Company Quick10K Filing
Liqtech International
Price7.81 EPS0
Shares21 P/E192
MCap161 P/FCF-36
Net Debt-12 EBIT1
TEV149 TEV/EBIT157
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-10
S-1 2020-06-22 Public Filing
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-14
10-K 2018-12-31 Filed 2019-04-01
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-03-23
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-30
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-23
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-13
10-Q 2015-03-31 Filed 2015-05-14
10-K 2014-12-31 Filed 2015-03-25
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-12
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-27
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-27
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-29
10-Q 2011-09-30 Filed 2011-11-15
10-Q 2011-06-30 Filed 2011-08-11
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-28
10-Q 2010-09-30 Filed 2010-11-02
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-19
8-K 2020-08-26 Other Events
8-K 2020-05-27
8-K 2019-12-01
8-K 2019-09-19
8-K 2019-05-22
8-K 2019-03-28
8-K 2019-03-11
8-K 2019-01-15
8-K 2018-12-07
8-K 2018-11-01
8-K 2018-07-30
8-K 2018-07-23
8-K 2018-07-02
8-K 2018-06-07
8-K 2018-04-12

LIQT 10Q Quarterly Report

Item 1. Financial Statements
Note 1 - Summary of Significant Accounting Policies
Note 2 - Inventory
Note 5  - Agreements and Commitments
Note 6  -  Earnings per Share
Note 7  - Stockholders' Equity
Note 8  -  Significant Customers / Concentration / Disaggregated Revenue
Note 9  -  Subsequent Events
EX-31.1 ex_196996.htm
EX-31.2 ex_196997.htm
EX-32.1 ex_196998.htm
EX-32.2 ex_196999.htm

Liqtech International Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
40322416802012201420172020
Assets, Equity
10.05.00.0-5.0-10.0-15.02012201420172020
Rev, G Profit, Net Income
1511730-42012201420172020
Ops, Inv, Fin

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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 six months period ended June 30, 2020

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 BallerupDenmark

 

  

(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 August 10, 2020, was 21,652,313 shares. 

 

 
 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

For the Period Ended June 30, 2020

 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

4

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (unaudited)

6

 

 

Condensed Consolidated Statement of Stockholder’s Equity for the period ended June 30, 2020 and June 30, 2019 (unaudited)

8

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and June 30, 2019 (unaudited)

9

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

11

 

 

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

25

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

 

 

Item 4. Controls and Procedures

32

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

33

 

 

Item 1A. Risk Factors

33

 

 

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

33

 

 

Item 3. Defaults Upon Senior Securities

33

 

 

Item 4. Mine Safety Disclosures

33

 

 

Item 5. Other Information

33

 

 

Item 6. Exhibits

34

 

 

SIGNATURES

35

 

 

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, 2019. 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. This is especially underlined by the anticipated impacts from the COVID-19 pandemic on the Company, including the related effects to our business operations, results of operations, cash flows, and financial position, and our future responses to the COVID-19 pandemic. 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

 
  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(Unaudited)

     
Assets        
         

Current Assets:

        

Cash, cash equivalents and restricted cash

 $16,230,269  $9,783,932 

Accounts receivable, net of allowance for doubtful accounts of $147,250 and $612,434 at June 30, 2020 and December 31, 2019, respectively

  4,452,526   6,272,760 

Inventories, net of allowance for excess and obsolete inventory of $666,878 and $665,308 at June 30, 2020 and December 31, 2019, respectively

  5,356,614   5,199,238 

Contract assets

  4,523,130   5,664,929 

Prepaid expenses and other current assets

  753,229   566,398 
         

Total Current Assets

  31,315,768   27,487,257 
         

Long-Term Assets:

        

Property and Equipment, net

  6,407,932   4,825,952 

Operating lease right-of-use assets

  4,776,456   5,053,614 

Deposits and other assets

  499,470   498,053 

Intangible assets, net

  462,716   488,716 

Goodwill

  236,862   236,131 
         

Total Long-Term Assets

  12,383,436   11,102,466 
         

Total Assets

 $43,699,204  $38,589,723 

 

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

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

As of

  

