Aqua Metals Inc

1. Organization

Aqua Metals (NASDAQ: AQMS) is engaged in the business of applying its commercialized clean, water-based recycling technology principles to develop the clean and cost-efficient recycling solutions for both lead and lithium-ion (“Li”) batteries. Our recycling process is a patented hydro- and electrometallurgical technology that is an innovative, proprietary and patented 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, lower emissions, and with minimal waste. The modular “Aqualyzers” cleanly generate ultra-pure metalone atom at a time, closing the sustainability loop for the rapidly growing energy storage economy.

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.

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 ourfirst-of-a-kind lithium battery recycling facility, utilizing electricity to recycle instead of intensive chemical processes, fossil fuels, or high-temperature furnaces and licensing.

Reverse Stock Split

Effective* November 5, 2024,the Company effected aone*-for-20 reverse stock split of its issued and outstanding common shares. Accordingly, all common share, stock option, per common share and warrant amounts for all periods presented in the condensed consolidated financial statements and notes thereto have been adjusted retrospectively to reflect this reverse stock split.

Liquidity and Going Concern Assessment

For thenine months ended* September 30, 2024and2023**,* the Company reported a net loss of $17.1 million and $13.9 million, respectively, and negative cash from operations of $11.6 million and a cash inflow $2.2 million, respectively, including non-recurring proceeds of $12.3 million from the leasing and sale of the building during thenine months ended* September 30, 2023.As of September 30, 2024**,* the Company had cash and cash equivalents of approximately $3.0 million, current liabilities of $7.1 million and an accumulated deficit of $240.3 million. The Company's current liabilities of $7.1 million include the note payable with Summit Investment Services, LLC* in the amount of approximately $3 million due on February 1, 2025as disclosed in Note10.* The Company hasnot generated revenues from commercial operations and expects to continue incurring losses for the foreseeable future.

Management believes that the Company doesnot have sufficient capital resources to sustain operations through at least the nexttwelve months from the date of this filing. Additionally, in view of the Company’s expectation to incur significant losses for the foreseeable future it will be required to raise additional capital resources in order to fund its operations, although the availability of, and the Company’s access to such resources, isnot assured. Accordingly, management believes that there is substantial doubt regarding the Company’s ability to continue operating as a going concern through the nexttwelve months from the date of this filing.

The accompanying condensed consolidated financial statements have been prepared under the assumption the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements donot include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that* may*result from uncertainty related to the Company’s ability to continue as a going concern.

Reclassification of Prior Period Financial Statements

For thenine months ended* September 30, 2023*, the gain on disposal of property, plant and equipment was presented in the Condensed Consolidated Statement of Operations within loss from operations. This reclassification was made for the year ended* December 31, 2023and presented in the Annual Report on Form10*-K for the year then ended.

We have reclassified the prior period Condensed Consolidated Statement of Operations included in this filing to conform to the current period presentation, as shown in the following table (in thousands):

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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, 2023*, and the notes thereto, which are included in the Company’s Annual Report on Form10-K for the year ended* December 31, 2023*, as filed with the Securities and Exchange Commission, or the SEC, on* March 28, 2024.There have beenno* material changes in the Company’s significant accounting policies during thethree andnine months ended* September 30, 2024*.

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 Form10-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, 2023*, which are included on Form10-K filed with the Securities and Exchange Commission on* March**28,* 2024. Accordingly, they donot 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, 2024*, the condensed consolidated statements of operations for thethree andnine months ended* September 30, 2024* and* September 30, 2023*, the condensed consolidated statements of stockholders' equity for thethree andnine months ended* September 30, 2024* and* September 30, 2023* and the condensed consolidated statements of cash flows for thenine months ended* September 30, 2024* and* September 30, 2023*, as applicable, have been made. The condensed consolidated balance sheet as of* December 31, 2023* has been derived from the Company’s audited consolidated financial statements as of such date, but it doesnot include all disclosures required by U.S. GAAP for annual presentation.

The results of operations for thethree andnine months ended* September 30, 2024* arenot necessarily indicative of results that* maybe expected for the year ending December 31, 2024*.

