now we have indicative interest that’s equivalent to that two years of module production at full scale. So we have got currently got the capacity to make 160 modules a year and we have got indicative interest, we’re about 320 modules and which we think is pretty fantastic considering the early stage where we’re at. So I'm now going to handover to Tom Murphy who will talk about the financials.

Thank you, Steve. Good morning everybody. I'm going to give a brief recap of the second quarter 2016 results. For the three months and year-to-date ended June 30, 2016, we had an operating loss of $2.8 million and $5 million. Calculated on a non-GAAP basis removing stock option compensation, depreciation and amortization in the first quarter of 2016 our operating loss was $1.8 million, in the second quarter it was $2.1 million and the primary reason for the increase in operating loss is a ramp up of the AquaRefinery plant primarily staff and also one-off charges related to the staff including head-hunt and relocation cost. The net loss for 2016 was $2.9 million and $5.1 million for the year-to-date. We had $26 million in cash and cash equivalents as of June 30, 2016 compared to $31.8 million as of December 31, 2015. I’d like to point out a few key highlights of the last year since our IPO which was just in July 31, 2015, and on that date, we listed on the NASDAQ as AQMS with a total of 7.24 million shares at $5 per share for $36.2 million gross proceeds. In conjunction with the IPO, our convertible notes were redeemed for $2.5 million shares of stock. In August 17th, less than a year ago just short of -- we broke ground on the construction of our McCarran recycling plant and continue to complete equipment installation and commissioning. In November of last year, we received a $10 million loan through a Green Bank in Houston, Texas. This loan was made in conjunction with the 90% loan guarantee from the Rural Business Cooperatives Service of the U.S. Department of Agriculture. We signed a lease for over 20,000 square foot of mixed office and manufacturing space in Alameda, California. Tenant improvements begun in 2015 and we moved in in February this year. As Steve mentioned on May 18th, we signed a strategic partnership with Interstate Batteries. Some of the highlights of that transaction, Interstate Batteries purchased 702,247 shares of the company at $7.12 per share for gross proceeds of approximately $5 million. They also loaned the company $5 million pursuant to a secured convertible promissory note. The note bears interest at an 11% and the loan will mature on May 25, 2019. We granted Interstate Batteries two warrants to purchase common stock; a fully vested warrant to purchase 702,247 shares expiring on May 18. The second warrant vesting on November 18 of this year to purchase 1.6 million shares and expiring on May 18, 2019. The average exercise price is $8.43 per share. At the same time the company with certain accredited investors sold 719,333 shares for gross proceeds of $5.1 million. Liquid venture partners through National Securities Corporation acted as our placement agents. Additional information on both of these transactions can be found -- these transactions can be found in our second quarter 10-Q. As of June 30 of this year we’ve spent $13.5 million on the construction McCarran construction, and $11.7 million towards equipment for the plant. Staff, including full time consultants increased from seven at the beginning of 2015 to 39 currently of which 10 are in our McCarran plant. Outstanding common shares as of June 30 was 15.6 million. With that I will turn the call back over to Steve.

