Aqua Metals Inc

Aqua Metals 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 a novel, 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.

Liquidity and Going Concern Assessment

For the years ended* December 31, 2023and2022,* the Company reported a net loss of $23.9 million and $15.4 million, respectively, and negative cash from operations of $3.2 million (inclusive of $12.3 million of non-recurring proceeds from the sale of real estate) and $10.1 million, respectively. As of* December 31, 2023,the Company had cash and cash equivalents of approximately $16.5 million, a working capital surplus of approximately $13.7 million and an accumulated deficit of $223.2 million. The Company hasnot* generated revenues from commercial operations over thetwo years ended* December 31, 2023,*except for nominal sales of lead finished goods, 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 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 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 the year ended* December 31, 2023,*impairment expense and gain on disposal of property and equipment were presented in the Consolidated Statement of Operations within loss from operations.

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

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In connection with the foregoing, we have also identified the following reclassifications which will be made to the2023 periods to be presented in the interim financial statements in our2024 10-Q filings:

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Basis of presentation and consolidation

The accompanying consolidated financial statements include those of Aqua Metals, Inc. and its subsidiaries (collectively, the “Company” or “Aqua Metals”), after elimination of all intercompany accounts and transactions. The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).

Use of estimates

The preparation of the 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 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 option expense and the determination of the fair value of stock warrants issued. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid instruments with original or remaining maturities ofninety days or less at the date of purchase to be cash equivalents. The Company maintains its cash balances in large financial institutions. Periodically, such balances* may*be in excess of federally insured limits.

Accounts receivable

The Company has traditionally sold its products to large well-established companies and extends credit without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. In the event that payment of a customer’s account receivable is doubtful, the Company would reserve the receivable under an allowance for doubtful accounts. As of* December 31, 2023*, the Company hadno trade accounts receivable balance and hasnot created a reserve for doubtful accounts. The total accounts receivable balance as of* December 31, 2023* consisted of proceeds from the non-recurring engineering agreement with6K Energy.

Note receivable

As of* December 31, 2023*, the Company has a note receivable from the sale of stock in LINICO totaling $600,000. The proceeds will be received over a12 month installment starting in* January 2024.As of December 31, 2023*, we evaluated the need for an allowance for credit loss using the guidelines set forth in ASC326 CECL, and have determined this note is fully collectible and, therefore, we havenot recorded an allowance against this balance.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is recorded on afirst-in,first-out basis using the weighted average method. Net realizable value is determined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company records a write-down, if necessary, to reduce the carrying value of inventory to its net realizable value. The effect of these write-downs is to establish a new cost basis in the related inventory, which isnot subsequently written up.

Property, plant and equipment, net

Property, plant and equipment are stated at cost net of accumulated depreciation. Depreciation on property, plant and equipment is calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the life of the asset or the remaining term of the lease.

Property, plant and equipment are stated at cost net of accumulated depreciation. Depreciation on property, plant and equipment is calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the life of the asset or the remaining term of the lease. We periodically evaluate our property, plant and equipment assets for indications that the carrying amount of an asset* may**not* be recoverable. During2023, management has shifted focus away from the original service under the ACME lead recycling license agreement to a new primary focus on the Lithium recycling business as a Company. As a result, management sees a decrease in the utilization of the ACME plant and its related operations, and assessed that the future expected cash flows connected with ACME are at or near zero. Therefore, at* December 31, 2023*, we recognized write down of approximately $3,451,000 million to equipment under construction that wasnot yet capitalized related to the ACME CIP as a result of the suspension of the development of recycling operations at the ACME Metals Taiwanese facility. As of* December 31, 2022*, management compared the carrying value of the assets held for sale against current fair market values. We determined the carrying value needed to be reduced to align with current fair market values. At* December 31, 2022*, we recognized a write down of $579,000 on the assets held for sale to their fair market value.

