Aqua Metals, Inc.: Form 10-Q for the period ended Mar 31, 2026

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, 2025 filed with the SEC on March 31, 2026, or our 2025 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 development and commercialization of clean, water-based recycling technologies designed to provide cost-efficient solutions for the recycling of both lead and lithium-ion (“Li”) batteries. The Company’s core technology, AquaRefining, is a patented hydrometallurgical and electrochemical process that uses electricity to recover high-purity metals from spent batteries. This process is designed to reduce emissions, eliminate the need for high-temperature furnaces, and minimize waste compared to conventional recycling methods. AquaRefining was initially applied to the lead-acid battery (“LAB”) recycling industry.

The Company is applying its AquaRefining technology to lithium-ion battery recycling, with a focus on developing a cost-efficient process to recover critical minerals such as lithium, nickel, cobalt, and copper. The Company believes its process has the potential to produce higher quality materials with lower environmental impact compared to conventional recycling methods.

In 2021, the Company expanded its focus to lithium-ion battery recycling, including the establishment of its Innovation Center located at the Tahoe Reno Industrial Center (“TRIC”), which supports research, development, and pilot-scale operations. In 2022, the Company demonstrated the ability to recover key battery materials from lithium-ion battery black mass at bench scale and subsequently constructed a fully integrated pilot system at its Innovation Center. In late 2022, the Company began operating its initial lithium-ion battery recycling system, and in early 2023, it recovered its first recycled metals using its Li AquaRefining process. The Company is evaluating alternative, lower-cost locations for future development and is exploring potential co-location opportunities with strategic partners to reduce capital expenditures and operating costs.

In February 2025, the Company refined its development strategy to focus on increasing lithium carbonate production by deferring the plating of nickel and cobalt into metal form. This approach is intended to simplify the initial product mix to lithium carbonate and mixed hydroxide precipitate (“MHP”), reduce capital requirements, improve scalability, and enhance projected operating margins and return on investment. The Company continues to seek financing to construct its first commercial lithium-ion battery recycling facility.

During the third quarter of 2025, the Company expanded its feedstock diversification strategy by evaluating the application of its AquaRefining technology to polymetallic deep-sea nodules as a potential additional source of critical minerals. In September 2025, the Company entered into a memorandum of understanding (“MOU”) with Impossible Metals Inc. to collaborate on the development of a domestic supply chain for essential minerals, including nickel, cobalt, copper, manganese, and rare earth elements, recovered from deep-sea nodules and refined through the AquaRefining process.

In November 2025, the Company entered into an additional MOU with MOBY Robotics Inc. to explore robotic harvesting and precision sorting of nodules and to conduct bench-scale testing of AquaRefining for these materials. These initiatives remain exploratory and are intended to assess the technical and economic feasibility of applying the Company’s process to nodule-derived feedstocks.

During the three months ended March 31, 2026, we issued 198,780 shares of common stock pursuant to an at the market, or ATM, sales agreement for net proceeds of $1,295,000 and 131,569 shares of common stock pursuant to the 2026 employee stock purchase plan for the net proceeds of $621,000.

During the three months ended March 31, 2025, we issued 59,648 shares of common stock pursuant to the ATM facility for net proceeds of $1,214,000.

The Company's current focus is site selection, construction, and operation of an initial lithium-ion battery recycling facility utilizing electricity-based processes in place of conventional high-temperature or chemical-based methods. The Company is also pursuing potential partnerships, joint ventures, and licensing arrangements as its Li AquaRefining technology continues to develop. The Company believes its technology may provide an environmentally and economically competitive approach to critical minerals recovery and may support opportunities for strategic collaborations and potential government funding.

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

We are continuing to validate and optimize 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. Throughout 2023 and 2024, we have demonstrated at our pilot facility our ability to recover key valuable minerals in lithium-ion batteries, such as lithium hydroxide or lithium carbonate, copper, nickel, cobalt, and other compounds. These demonstrations ran for 24 hours x 5 days a week for many weeks in 2024 and an extended 24 hours x 7 days a week endurance run in November-December of 2024 that produced the results the Company believes makes the process commercial scale ready. Our next goal for lithium AquaRefining is to process 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. The location for the pilot demonstration facility is in our Innovation Center in Tahoe-Reno Industrial Center. Our next phase is constructing our first commercial ARC and we are actively working with multiple potential supply, off-take, and funding partners to determine the optimal timing and location. The construction of the first commercial facility is subject to our receipt of additional financing.

Our focus for the critical battery minerals market includes operating our first-of-a-kind lithium battery recycling facility, utilizing electricity to recycle instead of traditional approaches involving intensive and dangerous and expensive one time use chemical processes, fossil fuels, or high-temperature furnaces which also produce very large gas (CO2) and solid (sodium sulfate) waste streams our process avoids. Because of the cost savings (labor, chemical, waste streams, footprint), the Company believes it is the low cost producer giving a material economic advantage to lithium AquaRefining compared to other processes. We are also exploring partnership and/or joint venture agreements, particularly as our Li AquaRefining matures. 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 and support to accelerate our expansion and progress.