So I'm just going to wrap this up now. The thing that I'm going to talk about are some of the obstacle that we overcame and the lessons we learned along the way and then I'm going to talk about some key takeaways and wrap it up and move onto questions and answers. So basically one of the things that I'm talking about here is permitting, now that we have got the permitting exercise completed. One of the ironies, permitting our California headquarters is actually harder than permitting our Nevada facility and sadly that speaks to some of the inefficiencies and contradictions in permitting in the State of California. Sadly and somewhat frustration, this caused about six months delay in our 11 [ph] engineering work which we have overcome and it was a very significant delay and we were pretty creative in how we worked around that and managed to overcome that and get back on schedule. The next point is -- as I said in slide there was a concerted interference with our air permitting application. I'm not going to identify the party and I'm not going to speculate why but it did cause a significant delay to our air permitting and it put back some actions on site, and also established typically for precedent because it was the objection around the fact that we didn’t need to be permitted on the niche up [ph] and the subsequent escalation of that decision process from country to state to Federal regions and Federal level that ultimately caused -- are result is in getting a really, really powerful precedence. So in a way thank you very much for objecting. It helped us in the end. In a point is we would like to have been able to experience battery recycling industry expertise earlier. Tom just mentioned we started with seven employees after our IPO, we’re now 39, we would like to brought Mike and the team that he has brought on Board earlier but we really needed to [Technical Difficulty] first -- what's happened is being quite incredible, it's a team of battery recycling experts have relocated themselves and their families to Reno, Nevada to be with us in this part of this year and that’s quite incredible. It would have been nice if we could be clear and totally understand that we needed to prove our credibility before they would risk their families futures on this. So last couple of points, the battery industry, I mentioned earlier, a vast majority of North America lead acid battery industry is being on site now, seen what we have got the overwhelming response is wow, you guys really thought this through. We take all the boxes and even some companies have visited the site and wanting to find a problem and went away smiling and shaking our hand. So basically there is a real [Technical Difficulty] smelting. As I mentioned earlier U.S. smelter are on the increasing regulatory pressure and enforce some action and diminish in any way the incredible amount of work North America smelters has put into meeting environmental requirements. The issue is fundamentally technology is very, very challenging to bring into compliance with clean air, clean water regulations. The bigger issue is that on regulator smelters in developing countries are really hurting the lead acid industry now a the -- is the exposure of consumer purchases and industrial partners to the appalling level of population that smelters have generated historically and in the developing world continue to make that is really causing an issue for the lead acid battery industry and the lead acid battery industry is responding incredibly favorably towards and alternative. And last but not least, working with regulators we’re seeing a lot of enthusiasm to having an alternative, they understand the option of alternative to smelting the only real alternative is to ship and export our pollution to third world counties which is really unconscionable and really welcoming a clean, efficiency alternative to smelting. So last slide now before I close it. Key takeaways, the 12 months of operation, we have demonstrated the benefits of our technology with respect to permitting, it's been exceptionally well-received by potential licensees. And this is a surprise, we’re generating a much stronger and urgent interest with potential supplies and cost [ph] that’s evidenced by our recently announced strategic partner with Interstate but also the ongoing dialogues that we have got with other strategic partners. It is clear that it has become a tipping point within the industry on the need for an alternative to smelting. After less than 12 months, the Tahoe-Reno facility is almost ready to run, and building the facility is largely on a schedule, it's been a couple of months in. I think from a historical perspective and from a contextual perspective it's incredible that we have built what we have built with as little slippage as we have. I think we have -- we and the team have done incredible piece of work there, and that’s been recognized by potential customers. We’re already pursuing debt financing options for our next facility and we have in fact the potential to presell some or all of its capacity before we even break ground. We have got massively strong demand for AquaRefinery modules that support equipment and did I mention that we have got strong interest from debt and other diluting sources of capital to fund our expansion. So with that I will pass it back to Greg to open questions and answers.

[Operator Instructions]. And we will go first with Collin Rusch with Oppenheimer.

Guys you’ve talked a little bit about potential partners at your -- you’re looking at working with -- for the next facilities, can you talk a little bit about the criteria that you’re planning to work with in the process area and go through in terms of evaluating those opportunities particularly I think there has been some questions around or from equity holders about how you might be able to bring money in your prepayments or other arrangements. I know you guys have thought through a bunch of those issues but I would love to just get an update on your criteria and your processing going forward?

So there are two things that we’re looking at, one is building our own facilities and the other one licensing our technology. With respect to building our own facilities as I’ve mentioned a couple of times we’re at very advanced stage in terms of looking at non-dilutive sources of capital and all of the things that you’ve just mentioned are in discussion. We don’t see a major challenge in building -- expanding the full facility and building the next one. In terms of licensing we’re incredibly protective of the brand that we’re building. So the criteria that we have are really about -- is this a credible party, have they got a track record of doing the right thing and are they willing to do business our way which is we will bring their staff on to our site, we will train them, we will assess them. If we don't think that they capable of operating an AquaRefinery that the relationship will end. We absolutely serious about a global roll-out but there is a real requirement that people who license our technology really understand and are committed to it's success. Does that answer your question?

Yes that sounds great, and then just in terms of the to do -- to get up and running, which piece are you guys most concerned about or pieces as you turn out this equipment may have some hiccups along the way.

There isn't a single piece, we have now got all of the three systems on site. We will be surprised that’s a given, that’s how commissioning works, that’s why you [indiscernible] and then very definition of a surprise is you don’t expect it. So everything we think we might have problem with we have got contingency plans in place. So I don’t have a single thing that we’re worried about, it's really about the commissioning process itself.

All right. Excellent guys, thanks so much.

And next we will go to Jeff Grampp with Northland Capital Markets.

Good morning. Thank you for taking my questions. First just kind of wanted to get your thoughts Steve as you guys talking about having a second refinery here. As you guys kind of build the business, how do you think about leveraging your existing relationships with an Interstate and Battery Systems versus kind of diversifying the supply chain that you guys could have.

