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, 2025, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended  December 31, 2025, as filed with the Securities and Exchange Commission (the "SEC") on March 31, 2026. There have been no material changes in the Company’s significant accounting policies during the three and six months ended June 30, 2026.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of Aqua Metals, Inc. and subsidiaries (collectively, the “Company” or “Aqua Metals”) have been prepared in accordance with the interim reporting requirements of Form 10-Q, pursuant to the rules and regulations of the SEC and should be read in conjunction with the Company's audited consolidated financial statements for the period ended December 31, 2025, which are included on Form 10-K filed with the SEC on March 31, 2026. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for annual consolidated financial statements. 

In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly each of the condensed consolidated balance sheet as of June 30, 2026, the condensed consolidated statements of operations for the three and six months ended June 30, 2026 and June 30, 2025, the condensed consolidated statements of stockholders' equity for the three and six months ended June 30, 2026 and June 30, 2025 and the condensed consolidated statements of cash flows for the six months ended June 30, 2026 and June 30, 2025, as applicable, have been made. The condensed consolidated balance sheet as of December 31, 2025 has been derived from the Company’s audited consolidated financial statements as of such date, but it does not include all disclosures required by U.S. GAAP for annual presentation.

The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of results that may be expected for the year ending  December 31, 2026.

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 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, credit loss allowance, 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.

Allowance for credit losses

The Company follows the provisions of Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses, to estimate expected credit losses for financial assets measured at amortized cost, including notes receivable and participation interests. ASC 326 requires the use of a current expected credit loss (“CECL”) methodology, under which management estimates lifetime expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts.

The Company evaluates collectability by considering available information relevant to the collectability of the asset, including the financial condition of the borrower, underlying collateral values, expected repayment structure, current economic conditions, and other relevant factors. The Company considers a financial asset to be past due when a contractually required payment has not been received by its due date or when the borrower is in default under the terms of the underlying credit facility. The Company accrues interest on its financial assets in accordance with their contractual terms. The Company places a financial asset on nonaccrual status when, based on the specific facts and circumstances, the collection of contractual interest is no longer probable or the collection of the principal is doubtful. When a financial asset is placed on nonaccrual status, the Company ceases recognizing interest income. Contractual interest may continue to accrue under the applicable agreement but is not recognized in the financial statements unless and until its collection becomes probable. Previously recognized accrued interest is included in the amortized-cost basis of the related financial asset and is evaluated for expected credit losses using the same methodology applied to the underlying asset. Financial assets are presented net of the allowance for credit losses in the condensed consolidated balance sheets, with changes in the allowance recognized in the condensed consolidated statements of operations. Financial assets are evaluated individually when they do not share similar risk characteristics with other financial assets and are written off against the allowance when they are deemed uncollectible and there is no reasonable expectation of recovery. The Company reassesses the adequacy of the allowance for credit losses at each reporting period and adjusts the allowance as necessary based on changes in facts and circumstances.

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. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.

Level 3. 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. As of  June 30, 2026 and  December 31, 2025, the Company had a Level 3 warrant liability related to freestanding warrants issued in connection with a private placement transaction that is measured at fair value on a recurring basis.

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method or the if-converted method, as applicable. For purposes of this calculation, stock options, restricted stock units (RSUs) and warrants to purchase common stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. The following shares underlying outstanding convertible notes, stock options, RSUs and warrants to purchase common stock were anti-dilutive due to a net loss in the periods presented and, therefore, were excluded from the dilutive weighted average securities computation for the six months ended June 30, as indicated below:

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. Our CODM views its operations and manages its business in one operating segment. For further discussion related to segment reporting, please refer to Note 12 - Segment reporting.

Recent accounting pronouncements

Recently issued accounting pronouncements not yet adopted

In  November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which introduced new guidance on disclosures of specified information about certain costs and expenses included within expenses presented on the face or the income statements, such as purchases of inventory and employee compensation. This guidance is effective for the Company for annual reporting periods beginning  January 1, 2027 and interim reporting periods beginning  January 1, 2028. The Company is currently evaluating the impact that the adoption of this pronouncement will have on the Company's consolidated financial statements and disclosures.

In   September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The ASU amends certain aspects for the accounting and disclosure of internal-use software by replacing prescriptive project-stage guidance with a principles-based capitalization model that applies to all development approaches. Capitalization begins when management authorizes and commits to fund a project and it is probable the software will be completed and used as intended, while development uncertainty defers capitalization until resolved. The ASU also integrates website-development guidance, aligns software disclosures with those for property, plant and equipment. The amendments are effective for fiscal years beginning after  December 15, 2027, including interim periods, with early adoption permitted. The Company is evaluating the impact of this ASU and does not expect a material effect on its consolidated financial statements upon adoption.

In  December 2025, the FASB issued Accounting Standards Update (“ASU”) No. 2025-12, Codification Improvements. Among other items, the update includes amendments to Topic 260, Earnings Per Share, which clarify the calculation of diluted earnings per share when an entity reports a loss from continuing operations and has contracts that  may be settled in cash or stock and are classified as assets or liabilities. Under the amended guidance, entities are required to evaluate whether including potential common shares would have a dilutive effect by considering the combined impact on both the numerator and denominator of the diluted earnings per share calculation. The amendments in ASU 2025-12 are effective for annual reporting periods beginning after  December 15, 2026, including interim periods within those fiscal years, and are required to be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of this ASU and does not expect a material effect on its consolidated financial statements upon adoption.