Aqua Metals, Inc. Income Taxes Disclosure

16.	Income taxes

 

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

 

		Year ended December 31,
		2025				2024
US		$	(22,644	)		$	(24,552	)
Foreign			—				—
Total		$	(22,644	)		$	(24,552	)

 

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

 

		Year ended December 31,
		2025				2024
Current
Federal		$	—			$	—
State			2				3
Deferred
Federal			—				—
State			—				—
Total provision for income taxes		$	2			$	3

 

Reconciliation of the statutory federal income tax rates consist of the following (in thousands):

 

		Year ended December 31,
		2025								2024
		Amount				Percent				Amount				Percent
U.S. federal statutory tax rate		$	(4,739	)			21.00	%		$	(5,156	)			21.00	%
State and local income taxes, net of federal income tax effect(a)			2				(0.01	)%			3				(0.01	)%
Tax credits
Research and development tax credits			(69	)			0.31	%			(85	)			0.35	%
Change in valuation allowance			4,409				(19.54	)%			4,871				(19.84	)%
Nontaxable or nondeductible items:
Equity compensation			328				(1.45	)%			360				(1.47	)%
Other, net			71				(0.32	)%			10				(0.04	)%
Changes in unrecognized tax benefits			—				—	%			—				—	%
Effective income tax rate			2				(0.01	)%			3				(0.01	)%

 

(a) State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category for the years ended December 31, 2025 and 2024.

 

As discussed in Note 2 - Recent Accounting Pronouncements section he Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, on a retrospective basis effective January 1, 2025. Accordingly, prior period amounts have been recast to conform to the current year presentation. As a result, the Company enhanced its income tax disclosures, including additional disaggregation in the rate reconciliation and expanded information regarding income taxes paid. Differences between the Company’s effective tax rate and the statutory tax rate relate primarily to state income taxes, stock-based compensation, tax credits, and change in valuation allowance. Deferred taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting and the amount used for income tax purposes.

 

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

 

		As of December 31,
		2025				2024
Deferred tax assets
Capitalized start-up costs		$	1,929			$	2,233
Credits			646				577
Fixed assets			1,473				912
Net operating losses			46,451				40,380
Others			845				2,846
Total gross deferred tax assets			51,344				46,948
Valuation allowance			(51,337	)			(46,928	)
Total gross deferred tax assets (net of valuation allowance)		$	7			$	20
Deferred tax liabilities
Patents		$	(7	)		$	(20	)
Other			—				—
Total gross deferred tax liabilities			(7	)			(20	)
Net deferred tax assets		$	—			$	—

 

Income taxes paid (net of refunds) are comprised of the following (in thousands):

 

		Year ended December 31,
		2025				2024
Federal		$	—			$	—
State
California			2				3
Foreign			—				—
Total		$	2			$	3

 

The amount of income taxes paid during the years ended December 31, 2025 and 2024 does not meet the 5% disaggregation threshold.

 

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 will not be realized. Accordingly, management has applied a full valuation allowance against net deferred tax assets at both  December 31, 2025 and December 31, 2024. The net valuation allowance increased by approximately $4.4 million during the year ended  December 31, 2025. The increase in net valuation allowance primarily relates to net operating losses generated during 2025.

 

As of  December 31, 2025, the Company has total net operating loss carryforwards of $219.8 million for federal income tax purposes. Approximately $25.2 million of the federal net operating losses will begin to expire in December 31, 2034, if not utilized. Approximately $194.6 million of the federal net operating losses were generated after December 31, 2017, and thus do not expire.  As of December 31, 2025, the Company has state net operating loss carryforwards of $4.1 million, which will begin to expire in December 31, 2034.

 

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, 2025, the Company had research and development credits carryforward of approximately $0.7 million and $0.5 million for Federal and California income tax purposes, respectively. If not 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, 2025, the Company had no interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes.

 

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, 2025, the Company’s total amount of unrecognized tax benefit was approximately $0.6 million, none of which will affect the effective tax rate, if recognized. The Company does not expect its unrecognized benefits to change materially over the next twelve months.

 

The Company files income tax returns with the United States federal government and the State of California. The Company is no longer subject to U.S. federal and state income tax examinations for tax years prior to 2022.