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, and the determination of stock-based compensation expense. Actual results could differ from those estimates.

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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 thethree andnine months ended* September 30*, as indicated below:

(1) Securities are presented on a weighted average outstanding calculation as required if the securities were dilutive and adjusted to give effect to the November 4, 2024 reverse stock split.

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 inone operating segment.

Concentration of credit risk

The Company didnot generate revenue during thethree andnine months ended* September 30, 2024and2023*, respectively. The Company hadno trade receivables as of* September 30, 2024* and* December 31, 2023*. The accounts receivable balance on the Company's consolidated balance sheet as of* September 30, 2024* consisted of proceeds from sale of raw materials and proceeds from a non-recurring engineering (NRE) arrangement with6K Energy. The balance as of* December 31, 2023* consisted of proceeds from a NRE arrangement with6K Energy.

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Recent accounting pronouncements

Recently issued accounting pronouncements not yet adopted

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued ASUNo.* 2023-07, Improvements to Reportable Segment Disclosures (Topic280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the impact that this guidance will have on the disclosures within our consolidated financial statements.

In* December 2023,the FASB issued ASUNo.* 2023-09, Improvements to Income Tax Disclosures (Topic740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after* December 15, 2024.Early adoption is also permitted for annual financial statements that havenot* yet been issued or made available for issuance. This ASU will require additional disclosures in our consolidated financial statements, once adopted.

3. Revenue recognition

The Company has historically generated revenues by recycling lead acid batteries (“LABs”) and selling the recovered lead to its customers.

The Company wasnot in commercial production during thethree andnine months ended* September 30, 2024and2023*, respectively. Historically, Company products transferred to customers at a single point in time accounted for 100% of its revenue.

4. Note receivable

During the year ended* December 31, 2023,the Company sold its $2,000,000 stock investment in LINICO and recorded an impairment of $1,400,000 and a note receivable of $600,000. The proceeds will be received over a12*-month installment which began in* January 2024.The balance of the note receivable is $250,000 and $600,000 as of September 30, 2024* and* December 31, 2023*, respectively.

The Company accounted for the LINICO investment under ASC321, Investments-Equity Securities, using the measurement alternative of recording at cost as the investment in LINICO doesn’t have a readily determinable fair value.

5. Inventory

Inventory consisted of the following (in thousands):

We write-down inventory when evidence exists that the net realizable value of inventory is less than the cost. During thenine months ended* September 30, 2024,*we recorded write-downs of $268,000 which were included in plant operations in the condensed consolidated statement of operations.

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6. Property, plant and equipment, net

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

Property, plant and equipment depreciation expense was $229,000 and $682,000 for thethree andnine months ended* September 30, 2024* and $254,000 and $591,000 for thethree andnine months ended* September 30, 2023*, respectively. Equipment under construction is comprised of our lithium-ion battery recycling commercial equipment along with various components being manufactured or installed by the Company.

7. Other assets

Other assets consist of the following (in thousands):

(1) Deposits for equipment to be acquired and utilized at the Company's Phase One build-out of our recycling campus at Tahoe-Reno Industrial Center (TRIC).

(2) See Footnote9.

8. Accrued expenses

Accrued expenses consist of the following (in thousands):

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9. Leases

As of* September 30, 2024*, the Company maintainedtwo finance leases for equipment andtwo operating leases for real estate. The operating leases have current terms of 36 and 37 months and includeone 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.

On* March 14, 2024,the Company extended its operating lease for its headquarters located at5370* Kietzke Lane, Reno, NV. The lease extension was determined to be a lease modification that qualified as a change of accounting on the existing lease andnot a separate contract. As such, the Right-of-Use (“ROU”) assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of 9.61%, which resulted in an increase of the ROU asset of $170,000 and an increase in the operating lease liabilities of $166,000.