Well our process, sorry our goal, stated goal is to displace smelting globally within the fastest timeframe that we can and if we’re going to displace smelting globally then we’re going to be both leveraging the relationships we have but also building new ones. So in terms of to get any deeper into that would involve getting into commercially sensitive considerations about who we’re doing with what. So it would be a bit of a stretch and we need to go much beyond -- of course we will be working with everybody.

From a [indiscernible] we don’t want to put all of our eggs in one basket, no matter how good a relationship we have with those individual companies.

All right. Great that’s helpful color. And then with this second facility that you guys are kind of working through, how should we think about from a timeline perspective given that you guys are going to highlight today you know permitting and getting through this process really gives you I think a core competency and having a seemingly very quick timeline with it's first facility, is that a good benchmark to think about going forward, do you think that’s maybe a little bit accelerated given how you guys have worked with the State of Nevada and the various agencies there. How would you kind of characterize your future build outs.

It's a work in progress. I wouldn’t be crazy enough to say that was the hard one, obviously it will faster because we know we will be surprised and to some extent the regulatory environment various from state to state. That said we have built our first facility in 12 months and we will have it commissioned in a couple of three months afterwards, so realistically a 12 to 18 month timeframe for roll out is we believe is quite reasonable. The important point is that with the permits that we have got in place right now, would not only set the precedence but we have got a much deeper understanding of the challenges and indeed the level of support within the regulatory environment and it's permitting is often -- permitting is the longest lead time.

Perfect. That’s helpful. And then just kind of maybe a quick housekeeping one, last one for me. In terms of kind of CapEx or expenditures over the reminder of the year, what's kind of a good number that we should be thinking about to get that thing kind of started up?

We’re not really outlook on that.

Okay. Fair enough. I will follow-up offline maybe. Thanks for the time guys.

[Operator Instructions]. And next we will go to Bhakti Pavani with Euro Pacific Capital.

Good morning, guys. Thanks for taking my questions.

Thank you. Good morning.

Thank you for the detailed presentation. It was really very helpful. Just a quick one on the permitting, the Class 2 air permit that you obtained, does that also include the user operation permit?

No this is multiple permits. I think something like 8 or 9 permits in total, ranging from what you do with the waste paper through -- simplistic level through to the air permit. The use permit and the air permit are the important ones. The use permit in Nevada is separate. So the air permit covers discharge of airborne pollutants. The water permit covers discharge of water pollutants and the use permit is basically it -- covers our ability to occupying and use the building.

So for the California facility you already have the use permit then correct?

Not for California. No we don’t have a California -- although our assembly area we have all of the permit for California yes, but that we manufacture our modules and do our design work. For our Nevada facility, yes we have all of the permits.

Okay. So from the commissioning and the testing standpoint if I understand correctly. The commissioning has -- testing will begin in September?

It's -- already, what was showed on that timeline was the major events.

Okay. Thank you. With regarding to licensing, I know in the presentation you did mention that you’ve a very strong interest from the potential customers. Just kind of curious from the signing of the licensing agreement to the deliver, what kind of time lag does it take? How much time does it take you in order to supply the modules if you’re ridden to that--

We can produce one module per week right now, we can produce upto a 160 tons a year capacity within -- so it's really it's not about building modules, it's about understanding the licensing specific needs. Often we’re looking at if more typically than not we’re looking at smelters that don’t have most of the processes that I outlined in the earlier slide, you know I presented an idolized version of the best in class smelters, sadly the vast majority are not anyway close to best in class and many don’t have even rudimentary desulphurization or backhouses. So sometimes it's not a case of just supplying the AquaRefinery modules, we have to supply additional equipment to basically make them comply them with their own environmental role. So and that really depends country to country, the timeline is really all about -- we’re in negotiations with people right now, we will be selecting partners for China and India for the next few months. Then we will begin training and roll out planning and then the last thing we will be doing is actually shipping, install and commissioning modules and any required support equipment.

Perfect. Okay. Just the last one on the operating side, I'm assuming you would be adding staff over the next two quarters. How should we see the operating expense going forward for the remaining year?

You should see it increasing. We’re are not providing guidance -- we haven't given specifics but that capacity once we have all the ships operating in Reno, we will have about 60 to 70 employees by the end of the year, but the higher end employees the supervisors and management staff we pretty much already hired. What we can say is that when we started this business I mean a year before we did even the IPO we did a lot of fairly intense modeling on the profitability of individual facility, the profitability of the business as we scale it up and so far we have validated or in some cases improved on pretty much all of those planning assumptions.

Okay. Thank you very much. That’s it from my side.

Thank you.

And next we will go to Eric Richardson with ER Capital Partners [ph].

