Company Quick10K Filing
Liqtech International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 21 $196
10-Q 2019-11-14 Quarter: 2019-09-30
10-Q 2019-08-14 Quarter: 2019-06-30
10-Q 2019-05-14 Quarter: 2019-03-31
10-K 2019-04-01 Annual: 2018-12-31
10-Q 2018-11-14 Quarter: 2018-09-30
10-Q 2018-08-14 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-23 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-03-30 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-11 Quarter: 2016-06-30
10-Q 2016-05-12 Quarter: 2016-03-31
10-K 2016-03-23 Annual: 2015-12-31
10-Q 2015-11-12 Quarter: 2015-09-30
10-Q 2015-08-13 Quarter: 2015-06-30
10-Q 2015-05-14 Quarter: 2015-03-31
10-K 2015-03-25 Annual: 2014-12-31
10-Q 2014-11-13 Quarter: 2014-09-30
10-Q 2014-08-12 Quarter: 2014-06-30
10-Q 2014-05-15 Quarter: 2014-03-31
10-K 2014-03-27 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-15 Quarter: 2013-03-31
10-K 2013-03-27 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-15 Quarter: 2012-03-31
10-K 2012-03-29 Annual: 2011-12-31
10-Q 2011-11-15 Quarter: 2011-09-30
10-Q 2011-08-11 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-28 Annual: 2010-12-31
10-Q 2010-11-02 Quarter: 2010-09-30
10-Q 2010-08-06 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-19 Annual: 2009-12-31
8-K 2019-12-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-09-19 Shareholder Vote
8-K 2019-05-22 Enter Agreement, Other Events, Exhibits
8-K 2019-03-28 Earnings, Shareholder Rights, Other Events, Exhibits
8-K 2019-03-11 Officers, Other Events, Exhibits
8-K 2019-01-15 Officers
8-K 2018-12-07 Shareholder Vote
8-K 2018-11-01 Officers, Other Events, Exhibits
8-K 2018-07-30 Officers
8-K 2018-07-23 Accountant, Exhibits
8-K 2018-07-02 Officers, Other Events, Exhibits
8-K 2018-06-07 Other Events, Exhibits
8-K 2018-04-12 Enter Agreement, Other Events, Exhibits
LIQT 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Summary of Significant Accounting Policies
Note 2 - Inventory
Note 3 - Lines of Credit
Note 4 - Leases
Note 5 - Agreements and Commitments
Note 6 - Earnings per Share
Note 7 - Stockholders' Equity
Note 8 - Significant Customers / Concentration / Disaggregated Revenue
Note 9 - Acquisition
Note 10 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_163780.htm
EX-31.2 ex_163781.htm
EX-32.1 ex_163782.htm
EX-32.2 ex_163783.htm

Liqtech International Earnings 2019-09-30

LIQT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
GEOS 214 202 23 96 31 -0 8 195 33% 24.4 -0%
MXWL 209 162 86 79 10 -39 -31 199 13% -6.4 -24%
GHM 191 146 48 83 18 -3 -1 179 22% -133.7 -2%
LIQT 161 36 13 26 6 1 2 149 22% 82.7 2%
LCUT 194 884 636 508 171 -30 20 190 34% 9.6 -3%
TWIN 149 341 168 287 75 2 12 182 26% 15.1 0%
CIX 189 176 17 122 38 15 23 138 31% 6.1 9%
EML 158 279 176 183 44 8 16 246 24% 15.8 3%
ULBI 146 143 36 76 22 4 7 156 29% 24.0 3%
XONE 141 72 23 36 11 -13 -10 136 30% -13.5 -18%

10-Q 1 liqt20190930_10q.htm FORM 10-Q liqt20190930_10q.htm
 

 

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

FORM 10-Q

 

(Mark One) 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________________ to _______________________

 

Commission File Number:001-36210

 

LiqTech International, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 

20-1431677 

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

  

  

Industriparken 22C, DK 2750 Ballerup, Denmark

 

  

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  +4544986000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

LIQT

 

The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ☐   No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ☐   No ☒

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer 

☒ 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, at November 14, 2019, was 20,547,668 shares. 

 

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

For the Period Ended September 30, 2019

 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

4

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and September 30, 2018 (unaudited)

6

 

 

Condensed Consolidated Statement of Stockholder’s Equity for the period Ended September 30, 2019 and September 30, 2018 (unaudited)

8

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and September 30, 2018 (unaudited)

9

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

11

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation

23

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

29

 

 

Item 4. Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

31

 

 

Item 1A. Risk Factors

31

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

Item 3. Defaults Upon Senior Securities

31

 

 

Item 4. Mine Safety Disclosures

31

 

 

Item 5. Other Information

31

 

 

Item 6. Exhibits

32

 

 

SIGNATURES

33

 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” regarding the plans and objectives of management for future operations and market trends and expectations.  Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties, including but not limited to the risks described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018. Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.  Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

  

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

As of

   

As of

 
   

September 30,

   

December 31,

 
   

2019

   

2018

 
   

(Unaudited)

         

Current Assets:

               

Cash

  $ 9,957,472     $ 3,776,111  

Restricted Cash

    1,678,936       -  

Accounts receivable, net

    6,560,857       1,308,122  

Other receivables

    3,697,315       1,098,796  

Contract assets

    641,356       624,275  

Inventories, net

    5,186,234       4,432,055  

Prepaid expenses

    203,024       133,847  
                 

Total Current Assets

    27,925,194       11,373,206  
                 

Long-Term Assets:

               

Property and Equipment, net

    2,783,420       1,431,649  

Operating lease right-of-use asset

    2,200,130       -  

Construction in progress

    2,138,406       -  

Investments at cost

    5,433       5,714  

Other intangible assets

    -       748  

Deposits

    475,769       347,932  

Goodwill

    605,313       -  
                 

Total Long-Term Assets

    8,208,471       1,786,043  
                 

Total Assets

  $ 36,133,665     $ 13,159,249  

  

(Continued)

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Liabilities and Stockholders’ Equity

 

As of

   

As of

 
   