On* June 9, 2024,the Company extended its operating lease for its Innovation Center located at160* Denmark Dr, McCarran, NV. The lease extension was determined to be a lease modification that qualified as a change of accounting on the existing lease andnot a separate contract. As such, the Right-of-Use (“ROU”) assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of 9.52%, which resulted in an increase of the ROU asset of $347,000 and an increase in the operating lease liabilities of $324,000.

The Company currently maintainstwo finance leases for equipment. In* November 2021,the Company entered into a finance lease for a modular laboratory which expires in October 2024.On April 1, 2024the Company entered into a finance lease for laboratory equipment which expires in2029.*

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

Future maturities of lease liabilities as of* September 30, 2024* are as follows (in thousands):

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10. Note payable

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 at2999* Waltham Way McCarran, NV89434 (the “Building”). The loan accrues interest at a fixed annual rate of 9.50%. Interest-only payments are due monthly for thefirst twenty-four months and the principal and all unpaid interest is due on* February**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, 2024* and* December 31, 2023*, the Company was in compliance with all of the covenants. The loan is collateralized by afirst priority lien on the building and site improvements, and is guaranteed by Aqua Metals, Inc.

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

11. Stockholders’ equity

Shares issued

During thenine months ended* September 30, 2024*, the Company issued 129,857 shares of common stock upon vesting of Restricted Stock Units ("RSUs") granted by the Company to management and employees, including 44,261 of reissued treasury stock. We withheld 52,252 shares to satisfy approximately $552,000 of employees’ tax obligations during thenine months ended* September 30, 2024*. 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 thenine months ended* September 30, 2024*, the Company issued 20,111 shares of common stock for consulting services.

During thenine months ended* September 30, 2024*, the Company issued 7,330 shares of common stock upon vesting of RSUs granted to Board members.

During thenine months ended* September 30, 2024*, the Company issued 5,171 shares of common stock to Board members related to director fees.

During thenine months ended* September 30, 2024*, the Company issued 6,607 shares of common stock to a former employee related to a severance agreement.

During thenine months ended* September 30, 2024*, the Company issued 3,444 shares of common stock pursuant to the employee stock purchase plan.

During thenine months ended* September 30, 2024*, the Company issued 306,049 shares of common stock pursuant to the at the market issuance sales agreement for net proceeds of $2.8 million.

In* May**2024,* the Company completed a public offering of 1,006,250 shares of its common stock at the public offering price of $7.80 per share. In connection with the sale of common stock, the Company issued warrants to purchase shares of common stock at the rate ofone warrant for every share of purchased common stock, at the offering price of $0.20 per warrant. After the deduction of the underwriter’s discount and expenses payable by us, we received net proceeds of $7.3 million. The Company used the relative fair value method to allocate the net proceeds of approximately*$7.3* million between the common stock and the warrants. As presented below, the Company recorded the fair value of the warrants of $3.1 million and common stock of $4.2 million.

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During thenine months ended* September 30, 2023,the Company issued 70,694 shares of common stock upon vesting of Restricted Stock Units ("RSUs") granted by the Company to management and employees, including 25,532 of reissued treasury stock. We withheld 46,960 shares to satisfy approximately $1,091,000 of employees’ tax obligations during thenine* 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 thenine months ended* September 30, 2023,*the Company issued 6,546 shares of common stock upon vesting of RSUs granted to Board members.

During thenine months ended* September 30, 2023,*the Company issued 789 shares of common stock to a former Board member to fulfill obligations related to consulting services.

During thenine months ended* September 30, 2023,*the Company issued 4,231 shares of common stock to a Board member related to director fees.

During thenine months ended* September 30, 2023,*the Company issued 23,468 shares of common stock upon the settlement of the securities class action lawsuit.

During thenine months ended* September 30, 2023,*the Company issued 9,635 shares of common stock pursuant to the employee stock purchase plan.

In* July 2023,*the Company completed a public offering of 909,650 shares of its common stock, for net proceeds of $18.3 million.

In* August 2023,*the Company issued 227,273 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.

During thenine months ended* September 30, 2023,*the Company issued 162,215 shares of common stock pursuant to the At The Market Issuance Sales Agreement for net proceeds of $3.8 million.