Hey, guys congratulations on getting to the facility where it's gone. I just had a question on the permitting of the importation of batteries, is that not done yet or where is that and how does that supply look from just getting it in state or where does that stand?

So understanding your question correctly, permitting to receive batteries?

Yes. What I understood you needed, if I'm correct the way I understood that you and a permit to receive batteries to recycle from other states or no?

So right now our plan is to startup from using the warehouse that is next door to us, it's a 200,000 square foot facility where we would actually, battery is in there already to support us. We don’t require any permitting for that at all and we don’t require any permits to receive batteries from states that don’t classify used lead acid batteries as record waste [ph]. Couple of states do, one of which California. There is an additional permit we’re just closing now that will allow us to receive -- from them but in terms of what we need to do right now and get up to a -- plan 80 tons a day by the end of the year we’ve every permit that we need in place.

Great. That’s good news. Thanks for clarifying that.

Okay. So I just got to address some questions that we got from the webcast. So one that we get a lot is how many batteries does it roughly take to produce a metric ton of lead? Well it's a really how long pieces to a string [ph]. There is no fix number for that because lead acid batteries come in all shapes and sizes from [indiscernible] size not much bigger [Technical Difficulty] fill this entire room that we sat in. What I can tell you is that to produce 80 tons a day of lead we are bringing in roughly a 150 tons of dead batteries and the additional 70 tons of material there is plastic, sulpuric acid and water. The second part of that question is we will be selling LME spot price or discounted? No we are almost certainly if we’re selling lead we will selling it at premium because we’re producing ultra-pure lead. LME spot price is secondary lead which is kind of a [indiscernible] lead that’s neither pure -- ultra-pure lead or a specific alloy. So secondary lead produced by smelter needs to be further refined and alloyed into usable product, so it is typically the lowest cost lead -- so we’re actually going to be selling at premium. There is a question that says that what is the status of the recent shareholder offering? I'm not quite share, we have not had a shareholder offering.

I mean the recent offering we had with the private placement associated with Interstate battery deal that we did in mid-May which was again a private placement and those shares bolstered through an S3 on August 1.

Second one was, can we provide any guidance on gross margin or expenses to 2016, 2017? No we don’t provide guidance on that. It's really not modeling. Question four, can we repeat the exercised price of the once granted to Interstate batteries?

There are two different warrants and two different prices. The average price I believe it was $8.43 but if -- in our 10-Q that we will be filing this afternoon close will be included copies of both warrants.

And then there is two questions patents, I didn’t mention patents, you’re correct. So we have got -- we believe we have an exceptionally strong patent position. We’re not the first by any means to have looked to producing lead through an electrochemical process but we have taken a fundamentally different approach. So we have something like 22 patents in play, we expect to have about 13 play. None have been granted that’s a decision that we have made. One of the biggest mistakes of many technology companies make particularly in applied science is the patent and seek to have their patents granted too soon because the moment a patent is granted it's starting to expand it's life. So that and a number of other reason which we’re not going to go into, we believe it's highly advantageous to make sure that you’ve got no -- you’re not going to infringe on anybody's patents and we have extensive work on that and we clearly don’t and then make sure that you can manage to have the longest life possible in portfolio so that’s patents. And final question, is it really a concern that the modules are in-count upon is well-employed on mass scale. Have you done any testing? No we haven't done any testing in the facility because we’re not allowed to until the facility was permitted and number one it just got to the point but we have been operating a single full scale electrolyze for 12 months now that was pre-production prototype then nearly four months ago now we took a single electrolyzer off the production line installed in our full scale test facility and have been operating that ever since and we don’t anticipate any issues operating at full scale. Full scale is just essentially 96 of the same thing. And I think there was another final question. Is there a cost associated with acquiring these lead acid batteries? Absolutely. That’s the thing about the lead asset industry. The reasons that lead acid batteries are 100% recycled is that they have an economic value and so yes if we put -- there are essentially two ways of operating as a battery recycler, one is called tolling in which the third party retains title to the battery and you just essentially charge a fee for turning the battery into lead and the other one is where you buy batteries and turn them into lead and sell the lead and that’s called merchanting. Both of those are essentially traded communities, there are indexes for those. What typically happens is as the price of lead increases and decreases or ebbs and wanes, the associated price of a dead lead acid battery pretty much tracks it on average. So I think that’s it, unless there are any more questions, I propose we close the call at this point.

And we have no further questions over the phone.

Okay. Thank you. Thank you very much.

Thank you.

And now we will conclude today's conference call. Thank you everyone for your participation. You may now disconnect.