Effective August 4, 2025, the Company effected a one-for-10 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 retroactively to reflect this reverse stock split.

Results of Operations

We did not engage in commercial operations in 2026 or 2025. Our operations have been devoted to developing our Li AquaRefining battery recycling technology. During the three months ended March 31, 2026, we focused on the continued operation of the pilot facility and advancing the underlying processes that support our recycling capabilities. We did not earn any revenue during the three months ended March 31, 2026 and 2025. The following table summarizes our results of operations with respect to the items set forth below for the three months ended March 31, 2026 and 2025 together with the dollar and percentage changes in those items (in thousands).

Plant operations include materials, supplies related costs, salaries and benefits, consulting, outside services costs, inventory adjustments, depreciation, amortization, insurance, travel and overhead costs. Plant operations decreased approximately $223,000, or 30.8%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The decrease in plant operations for the three months ended March 31, 2026 was primarily driven by a reduction in payroll and related costs of approximately $166,000, resulting from continued workforce reductions implemented during the first quarter of 2025. Additionally, supplies, materials, inventory adjustments and other overhead expenses decreased by $188,000 offset by professional fees increased by approximately $131,000.

Research and development cost includes expenditures related to the continued enhancement of the AquaRefining technology and the development of our lithium-ion battery recycling process. During the three months ended March 31, 2026, research and development expenses decreased $54,000, or approximately 16.1%, compared to the three months ended March 31, 2025. This decrease was primarily due to lower payroll and related costs of approximately $56,000, offset by an increase in supplies, materials, and other overhead expenses of approximately $2,000.

For the three months ended March 31, 2025, the Company recognized a non-cash impairment expense of $5,247,000 related to construction-in-progress for the facility located at TRIC. The impairment was the result of a strategic shift and revised capital allocation priorities, which led management to discontinue development of the facility for its originally intended use. As a result, the carrying amount of the facility was reduced to reflect its fair value.

For the three months ended March 31, 2026, the Company recognized a non-cash provision for credit losses of $437,000 related to the Lion Energy participation interest and related note receivable. The provision reflects management’s estimate of expected credit losses under ASC 326 based on a probability-weighted analysis of potential recovery scenarios, including expected collateral recoveries, estimated costs to realize collateral, and the senior lender’s priority claim.

General and administrative expense increased $544,000, or approximately 22.9%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The increase was primarily due to an increase of approximately $625,000 in professional fees related to due diligence for our proposed acquisition of Lion Energy, partially offset by reductions in payroll and related costs of approximately $51,000 and other overhead expense of approximately $30,000.

The following table summarizes our other income and interest expense for the three months ended March 31, 2026 and 2025 together with the dollar and percentage changes in those items (in thousands).

The decrease in interest expense for the three months ended March 31, 2026, is due to the decrease in the notes payable outstanding balance.

We recognized approximately $149,000 in interest and other income during the three months ended March 31, 2026, a decrease of $131,000 or 46.8%, compared to the three months ended March 31, 2025. The decrease was primarily due to the recognition of a payroll tax employee retention credit in the first quarter of 2025.

For the three months ended March 31, 2026, the Company recognized a $47,000 change in the fair value of its warrant liability, primarily due to the remeasurement of warrants issued in December 2024.

Liquidity and Capital Resources

As of March 31, 2026, we had cash and cash equivalents of approximately $6,816,000, current liabilities of $3,617,000 and working capital of approximately $7,479,000. The Company has not generated revenues from commercial operations and expects to continue incurring losses for the foreseeable future. In order to satisfy our capital requirements, the Company will need to improve its liquidity position through equity or debt financings and/or reductions in operating costs, in order to satisfy its liquidity needs. Management is devoting significant efforts to increasing liquidity, raising capital and developing its business.

Management believes that the Company's capital resources remain insufficient to sustain operations through at least the next twelve months from the date of this filing. Additionally, in view of the Company’s expectation to incur significant losses and continue utilizing cash in operations for the foreseeable future, the Company 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, is not assured. Accordingly, management believes that there is substantial doubt regarding the Company’s ability to continue operating as a going concern through the next twelve months from the date of this filing.

Looking ahead, Aqua Metals plans to continue pilot operations, advance site selection and permitting for its first commercial AquaRefining facility and pursue additional strategic partnerships to support commercialization.

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

Net cash used in operating activities

Net cash used in operating activities for the three months ended March 31, 2026 and three months ended March 31, 2025 was $3,844,000 and $2,753,000, respectively. 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, amortization of deferred financing costs, provision for credit loses, stock-based compensation, impairment and loss on disposal of property, plant and equipment, as well as net changes in working capital. During the three months ended March 31, 2025, we recognized approximately $5,247,000 non-cash impairment expense related to the construction-in-progress for the facility located at TRIC.