September 30,

   

December 31,

 
   

2019

   

2018

 
   

(Unaudited)

         

Current Liabilities:

               

Current portion of capital lease obligations

  $ -     $ 13,789  

Current maturities of operating lease liabilities

    681,481       -  

Current portion of contingent earn-out

    291,690       -  

Accounts payable

    3,703,850       2,122,479  

Accrued expenses

    3,623,012       1,868,229  

Contract liabilities

    1,165,684       516,335  

Income taxes payable

    31,260       -  

Deferred revenue

    842,254       98,781  
                 

Total Current Liabilities

    10,339,231       4,619,613  
                 

Net deferred income tax liability

    210,393       -  

Contingent earn-out, net of current portion

    583,380       -  

Operating lease liabilities, net of current maturities

    1,561,076       -  
                 

Total Long-term Liabilities

    2,354,849       -  
                 

Total Liabilities

    12,694,080       4,619,613  
                 

Commitment and Contingencies

    -       -  
                 

Stockholders' Equity:

               

Preferred stock; par value $0.001, 2,500,000 shares authorized; no shares issued or outstanding at September 30, 2019 and December 31, 2018 respectively

    -       -  

Common stock; par value $0.001, 25,000,000 shares authorized, 20,547,668 and 18,228,887 (each after the 4-to-1 reverse stock split) shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

    20,548       18,229  

Additional paid-in capital

    61,483,032       46,575,986  

Accumulated deficit

    (31,448,837

)

    (32,286,224 )

Deferred compensation

    (23,332

)

    (23,499 )

Accumulated other comprehensive loss

    (6,591,826

)

    (5,744,856 )
                 

Total Stockholders' Equity

    23,439,585       8,539,636  
                 

Total Liabilities and Stockholders' Equity

  $ 36,133,665     $ 13,159,249  

 

The accompanying notes are an integral part of these condensed financial statements. 

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   

For the Three Months

Ended

   

For the Nine Months

Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net Sales

  $ 9,672,716     $ 3,347,204     $ 26,391,100     $ 9,336,614  

Cost of Goods Sold

    7,444,978       3,058,465       20,613,172       8,447,645  
                                 

Gross Profit

    2,227,738       288,739       5,777,928       888,969  
                                 

Operating Expenses:

                               

Selling expenses

    461,010       414,504       1,458,633       1,288,294  

General and administrative expenses

    1,318,505       663,547       3,057,807       2,008,194  

Research and development expenses

    189,216       152,849       591,572       498,526  
                                 

Total Operating Expense

    1,968,731       1,230,900       5,108,012       3,795,014  
                                 

Income (Loss) from Operations

    259,007       (942,161

)

    669,916       (2,906,045

)

                                 

Other Income (Expense)

                               

Interest and other income

    28,736       1,814       54,186       12,271  

Interest expense

    (35,292

)

    (5,463

)

    (110,442

)

    (65,937

)

Gain (Loss) on currency transactions

    403,432       23,861       244,872       240,947  

Gain (Loss) on sale of fixed assets

    474       -       (21,145

)

    -  
                                 

Total Other Income (Expense)

    397,350       20,212       167,471       187,281  
                                 

Income (Loss) Before Income Taxes

    656,357       (921,949

)

    837,387       (2,718,764

)

                                 

Income Tax Expense (Income)

    -       -       -       -  
                                 

Net Income (Loss)

  $ 656,357     $ (921,949

)

  $ 837,387     $ (2,718,764

)

                                 
                                 

Basic and Diluted Income (Loss) Per Share

  $ 0.03     $ (0.05

)

  $ 0.04     $ (0.18

)

                                 

Basic Weighted Average Common Shares Outstanding

    20,547,667       18,185,137       19,350,533       15,199,809  
                                 

Diluted Weighted Average Common Shares Outstanding

    20,563,540       18,185,137       19,366,545       15,199,809  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME / (LOSS) (UNAUDITED)

 

   

For the Three Months

Ended

   

For the Nine Months

Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net Income (Loss)

    656,357       (921,949

)

    837,387       (2,718,764

)

                                 

Income (Loss), net of taxes:

                               

Currency Translation

    (1,014,265

)

    (63,279

)

    (846,970

)

    (521,839

)

                                 

Total Comprehensive Loss

  $ (357,908

)

  $ (985,228

)

  $ (9,583

)

  $ (3,240,603

)

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

For the period ended September 30, 2019 and September 30, 2018

 

                                                   

Accumulated

         
                                   

Additional

           

Compre-

   

Deferred

 
   

Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

   

hensive

   

Compen-

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Income/(Loss)

   

sation

 
                                                                 

BALANCE, December 31, 2018

    -       -       18,228,887       18,229       46,575,986       (32,286,224

)

    (5,744,856

)

    (23,499

)

                                                                 

Stock based compensation expenses recognized for the period ended March 31, 2019

                                    5,778                       10,166  
                                                                 

Common shares issued at $4.63 per share for services provided and to be provided by the board of directors

                    28,993       29       134,138                       (21,667

)

                                                                 

Exercise of stock options

                    45,000       45       133,155                          
                                                                 

Currency translation, net

                                                    (213,922

)

       
                                                                 

Net Income for the period ended March 31, 2019

                                            34,244                  
                                                                 

BALANCE, March 31, 2019

    -       -       18,302,880       18,303       46,849,057       (32,251,980

)

    (5,958,778

)

    (35,000

)

                                                                 

Stock based compensation expenses recognized for the period ended June 30, 2019

                                    17,333                       5,834  
                                                                 

Exercise of warrants

                    28,887       29       (29

)

                       
                                                                 

Common shares issued for cash at $7.25 per share, net of offering cost of $1,390,262, May 2019

                    2,215,862       2,216       14,672,522                          
                                                                 

Currency translation, net

                                                    381,217          
                                                                 

Net Income for the period ended June 30, 2019

                                            146,786                  
                                                                 

BALANCE, June 30, 2019

    -       -       20,547,668       20,548       61,538,883       (32,105,194

)

    (5,577,561

)

    (29,166

)