As of

 
  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(Unaudited)

     
Liabilities and Stockholders’ Equity        
         

Current Liabilities:

        

Accounts payable

 $2,073,842  $4,339,070 

Accrued expenses

  5,209,103   3,222,951 

Current portion of finance lease obligations

  35,589   34,772 

Current portion of operating lease liabilities

  957,971   999,685 

Current portion of contingent earn-out

  300,512   299,585 

Contract liabilities

  1,323,245   1,421,376 

Income taxes payable

  14,736   14,692 
         

Total Current Liabilities

  9,914,998   10,332,131 
         

Deferred tax liability

  308,714   338,763 

Warrant liability

  2,811,900   - 

Finance lease obligations, net of current portion

  154,832   172,273 

Operating lease liabilities, net of current portion

  3,951,093   4,141,855 

Contingent earn-out, net of current portion

  601,025   599,170 
         

Total Long-term Liabilities

  7,827,564   5,252,061 
         

Total Liabilities

  17,742,562   15,584,192 
         
         

Stockholders' Equity:

        

Series A Mandatory Convertible Preferred stock; par value $0.001, 2,500,000 shares authorized, 0 shares issued and outstanding at June 30, 2020 and December 31, 2019

  -   - 

Common stock; par value $0.001, 25,000,000 shares authorized, 21,649,213 and 20,547,668 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

  21,649   20,548 

Additional paid-in capital

  66,364,654   61,398,150 

Accumulated deficit

  (34,506,920

)

  (32,246,608

)

Accumulated other comprehensive loss

  (5,922,741

)

  (6,166,559

)

         

Total Stockholders' Equity

  25,956,642   23,005,531 
         

Total Liabilities and Stockholders' Equity

 $43,699,204  $38,589,723 

 

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

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Revenue

  $ 4,641,483     $ 9,297,186     $ 14,923,327     $ 16,718,384  

Cost of Goods Sold

    4,147,020       7,222,076       11,789,788       13,168,194  
                                 

Gross Profit

    494,463       2,075,110       3,133,539       3,550,190  
                                 

Operating Expenses:

                               

Selling expenses

    605,947       514,037       1,282,747       997,623  

General and administrative expenses

    1,509,772       1,001,179       3,059,530       1,808,427  

Research and development expenses

    316,559       199,184       627,513       402,356  
                                 

Total Operating Expense

    2,432,278       1,714,400       4,969,790       3,208,406  
                                 

Income (Loss) from Operations

    (1,937,815

)

    360,710       (1,836,251

)

    341,784  
                                 

Other Income (Expense)

                               

Interest and other income

    247       18,173       4,737       25,450  

Interest expense

    (36,047

)

    (3,760

)

    (61,538

)

    (6,025

)

Fair value adjustment of warrants

    (236,900

)

    -       (236,900

)

    -  

Gain (Loss) on currency transactions

    (368,561

)

    (206,718

)

    (160,934

)

    (158,560

)

Gain (Loss) on sale of fixed assets

    -       (21,619

)

    -       (21,619

)

                                 

Total Other Income (Expense)

    (641,261

)

    (213,924

)

    (454,635

)

    (160,754

)

                                 

Income (Loss) Before Income Taxes

    (2,579,076

)

    146,786       (2,290,886

)

    181,030  
                                 

Income Tax Provision (Benefit)

    (15,265

)

    -       (30,574

)

    -  
                                 

Net Income (Loss)

  $ (2,563,811

)

  $ 146,786     $ (2,260,312

)

  $ 181,030  
                                 
                                 

Basic Income (Loss) Per Share

  $ (0.12

)

  $ 0.01     $ (0.11

)

  $ 0.01  
                                 

Diluted Income (Loss) Per Share

  $ (0.12

)

  $ 0.01     $ (0.11

)

  $ 0.01  
                                 

Basic Weighted Average Common Shares Outstanding

    20,963,186       19,211,771       20,758,855       18,742,029  
                                 

Diluted Weighted Average Common Shares Outstanding

    20,963,186       19,228,160       20,758,855       18,758,108  

 

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 Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Net Income (Loss)

