aqms20230930

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 30, 2023

☐	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.)

5370 Kietzke Lane, Suite 201

Reno, Nevada 89511

(Address of principal executive offices, including zip code)

(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 every Interactive Data File required to be submitted 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 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	☐

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 3, 2023, there were 107,811,467 outstanding shares of the common stock of Aqua Metals, Inc.

Table of Contents

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 - Unaudited	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 - Unaudited	2
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022 - Unaudited	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 - Unaudited	4
	Notes to Condensed Consolidated Financial Statements - Unaudited	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18
	PART II - OTHER INFORMATION
Item 1A.	Risk Factors	19
Item 6.	Exhibits	26

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AQUA METALS, INC.

Condensed Consolidated Balance Sheets - Unaudited

(in thousands, except share and per share amounts)

	*September 30, 2023*			*December 31, 2022*
ASSETS
Current assets
Cash and cash equivalents	$	25,598		$	7,082
Accounts receivable		76			12
Lease receivable		—			15,527
Inventory		891			278
Assets held for sale		—			47
Prepaid expenses and other current assets		172			263
Total current assets		26,737			23,209

Non-current assets
Property, plant and equipment, net		12,387			7,343
Intellectual property, net		326			461
Investment in LINICO		2,000			2,000
Other assets		532			489
Total non-current assets		15,245			10,293

Total assets	$	41,982		$	33,502

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	987		$	1,075
Accrued expenses		2,256			1,780
Building purchase deposit		—			3,250
Lease liability, current portion		312			307
Note payable, current portion		34			5,899
Total current liabilities		3,589			12,311

Non-current liabilities
Lease liability, non-current portion		38			275
Note payable, non-current portion		2,916			—
Total liabilities		6,543			12,586

Commitments and contingencies (see Note 13)

Stockholders’ equity
Common stock; $0.001 par value; 200,000,000 shares authorized; 108,200,351 and 107,771,785, shares issued and outstanding as of September 30, 2023, respectively and 79,481,751 shares issued and outstanding as of December 31, 2022		108			79
Additional paid-in capital		249,036			220,114
Accumulated deficit		(213,189	)		(199,277	)
Treasury stock, at cost; common shares: 428,566 and nil as of September 30, 2023 and December 31, 2022, respectively		(516	)		—
Total stockholders’ equity		35,439			20,916

Total liabilities and stockholders’ equity	$	41,982		$	33,502

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

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AQUA METALS, INC.

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except share and per share amounts)

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*

Product sales	$	25		$	—		$	25		$	4

Operating cost and expense
Plant operations		1,770			833			4,316			3,026
Research and development cost		389			490			1,359			1,561
General and administrative expense		2,815			2,611			8,670			7,615
Total operating expense		4,974			3,934			14,345			12,202

Loss from operations		(4,949	)		(3,934	)		(14,320	)		(12,198	)

Other income and (expense)
Gain on disposal of property, plant and equipment		—			5			23			595
Interest expense		(87	)		(9	)		(518	)		(22	)
Interest and other income		489			53			903			166

Total other income, net		402			49			408			739

Loss before income tax expense		(4,547	)		(3,885	)		(13,912	)		(11,459	)

Income tax expense		—			—			—			(2	)

Net loss	$	(4,547	)	$	(3,885	)	$	(13,912	)	$	(11,461	)

Weighted average shares outstanding, basic and diluted		101,617,856			77,402,763			89,103,988			74,871,423

Basic and diluted net loss per share	$	(0.04	)	$	(0.05	)	$	(0.16	)	$	(0.15	)

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

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AQUA METALS, INC.

Condensed Consolidated Statements of Stockholders’ Equity - Unaudited

(in thousands, except share amounts)

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

Balances, June 30, 2023		83,507,450	$	84	$	224,878		$	(208,642	)		510,632		$	(577	)	$	15,743

Stock-based compensation		—		—		593			—			—			—			593
Common stock issued to employees and directors, includes RSUs vesting and withholdings to satisfy tax withholdings on RSUs vesting		664,041		1		(577	)		—			(82,066	)		61			(515	)
Common stock issued for public offering, net of $1,713 transaction costs		18,193,000		18		18,300			—			—			—			18,318
Common stock issued for Yulho agreement, net of $372 transaction costs		4,545,455		5		4,624			—			—			—			4,629
Warrant expense related to Yulho agreement		—		—		181			—			—			—			181
Common stock issued for ATM share sales, net of $31 transaction costs		834,595		—		1,005			—			—			—			1,005
Common stock issued for director fees		27,244		—		32			—			—			—			32
Net loss		—		—		—			(4,547	)		—			—			(4,547	)

Balances, September 30, 2023		107,771,785	$	108	$	249,036		$	(213,189	)		428,566		$	(516	)	$	35,439

Balances, December 31, 2022		79,481,751	$	79	$	220,114		$	(199,277	)		—		$	—		$	20,916

Stock-based compensation		—		—		1,878			—			—			—			1,878
RSUs issued for consulting services		15,781		—		12			—			—			—			12
Common stock issued to employees and directors, includes RSUs vesting and withholdings to satisfy tax withholdings on RSUs vesting		1,544,804		2		(577	)		—			428,566			(516	)		(1,091	)
Common stock issued for public offering, net of $1,713 transaction costs		18,193,000		18		18,300			—			—			—			18,318
Common stock issued for Yulho agreement, net of $372 transaction costs		4,545,455		5		4,624			—			—			—			4,629
Warrant expense related to Yulho agreement		—		—		181			—			—			—			181
Common stock issued for employee stock purchase plan sales		192,707		—		122			—			—			—			122
Common stock issued for class action settlement		469,366		1		500			—			—			—			501
Common stock issued for ATM share sales, net of $119 transaction costs		3,244,302		3		3,786			—			—			—			3,789
Common stock issued for director fees		84,619		—		96			—			—			—			96
Net loss		—		—		—			(13,912	)		—			—			(13,912	)