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Intellectual property, net

Intellectual property consists of patent applications contributed to the Company byfive founding stockholders and patent applications for technology developed by the Company. The useful life of this intellectual property has been determined to beten years and the assets are being amortized straight-line over this period. The Company periodically evaluates its intangible and other long-lived assets for indications that the carrying amount of an asset* may**not* be recoverable. In reviewing for impairment, the Company compares the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value. In addition to the recoverability assessment, the Company routinely reviews the remaining estimated lives of its long-lived assets. Any reduction in the useful life assumption will result in increased depreciation and amortization expense in the period when such determination is made, as well as in subsequent periods. The Company evaluates the need to record impairment during each reporting period. As of* December 31, 2023* and2022, the Company determined that the estimated life of the intellectual property properly reflected the current remaining economic life of the asset.

Investment in LINICO

Investments, which* maybe made from time to time for strategic reasons (andnot* to engage in the business of investments) are included in non-current assets in the consolidated balance sheets. Investments are recorded at cost and the Company analyzes the value of investments on a quarterly basis. The nature and timing of the Company’s investments will depend on available capital at any particular time and the investment opportunities identified and available to the Company. 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. As of* December 31, 2023*, the Company sold its investment in LINICO and recorded an impairment of $1,400,000 and a receivable of*$600,000.*

Leases

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included in the consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases donot provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms* mayinclude options to extend or terminate the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For lease agreements with terms less than12* months, the Company has elected the short-term lease measurement and recognition exemption, and the Company recognizes such lease payments on a straight-line basis over the lease term.

Revenue recognition

The Company records revenue in accordance with Accounting Standards Codification ("ASC")606, Revenue from Contracts with Customers. ASC606 provides a single comprehensive model for the recognition of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC606 creates afive-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) with the customer, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. ASC606 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

Revenue is generally recognized with the delivery of the Company’s products to customers. Sales, value add, and other taxes, if any, that are collected concurrent with revenue-producing activities are excluded from revenue as they are subsequently remitted to governmental authorities. Incidental items that are immaterial in the context of the contract are recognized as expense. Freight and shipping costs related to the transfer of the Company’s products to customers are included in revenue and cost of product sales. Payment on invoices is generally due within30 days of the invoice.

Arrangements with Multiple Performance Obligations

Contracts with customers* mayinclude multiple performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC606.* A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company expects that many of our contracts will have a single performance obligation as the promise to transfer the individual goods or services willnot be separately identifiable from other promises in the contracts and therefore,not distinct. For contracts with multiple performance obligations, revenue will be allocated to each performance obligation based on the Company’s best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling prices is based on prices charged separately to customers or expected cost-plus margin. At present, the Company doesnot have any arrangements with multiple performance obligations.

Significant Judgments

The Company estimates variable consideration at the most likely amount to which it expects to be entitled and includes estimated amounts in revenue to the extent it is probable that a significant reversal of revenue recognized willnot occur when the uncertainty associated with the variable consideration is resolved. Adjustments to revenue is recognized in the period when the uncertainty is resolved. To date, any adjustments to estimates havenot been material.

Practical Expedients and Exemptions

The Company doesnot disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length ofone year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

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Research and development

The Company conducts research and development activities, primarily focusing on refining recycling processes to increase yield and purity of recovered materials. This entails experimenting with different techniques, equipment, and operational parameters to enhance efficiency. All research and development expenditures are expensed as incurred.

Income taxes

The Company accounts for income taxes in accordance with the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. The provision for income taxes is comprised of the current tax liability and the changes in deferred tax assets and liabilities. The Company establishes a valuation allowance to the extent that it is more-likely-than-not that deferred tax assets willnot be recoverable against future taxable income.

The Company recognizes the effect of uncertain income tax positions only if those positions are more-likely-than-not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Fair value measurements

The carrying amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of short and long-term debt, and lease liabilities also approximates fair value since these instruments bear market rates of interest or are calculated using market rates of interest.None of these instruments are held for trading purposes.

Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Athree-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level1. Quoted prices in active markets for identical assets or liabilities.

Level2. Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that arenot active, or other inputs that are observable, either directly or indirectly.

Level3. Significant unobservable inputs that cannot be corroborated by market data.