                                                                 

Stock based compensation expenses recognized for the period ended September 30, 2019

                                    17,333                       5,834  
                                                                 

Net additional offering cost of $73,184, for capital raise in May 2019

                                    (73,184

)

                       
                                                                 

Currency translation, net

                                                    (1,014,265

)

       
                                                                 

Net Income for the period ended September 30, 2019

                                            656,357                  
                                                                 

BALANCE, September 30, 2019

    -       -       20,547,668       20,548       61,483,032       (31,448,837

)

    (6,591,826

)

    (23,332

)

                                                                 
                                                                 

BALANCE, December 31, 2017

    2,200,837       2,201       11,107,316       11,108       40,491,229       (28,471,696

)

    (5,040,792

)

    (79,933

)

                                                                 

Common shares issued at $4.04 per share for services provided and to be provided by the board of directors

                    14,852       14       59,986                          
                                                                 

Stock based compensation expenses recognized for the period ended March 31, 2018

                                                            18,273  
                                                                 

Currency translation, net

                                                    174,867          
                                                                 

Net Loss for the period ended March 31, 2018

                                            (1,533,287

)

               
                                                                 

BALANCE, March 31, 2018

    2,200,837       2,201       11,122,168       11,123       40,551,214       (30,004,983

)

    (4,865,925

)

    (61,660

)

                                                                 

Common shares issued for cash at $1.36 per share, net of offering cost of $747,423, April 2018

                    4,862,132       4,862       5,860,215                          
                                                                 

Conversion of mandatory preferred stock issued in 2017 into 4 common shares per preferred stock

    (2,200,837

)

    (2,201

)

    2,200,837       2,201                                  
                                                                 

Stock based compensation expenses recognized for the period ended June 30, 2018

                                                            9,161  
                                                                 

Currency translation, net

                                                    (633,427

)

       
                                                                 

Net Loss for the period ended June 30, 2018

                                            (263,526

)

               
                                                                 

BALANCE, June 30, 2018

    -       -       18,185,137       18,185       46,411,430       (30,268,509

)

    (5,499,352

)

    (52,499

)

                                                                 

Stock based compensation expenses recognized for the period ended September 30, 2018

                                                            5,833  
                                                                 

Currency translation, net

                                                    (63,279

)

       
                                                                 

Net Loss for the period ended September 30, 2018

                                            (921,949

)

               
                                                                 

BALANCE, September 30, 2018

    -       -       18,185,137       18,185       46,411,430       (31,190,458

)

    (5,562,631

)

    (46,666

)

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   

For the Nine months ended

 
   

September 30,

 
   

2019

   

2018

 

Cash Flows from Operating Activities:

               

Net Income (Loss)

  $ 837,387     $ (2,718,764

)

Adjustments to reconcile net loss to net cash provided (used) by operations:

               

Depreciation and amortization

    852,705       621,460  

Stock-based compensation

    174,778       93,267  

Changes in assets and liabilities:

               

Accounts receivable

    (4,652,294

)

    (1,369,207

)

Other receivables

    (2,593,412

)

       

Inventory

    (430,776

)

    290,567  

Construction in progress

    (2,138,406

)

    -  

Prepaid expenses and deposits

    (104,928

)

    (47,243

)

Account payable

    1,481,881       (301,016 )

Accrued expenses

    1,769,893       (326,932

)

Operating lease liability

    (347,747

)

    -  

Contract assets and liabilities, net

    632,268       (80,338

)

                 

Total Adjustments

    (5,356,038

)

    (1,119,442

)

                 

Net Cash Used in Operating Activities

    (4,518,651

)

    (3,838,206

)

                 

Cash Flows from Investing Activities:

               

Purchase of property and equipment

    (510,403

)

    (145,984

)

Proceeds from sale/recovery of property and equipment

    23,700       -  

Net cash paid for acquisition

    (1,154,902

)

    -  
                 

Net Cash Used in Investing Activities

    (1,641,605

)

    (145,984

)

                 

Cash Flows from Financing Activities:

               

Net proceeds/payments on capital lease obligation

    (13,789

)

    48,127  

Proceeds from exercise of stock options

    133,200       -  

Proceeds from issuance of common stocks, net

    14,601,554       5,865,077  
                 

Net Cash Provided by Financing Activities

    14,720,965       5,913,204  
                 

Gain (Loss) on Currency Translation

    (700,412

)

    (553,618 )
                 

Net Change in Cash, Cash Equivalents and Restricted Cash

    7,860,297       1,375,396  
                 

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

    3,776,111       2,486,199  
                 

Cash, Cash Equivalents and Restricted Cash at End of Period

  $ 11,636,408     $ 3,861,595  

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   

For the Nine Months

Ended September 30,

 
   

2019

   

2018

 

Supplemental Disclosures of Cash Flow Information:

               

Cash paid during the period for:

               

Interest Paid

  $ 4,909     $ 54,655  

Income Taxes

  $ -     $ -  
                 

Supplemental Disclosures of Non-Cash Investing and Financing:

               

Common stock issued for conversion of mandatory preferred stock

  $ -     $ 8,803  

Offering costs for common stocks issuance

  $ 1,463,446     $ 747,423  

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

   

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business and Basis of Presentation

 

The consolidated financial statements include the accounts of LiqTech International, Inc., the “Company” and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this report refer to the Company and its subsidiaries, which are set forth below. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide liquid and diesel particulate air filters in United States, Canada, Europe, Asia and South America. Set forth below is a description of the Company and each of its subsidiaries:

 

LiqTech International, Inc., a Nevada corporation organized in July 2004, formerly known as Blue Moose Media, Inc.

 

LiqTech USA, a Delaware corporation and a 100% owned subsidiary of the Company formed in May 2011.

 

LiqTech International A/S, a Danish corporation, incorporated on January 15, 2000 (“LiqTech Int. DK”), a 100% owned subsidiary of LiqTech USA, engages in development, design, application, marketing and sales of membranes, ceramic diesel particulate and liquid filters and catalytic converters in Europe, Asia and South America.