Balances, September 30, 2023		107,771,785	$	108	$	249,036		$	(213,189	)		428,566		$	(516	)	$	35,439

Balances, June 30, 2022		75,772,815	$	76	$	217,030		$	(191,422	)		—		$	—		$	25,684

Stock-based compensation		—		—		597			—			—			—			597
RSUs issued for consulting services		13,389		—		12			—			—			—			12
Common stock issued to employees and directors, includes RSUs vesting		1,089,471		1		—			—			—			—			1
Common stock issued for ATM share sales, net of $33 transaction costs		1,189,780		1		1,033			—			—			—			1,034
Net loss		—		—		—			(3,885	)		—			—			(3,885	)

Balances, September 30, 2022		78,065,455	$	78	$	218,672		$	(195,307	)		—		$	—		$	23,443

Balances, December 31, 2021		70,416,552	$	70	$	211,309		$	(183,846	)		—		$	—		$	27,533

Stock-based compensation		—		—		1,735			—			—			—			1,735
RSUs issued for consulting services		13,389		—		12			—			—			—			12
Common stock issued to employees and directors, includes RSUs vesting		2,228,600		2		—			—			—			—			2
Common stock issued for ATM share sales, net of $176 transaction costs		5,406,914		6		5,616			—			—			—			5,622
Net loss		—		—		—			(11,461	)		—			—			(11,461	)

Balances, September 30, 2022		78,065,455	$	78	$	218,672		$	(195,307	)		—		$	—		$	23,443

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

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AQUA METALS, INC.

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

	*Nine Months Ended September 30,*
	*2023*			*2022*
Cash flows from operating activities:
Net loss	$	(13,912	)	$	(11,461	)
Reconciliation of net loss to net cash used in operating activities
Depreciation and ROU asset amortization		770			736
Amortization of intellectual property		135			135
Fair value of common stock issued for director fees		96			—
Fair value of common stock issued for consulting services		12			12
Stock-based compensation		1,880			1,737
Warrant expense		181			—
Amortization of deferred financing costs		119			—
Gain on disposal of property, plant and equipment		(23	)		(595	)
Changes in operating assets and liabilities
Proceeds from leasing of building		12,278			636
Accounts receivable		(64	)		131
Inventory		(612	)		95
Prepaid expenses and other current assets		91			(19	)
Accounts payable		322			(35	)
Accrued expenses		1,181			383
Other assets and liabilities		(232	)		(427	)
Net cash provided by (used in) operating activities		2,222			(8,672	)

Cash flows from investing activities:
Purchases of property, plant and equipment		(6,142	)		(2,290	)
Proceeds from sale of equipment		70			1,432
Equipment deposits and other assets		(222	)		(322	)
Investment in LINICO		—			(500	)
Net cash used in investing activities		(6,294	)		(1,680	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of transaction costs		22,947			—
Proceeds from employee stock purchase plan		14			—
Payments on note payable		(6,000	)		—
Proceeds from note payable, net		2,931			5,886
Cash paid for tax withholdings on RSUs vesting		(1,092	)		—
Proceeds from ATM, net		3,788			5,622
Net cash provided by financing activities		22,588			11,508

Net decrease in cash and cash equivalents		18,516			1,156
Cash and cash equivalents at beginning of period		7,082			8,137
Cash and cash equivalents at end of period	$	25,598		$	9,293

	*Nine Months Ended September 30,*
	*2023*		*2022*
Supplemental disclosure of cash flows information
Cash paid for income taxes	$	—	$	2
Cash paid for interest	$	399	$	7

Supplemental disclosure of non-cash transactions
Acquisitions of property, plant and equipment included in accounts payable	$	39	$	(218	)
Acquisitions of property, plant and equipment included in accrued expenses	$	674	$	(136	)
Increase in equity included in accrued expenses	$	608	$	—

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

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Aqua Metals (NASDAQ: AQMS) is engaged in the business of applying its commercialized clean, water-based recycling technology principles to develop cost-efficient recycling solutions for both lead and lithium-ion (“Li”) batteries. Our recycling process is a patented hydro and electrometallurgical technology that is a novel, proprietary process we developed and named AquaRefining. AquaRefining is a low-emissions, closed-loop recycling technology that replaces polluting furnaces and hazardous chemicals with electricity-powered electroplating to recover valuable metals and materials from spent batteries with higher purity, decreased emissions, and with minimal waste. The modular “Aqualyzers” cleanly generate ultra-pure metal one atom at a time, closing the sustainability loop for the rapidly growing energy storage economy.

Our focus for the lead market is providing equipment and licensing of our lead acid battery recycling technologies in an enabler model which allows us to work with anyone in the industry globally and address the entire marketplace. Our focus for the lithium market includes operating our first-of-a-kind lithium battery recycling facility, utilizing electricity to recycle instead of intensive chemical processes, fossil fuels, or high-temperature furnaces and licensing.

Revision of Prior Period Financial Statements

For the quarter ended September 30, 2022, we identified a cash flow classification error relating to proceeds from leasing of our building. The effect of this classification error was to overstate cash flow from financing activities by $636,000 and understate cash flows from operating activities by an equal amount for the nine months ended September 30, 2022. The classification error did not have an effect on net increase in cash and cash equivalents reported in the condensed consolidated statement of cash flow , the condensed consolidated balance sheet or condensed consolidated statement of operations for the related periods.