    (2,563,811

)

    146,786       (2,260,312

)

    181,030  
                                 

Other Comprehensive Income - Currency Translation, Net

    739,777       381,217       243,818       167,295  
                                 

Total Comprehensive Income (Loss)

  $ (1,824,034

)

  $ 528,003     $ (2,016,494

)

  $ 348,325  

 

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

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

For the period ended June 30, 2020 and June 30, 2019 

 

                  

Accumulated

Other

     
          

Additional

      

Compre-

     
  

Common Stock

  

Paid-in

  

Accumulated

  

hensive

     
  

Shares

  

Amount

  

Capital

  

Deficit

  

Income/(Loss)

  

TOTAL

 
                         
                         

BALANCE, December 31, 2019

  20,547,668   20,548   61,398,150   (32,246,608

)

  (6,166,559

)

  23,005,531 
                         

Common shares issued in settlement of RSUs for services by the board of directors

  8,212   8   44,992           45,000 
                         

Stock based compensation

          96,222           96,222 
                         

Currency translation, net

                  (495,959

)

  (495,959

)

                         

Net Income

              303,499       303,499 
                         

BALANCE, March 31, 2020

  20,555,880   20,556   61,539,364   (31,943,109

)

  (6,662,518

)

  22,954,293 
                         

Common shares issued in settlement of RSUs for services by the board of directors

  8,333   8   (8

)

          - 
                         

Common shares issued for cash at $5.00 per share, net of offering cost of $680,952, May 2020

  1,085,000   1,085   4,742,963           4,744,048 
                         

Stock based compensation

          82,335           82,335 
                         

Currency translation, net

                  739,777   739,777 
                         

Net Loss

              (2,563,811

)

      (2,563,811

)

                         

BALANCE, June 30, 2020

  21,649,213   21,649   66,364,654   (34,506,920

)

  (5,922,741

)

  25,956,642 
                         
                         

BALANCE, December 31, 2018

  18,228,887   18,229   46,552,487   (32,286,224

)

  (5,744,856

)

  8,539,636 
                         

Common shares issued in settlement of RSUs for services by the board of directors

  28,993   29   112,471           112,500 
                         

Stock based compensation

          15,944           15,944 
                         

Exercising of stock options

  45,000   45   133,155           133,200 
                         

Currency translation, net

                  (213,922

)

  (213,922

)

                         

Net Income

              34,244       34,244 
                         

BALANCE, March 31, 2019

  18,302,880   18,303   46,814,057   (32,251,980

)

  (5,958,778

)

  8,621,602 
                         

Stock based compensation

          23,167           23,167 
                         

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         14,674,738 
                         

Currency translation, net

                  381,217   381,217 
                         

Net Income

              146,786       146,786 
                         

BALANCE, June 30, 2019

  20,547,668   20,548   61,509,717   (32,105,194

)

  (5,577,561

)

  23,847,510 

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   

For the Six Months Ended

 
   

June 30,

 
   

2020

   

2019

 

Cash Flows from Operating Activities:

               

Net Income (Loss)

  $ (2,260,312

)

  $ 181,030  

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

               

Depreciation and amortization

    1,183,441       554,130  

Stock-based compensation

    223,557       151,611  
Change in fair value of warrant liability     236,900       -  

Change in deferred tax asset / liability

    (30,574

)

    -  

Changes in assets and liabilities:

               

Accounts receivable

    1,820,234       (7,152,037

)

Inventory

    (157,376

)

    (281,601

)

Contract assets

    1,141,799       (2,086,762

)

Deposits

    -       (1,203,216

)

Prepaid expenses and other current assets

    (184,328

)

    (157,913

)

Accounts payable

    (2,265,228

)

    2,595,054  

Accrued expenses

    1,986,152       1,613,701  

Operating lease liabilities

    (366,198

)

    (234,934

)

Contract liabilities

    (98,131

)

    950,310  
                 

Total Adjustments

    3,490,248       (5,251,657

)

                 

Net Cash provided by (used in) Operating Activities

    1,229,936       (5,070,627

)

                 

Cash Flows from Investing Activities:

               