 

LiqTech NA, Inc. (“LiqTech NA”), incorporated in Delaware on July 1, 2005, a 100% owned subsidiary of LiqTech USA. LiqTech NA, Inc. engages in the production, marketing and sale of ceramic diesel particulate and liquid filters in the United States and Canada.

 

LiqTech Systems A/S, a Danish Corporation ("LiqTech Systems") was incorporated on September 1, 2009 and engages in the manufacture of fully automated filtering systems for use within marine applications, municipal pool and spa applications, and other industrial applications within Denmark and international markets.

 

BS Plastic A/S, a Danish Corporation ("BS Plastic") was acquired on September 1, 2019 and engages in the manufacture of specialized machined and welded plastic parts within Denmark and international markets.

 

LiqTech Germany (“LiqTech Germany”), a 100% owned subsidiary of LiqTech Int. DK, incorporated in Germany on December 9, 2011, engaged in marketing and sale of liquid filters in Germany. The Company is in the process of closing operations, which is expected to be completed during 2019.

 

LiqTech PTE Ltd (“LiqTech Sing”), a 95% owned subsidiary of LiqTech Int. DK, incorporated in Singapore on January 19, 2012, engaged in marketing and sale of liquid filters in Singapore and other countries in the area. The Company is in the process of closing operations, which is expected to be completed during 2019.

 

Consolidation -- The consolidated financial statements include the accounts and operations of the Company. All material intercompany transactions and accounts have been eliminated in the consolidation.

 

Functional Currency / Foreign currency translation -- The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The Functional Currency of LiqTech Int. DK, LiqTech Systems and BS Plastic is the Danish Krone (“DKK”), the functional currency of LiqTech Germany is the Euro and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The foreign subsidiaries balance sheet accounts are translated into U.S. Dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the nine months ended September 30, 2019 and 2018. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

 

Cash, Cash Equivalents and Restricted Cash -- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of September 30, 2019 and 2018, the Company holds $1,678,936 and $0, respectively, of restricted cash. The restricted cash is payment guarantees issued for the benefit of customers in connection with prepayments of sales orders. The restricted cash is held in a local financial institution and will be released as order deliveries is made and accepted by the customer. The Company had no balances held in a financial institution in the United States in excess of federally insured amounts at September 30, 2019 and December 31, 2018. 

 

 

Accounts Receivable -- Accounts Receivables consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts that reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. 

 

The roll forward of the allowance for doubtful accounts for the nine months ended September 30, 2019 and the year ended December 31, 2018 is as follows:

 

   

September 30,

2019

   

December 31,

2018

 

Allowance for doubtful accounts at the beginning of the period

  $ 971,772     $ 660,581  

Addition from acquisition

    21,895       -  

Bad debt expense

    3,763       353,562  

Receivables written off during the periods

    (3,494

)

    -  

Effect of currency translation

    (48,057

)

    (42,371

)

Allowance for doubtful accounts at the end of the period

  $ 945,879     $ 971,772  

  

Inventory -- Inventory is carried at the lower of cost or market, as determined on the first-in, first-out method.

 

Leases -- The Company leases certain vehicles, real property and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The assets and liabilities under finance leases are recorded at the lower of the present value of future minimum lease payments or the fair market value of the related assets. Assets under finance leases are amortized using the straight-line method over the initial lease term. Amortization of assets under finance leases is included in depreciation expense.

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Subsequent ASUs were issued to provide additional guidance.

 

On January 1, 2019, the Company adopted Topic 842 using the optional transition method of adoption, under which the new standards were applied prospectively rather than restating the prior periods presented. The Company elected the package of practical expedients permitted, which, among other things, allowed the Company to carryforward the historical lease classification. The Company made the accounting policy elections to not recognize lease assets and lease liabilities with an initial term of 12 months or less and to not separate lease and non-lease components. The Company’s accounting for finance leases (formerly called capital lease obligations) remains substantially unchanged. Operating lease right-of-use (“ROU”) assets and liabilities were recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date was used in determining the present value. The Company will use the implicit rate when readily determinable. The operating lease ROU asset also included prepaid lease payments and was reduced by accrued lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Operating lease cost for lease payments will be recognized on a straight-line basis over the lease term. The impact of adoption on the Company’s consolidated balance sheet was the recognition of a ROU asset of $2.1 million and an operating lease liability of $2.1 million primarily for office space leases. The Company’s adoption of Topic 842 did not materially impact its results of operation.

 

Property and Equipment -- Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years.

 

Long-Term Investments -- Investments in non-consolidated companies are included in long-term investments in the consolidated balance sheet and are accounted for under the cost method and equity method. For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts based on information requested from these privately held companies. Generally, this information may be more limited, may not be as timely as and may be less accurate than information available from publicly traded companies. Assessing each investment's carrying value requires significant judgment by management. If it is determined that there is another than temporary decline in the fair value of a non-public equity security, we write down the investment to its fair value and record the related write down as an investment loss in the consolidated statement of operations.

 

 

Intangible Assets -- Definite life intangible assets include patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting Standards Board, (“FASB”) Accounting Standards Codification, (“ASC”) Topic 350, “Goodwill and Other Intangible Assets” and amortized the patents on a straight-line basis over the estimated useful life of two to ten years. 

 

Revenue Recognition and Sales Incentives 

 

Accounting policy: On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified retrospective method as of January 1, 2018. The new revenue standard did not have a material impact on revenue recognition.

 

For membrane and DPF product sales, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied, which occurs when control of the membrane, DPF or services are transferred to the customer. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer.  Revenue for service contracts are recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right for payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a customer deposit liability. Given the insignificant days between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.

 

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.

 

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer upon shipment of the system based on the terms of the contract. For the majority of systems, the Company transfers control and recognizes revenue when products are shipped to the customer according to the terms of the contract or purchase order. In connection with the system it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from the production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer) and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time of provision of the commissioning services together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning and at transfer of the control of the system (i.e. the first performance obligation), some of the invoicing will still be awaiting commissioning and is therefore recognized as Other Receivables, while the revenue related to the commissioning is recognized as Deferred Income.