Using the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-S99-1, Assessing Materiality, and ASC Topic 250-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated whether our previously issued condensed consolidated financial statements were materially misstated due to this classification error. Based upon our evaluation of both quantitative and qualitative factors, we believe that the effect of this classification error was not material to any previously reported quarterly period.

We have revised the prior period financial statements included in this filing to reflect the correction of this classification error.

	Nine Months Ended September 30, 2022
	As Reported			Correction			As Revised
Cash flows from operating activities:
Lease of building					636			636
Net cash used in operating activities	$	(9,308	)	$	636		$	(8,672	)

Cash flows from financing activities:
Proceeds from leasing of building		636			(636	)		—
Net cash provided by financing activities	$	12,144		$	(636	)	$	11,508

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, 2022, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission, or the SEC, on March 9, 2023. There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2023.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of Aqua Metals, Inc. and subsidiaries (collectively, the “Company” or “Aqua Metals”) have been prepared in accordance with the interim reporting requirements of Form 10-Q, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the Company's audited consolidated financial statements for the period ended December 31, 2022, which are included on Form 10-K filed with the Securities and Exchange Commission on March 9, 2023. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for annual consolidated 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 30, 2023, the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and September 30, 2022, the condensed consolidated statements of stockholders' equity for the three and nine months ended September 30, 2023 and September 30, 2022 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and September 30, 2022, as applicable, have been made. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the Company’s audited consolidated financial statements as of such date, but it does not include all disclosures required by U.S. GAAP for annual presentation.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023.

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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, all of which are wholly-owned subsidiaries. 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, valuation allowances for deferred tax assets, the determination of stock-based compensation expense and the determination of the fair value of stock warrants issued. Actual results could differ from those estimates.

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by 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 purchase common stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. The following shares underlying outstanding convertible notes, stock options, RSUs and warrants to purchase common stock were anti-dilutive due to a net loss in the periods presented and, therefore, were excluded from the dilutive weighted average securities computation for the three and nine months ended September 30, as indicated below:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
Excluded potentially dilutive weighted average securities (1):	*2023*		*2022*		*2023*		*2022*

Options to purchase common stock		115,779		1,009,230		505,981		1,018,900
Unvested restricted stock units		5,035,002		3,221,803		5,525,424		3,921,702
Financing warrants to purchase common stock		436,670		6,372		151,381		6,372
Total potential dilutive weighted average securities		5,587,451		4,237,405		6,182,786		4,946,974

(1)	Securities are presented on a weighted average outstanding calculation as required if the securities were dilutive.

Segment and geographic information

Our chief operating decision maker (“CODM”) is the Chief Executive Officer. 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 CODM in deciding how to allocate resources and in assessing performance. The CODM views its operations and manages its business in one operating segment.

Concentration of credit risk

The Company did not generate significant revenue during the three and nine months ended September 30, 2023 and 2022, respectively, except for nominal revenue generated from the sale of lead finished goods. The Company had no trade receivables as of December 31, 2022. The accounts receivable balance on the Company's consolidated balance sheet as of December 31, 2022 consisted of proceeds from the sale of equipment. As of September 30, 2023 the Company had $25,000 in trade receivable and $51,000 in other receivables. The other receivables consisted of proceeds from a non-recurring engineering (NRE) arrangement with 6K Energy.

Recent accounting pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2024 and early adoption is permitted. The Company elected early adoption of ASU 2020-06 in the first quarter of its fiscal year 2023 on a modified retrospective basis. There was no material impact to the financial statements as a result of the adoption.

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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3. Revenue recognition

The Company was not in commercial production during the three and nine months ended September 30, 2023 and 2022, respectively. Historically, Company products transferred to customers at a single point in time accounted for 100% of its revenue.

4. Lease receivable

The Company entered into an Industrial Lease Agreement with LINICO Corporation, a Nevada corporation ("LINICO"), dated February 15, 2021 pursuant to which the Company leased to LINICO its 136,750 square foot recycling facility at TRIC. The lease commenced April 1, 2021 and expired on March 31, 2023. During the lease term, LINICO (or its parent, Comstock Inc.) had the option to purchase the land and facilities at a purchase price of $14.25 million if the option was exercised and the sale was completed by October 1, 2022 or $15.25 million if the option was exercised prior to March 31, 2023. The purchase option was subject to LINICO’s payment of a nonrefundable deposit of $1.25 million, which was paid on October 15, 2021, and a second nonrefundable deposit of $2.0 million, which was paid on October 25, 2022. Both deposits were applied towards the purchase price. Under the Industrial Lease Agreement, Comstock had the right to exercise the purchase option in lieu of LINICO, and the transaction would follow the same terms of the original agreement. On March 31, 2023, Aqua Metals, Inc. received a notice of Comstock Inc.’s exercise of the option to purchase the land and building located at 2500 Peru Dr., McCarran, Nevada. On April 26, 2023, the Company sold the real property to Comstock in consideration of the final payment of $12 million. After paying the note payable as noted in Note 11, the Company received the net proceeds of approximately $5.7 million.

The lease agreement was a triple-net lease pursuant to which LINICO was responsible for all fixed costs, including maintenance, utilities, insurance, and property taxes. The lease agreement provided 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 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 the land and plant of $17.0 million as a lease receivable, which was reflected on the Company's condensed consolidated balance sheet. The implied interest rate of 0.5% was utilized for the amortization of the scheduled building lease/purchase payments outlined in the agreement. The Company applied the monthly payments received as a reduction to lease receivable and interest income. The interest income recognized from the agreement is included in "Interest and other income" on the Company's condensed consolidated statements of operations. For the nine months ended September 30, 2023, the Company recognized a reduction in the lease receivable balance of approximately $12.3 million net of nonrefundable deposits applied towards the purchase price and recorded $24,000 of interest income related to this agreement.