The asset or liability’s fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.

There areno assets or liabilities that are measured at fair value on a recurring basis at* December 31, 2023* or* December 31, 2022*.

Stock-based compensation

The Company recognizes compensation expense for stock-based compensation in accordance with ASC718 “Compensation – Stock Compensation.” The fair value of restricted stock units ("RSUs") is measured on the grant date based on the closing fair market value of our common stock. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period, which is generallythree years for RSUs. Stock-based compensation expense is recognized on a straight-line basis, net of actual forfeitures in the period.

The fair value of RSU grants with performance conditions is determined using the closing price of our common stock on date of grant. The calculated compensation cost is adjusted based on an estimate of awards ultimately expected to vest and our assessment of the probable outcome of the performance condition. The fair value of RSU grants with market conditions is calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected share price volatility, the risk-free rate of return, the expected dividend yield and other award design features.

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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 vested shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common securities, options and warrants. Potential dilutive common shares include the dilutive effect of the common stock underlying in-the-money stock options and is calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option and the average amount of compensation cost, if any, for future services that the Company hasnot yet recognized when the option is exercised, are assumed to be used to repurchase shares in the current period.

For all periods presented in this report, unvested restricted stock, stock options and warrants werenot included in the computation of diluted net loss per share because such inclusion would have had an antidilutive effect.

(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 inone operating segment.

Concentration of credit risk

The Company generated revenue of $25,000 and $4,000 for the years ended* December 31, 2023and2022*, respectively, for the sale of lead finished goods to P. Kay Metals. Revenue from P. Kay Metals represented 100% of total revenue for the years ended* December 31, 2023and2022*. The Company didnot have a trade receivable balance as of* December 31, 2023* and* December 31, 2022*, respectively.

Recent accounting pronouncements

Recently issued accounting pronouncementsnot* 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 provisions of this ASU and expect to adopt them for the year ending December 31, 2024.*

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 result in the required additional disclosures being included in our consolidated financial statements, once adopted.

Recently adopted accounting pronouncements

On* January 1, 2023,the Company adopted ASU2016*-13 Financial Instruments - Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost. It also applies to Off-Balance Sheet (“OBS”) credit exposuresnot accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments and leases recognized by a lessor in accordance with Topic842 on leases. The Company adopted ASC326 using the modified retrospective method. Results for reporting periods beginning after* January 1, 2023are presented under ASC326* while prior period amounts continue to be reported in accordance with previously applicable GAAP. As of its adoption date of* January 1, 2023,the Company didnot* record a transition adjustment related to the adoption of ASC326. The adoption of this standard didnot have a material impact on the Company’s financials as of* December 31, 2023.*

In* August 2020,the FASB issued ASU2020*-06, Debt - Debt with Conversion and Other Options (Subtopic470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic815-40): 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 thefirst quarter of fiscal year2024 and early adoption is permitted. The Company elected early adoption of ASU2020-06 in thefirst quarter of its fiscal year2023 on a modified retrospective basis. There wasno material impact to the financial statements as a result of the adoption.

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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 in2023 or2022. The nominal revenue generated during the years ended* December 31, 2023and December 31, 2022* resulted from the sale of from the sale of lead finished goods that were generated during operation of the TRIC facility prior to the* November 2019fire at our TRIC facility. Revenue from products transferred to customers at a single point in time with the delivery of the Company’s products to customers accounted for 100% of our revenue during the years ended December 31, 2023and December 31, 2022*.

The Company entered into an Industrial Lease Agreement with LINICO Corporation, a Nevada corporation, or ("LINICO"), dated* February 15, 2021pursuant to which the Company leased to LINICO the 136,750 square foot recycling facility at TRIC. The lease commenced April 1, 2021and expired on March 31, 2023.LINICO agreed to a purchase price of $15.25 million, and paid a nonrefundable deposit of $1.25 million in October2021,* and asecond nonrefundable deposit of $2 million in* October2022,* per the terms of the agreement, both of which were applied towards the purchase price. 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 lastsix months of the lease.