 

Aftermarket sales represent parts, extended warranty and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer or services are provided. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract. For invoicing to customers where the transfer of control has not occurred (prepayments), the invoiced amount is recognized as Contract assets / Contract liabilities.

    

 

The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheets as Contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheets as Contract liabilities.

 

In Denmark, Value Added Tax (“VAT”) of 25% of the invoice amount is collected with respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the authorities. 

 

The Company’s disaggregated revenue is reported in Note 8.

 

Advertising Cost -- Costs incurred in connection with advertising of the Company’s products is expensed as incurred. Such costs amounted to $8,280 and $21,693 for the three months and $80,630 and $25,018 for the nine months ended September 30, 2019 and 2018, respectively.

 

Research and Development Cost -- The Company expenses research and development costs for the development of new products as incurred. Included in operating expense was $189,216 and $152,849 for the three months, and $591,572 and $498,526, for the nine months ended September 30, 2019 and 2018 respectively, of research and development costs.

 

Income Taxes -- The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes. This statement requires an asset and liability approach for accounting for income taxes.

  

Income (Loss) Per Share -- The Company calculates earnings (loss) per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares included in the diluted earnings per share calculation include in-the-money stock options and warrants that have been granted but have not been exercised.

 

Stock Options and Awards -- The Company has granted stock options to certain key employees during the years presented in the accompanying consolidated financial statements (see Note 7). The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Non-cash compensation costs of $23,167 and $5,833 have been recognized for the vesting of options and stock awards granted to employees for the three months, and $174,778 and $93,267 for the nine months ended September 30, 2019 and 2018, respectively.

 

Fair Value of Financial Instruments -- The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic 820. The authoritative guidance that, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

 

Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

   

 

Level 2. Inputs other than the quoted prices in active markets that are observable either directly or indirectly; and

 

 

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their short-term maturities.

  

 

Accounting Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets including accounts receivable, allowance for doubtful accounts; contract assets; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill; liabilities including contract liabilities and contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

 

Recent Accounting Pronouncements – In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation – Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees except for certain circumstances. Any transition impact will be a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company adopted this guidance in the first quarter of 2019, and it did not have a material impact on its consolidated financial statements.

 

In August 2018, the Financial Accounting Standards board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 (“ASU 2018-15”), Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.  ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The updated guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement by removing, modifying and adding certain disclosures. This ASU is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The Company is currently evaluating the new guidance to determine the impact it will have on the Company’s consolidated financial statements.

 

In August 2018, the SEC adopted amendments to simplify certain disclosure requirements, as set forth in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which includes a requirement for entities to present the changes in shareholders’ equity in the interim financial statements in quarterly reports on Form 10-Q. This amendment is effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendment and proximity to the filing date for most filers’ quarterly reports, the SEC has allowed for a filer’s first presentation of the changes in shareholders’ equity to be included in its Form 10-Q for the quarter that begins after the effective date. The Company adopted the SEC’s amendment to interim disclosures in the first quarter of 2019 and has presented the changes in shareholders’ equity on an interim basis.

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets of approximately $2.1 million and lease liabilities of approximately $2.1 million for all of our lease agreements with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on our consolidated statements of operations. See Note 4 for the required disclosures relating to our lease agreements.

 

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Restricted Cash that requires companies, in the Statement of Cash Flows, to explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Consequently, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. For the period ended September 30, 2019 the Company has recorded $1,678,936 as Restricted cash and $9,957,472 as Unrestricted cash and a total of $11,636,408 as Cash, Cash equivalents and Restricted cash. For the period ended December 31, 2018 the amounts were $0 in Restricted cash and $3,776,111 in Unrestricted cash.

 

Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements. 

 

 

 

 

NOTE 2 - INVENTORY

 

Inventory consisted of the following at September 30, 2019 and December 31, 2018:

 

   

2019

   

2018

 

Furnace parts and supplies

  $ 611,911     $ 596,806  

Raw materials

    2,101,188       1,659,826  

Work in process

    1,644,988       1,691,175  

Finished goods and filtration systems

    1,608,185       1,596,042  

Reserve for obsolescence

    (780,038

)

    (1,111,794

)

Net Inventory

  $ 5,186,234     $ 4,432,055  

  

 

 

NOTE 3 - LINES OF CREDIT

 

In connection with certain orders, we have to provide the customer with a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guaranteed credit line of DKK 94,620 (approximately $13,800 at September 30, 2019) with a bank, subject to certain base limitations. As of September 30, 2018, we had DKK 94,620 (approximately $14,690) in working guarantee against the credit line. The credit line is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by a restricted account at the bank of LiqTech Systems.

 

 

 

NOTE 4 - LEASES

 

The Company leases certain vehicles, real property and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable operating leases for production and office space in Copenhagen and White Bear Lake, Minnesota.

 

On January 1, 2019, the Company adopted Topic 842 requiring organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Company elected to use the transition method of adoption, under which the new standards were applied prospectively rather than restating the prior periods presented. As a result of the modified retrospective transition method of adoption, certain accounts lack a comparable value for the same period of 2018, specifically accounts and values associated with operating leases and ROU assets.