5. Inventory

Inventory consisted of the following (in thousands):

	September 30, 2023		December 31, 2022

Finished goods	$	—	$	28
Work in process		106		—
Raw materials		785		250
Total inventory	$	891	$	278

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

6. Assets held for sale

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. Management believes these assets are no longer necessary for the Company's future operating plans. As of September 30, 2023, all assets held for sale were sold.

7. Property, plant and equipment, net

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

	Useful Life
Asset Class	(Years)		September 30, 2023			December 31, 2022

Operational equipment		3 - 10	$	4,501		$	1,445
Lab equipment		5		730			730
Computer equipment		3		6			6
Office furniture and equipment		3		90			90
Leasehold improvements		2.5		80			80
Land		-		1,141			—
Building		39		3,131			—
Equipment under construction				4,479			6,486
				14,158			8,837
Less: accumulated depreciation				(1,771	)		(1,494	)

Total property, plant and equipment, net			$	12,387		$	7,343

Property, plant and equipment depreciation expense was $254,000 and $591,000 for the three and nine months ended September 30, 2023 and $131,000 and $382,000 three and nine months ended September 30, 2022, respectively. Equipment under construction is comprised of various components being manufactured or installed by the Company.

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

8. Investments

On February 15, 2021, the Company entered into a Series A Preferred Stock Purchase Agreement with LINICO Corporation, a Nevada Corporation, or ("LINICO"), that provided for the Company's issuance of 375,000 shares (“Aqua Shares”) 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 $1.5 million, 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. During the three months ended March 31, 2022, the Company exercised the warrant for all 500 LINICO Series A Preferred shares. Following the exercise, the Company held a total of 2,000 shares of the Series A Preferred Stock representing approximately 12% of LINICO common stock on a fully diluted basis.

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 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 of certain future LINICO equity issuances.

The Series A Preferred Stock Purchase Agreement includes customary representations, warranties, and covenants by LINICO and the 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 cash.

In connection with the investment transactions, the Company also entered into an Investors Rights Agreement and a Voting Agreement, each dated February 15, 2021, pursuant to which LINICO granted the Company customary demand and piggyback registration rights, information rights and the right to nominate one person to the LINICO board of directors as long as the Company is the owner of at least 10% of the LINICO common stock on a fully-diluted basis.

Comstock Inc., a Nevada corporation (NYSE-MKT: LODE), is the beneficial owner of approximately 88% of the common shares of LINICO. The Company's Chief Financial Officer, Judd Merrill, was a member of the board of directors of Comstock Inc. until April 5, 2023.

9. Accrued expenses

Accrued expenses consist of the following (in thousands):

	*September 30, 2023*		*December 31, 2022*

Payroll related	$	1,479	$	418
Property, plant and equipment related		674		770
Other		60		41
Professional services		43		51
Class action settlement		—		500
	$	2,256	$	1,780

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

10. Leases

As of September 30, 2023, the Company maintained one finance lease for equipment and two operating leases for real estate. The operating leases have current terms of 36 and 37 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.

Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, as of September 30, 2023, total right-of-use assets were approximately $284,000 and operating lease liabilities were approximately $294,000. As of December 31, 2022, the Company's total right-of-use assets were approximately $463,000 and operating lease liabilities were approximately $475,000.

The Company currently maintains one finance lease for equipment. In November 2021, the Company entered into a finance lease for a modular laboratory which expires in October 2024.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Cash paid for operating lease liabilities	$	66	$	65	$	199	$	279
Operating lease cost	$	65	$	65	$	196	$	272

Cash paid for finance lease liabilities	$	15	$	15	$	46	$	46
Interest expense	$	2	$	2	$	5	$	7

	September 30, 2023
Weighted-average remaining lease term (years) - operating leases		1.1
Weighted-average discount rate - operating leases		6.17	%

Weighted-average remaining lease term (years) - finance leases		1.1
Weighted-average discount rate - finance leases		8.17	%

Future maturities of lease liabilities as of September 30, 2023 are as follows (in thousands):

Due in 12-month period ended September 30,
	Operating Leases			Finance Leases
2023	$	271		$	54
2024	$	34		$	5
2025	$	—		$	—
Less imputed interest	$	(11	)	$	(3	)
Total lease liabilities	$	294		$	56

Current lease liabilities	$	260		$	52
Non-current lease liabilities	$	34		$	4
	$	294		$	56

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

11. Notes payable

On September 30, 2022, Aqua Metals Reno, Inc., our wholly-owned subsidiary, entered into a Loan Agreement with Summit Investment Services, LLC, a Nevada limited liability company as to an undivided 90.8334% interest, Darren McBride, Trustee of the Arduino 1 Trust, U/A dated April 25, 2022, as to an undivided 8.3333% interest and Jason Yelowitz, Trustee of the Jason Yelowitz 2006 Trust, Dated March 31, 2006 as to an undivided .8333% interest (collectively, the “Lenders”), pursuant to which the Lenders provided us with a loan in the amount of $6 million. The loan accrued interest at a fixed annual rate of 8.50%. Interest-only payments were due monthly for the first twenty-four months and the principal and all unpaid accrued interest was due on September 29, 2024. The loan was collateralized by a first priority lien interest on our land and recycling facility at TRIC. The costs associated with obtaining the loan were recorded as a reduction to the carrying amount of the note and were being amortized over the life of the loan. We had the right to prepay the loan at any time, provided that we must pay guaranteed minimum interest of $255,000 (6-months of interest). The Loan Agreement includes representations, warranties, and affirmative and negative covenants that are customary of institutional loan agreements. On April 26, 2023, the property at TRIC was sold and the proceeds from the sale were used to pay off the loan. Upon the completion of the sale, the commitments and obligations per our loan agreement with the Lenders were terminated. All amounts outstanding on April 26, 2023 were paid.