With respect to the portion of the facility that was damaged in the* November 2019fire, consisting of approximately 30,000 square feet, the Company was obligated to complete the clean-up of the damaged area, at the Company's expense and repair all damage to the damaged area, at the Company's expense. Repairs and clean up were completed in2022.* With regard to the equipment on-site at TRIC, the Company granted LINICO the right offirst offer to purchase any equipment the Company offers for sale. The lease agreement contained customary representations, warranties and indemnities on the part of both parties. At the beginning of2022, LINICO purchased approximately $0.8 million of equipment.

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 at the inception 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 sheets as of* June 30, 2021.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 consolidated statements of operations. On April 26, 2023,Comstock Inc. exercised their option to to purchase the facility at which time the purchase price of $15.25 million was applied against the lease receivable. For the year ended December 31, 2023* and2022, the Company recognized a reduction in the lease receivable balance of approximately $15,527,000 and $920,000, respectively, and recorded $24,000 and $76,000 of interest income, respectively, related to this agreement. The lease expired in* March 2023.*

Inventory consisted of the following (in thousands):

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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 withinone year. Management believes these assets areno longer necessary for the Company's future operating plans. As of* December 31, 2023* and2022, Aqua Metals had assets with a book value ofnil and $47,000 classified as assets held for sale, respectively.

At* December 31, 2023and2022,* the Company compared the carrying value of the assets held for sale against current fair market values. We determined the carrying value needed to be reduced to align with current fair market values. During the years ended* December 31, 2023and2022* we recognizednil and $579,000 impairment of assets held for sale, respectively.

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

Property, plant and equipment depreciation expense was $0.9 million and $0.5 million for the years ended* December 31, 2023and December 31, 2022*, 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.

Intellectual property, net, is comprised of the following (in thousands):

Amortization expense was $180,000 and $179,000 for the years ended* December 31, 2023and December 31, 2022*, respectively.

Estimated future amortization is as follows as of* December 31, 2023* (in thousands):

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On* February 15, 2021,the Company entered into a Series A Preferred Stock Purchase Agreement with LINICO Corporation, a Nevada Corporation, 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 $1,500,000, along with athree-year warrant (“Series A Warrant”) to purchase an additional500* shares of LINICO Series A Preferred Stock at an exercise price of*$1,000* per share. During thefirst quarter of2022, 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 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 toone 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* March 2021.*

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 nominateone* person to the LINICO board of directors as long as the Company is the owner of at least10% 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.*

During the year ended* December 31, 2023*, the Company sold its stock in LINICO and recorded an impairment of $1,400,000 and a receivable of $600,000. The proceeds will be received over a12 month installment starting in* January 2024.*

Other assets consist of the following (in thousands):

(1) See Footnote12.

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

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Accrued liabilities consist of the following (in thousands):

As of* December 31, 2023*, the Company maintainedtwo operating leases for real estate. The Company's operating leases have 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* December 31, 2023* and2022 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* December 31, 2023* and2022 consolidated balance sheets. The Alameda lease and sublease agreement ended during thefirst quarter of2022. The Company recognized sublease income of $85,000 for thetwelve months ended* December 31, 2022*.

Based on the present value of the lease payments for the remaining lease term of the Company's existing operating leases, as of* December 31, 2023*, total right-of-use assets were approximately $222,000 and operating lease liabilities were approximately $231,000. As of* December 31, 2022*, total right-of-use assets were approximately $463,000 and operating lease liabilities were approximately $475,000. For its real estate leases, the Company has elected the practical expedient tonot separate a lease into lease and nonlease components.

The Company currently maintainsone finance lease for equipment. In* November 2021,the Company entered into a finance lease for a modular laboratory which expires in Octoberof2024.* The Company's obligation to make finance lease payments are included in "Lease liability, current portion" and "Lease liability, non-current portion" on the Company's* December 31, 2023* and2022 consolidated balance sheets.