Warrant issued

In connection with the above-described* May 2024public offering,* the Company issued a warrant to purchase 39,125 shares of the Company's common stock to the underwriter of the Company's public offering, equal to 2% of the shares and the number of shares underlying the warrants sold in the offering, for relative fair value of $0.1 million. The warrants are exercisable at $9.75 per share on the closing date,* May**14,* 2024. The warrants have an expiration date of 5 years from the date of issuance and will expire on* May 14,*2029. The relative fair value of the warrants was recorded in the condensed consolidated balance sheet in additional paid-in capital in stockholders' equity as the warrants are indexed to the Company’s common stock and meet the conditions for equity classification.

In* May 2024**,* in conjunction with the Company's public offering, the Company issued a warrant to purchase up to1,006,250 shares of the Company's common stock, for the relative fair value of $3 million. The warrants are exercisable at $7.80 per share. The warrants have an expiration date of5 years from the date of issuance and will expire on* May 14,*2029. The relative fair value of the warrants was recorded in the condensed consolidated balance sheet in additional paid-in capital in stockholders' equity as the warrants are indexed to the Company’s common stock and meet the conditions for equity classification.

In* July2023,* the Company issued a warrant to purchase 18,193 shares of the Company's common stock to the underwriter of the Company's public offering, equal to 2% of the909,650 shares sold. The warrants are exercisable at $27.50 per share, commencingsix months after* July17,* 2023.* The warrants have an expiration date of 5 years from the date of issuance and will expire on* July17,* 2028.*

In* August2023,* the Company issued a warrant to purchase 10,288 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 $25 per share. The warrant will expire on* August**4,* 2028.

Stock-based compensation

The stock-based compensation expense was allocated as follows:

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2019 Stock Incentive Plan

In2019, our board of directors adopted the Aqua Metals, Inc.2019 Stock Incentive Plan (the*“2019* Plan”). On* May 23, 2024,475,000 shares of common stock was authorized and added to the plan. A total of 1,400,000 shares of common stock was authorized for issuance pursuant to the2019* Plan. The2019 Plan provides for the following types of stock-based awards: incentive stock options; non-statutory stock options; restricted stock; and performance stock. The2019 Plan, under which equity incentives* maybe granted to employees and directors under incentive and non-statutory agreements, requires that the option price maynot* be less than the fair value of the stock at the date the option is granted. Option awards are exercisable until their expiration, which* maynot* exceed 10 years from the grant date. As of* September 30, 2024*, there were 570,743 remaining shares available for future grants.

Restricted stock units

During thefirst quarter of2024, the Company granted 5,576 RSUs, all of which were subject to vesting, with a grant date fair value of $60,000 to employees. The shares vest inthree equal installments over athree-year period.

During thesecond quarter of2024, the Company granted 6,250 RSUs, all of which were subject to vesting, with a grant date fair value of $40,000 to employees. The shares vest inthree equal installments over athree-year period.

During thethird quarter of2024**, the Company granted 18,582 RSUs, all of which were subject to vesting, with a grant date fair value of $83,000 to Board Members. The shares vest infour equal installments with thefirst installment vesting immediately and the remainingthree installments vesting over anine-month period.

During thethird quarter of2024**, the Company granted 20,111 RSUs, all of which were vested immediately, with a fair value of $150,000 for consulting fees.

During thethird quarter of2024**, the Company granted 6,607 RSUs, all of which were vested immediately, with a fair value of $28,000 to an employee upon termination of a severance agreement.

12. Commitments and contingencies

We* may**,* from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As we grow, we* maybecome party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future financial position, results of operations or cash flows. We arenot* party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows.

13. Subsequent events

On* November 4, 2024,the Company implemented aone*-for-twenty (1-for-20) reverse split of our common stock. Prior to the reverse stock split the Company had 137,635,801 shares of common stock issued and outstanding, and after the reverse stock split, the Company had approximately 6,881,790 shares of common stock issued and outstanding. All share and per-share amounts included in this Form10-Q are presented as if the stock split had been effective from the beginning of the earliest period presented.

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