On February 1, 2023, Aqua Metals Reno, Inc., our wholly-owned subsidiary, entered into a Loan Agreement with Summit Investment Services, LLC, a Nevada limited liability company (the “Lender”), pursuant to which the Lender provided us with a loan in the amount of $3 million. The loan proceeds were used to purchase a building located at 2999 Waltham Way McCarran, NV 89434 (the “Building”). The loan accrues interest at a fixed annual rate of 9.50%. Interest-only payments are due monthly for the first twenty-four months and the principal and all unpaid interest is due on March 1, 2025. We have the right to prepay the loan at any time, provided that we must pay guaranteed minimum interest of $213,750 (9-months of interest). The Loan Agreement includes representations, warranties, and affirmative and negative covenants that are customary of institutional loan agreements. As of September 30, 2023 and December 31, 2022, the Company was in compliance with all of the covenants. The loan is collateralized by a first priority lien on the building and site improvements, and is guaranteed by Aqua Metals, Inc.

Notes payable is comprised of the following (in thousands):

	September 30, 2023		December 31, 2022

Notes payable, current portion
The Lenders, net of issuance costs	$	—	$	5,899
Summit Investment Services, LLC, net of issuance costs	$	34	$	—
Total notes payable, current portion	$	34	$	5,899

Notes payable, non-current portion
Summit Investment Services, LLC, net of issuance costs	$	2,916	$	—
Total notes payable, non-current portion	$	2,916	$	—

12. Stockholders’ equity

Shares issued

During the nine months ended September 30, 2023, the Company issued 1,413,886 shares of common stock upon vesting of Restricted Stock Units ("RSUs") granted by the Company to management and employees, including 510,632 of reissued treasury stock. We withheld 939,198 shares to satisfy approximately $1,091,000 of employees’ tax obligations during the nine months ended September 30, 2023. We treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs in a similar manner as common stock repurchases and reported as treasury stock.

During the nine months ended September 30, 2023, the Company issued 130,918 shares of common stock upon vesting of RSUs granted to Board members.

During the nine months ended September 30, 2023, the Company issued 3,244,302 shares of common stock pursuant to the At The Market Issuance Sales Agreement for net proceeds of $3.8 million.

During the nine months ended September 30, 2023, the Company issued 15,781 shares of common stock to a former Board member to fulfill obligations related to consulting services.

During the nine months ended September 30, 2023, the Company issued 84,619 shares of common stock to a Board member related to director fees.

During the nine months ended September 30, 2023, the Company issued 469,366 shares of common stock upon the settlement of the securities class action lawsuit.

During the nine months ended September 30, 2023, the Company issued 192,707 shares of common stock pursuant to the employee stock purchase plan.

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AQUA METALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In July 2023, the Company completed a public offering of 18,193,000 shares of its common stock, for net proceeds of $18.3 million.

In August 2023, the Company issued 4,545,455 shares of its common stock pursuant to that certain Securities Purchase Agreement (the “Yulho SPA”), with Yulho Co, Ltd., for net proceeds of $4.6 million.

Warrant issued

In July 2023, the Company issued a warrant to purchase 363,860 shares of the Company's common stock to the underwriter of the Company's public offering, equal to 2% of the 18,193,000 shares sold. The warrants are exercisable at $1.375 per share, commencing six months after July 17, 2023. The warrants have an expiration date of 5 years from the date of issuance and will expire on July 17, 2028.

In August 2023, the Company issued a warrant to purchase 205,761 shares of the Company's common stock to the underwriter of the transaction in connection with the Yulho SPA. The warrants have an expiration date of 5 years from the date of issuance and are exercisable immediately at $1.25 per share. The warrant will expire on August 4, 2028.

Stock-based compensation

The stock-based compensation expense was allocated as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Plant operations	$	35	$	27	$	82	$	75
Research and development cost		8		—		48		36
General and administrative expense		551		571		1,750		1,626
Total	$	594	$	598	$	1,880	$	1,737

There were no options issued during the three and nine months ended September 30, 2023 or the three and nine months ended September 30, 2022.

2014 Stock Incentive Plan

We have adopted the Aqua Metals, Inc. 2014 Stock Incentive Plan providing for the grant of non-qualified stock options and incentive stock options to purchase shares of our common stock and for the grant of restricted and unrestricted share grants. All of our officers, directors, employees and consultants are eligible to participate under the plan. The purpose of the plan is to provide eligible participants with an opportunity to acquire an ownership interest in our company. As of September 30, 2023, there were 522,020 remaining shares available for future grants.

2019 Stock Incentive Plan

In 2019, our board of directors adopted the Aqua Metals, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). A total of 18,500,000 shares of common stock was authorized for issuance pursuant to the 2019 Plan. The 2019 Plan provides for the following types of stock-based awards: incentive stock options; non-statutory stock options; restricted stock; and performance stock. The 2019 Plan, under which equity incentives may be granted to employees and directors under incentive and non-statutory agreements, requires that the option price may not be less than the fair value of the stock at the date the option is granted. Option awards are exercisable until their expiration, which may not exceed 10 years from the grant date. As of September 30, 2023, there were 5,385,633 remaining shares available for future grants.

				Options Outstanding			RSUs Outstanding

	Number of
	Shares
	Available for			Number of			Number of
	Grant			Shares			RSUs
Balances, December 31, 2022		5,262,254			994,267			6,387,937
Granted		(489,569	)		—			489,569
Exercised/ Released		—			—			(2,568,621	)
Expired inducement grant		—			(840,000	)		—
Forfeited		187,550			(41,072	)		(146,478	)
Returned to Plan		947,418			—			947,418
Balances, September 30, 2023		5,907,653			113,195			5,109,825

(1) Consists of 840,000 shares relating to outstanding options granted in reliance on Nasdaq Rule 5635(c)(4).