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

Maturities of lease liabilities as of* December 31, 2023* were as follows (in thousands):

Due in12-month period ended* December 31,*

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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 Arduino1* Trust, U/A dated* April 25, 2022,as to an undivided 8.3333% interest and Jason Yelowitz, Trustee of the Jason Yelowitz2006* Trust, Dated* March 31, 2006as to an undivided.8333% interest (collectively, the “Lenders”), pursuant to which the Lenders provided us with a loan in the amount of $6,000,000. The loan accrued interest at a fixed annual rate of 8.50%. Interest-only payments were due monthly for thefirst* twenty-four months and the principal and all unpaid accrued interest was due on* September 29, 2024.The loan was collateralized by afirst* 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 $3,000,000. 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* 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):

Authorized capital

The authorized capital stock of the Company consists of 200,000,000 shares of common stock, par value $0.001 per share. In the event of liquidation of the Company, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities. The common stock hasno preemptive or conversion rights or other subscription rights. There areno redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are fully paid and non-assessable.

The holders of the Company’s common stock are entitled toone vote per share. Holders of common stock are entitled to receive a ratable share of dividends, if any, as* may*be declared by the board of directors.

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Other shares issued

During the year ended* December 31, 2022*, the Company issued 2,150,467 shares of common stock upon vesting of RSUs granted by the Company to management and employees.

During the year ended* December 31, 2022*, the Company issued 125,264 shares of common stock upon vesting of RSUs granted to Board members.

During the year ended* December 31, 2022*, the Company issued 28,223 shares of common stock to a Board member related to director fees.

During the year ended* December 31, 2022*, the Company issued 19,176 shares of common stock to a former Board member to fulfill obligations related to a consulting agreement.

During the year ended* December 31, 2022*, the Company issued 6,742,069 shares of common stock pursuant to the At The Market Issuance Sales Agreement for net proceeds of $6.5 million.

During the year ended* December 31, 2023*, the Company issued 1,462,814 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. 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 year ended* December 31, 2023*, the Company issued 170,692 shares of common stock upon vesting of RSUs granted to Board members.

During the year ended* December 31, 2023*, the Company issued 104,227 shares of common stock to a Board member related to director fees and other director incentives.

During the year ended* December 31, 2023*, the Company issued 15,781 shares of common stock to a former Board member to fulfill obligations related to consulting services.

During the year ended* December 31, 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 year ended* December 31, 2023*, the Company issued 192,707 shares of common stock pursuant to the employee stock purchase plan.

During the year ended* December 31, 2023*, the Company issued 469,366 shares of common stock upon the settlement of the securities class action lawsuit.

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.

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Warrants outstanding

In* July2023,* the Company issued a warrants to purchase 363,860 shares of the Company's common stock to the underwriter of the Company's public offering, equal to 2% of the18,193,000 shares sold. The warrants are exercisable at $1.375 per share, commencingsix months after* July 17,2023. The warrants have an expiration date of 5 years from the date of issuance and will expire on July17,* 2028. Using the Black Scholes Merton model, the Company estimated the warrants' fair value to be $388,000 with the assumptions as follows: $1.54 per share fair value on the date of issuance;5-year term;81.9% volatility;3.81% discount rate and 0% annual dividend rate. Warrants are accounted for under the equity classification.

In* August2023,* 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* August4,* 2028. Using the Black Scholes Merton model, the Company estimated the warrants' fair value to be $181,000 with the assumptions as follows: $1.27 per share fair value on the date of issuance;5-year term;82.3% volatility;3.81% discount rate and 0% annual dividend rate. Warrants are accounted for under the equity classification.

Warrants outstanding to purchase shares of the Company’s common stock at a weighted average exercise price per share are as follows:

Stock-based compensation

2014 Stock Incentive Plan

In2014, the Board of Directors adopted the Company’s stock incentive plan (the*“2014* Plan”). The2014 Plan was most recently amended and restated effective as of the Company’s2017 Annual Stockholders’ Meeting. A total of 2,127,306 shares of common stock was authorized for issuance pursuant to the2014 Plan at the time of its most recent amendment and restatement in2017. The2014 Plan provides for the following types of stock-based awards: incentive stock options; non-statutory stock options; restricted stock; and performance stock. The2014 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. The restricted shares that are issued from the2014 Plan normally vest insix equal tranches over three years.