 

 

Supplemental balance sheet information related to leases as of September 30, 2019 and 2018 was as follows:

 

   

September 30,

2019

   

December 31,

2018

 

Operating leases:

               

Operating lease right-of-use

  $ 2,200,130     $ -  
                 

Operating lease liabilities – current

  $ 681,481     $ -  

Operating lease liabilities – long-term

    1,561,076       -  

Total operating lease liabilities

  $ 2,242,557     $ -  
                 

Finance leases:

               

Property and equipment, at cost

  $ 1,115,891     $ 1,171,295  

Accumulated depreciation

    (1,115,891

)

    (1,162,256

)

Property and equipment, net

  $ -     $ 9,039  
                 

Finance lease liabilities – current

  $ -     $ 13,789  

Finance lease liabilities – long-term

    -       -  

Total finance lease liabilities

  $ -     $ 13,789  
                 

Weighted average remaining lease term:

               

Operating leases

    4.3       -  

Finance lease

    -       0.8  
                 

Weighted average discount rate:

               

Operating leases

    6.9

%

    -  

Finance leases

    -

%

    7.3

%

 

Maturities of lease liabilities at September 30, 2019 were as follows:

 

   

Operating

lease

   

Finance lease

 

October 2019 – September 2020

  $ 711,058     $ -  

October 2020 – September 2021

    574,753       -  

October 2021 – September 2022

    468,283       -  

October 2022 – September 2023

    433,132       -  

October 2023 – September 2024

    357,179       -  

Thereafter

    -       -  

Total payment under lease agreements

    2,544,405       -  

Less imputed interest

    (301,848

)

    -  

Total lease liability

  $ 2,242,557     $ -  

 

As previously disclosed in our 2018 Form 10-K under the prior guidance of ASC 842, minimum payments under operating lease agreements as of December 31, 2018 were as follows:

 

Year ending December 31,

 

Operating

lease

 

2019

  $ 712,250  

2020

    578,997  

2021

    402,584  

2022

    350,249  

Thereafter

    560,977  

Total

  $ 2,605,057  

 

 

 

 

NOTE 5 - AGREEMENTS AND COMMITMENTS

 

401(K) Profit Sharing Plan -- LiqTech NA has a 401(k)-profit sharing plan and trust covering certain eligible employees. The amount LiqTech NA contributes is discretionary. For the three months ended September 30, 2019 and 2018, matching contributions were expensed and totaled $3,007 and $2,569, respectively. For the nine months ended September 30, 2019 and 2018, the expense was $8,684 and $8,275, respectively.

 

Contingencies -- From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

 

On November 20, 2018 a former supplier to Liqtech International A/S contacted the Company with a claim of DKK448,500 ($68,800) alleging that a former Agreement from 2016 had not been respected. The Company has contested the claim due to lack of evidence to support the claim. No provision has been made at September 30, 2019 as the Company does not expect the claim to materialize in any payments to the former supplier.

 

On February 27, 2019, LiqTech Systems A/S was contacted by a former supplier alleging that the Company owed DKK543,905 ($83,400) for services rendered in 2017. The claimant has previously filed a lawsuit to claim payment for the services, which was denied by the Company due to severe errors in the services supplied, and the claim was rejected by a court of law in 2018. Due to the nature of the new claim and the previous ruling from the court of law, no provision has been made at September 30, 2019.

 

In connection with certain orders, we have to provide the customer with a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guaranteed line of DKK 94,620 (approximately $13,800 at September 30, 2019) with a bank, subject to certain base limitations. As of September 30, 2018, we had DKK 94,620 (approximately $14,690) in working guarantees against the credit line. 

  

Product Warranties - The Company provides a standard warranty on its systems, generally for a period of one to three years after customer acceptance. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

 

In addition, the Company sells an extended warranty for certain systems, which generally provides a warranty for up to four years from the date of commissioning. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which the Company does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.

 

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim. The Company has assessed the adequacy of the recorded warranty liability at the end of the 3rd quarter 2019 based on realized warranty expenses for the 4 years passed since the start-up of delivery of water treatment systems. Based on the assessment, the Company has decided to reduce the warranty accrual from 7% to 3% of the sales value for delivered products since January 1, 2019 and going forward.

 

Changes in the Company's current and long-term warranty obligations, including deferred revenue on extended warranty contracts included in accrued expenses on the balance sheet, are as follows:

 

   

2019

 

Balance at December 31, 2018

  $ 432,225  

Current year warranty expense

    621,142  

Change in estimate related to pre-existing warranties

    -  

Payments made

    (307,596

)

Foreign currency effect

    (31,001

)

Balance at September 30, 2019

  $ 714,770  

 

Purchase obligation - The Company has a purchase obligation to the supplier of the new furnaces to the production facility in Ballerup for which the Company has not received the related goods. The total obligation amounts to $3.8 million as per September 30, 2019 of which the Company has prepaid $1.6 million as installments. The Company has no right to cancel the order.

 

 

 

 

NOTE 6 - EARNINGS PER SHARE

 

The following data shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potential dilutive common stock for the nine months ended September 30, 2019 and 2018:

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net Income (Loss) attributable to LiqTech International, Inc.

  $ 656,357     $ (921,949

)

  $ 837,387     $ (2,718,764

)

Weighted average number of common shares used in basic earnings per share

    20,547,667       18,185,137       19,350,533       15,199,809  

Effect of dilutive securities, stock options and warrants

    15,873       -       16,012       -  

Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share

    20,563,540       18,185,137       19,366,545       15,199,809  

 

For the nine months ended September 30, 2019, the Company had 25,000 options outstanding to purchase common stock at $2.96 per share.

 

For the nine months ended September 30, 2018, the Company had 113,750 options outstanding to purchase common stock at $2.96 per share and 100,000 warrants outstanding to purchase common stock at $6.60 per share, which were not included in the loss per share computation because their effect would be anti-dilutive.

 

 

 

NOTE 7 - STOCKHOLDERS' EQUITY

 

Common Stock -- The Company has 25,000,000 authorized shares of common stock, $0.001 par value. As of September 30, 2019, and December 31, 2018, respectively, there were 20,547,668 (after the 4-to-1 reverse stock split effective on April 8, 2019) and 18,228,887 common shares issued and outstanding.      

 

Voting -- Holders of the common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors. 

 

Dividends -- Subject to the rights and preferences of the holders of any series of preferred stock, if any, which may at the time be outstanding, holders of the common stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.  

 

Liquidation Rights -- In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of the common stock will be entitled to share ratably in the distribution of any of our remaining assets.  

 

Other Matters -- Holders of the common stock have no conversion, preemptive or other subscription rights, and there are no redemption rights or sinking fund provisions with respect to our common stock. All of the issued and outstanding shares of common stock on the date of this report are validly issued, fully paid and non-assessable.