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Restricted stock units

During the first quarter of 2023, the Company granted 64,149 RSUs, all of which were subject to vesting, with a grant date fair value of $70,000 to employees. The shares vest in three equal installments over a three-year period.

During the second quarter of 2023, the Company granted 204,547 RSUs, all of which were subject to vesting, with a grant date fair value of $225,000 to Board Members. The shares vest in four equal installments over a twelve-month period.

During the third quarter of 2023, the Company granted 136,254 RSUs, all of which were subject to vesting, with a grant date fair value of $155,000 to employees. The shares vest in three equal installments over a three-year period.

13. Commitments and contingencies

We are subject to various claims that arise in the ordinary course of business. We believe that our potential liability under such claims, individually or in the aggregate, will not have a material effect on our consolidated financial statements.

14. Subsequent events

None.

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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, 2022 filed with the SEC on March 9, 2023, 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 is engaged in the business of applying its commercialized clean, water-based, recycling technology principles to develop cost-efficient recycling solutions for both lead and lithium-ion (“Li”) batteries. Our recycling process is a patented hydro and electrometallurgical technology that is a novel, proprietary and patented process we developed and named AquaRefining. AquaRefining is a low-emissions, closed-loop recycling technology that has the potential to replace polluting furnaces and hazardous chemicals with electricity-powered electroplating to recover valuable metals and materials from spent batteries with higher purity, lower emissions, and with minimal waste. The modular “Aqualyzers” cleanly generate ultra-pure metal one atom at a time, closing the sustainability loop for the rapidly growing energy storage economy.

Our process was originally designed for lead recycling. We are also applying our commercialized clean, water-based recycling technology principles with the goal of developing the cleanest and most cost-efficient recycling solution for lithium-ion batteries. We believe our process has the potential to produce higher quality products at a lower operating cost without the damaging effects of furnaces and greenhouse emissions. Aqua Metals estimates the total addressable market for lithium-ion battery recycling will be approximately $9 billion by 2025 and grow to exceed lead battery recycling by the end of the decade.

In February 2021, we announced our entry into the lithium-ion battery (LiB) recycling market through a key provisional patent we filed that applies the same innovative AquaRefining approach. In August 2021, we announced we had established our Innovation Center in TRIC focused on applying our proven technology to LiB recycling research and development and prototyping. Our strategic decision to apply our proven clean, closed-loop hydrometallurgical and electrochemical recycling experience to lithium-ion battery recycling is designed to meet the growing demand for critical metals driven by the global transition to electric vehicles; growth in internet data centers; and alternative energy applications including solar, wind, and grid-scale storage.

During the first half of 2022, we announced our ability to recover copper, lithium hydroxide, nickel and cobalt from lithium-ion battery black mass at the Company’s Innovation Center. During 2022, we built our fully-integrated pilot system, located within the Company’s Innovation Center, which is designed to allow Aqua Metals to be the first company in North America to recycle battery minerals from black mass and sell them in the U.S. and position the Company as the first LiB recycler in North America to align with the U.S. government’s goal of retaining strategic battery minerals within the domestic supply chain.

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During 2022, we conducted environmental comparisons based on Argonne National Lab’s modeling of lithium battery supply chains – called EverBatt. The initial results indicate that AquaRefining is a cleaner approach to LiB recycling, producing far less CO2 waste streams than the two evaluated primary processes currently on the market which include smelting and chemically driven hydrometallurgical process. In December 2022, we completed equipment installation and began to operate our first-of-a-kind LiB recycling facility, utilizing electricity to recycle instead of intensive chemical processes, fossil fuels, or high-temperature furnaces. In January 2023, Aqua Metals recovered its first metals from recycling lithium batteries using the patent-pending Li AquaRefining process. In June 2023, we announced the completion of our Li AquaRefining™ recycling pilot, transition to 24/5 operations and production of high-purity, saleable quantities of sustainably recycled battery materials.

In February 2023, we acquired a five-acre recycling campus at TRIC. The facility is designed, when fully developed, to process up to 10,000 tonnes of lithium-ion battery material each year using our proprietary AquaRefining technology. Subject to our receipt of additional development financing on a timely basis, we expect to complete development of Phase One, including all equipment installation, by the end of second quarter of 2024 and to commence processing battery material at the new campus in 2024. Our initial plans call for upgrading the current building to install a commercial-scale Li AquaRefining system capable of recycling 3,000 tonnes of lithium battery ‘black mass’ each year. The purchase of the new property was funded with a non-dilutive loan.

As noted below, in July 2023, we completed a public offering of our common stock for net proceeds of $18.3 million and entered into a securities purchase agreement with a strategic partner for our sale of another $4.6 million of our common stock. We intend to use the net proceeds from the two capital raises for working capital, including expenditures related to the commencement of the Phase One build-out of our recently acquired five-acre recycling campus at the Tahoe Reno Industrial Center in McCarran, Nevada, and general corporate purposes. We are currently pursuing additional capital, with an emphasis on debt financing and government grants, in order to finance the completion of the Phase One build-out. However, there can be no assurance that such funds will be available.

On July 18, 2023, we entered into a Securities Purchase Agreement with Yulho Co, Ltd., a Korean-based company engaged in the recycling of lithium-ion batteries, pursuant to which we agreed to sell and issue to Yulho in a registered direct offering 4,545,455 shares of our common stock, at an offering price of $1.10 per share, for the gross proceeds of $5 million before selling commissions and other offering expenses payable by us. The transaction closed on August 4, 2023 with net proceeds of $4.6 million.

