AQMS — Q2 2026 Financial Report Analysis

Aqua Metals again had no revenue in Q2 2026, and its loss came mostly from an unexpected source: a loan that went bad. The company is developing AquaRefining, a battery-recycling process that uses water-based chemistry and electricity. Its net loss narrowed to $4.48 million from $6.77 million, but the improvement is mostly accounting. A year ago the loss included a $3.77 million write-down tied to selling its Nevada (TRIC) plant. This quarter it included a $2.06 million provision for credit losses (money the company now expects not to get back) on $4.1 million it had lent to Lion Energy, a battery maker it had been trying to buy. With $4.74 million of cash left and management stating "substantial doubt" that the company can keep operating for another year, how long the money lasts matters more than the size of the loss.

At a glance

• $0 revenue. The 10-Q says plainly: "We did not engage in commercial operations in 2026 or 2025." The company is still pre-commercial, so its results are a story about spending, not sales.
• $4.74 million cash, down from $10.81 million in December. Operating cash outflow over the first half was $6.47 million. On top of that, $2.0 million went into the Lion Energy loan, and the company raised $2.41 million by selling shares.
• About 60% of the Lion Energy loan is now provisioned. Out of $4.16 million owed (principal plus accrued interest), management expects to recover about 40%. The deal was dropped in May, and Lion Energy is in default.

Results table

Share counts reflect the 1-for-10 reverse split in August 2025.

Where the money went

Running costs fell in every line. The MD&A gives the reasons:

• Plant operations fell 27.3% to $564,000. This is the cost of keeping the pilot facility running. The 10-Q puts the decline "primarily" down to a "$122,000 reduction in insurance-related expenses", with payroll down a further $56,000.
• Research and development fell 15.9% to $248,000, mostly because payroll was $38,000 lower.
• General and administrative expense fell 21.5% to $1.72 million, helped by "a reduction of approximately $498,000 in professional fees". Over the first half, though, G&A was flat (+1.6%), because Q1 professional fees rose about $625,000 for "due diligence and other professional services related to the contemplated acquisition of Lion Energy." The abandoned deal therefore cost money in two places: Q1 advisory fees and the Q2 loan provision.

Excluding the one-off charges in both years, the business spent about $2.5 million in the quarter, against $3.3 million a year earlier. Q2 2026 R&D was $248,000, under a tenth of the quarter's total spending. Most of the money goes on overhead and on keeping a pilot plant running, not on developing the technology.

The Lion Energy loan

This is the main event of the quarter, and the 10-Q (Note 3) sets out the timeline:

• December 2025: Aqua Metals lent Lion Energy $2.07 million in short-term financing, due by December 30, 2025. It was not repaid.
• February 2026: it signed a non-binding term sheet to acquire Lion Energy. It rolled the unpaid note into a "subordinated, last-out participation interest" in Lion Energy's senior bank loan and added another $2.0 million in cash, for $4.1 million of principal. "Subordinated, last-out" means Aqua Metals is repaid only after the senior lender is paid in full.
• Since March 31, 2026: Lion Energy has been in default on that credit facility.
• May 11, 2026: Aqua Metals terminated the term sheet.
• June 17, 2026: the senior lender sold its position to CG Ventures, which Aqua Metals "believes may be affiliated with an owner of Lion Energy." After that, the company's "access to certain current financial, operating, and collateral information concerning Lion Energy was significantly reduced."

Management now assumes it will recover about 40% of the $4.16 million on a probability-weighted basis. It has booked a $2.50 million allowance for the year so far ($2.06 million of it in Q2). The loan has stopped accruing interest and it is being "evaluated, with the assistance of legal counsel." The $1.66 million still on the balance sheet is a judgment call based on stale information. The person now first in line to be repaid may be on the borrower's side. The 10-Q warns that losses "could exceed the recorded allowance."

Takeaway: In a year when its own pilot-plant and R&D spending was about $1.6 million over six months, Aqua Metals put $4.1 million into a loan to a company it no longer plans to buy. It now expects to get back only about 40% of that, and it has $4.74 million of cash and a going-concern warning. A side bet that went wrong, not any setback in recycling, is what shortened its runway this year.

What the headline numbers hide

• The narrower loss is not a better business. Both years' losses are inflated by different one-off non-cash charges (the $3.77 million plant impairment then, the $2.06 million credit provision now). Underlying running costs did fall about 22%, but that comes from cuts, not revenue.
• Cash burn is larger than the loss suggests. First-half operating cash outflow ($6.47 million) was 22% higher than a year ago, even though the reported net loss nearly halved. Two reasons: this year's $2.50 million provision is non-cash, and the company paid down $1.42 million of accrued expenses. Counting the $2.0 million Lion Energy advance, cash fell $6.07 million in six months.
• Loss per share fell mainly because the share count rose. The loss per share fell 82%, but the dollar loss fell only 34%. The difference is dilution (new shares issued, which spreads ownership more thinly): weighted shares rose from 0.91 million to 3.41 million. In 2026 alone the company sold 379,772 shares through its at-the-market (ATM) program, where shares are sold gradually into the market, for $1.88 million. It sold another 131,569 shares through its employee share purchase plan for $0.62 million. Most of the share-count increase dates to 2025, including an October 2025 registered direct offering.
• Going concern. Management states that "capital resources remain insufficient to sustain operations through at least the next twelve months" and that there is "substantial doubt" the company can continue as a going concern. The auditor's FY2025 report said the same.
• Prior-year income helped then, not now. Q2 2025 included $420,000 of one-time government grant income from the pandemic-era employee retention credit, plus an $836,000 gain on the change in value of its warrant liability (warrants are contracts letting holders buy shares at a set price). Both were far smaller or absent this quarter.
• Debt is not the problem. Notes payable were repaid in 2025, and Q2 interest expense was $6,000. Total liabilities are $3.09 million. The constraint is cash, not borrowing.

Outlook

Management gives no financial guidance. Its stated plan is to "continue pilot operations, advance site selection and permitting for its first commercial AquaRefining facility and pursue additional strategic partnerships." The vehicle is Project Headwaters ARC, a planned processing campus. It would start with preprocessing lithium iron phosphate (LFP) batteries using established methods and add AquaRefining later. The 10-Q says its timing and scope "remain subject to financing, commercial agreements, permitting, engineering and Board approval." Funding would come from a mix of project equity, equipment and real-estate financing, and government incentives.

My read: at the first half's average operating outflow of about $3.2 million a quarter, $4.74 million lasts roughly into early 2027 without new money. That is my estimate, not the company's, and the rate should be lower now that Lion Energy diligence fees and accrued-expense paydowns are behind it. The company has $48.05 million left on its ATM program, but selling at Q2's pace ($581,000 net from 180,992 shares) would not cover the burn without much heavier dilution. Its $10 million equity line with Lincoln Park is restricted until about October 2026 under the terms of the October 2025 offering. What to watch next quarter: any new capital raise and its terms, any recovery or further write-down on the Lion Energy loan, and whether Project Headwaters gets a site, a financing partner, or offtake agreements (contracts with buyers for its output). Until one of those happens, the company has no revenue and relies on raising capital.