Purchase of property and equipment

    (2,171,172

)

    (327,559

)

Purchase of other intangible assets

    (23,446

)

    -  
                 

Net Cash used in Investing Activities

    (2,194,618

)

    (327,559

)

                 

Cash Flows from Financing Activities:

               

Payments on finance lease obligation

    (16,973

)

    (8,588

)

Proceeds from exercise of stock options

    -       133,200  

Proceeds from issuance of prefunded warrants

    2,575,000       -  

Proceeds from issuance of common stock, net

    4,744,048       14,674,738  
                 

Net Cash provided by Financing Activities

    7,302,075       14,799,350  
                 

Gain on Currency Translation

    108,944       179,080  
                 

Net change in Cash, Cash Equivalents and Restricted Cash

    6,446,337       9,580,244  
                 

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

    9,783,932       3,776,111  
                 

Cash, Cash Equivalents and Restricted Cash at End of Period

  $ 16,230,269     $ 13,356,355  

 

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

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   

For the Six Months Ended

June 30,

 
   

2020

   

2019

 

Supplemental Disclosures of Cash Flow Information:

               

Cash paid during the period for:

               

Interest

  $ 45,471     $ 50,372  

Income Taxes

  $ -     $ -  

 

The accompanying notes are an integral part of these condensed consolidated 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 applications and diesel particulate air filters in the 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 Holding A/S (formerly known as LiqTech International A/S), a Danish corporation, incorporated on January 15, 2000 (“LiqTech Holding”), a 100% owned subsidiary of LiqTech USA, engaged in the 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, engaged in the production, marketing and sale of ceramic diesel particulate and liquid filters in the United States and Canada.

 

LiqTech Water A/S (formerly known as LiqTech Systems A/S), a Danish Corporation (“LiqTech Water”), incorporated on September 1, 2009, engaged 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.

 

LiqTech Plastics A/S (formerly known as BS Plastic A/S), a Danish Corporation (“LiqTech Plastics”), acquired on September 1, 2019, engaged in the manufacture of specialized machined and welded plastic parts within Denmark and international markets.

 

LiqTech Ceramics A/S, a Danish corporation (“LiqTech Ceramics”), incorporated on December 20, 2019 that is a dormant company without activity.

 

LiqTech Germany (“LiqTech Germany”), a 100% owned subsidiary of LiqTech Holding, incorporated in Germany on December 9, 2011. The Company is in the process of closing operations as all activity in the company has ceased.

 

LiqTech PTE Ltd (“LiqTech Sing”), a 95% owned subsidiary of LiqTech Holding, incorporated in Singapore on January 19, 2012. The Company is in the process of closing operations as all activity in the company has ceased.

 

Consolidation -- The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority-owned subsidiary. All material intercompany transactions and accounts have been eliminated in the consolidation.

 

Reclassification  Certain amounts presented in previous issued financial statements have been reclassified to be consistent with the current period presentation. In the statement of operations and comprehensive income (loss), the company has reclassified the prior year comparative amounts of general and administrative expenses and other expenses to be consistent with the current classification.

 

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 Holding, LiqTech Water, LiqTech Plastics and LiqTech Ceramics 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 balance sheet accounts of the foreign subsidiaries 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 six months ended June 30, 2020 and 2019. 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. 

 

11

 

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 June 30, 2020, and December 31, 2019, the Company held $2,711,608 and $2,714,173, respectively, of restricted cash. The restricted cash is held as security by a local financial institution for ensuring a leasing facility and for payment guarantees issued for the benefit of customers in connection with prepayments of sales orders and for warranties after the delivery of sales orders. The Company had no balances held in a financial institution in the United States in excess of federally insured amounts on June 30, 2020 and December 31, 2019.

 

Accounts Receivable -- Accounts receivable 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, age, financial information that is publicly accessible and other currently available evidence. 