In addition to the capital investment, we entered into an Agreement to Execute a License Agreement or the Yulho Agreement, with Yulho pursuant to which each party has agreed to use their good faith best efforts to negotiate and execute a definitive license agreement, or the Yulho License Agreement. Pursuant to the proposed Yulho License Agreement, we will grant Yulho a license to our AquaRefining technology for Yulho’s use in recycling lithium-ion batteries in the Republic of Korea. Under the proposed Yulho License Agreement, Yulho will pay us a royalty on net sales. We will agree to support and assist Yulho in business development efforts in establishing offtake partnerships for the Yulho recycled metals. We will also work with Yulho to engage with potential partners to foster and expand business opportunities. The Yulho License Agreement is expected to contain customary representations, warranties and covenants for agreements of such nature.

On July 21, 2023, we completed a public offering of 18,193,000 shares of our common stock, at the public offering price of $1.10 per share. After the deduction of the underwriter’s discount and the underwriter expenses payable by us, we received net proceeds of $18.3 million.

Our current focus is building and operating our first-of-a-kind lithium battery recycling facility, utilizing electricity to recycle instead of intensive chemical processes, fossil fuels, or high-temperature furnaces. We are also pursuing potential partnership and/or joint ventures agreements and licensing agreements, particularly as our Li AquaRefining continues to develop and improve. We believe that Aqua Metals is in a position to become one of the few critical minerals recovery players for which our environmental and economic value proposition should generate both great commercial wins and potentially government grants to accelerate our credibility and progress.

Plan of Operations

Our business strategy is based on the pursuit of building, operating and licensing Li AquaRefining recycling capacity to meet the growing demand for critical metals in lithium-ion batteries driven by innovations in automobile batteries, growth in internet data centers, and alternative energy applications, including solar, wind, and grid-scale storage.

We are in the process of demonstrating that Li AquaRefining, which is fundamentally non-polluting, can create the highest quality and highest yields of recovered minerals from lithium-ion batteries with lower waste streams and lower costs than existing alternatives. We have already demonstrated at our pilot facility our ability to recover key valuable minerals in lithium-ion batteries, such as lithium hydroxide, copper, nickel, cobalt, and other compounds. Our goal is to recycle commercial quantities of nickel, cobalt, and copper in a pure metal form that can be sold to the general metals and superalloy markets and can be made into battery precursor compound materials with known processes already used in the mining industry. We also intend to recycle commercial amounts of lithium that can be sold to lithium-ion battery manufacturers. We have installed, commissioned, and began to operate the first Li AquaRefining pilot plant at the end of 2022, scaling towards a commercial demonstration plant operation with capacity of processing approximately 3,000 tonnes of black mass per year. The location for the pilot demonstration is currently the Innovation Center with expansion to happen at our new 5-acre recycling campus starting with processing ~3,000 tonnes of black mass per year and growing to commercial quantities of ~10,000 tonnes per year or more of production starting in 2025 and 2026, which would be enough material to build ~100,000 average EVs or ~400,000 average home energy storage systems. At average 2023 year to date metals prices, ~10,000 tonnes per year capacity could also generate $200 million of revenues for the company.

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Results of Operations

We have not engaged in commercial operations since 2019, and since that time our operations have been devoted to improvements to our AquaRefining processes and developing our Li AquaRefining battery recycling technology. During 2022, our primary focus was research and development and the build out of the initial Li battery recycling pilot at the Innovation Center. During the nine months ended September 30, 2023, Aqua Metals was focused on quickly advancing from the planning and validation phases to execution and operation of our pilot facility and the build out of our commercial facility. We did not earn any revenue during the three and nine months ended September 30, 2023 and 2022 other than nominal revenue generated from the sale of lead finished goods. The following table summarizes our results of operations with respect to the items set forth below for the three and nine months ended September 30, 2023 and 2022 together with the dollar and percentage changes in those items (in thousands).

	Three Months Ended September 30,										Nine Months Ended September 30,
					Favorable			%							Favorable			%
	2023		2022		(Unfavorable)			Change			2023		2022		(Unfavorable)			Change

Product sales	$	25	$	—	$	25			0.0	%	$	25	$	4	$	21			525.0	%
Plant operations		1,770		833		(937	)		112.5	%		4,316		3,026		(1,290	)		42.6	%
Research and development cost		389		490		101			(20.6	)%		1,359		1,561		202			(12.9	)%
General and administrative expense		2,815		2,611		(204	)		7.8	%		8,670		7,615		(1,055	)		13.9	%
Total operating expense	$	4,974	$	3,934	$	(1,040	)		26.4	%	$	14,345	$	12,202	$	(2,143	)		17.6	%

Plant operations include raw materials, supplies related costs, salaries and benefits, consulting, outside services costs, inventory adjustments, depreciation, amortization, insurance, travel and overhead costs. Plant operations increased approximately $937,000 or 112.5% and $1.3 million or 42.6% for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022. The increase in plant operations for the three and nine months ended September 30, 2023 was primarily due to an increase in payroll and payroll related fees of approximately $497,000 and $971,000, respectively, as we hired additional staff to operate the pilot facility and process black mass, as well as $440,000 and $319,000, respectively, in supplies and materials.

Research and development cost includes expenditures related to the improvement of the AquaRefining technology and the development of our lithium-ion battery recycling process. During the three months ended September 30, 2023, research and developments costs decreased $101,000, or approximately 20.6% compared to the three months ended September 30, 2022. For the nine months ended September 30, 2023, research and developments costs decreased $202,000, or approximately 12.9% compared to the nine months ended September 30, 2022. The decrease was driven by moving our focus from R&D to operating our fully integrated pilot system at the Innovation Center.