 

Preferred Stock -- Our Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, the qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

 

The Company has 2,500,000 authorized shares of preferred stock, $0.001 par value. As of September 30, 2019 and December 31, 2018, there were 0 mandatory convertible preferred shares issued and outstanding. 

 

 

Stock Issuances 

 

Since January 1, 2019, the Company has made the following issuances of common stock (adjusted to account for the 4-to-1 reverse stock-split on April 8, 2019): 

 

On March 5, 2019, the Company issued an additional 24,827 shares of restricted stock valued at $112,500 for services provided by the Board of Directors. The shares vested immediately.

 

On January 24, January 28, February 6 and March 1, 2019, the Company issued a total of 45,000 shares in connection with employees exercising stock options granted under the 2015 Stock Options Plan (the "Plan"). The shares were issued at a share price of $2.96 and generated net proceeds of $133,200.

 

On May 22, 2019, the Company completed a registered public offering of its common stock. At closing, the Company issued 2,215,862 shares of common stock at a per share price of $7.25 and generated net proceeds of $14,599,338 including cost of $1,463,446 for underwriter’s fee, lawyer’s fee, auditor’s fee and other cost related to the capital raise.

 

On June 6, 2019 the Company issued an additional 28,887 shares in connection with a cashless exercise of warrants issued in 2014.

 

For the nine months ended September 30, 2019 and 2018, the Company has recorded non-cash compensation expense of $62,278 and $33,267 relating to stock awards, respectively.   

 

Stock Options 

 

In August 2015, the Company’s Board of Directors adopted the Option Plan. Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, officers, and directors of the Company. At September 30, 2019, 25,000 options were granted and outstanding under the Plan. 

 

The Company recognizes compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model.

 

The Company recognized stock-based compensation expense related to the options of $0 and $33,267 for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, the Company had $0 of unrecognized compensation cost related to non-vested options.

 

A summary of the status of the options outstanding under the Company’s stock option plan at September 30, 2019 is presented below: 

 

       

Options Outstanding

   

Options Exercisable

 

Exercise
Prices

   

Number
Outstanding

   

Weighted
Average
Remaining
Contractual Life

(years)

   

Weighted
Average
Exercise
Price

   

Number
Exercisable

   

Weighted
Average
Exercise
Price

 
$ 2.96       25,000       0.87     $ 2.96       25,000     $ 2.96  

Total

      25,000       0.87     $ 2.96       25,000     $ 2.96  

 

 

A summary of the status of the options at September 30, 2019, and changes during the period is presented below:

 

   

Shares

   

Weighted
Average
Exercise
Price

   

Average
Remaining
Life

   

Weighted
Average
Intrinsic
Value

 
                                 

Outstanding at beginning of period

    70,000     $ 2.96       1.62     $ -  

Granted

    -       -       -       -  

Exercised

    (45,000

)

    -       -       -  

Forfeited

    -       -       -       -  

Expired

    -       -       -       -  

Outstanding at end of period

    25,000     $ 2.96       0.87     $ -  

Vested and expected to vest

    25,000     $ 2.96       0.87     $ -  

Exercisable end of period

    25,000     $ 2.96       0.87     $ -  

 

 

 

NOTE 8 - SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATED REVENUE

 

The following table presents customers accounting for 10% or more of the Company’s net sales

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Customer A

    34 %     *       31 %     *  

Customer B

    *       *       20 %     *  

Customer C

    28 %     *       17 %     *  

* Zero or less than 10%

 

The following table presents customers accounting for 10% or more of the Company’s account receivables

 

   

September 30,

2019

   

December 31,

2018

 

Customer A

    49 %     58 %

Customer C

    16 %     *  

 

The Company sells products throughout the world; disaggregated revenue by geographical region is as follows for the three and nine months ended September 30, 2019 and 2018: 

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

United States and Canada

  $ 701,194     $ 273,806     $ 1,389,423     $ 643,556  

Australia

    139,451       181,174       354,965       463,967  

South America

    -       22,775       -       50,452  

Asia

    2,962,521       154,715       5,135,327       1,083,332  

Europe

    5,869,550       2,714,734       19,511,385       7,095,307  
    $ 9,672,716     $ 3,347,204     $ 26,391,100     $ 9,336,614  

 

The Company’s disaggregated revenue by product line is as follows for the three and nine months ended September 30, 2019 and 2018: 

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Ceramic diesel particulate

  $ 1,330,337     $ 1,841,136     $ 4,320,839     $ 5,085,203  

Liquid filters and systems

    7,920,745       1,426,107       21,414,214       3,878,355  

Development projects

    137,148       79,961       371,561       373,056  

Plastic products

    284,486       -       284,486       -  
    $ 9,672,716     $ 3,347,204     $ 26,391,100     $ 9,336,614  

 

As of September 30, 2019, approximately 90% of the Company’s assets were located in Denmark and 10% in the United States. As of September 30, 2018, approximately 91% of the Company’s assets were located in Denmark and 9% in the United States.

 

 

 

 

NOTE 9 - ACQUISITION

 

On September 4, 2019 our wholly owned subsidiary LiqTech International acquired the outstanding equity of BS Plastic, a specialized plastic manufacturer based in Denmark. The acquisition allows LiqTech to in-source certain components of its proprietary ceramic silicon carbide water filtration systems for closed loop marine scrubber applications.

 

The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase accounting process has not been completed primarily because the valuation of acquired assets has not been finalized. We expect to complete the purchase accounting as soon as practicable but no later than one year from the acquisition date. We do not believe there will be material adjustments. The initial purchase price of $1,332,090 was funded through existing cash. The prior equity holder of BS Plastic may also receive an additional $888,060 if certain targets are met on an annual basis over the next 3 years. This contingent earn-out is accrued as long-term and short-term liability in the balance sheet. Based on the estimated fair value at the time of purchase, the Company recorded an estimate of intangible assets in the amount of $614,300 which may include goodwill once the final valuation analysis is completed.