Net cash used in investing activities

Net cash used in investing activities for the three months ended March 31, 2026 was $2,000,000 and consisted mainly of cash advanced to acquire a subordinated participation interest in Lion Energy’s senior secured credit facility. Net cash used in investing activities for the three months ended March 31, 2025 was $375,000 and consisted mainly of cash utilized towards equipment deposits of $186,000 and purchases of fixed assets related to the build out of our commercial facility of $289,000, offset by $100,000 of cash received related to our note receivable.

Net cash provided by financing activities

Net cash provided by financing activities was $1,850,000 for the three months ended March 31, 2026, consisting of $1,295,000 in net proceeds from the sale of Aqua Metals shares pursuant to the at-the-market offering, or ATM, and $621,000 of net proceeds from the sale of Aqua Metals shares pursuant to the 2026 employee stock purchase plan agreement, or ESPP, offset by $56,000 related to tax withholdings to cover RSU vesting and $10,000 principal payments on finance leases. Net cash provided by financing activities of $638,000 for the three months ended March 31, 2025 consisted of $1,214,000 in net proceeds from the sale of Aqua Metals shares pursuant to the at-the-market offering, or ATM, offset by $66,000 related to tax withholdings to cover RSU vesting and $500,000 principal payments on notes payable.

Critical Accounting Estimates

Allowance for Credit Losses on Lion Energy Exposure

The Company’s estimate of expected credit losses on its $4,100,000 exposure to Lion Energy requires significant management judgment due to the borrower-specific nature of the exposure, the Company’s subordinated position relative to the senior secured lender, and the uncertainty regarding future recovery outcomes. Management identified changes in facts and circumstances during the three months ended March 31, 2026, because the equity transaction originally contemplated is no longer expected to proceed as originally structured. As a result, the Company’s recovery may be dependent on collateral realization, inventory monetization, accounts receivable collections, available credit support, and ongoing discussions regarding alternative transaction structures. Management estimated the allowance using a probability-weighted scenario analysis that considered multiple recovery outcomes, expected collateral recoveries, the senior lender’s priority claim, estimated costs to realize collateral, and available credit support. The most sensitive assumptions in the analysis are the probability assigned to each recovery scenario and the related estimated collateral recoveries. Based on information available as of March 31, 2026, management recorded an allowance for credit losses of approximately $437,000. However, the estimate remains highly judgmental and subject to change as facts and circumstances evolve. Although management believes its estimate reflects the best information currently available, actual recoveries and realized credit losses could differ materially from the recorded allowance if collateral recoveries are lower than expected, costs to realize collateral increase, market conditions deteriorate, or available credit support becomes unavailable or unenforceable.

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 March 31, 2026.

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 March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 includes certain risk factors that could materially affect our business, financial condition or future results. There have been no material changes to those risk factors, except as described below:

We will need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all. As of March 31, 2026, we had cash and cash equivalents of approximately $6,816,000, current liabilities of $3,617,000 and working capital of $7,479,000. As of the date of this report, we believe that we will require additional capital in order to fund our current level of ongoing costs and our proposed business plan over the next 12 months as we move forward with our business strategy. We intend to acquire the necessary capital though debt financing, sale of assets or through the sale of equity. Funding that includes the sale of our equity may be dilutive. If such funding is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations, in which case you may lose your entire investment.

The report of our independent registered public accounting firm for the year ended December 31, 2025 states that there is substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

Our allowance for credit losses related to our Lion Energy exposure may not be adequate to cover actual credit losses, which could adversely affect our financial condition and results of operations. As of March 31, 2026, we had approximately $4,100,000 of exposure related to Lion Energy through a subordinated participation interest and related note receivable. Lion Energy was in default under its senior secured revolving credit facility as of March 31, 2026, and our participation interest is subordinated to the senior secured lender.

In accordance with U.S. generally accepted accounting principles (“GAAP”), we maintain an allowance for expected credit losses under the current expected credit loss (“CECL”) model. As of March 31, 2026, we recorded an allowance for credit losses of approximately $437,000 related to the Lion Energy exposure. Our allowance for credit losses requires significant management judgment and is based on a number of factors, including Lion Energy’s operating performance and liquidity, the value and recoverability of underlying collateral, expected inventory recoveries, accounts receivable collections, and management’s estimate of the probability of various recovery outcomes.

There are many factors that could result in actual credit losses exceeding the recorded allowance. For example, collateral values may decline, inventory recoveries may be lower than expected, customer demand may deteriorate, costs to realize collateral may increase, or accounts receivable collections may be lower than anticipated. In addition, our recovery assumptions depend in part on the outcome of ongoing discussions regarding alternative transaction structures involving Lion Energy and its senior secured lender. These efforts may not be successful.

The amount of future credit losses is also susceptible to changes in economic, operating, market, and other conditions beyond management’s control. As a result, our allowance for credit losses may not be adequate to cover actual losses, and we may be required to record additional material provisions for credit losses in future periods. Any such additional provisions could materially adversely affect our financial condition, results of operations, and liquidity.