General and administrative expense increased $204,000, or approximately 7.8% for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and approximately $1.1 million or 13.9% for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase in general and administrative expenses for the three months ended September 30, 2023 includes $154,000 in changes in payroll and payroll related expenses as we ramp up and support the growth of our lithium-ion recycling business model, as well as increases in travel related expenses, advertising and promotion expenses, and facility expenses. The increase in general and administrative expenses for the nine months ended September 30, 2023 includes $636,000 in payroll and payroll-related expenses, as well as an increase of $596,000 in travel-related expenses, advertising and promotion expenses, and overhead expenses, offset by a $173,000 decrease in professional fees.

The following table summarizes our other income and interest expense for the three and nine months ended September 30, 2023 and 2022 together with the dollar and percentage changes in those items (in thousands).

	Three Months Ended September 30,												Nine Months Ended September 30,
							Favorable			%									Favorable			%
	2023			2022			(Unfavorable)			Change			2023			2022			(Unfavorable)			Change
Other income and (expense)

Gain on disposal of property, plant and equipment	$	-		$	5		$	(5	)		(100.0	)%	$	23		$	595		$	(572	)		(96.1	)%
Interest expense		(87	)		(9	)		(78	)		866.7	%		(518	)		(22	)		(496	)		2254.5	%
Interest and other income		489			53			436			822.6	%		903			166			737			444.0	%
Total other income, net	$	402		$	49		$	353			720.4	%	$	408		$	739		$	(331	)		(44.8	)%

We recognized a gain on disposal of property, plant and equipment of approximately nil and $23,000 during the three and nine months ended September 30, 2023 compared to a gain of $5,000 and $595,000 for the three and nine months ended September 30, 2022. For the three and nine months ended September 30, 2022, the gain on property, plant and equipment resulted from the write-off of plant commitment accrued expenses. Plant clean-up and repair of fire damaged areas began in 2021 and were completed by the end of June 30, 2022.

The increase in interest expense for the three and nine months ended September 30, 2023 is due to the interest paid on the notes payable.

We recognized approximately $489,000 and $903,000 in interest and other income during the three and nine months ended September 30, 2023, respectively, an increase from $53,000 and $166,000 during the three and nine months ended September 30, 2022, respectively. The increase in interest and other income is primarily due to the increase in interest received on our bank deposits and the miscellaneous income from the non-recurring engineering agreement with 6K Energy.

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Liquidity and Capital Resources

As of September 30, 2023, we had total assets of $42.0 million and working capital of $23.1 million.

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

	Nine Months Ended September 30,
	2023			2022

Net cash provided by (used in) operating activities	$	2,222		$	(8,672	)
Net cash used in investing activities	$	(6,294	)	$	(1,680	)
Net cash provided by financing activities	$	22,588		$	11,508

Net cash provided by (used in) operating activities

Net cash provided by operating activities for the nine months ended September 30, 2023 was $2.2 million. Net cash provided by operating activities includes approximately $12.3 million of cash received related to our lease receivable offset by operating expenses. Net cash used in operating activities for the nine months ended September 30, 2022 was $8.7 million. Net cash used in operating activities during each of these periods consisted primarily of our net loss adjusted for non-cash items such as depreciation, amortization, stock-based compensation, and loss (gain) on the disposal of property, plant and equipment, as well as net changes in working capital.

Net cash used in investing activities

Net cash used in investing activities for the nine months ended September 30, 2023 was $6.3 million and consisted mainly of $4.3 million utilized towards the purchase of the building located at 2999 Waltham Way McCarran, NV 89434 and $1.8 million utilized towards purchases of fixed assets mainly related to the build out of our commercial facility. Net cash used in investing activities for the nine months ended September 30, 2022 was $1.7 million and consisted mainly of $2.3 million utilized towards the purchase of property, plant and equipment, $1.4 million of proceeds from the sale of equipment, $500,000 utilized towards the warrant exercise and $322,000 utilized towards the equipment deposits.

Net cash provided by financing activities

Net cash provided by financing activities of $22.6 million for the nine months ended September 30, 2023 consisted of $3.8 million in net proceeds from the sale of Aqua Metals shares pursuant to the at-the-market offering, or ATM, $2.9 million in net proceeds from the loan agreement secured with the Summit Investment Services, LLC, and $18.3 million in net proceeds from our July 2023 public offering and $4.6 million in net proceeds from the Yulho transaction, offset by the $6 million used to pay off the note payable as noted in Note 11 and by $1.1 million related to tax withholdings to cover RSU vesting. Net cash provided by financing activities for the nine months ended September 30, 2022 was approximately $11.5 million consisted of $5.6 million in net proceeds from the sale of Aqua Metals shares pursuant to the ATM and $5.9 million in net proceeds from the loan secured with the Lenders.

As of September 30, 2023, we had total cash of $25.6 million and working capital of $23.1 million. As of the date of this report, and after giving effect to the net proceeds of our July 2023 public offering, we believe that we have sufficient capital to fund our proposed operating plan for, at least, 12 months following the date of this report, including the commencement of the Phase One build-out of our recently acquired five-acre recycling campus at TRIC. However, as of the date of this report, we believe that we will require additional capital in order to fund our proposed business plan beyond the next 12 months, including the completion of the Phase One build-out of our recycling campus at TRIC and start of our full-scale commercial operations.

We intend to raise additional capital through conventional loans, potential government backed debt offerings, government grants or through the sale of our common shares via our current at-the-market offering. However, there can be no assurance that additional capital will be available to us on reasonable terms or at all. Funding that includes the sale of our equity may be dilutive. If financing is not available on satisfactory terms, we will be unable to further pursue our business plans and we will be unable to continue operations.

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Critical Accounting Estimates

No material changes from what was reported in the 2022 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market 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, 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 that evaluation, management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three month period ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.