 

The purchase price calculation is as follows:

 

Cash

  $ 1,332,090  

Liabilities short-term

    296,020  

Liabilities long-term

    592,040  

Total

  $ 2,220,150  

 

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of purchase:

 

Cash and bank balances

  $ 177,188  

Account receivables

    600,441  

Inventory

    323,403  

Other receivables / deferred expenses

    59,235  

Deposits

    53,304  

Property and Equipment

    1,397,421  

Account payables

    (99,490

)

Other debt and accrued expenses

    (660,990

)

Accrued income tax

    (31,146

)

Deferred tax liability

    (213,516

)

      1,605,850  

Goodwill

    614,300  
    $ 2,220,150  

 

Transaction and other costs directly related to the acquisition of BS Plastic A/S, consisting primarily of professional fees, have amounted to approximately $29,500 and were expensed as incurred and are included in general and administrative expenses.

 

 

 

NOTE 10 - SUBSEQUENT EVENTS

 

The Company’s management reviewed material events through November 14, 2019 and there were no subsequent events to report.

 

 

 

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. In addition, the following discussion should be read in conjunction with our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on April 1, 2019, and the financial statements and notes thereto. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Overview

 

We are a clean technology company that provides state-of-the-art technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters. For more than a decade, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in two business areas: ceramic membranes for liquid filtration and diesel particulate filters (“DPF“) for the control of soot exhaust particles from diesel engines. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies. We market our products from our offices in the United States and Denmark, and through local representatives. The products are shipped directly to customers from our production facilities in the United States and Denmark.

 

The terms “LiqTech”, “we”, “our”, “us”, the “Company” or any derivative thereof, as used herein refer to LiqTech International, Inc., a Nevada corporation, together with its direct and indirect wholly owned subsidiaries, including LiqTech USA, Inc., a Delaware corporation (“LiqTech USA”), which owns all of the outstanding equity interest in and LiqTech NA, Inc., a Delaware corporation (“LiqTech NA”) and LiqTech International A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Int. DK”), together with its direct wholly owned subsidiaries LiqTech Systems A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Systems”) and BS Plastic A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“BS Plastic”). Collectively, LiqTech USA, LiqTech Int. DK, LiqTech Systems, BS Plastic and LiqTech NA are referred to herein as our “Subsidiaries”.  

 

We conduct operations in the Kingdom of Denmark and the United States. Our Danish DPF and membrane manufacturing operations are located in the Copenhagen area, LiqTech Systems’ assembly and testing operations are located in Hobro in Jutland, Denmark and the plastic manufacturing plant of BS Plastic are located in Aarhus in Jutland, Denmark. Our U.S. operations are conducted by LiqTech NA located in White Bear Lake, Minnesota.

 

Our Strategy

                                                                                                                                                                                     

Our strategy is to create stockholder value by leveraging our competitive strengths in silicon carbide filters and membranes by focusing on discrete applications in key end markets. Essential features of our strategy include:

 

 

Continue to maintain and gain new marine industry customers.  We currently provide water filtration systems for scrubber technology providers, ship owners and ship operators.

 

 

 

 

Enter new geographic markets and expand existing markets. We plan to continue to manufacture and sell our products from our core operations in Denmark and the United States. We work with distributors, agents and partners to access other important geographic markets.

 

 

 

 

Continue to strengthen our position in the DPF market. We believe that we have a strong position in the retrofit market for diesel particulate filter (DPF) systems. We intend to continue our efforts to maintain our market position in this area. Furthermore, we intend to leverage our experience in the OEM market by expanding our presence with new products relating to diesel particulate filter systems.

 

 

 

 

Continue to develop and improve technologies and open new end markets. We intend to continue to develop our ceramic membranes and improve the filtration efficiency for our filtration products. Through continuous research and development, we intend to find new uses for our products and plan to expand into new markets that offer significant opportunity for the Company.

 

 

 

 

Continue our focus on the development and sales of standardized systems. We will continue our focus on selling systems based on our unique SiC Filters. We will also combine the ceramic membranes with other technologies to be able to offer our customers complete filtration solutions. We will continue our focus on developing smaller standard systems, like our ground water treatment system and our residential swimming pool system.

 

 

Developments

 

Results of Operations

 

The financial information below is derived from our unaudited condensed consolidated financial statements included elsewhere in this report. 

 

The following tables set forth our revenues, expenses and net income for the three and nine months ended September 30, 2019 and 2018:

 

   

Three Months Ended September 30,

 
                                   

Period to Period Change

 
   

2019

   

As a %

of Sales

   

2018

   

As a %

of Sales

   

US$

   

Percent

%

 

Net Sales

    9,672,716       100.0

%

    3,347,204       100.0

%

    6,325,512       189.0

%

Cost of Goods Sold

    7,444,978       77.0       3,058,465       91.4       4,386,513       143.4  

Gross Profit

    2,227,738       23.0       288,739       8.6       1,938,999       671.5  
                                                 

Operating Expenses

                                               

Selling expenses

    461,010       4.8       414,504       12.4       46,506       11.2  

General and administrative expenses

    1,318,505       13.6       663,547       19.8       654,958       98.7  

Research and development expenses

    189,216       2.0       152,849       4.6       36,367       23.8  

Total Operating Expenses

    1,968,731       20.4       1,230,900       36.8       737,831       59.9  
                                                 

Profit (Loss) from Operation

    259,007       2.7       (942,161

)

    (28.1

)

    1,201,168       (127.5

)

                                                 

Other Income (Expense)

                                               

Interest and other income

    28,736       0.3       1,814       0.1       26,922       1,484.1  

Interest (expense)

    (35,292

)

    (0.4

)

    (5,463

)

    (0.2

)

    (29,829

)

    546.0  

Gain (loss) on currency transactions

    403,432       4.2       23,861       0.7       379,571       1,590.8  

Gain (loss) on sale of fixed assets

    474       0.0       -       -       474       -  

Total Other Income (Expense)

    397,350       4.1       20,212       0.6       377,138       1,865.9  
                                                 

Profit (loss) Before Income Taxes

    656,357       6.8       (921,949

)

    (27.5

)

    1,578,306       (171.2

)

Income Taxes Expense (Income)

    -       -       -