2019 Stock Incentive Plan

In2019, the Board of Directors adopted the Company’s stock incentive plan (the*“2019* Plan”). The2019 Plan was most recently amended and restated effective as of the Company’s2020 Annual Stockholders’ Meeting. A total of 18,500,000 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. The restricted shares that are issued from the2019 Plan normally vest insix equal tranches over three years.

Stock-based compensation expense recorded was allocated as follows (in thousands):

The following table summarizes the stock-based compensation plan activity and related information through* December 31, 2023*.

There wereno option exercises during the year ended* December 31, 2023* and* December 31, 2022*, respectively.

As of* December 31, 2023*, there is approximately $6.1 million of total unrecognized compensation cost related to the unvested share-based (option and RSU) compensation arrangements granted under the stock-based compensation plans. The remaining unrecognized compensation cost will be recognized over a weighted-average period of 2.4 years.

There wereno outstanding stock options as of* December 31, 2023*.

Our policy is to fulfill the required shares for a restricted share vesting byfirst depleting any available Treasury Stock held by the Company and the remaining outstanding balance is satisfied with unissued shares.

Stock Price Hurdle Awards

In2023, the Company granted stock price hurdle restricted share units as a result of the pilot plant commissioning. The stock price hurdle restricted share units expirethree years from the date of grant and vest based on the Corporation’s common stock achieving an absolute stock price hurdles based on a5-day VWAP at any time over thethree-year term.

The following is a summary of the changes in outstanding stock price hurdle awards share units for2023:

The fair value of stock price hurdle awards were calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company share price volatility, the risk-free interest rate, the cost of equity, and other award design features. The following are weighted-average key assumptions for2023 grants.

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2022 Restricted stock units

In* January 2022,the Company granted 44,780 RSUs, all of which were subject to vesting, with a grant date fair value of $50,000 to employees. The shares vest inthree* equal installments over athree-year period.

In* February 2022,the Company granted 47,933 RSUs, all of which were subject to vesting, with a grant date fair value of $50,000 to employees. The shares vest inthree* equal installments over athree-year period.

In* April 2022,the Company granted 9,615 RSUs, all of which were subject to vesting, with a grant date fair value of $10,000 to employees. The shares vest inthree* equal installments over athree-year period.

In* May 2022,the Company granted 182,293 RSUs, all of which were subject to vesting, with a grant date fair value of $175,000 to Board Members. The shares vest infour* equal installments over atwelve-month period.

In* June 2022,the Company granted 12,121 RSUs, all of which were subject to vesting, with a grant date fair value of $10,000 to employees. The shares vest inthree* equal installments over athree-year period.

In* July 2022,the Company granted 143,708 RSUs, all of which were subject to vesting, with a grant date fair value of $120,000 to employees. The shares vest inthree* equal installments over athree-year period.

In* August 2022,the Company granted 10,537 RSUs, all of which were subject to vesting, with a grant date fair value of $10,000 to employees. The shares vest inthree* equal installments over athree-year period.

In* October**2022,* the Company granted 28,223 RSUs, all of which were vested immediately, with a fair value of $21,308 to a Board Member.

In* December**2022,* the Company granted 27,739 RSUs, all of which were subject to vesting, with a grant date fair value of $20,000 to employees. The shares vest inthree equal installments over athree-year period.

In* December 2022,*the Company granted 3,184,253 RSUs, all of which were subject to vesting, with a grant date fair value of $2,368,682 to employees. The shares vest insix equal semi-annual installments over athree-year period.

2023 Restricted stock units

During thefirst quarter of2023, 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 inthree equal installments over athree-year period.

During thesecond quarter of2023, 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 infour equal installments over atwelve-month period.

During thethird quarter of2023, 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 inthree equal installments over athree-year period.

During thefourth quarter of2023, the Company granted 4,007,972 RSUs, all of which were subject to vesting, with a grant date fair value of $3,422,275 to employees. The shares vest insix equal semi-annual installments over athree-year period. In addition, the Company granted 52,632 RSUs, all of which were subject to vesting, with a grant date fair value of $41,513 to employees. The shares vest inthree equal installments over athree-year period.

During thefourth quarter of2023, the Company granted 65,789 RSUs, all of which were subject to vesting, with a grant date fair value of $51,891 to an employee. All shares vest aftersix-months.

During thefourth quarter of2023, the Company granted 475,282 stock price hurdle restricted stock units to employees. The stock price hurdle restricted share units expire three years from the date of grant and vest based on the Corporation’s common stock achieving an absolute stock price hurdles based on a5-day VWAP at any time over thethree-year term.

Total intrinsic value of RSUs vested and released during 2023 was $3.1 million. Intrinsic value of RSUs outstanding at * December 31, 2023* was $6.6 million.

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Reserved shares

At* December 31, 2023*, the Company has reserved shares of common stock for future issuance as follows:

We* may,from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we 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.

The Company has adopted a policy that any transactions with directors, officers, beneficial owners offive percent or more of our common shares, any immediate family members of the foregoing or entities of which any of the foregoing are also officers or directors or in which they have a financial interest, will only be on terms consistent with industry standards and approved by a majority of the disinterested directors of our board.

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Loss before income tax expense consists of the following (in thousands):

The components of the provision for income tax expense consist of the following (in thousands):

Reconciliation of the statutory federal income tax rates consist of the following:

The components of deferred tax assets (liabilities) included on the consolidated balance sheets are as follows (in thousands):

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Based on the available objective evidence at this time, management believes that it is more-likely-than-not that the net deferred tax assets of the Company willnot be realized. Accordingly, management has applied a full valuation allowance against net deferred tax assets at both* December 31, 2023and December 31, 2022*. The net valuation allowance increased by approximately $4.8 million during the year ended* December 31, 2023*. The increase in net valuation allowance primarily relates to net operating losses generated during2023.

At* December 31, 2023*, the Company has Federal and California net operating loss carryforwards of approximately $171.4 million and $4.1 million, respectively, which will begin to expire on* December 31, 2034for Federal and California purposes. Approximately $146.2 million of federal net operating losses were generated after December 31, 2017and thus donot* expire. Approximately $25.2 million of the federal net operating losses and $4.1 million state net operating loss carryforwards will begin to expire in* December 31, 2034,ifnot* utilized.

Utilization of the Company’s net operating loss* may*be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net operating loss carryforwards prior to utilization.

At* December 31, 2023*, the Company had research and development credits carryforward of approximately $0.5 million and $0.5 million for Federal and California income tax purposes, respectively. Ifnot utilized, the Federal research and development credits carryforward will begin to expire on* December 31, 2034.*The California credits can be carried forward indefinitely.

The Company’s policy is to account for interest and penalties as income tax expense. As of* December 31, 2023*, the Company hadno interest related to unrecognized tax benefits.No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes.

Effective* January 1, 2022,the Company is subject to mandatory capitalization of Section174* research and development expenditures. The capitalized expenditures are subject to amortization overfive years for expenses incurred within the U.S. The Company capitalized $3.6 million and $3.6 million during the years ended* December 31, 2023and December 31, 2022,*respectively.

The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgement and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. At* December 31, 2023*, the Company’s total amount of unrecognized tax benefit was approximately $0.5 million,none of which will affect the effective tax rate, if recognized. The Company doesnot expect its unrecognized benefits to change materially over the nexttwelve months.

The Company files income tax returns with the United States federal government and the State of California. The Company’s tax returns for2020 to2022 remain open to audit for Federal and California purposes.

The Company maintains a defined-contribution savings plan under Section401(k) of the Internal Revenue Code (the*“401*(k) Plan”). The401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax or after tax basis. Beginning in* January 2021,the Plan included a maximum of 4% employer matching contributions with immediate vesting. We recognized $180,000 and $111,000 of expenses related to employer contributions for the401*(k) savings plan during the years ended* December 31, 2023* and2022, respectively.