 

The roll-forward of the allowance for doubtful accounts for the period ended June 30, 2020 and December 31, 2019 is as follows: 

 

  

June 30,

2020

  

December 31,

2019

 

Allowance for doubtful accounts at the beginning of the period

 $612,434  $971,772 

Bad debt expense

  327   25,044 

Receivables written off during the periods

  (459,207

)

  (362,244

)

Effect of currency translation

  (6,305

)

  (22,138

)

Allowance for doubtful accounts at the end of the period

 $147,250  $612,434 

  

Inventory  Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first-in, first-out method.

 

For inventory produced, standard costs that approximate actual cost on the FIFO method are used to value inventory. Standard costs are reviewed at least annually by management, or more often in the event that circumstances indicate a change in cost has occurred.

 

Work in process and finished goods include material, labor and production overhead costs. The company adjusts the value of its inventory to the extent that management determines that the cost cannot be recovered due to obsolescence or other factors.

 

Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts.

 

Contracts Assets – Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but has not yet been billed. Contract assets are transferred to receivables when the right to consideration is unconditional and billed per the terms of the contractual agreement. Contract assets also includes unbilled receivables, which usually comprises the last invoice remaining after the delivery of the systems, where revenue is recognized at the transfer of control based upon signed acceptance of the system by the customer. Most commonly this invoice is sent to the customer at commissioning of the product or no later than 12 months after the delivery. Further included in Contract Assets are short-term receivables such as VAT and other receivables.

 

Leases -- 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.

 

12

 

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 carry forward the historical lease classification. The Company made the accounting policy elections to not recognize lease assets and 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 costs for lease payments will be recognized on a straight-line basis over the lease term. 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.

 

Goodwill and Intangible Assets -- The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business, with the residual purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

 

Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging from one to 10 years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of five years.

 

The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.

 

Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecast of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment fundamentals, and general economic conditions.

 

Revenue Recognition -- 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.

 

The Company sells products throughout the world; sales by geographical region are as follows for the three and six months ended June 30, 2020 and 2019:

 

  

For the Three Months

  

For the Six Months

 
  

Ended June 30,

  

Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

United States and Canada

 $307,480  $255,642  $433,962  $688,229 

Australia

  61,706   153,401   103,961   215,514 

South America

  12,043   -   22,939   - 

Asia

  292,756   933,693   2,326,044   2,172,807 

Europe

  3,967,498   7,954,450   12,036,421   13,641,834 
  $4,641,483  $9,297,186  $14,923,327  $16,718,384 

 

13

 

 The Company’s sales by product line are as follows for the three and six months ended June 30, 2020 and 2019:

 

  

For the Three Months

  

For the Six Months

 
  

Ended June 30,

  

Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Liquid filters and systems

 $2,551,710  $8,453,136  $10,531,998  $13,493,469 

Diesel particulate filters

  1,160,695   747,234   2,720,757   2,990,502 

Plastic components

  762,384   -   1,343,794   - 

Development projects

  166,694   96,815   326,778   234,413 
  $4,641,483  $9,297,186  $14,923,327  $16,718,384 

 

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 or DPF transfers to the customer or when services are rendered by the Company. 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 Contract 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 costplus margin.

 

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer, which typically occurs upon shipment of the system in accordance with the terms of the contract. In connection with the system sale, 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 Unbilled receivables, while the revenue related to the commissioning is recognized as Contract liability.

 

Aftermarket sales represent parts, extended warranties and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. 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.

 

14

 

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 sheet 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 sheet as Contract liabilities.

 

Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but has not yet been billed. Contract assets are transferred to receivables when the right to consideration is unconditional and billed per the terms of the contractual agreement. Contract liabilities are payments received from customers prior to satisfaction of performance obligations and these balances are typically related to prepayments for third-party expenses that are incurred shortly after billing. Contract liabilities also include deferred revenue related to the second performance obligation stated under Revenue Recognition, where the obligation is attributed to the commissioning of the water treatment system.

 

The roll-forward of Contract assets / liabilities for the period ended June 30, 2020 and December 31, 2019 is as follows:

 

  

June 30,

2020

  

December 31,

2019

 

Cost incurred

 $4,305,503  $3,960,199 

Unbilled project deliveries

  1,805,884   1,971,106 

VAT

  397,949   862,368 

Other receivables

  114,036   58,397 

Prepayments

  (2,330,373

)

  (1,732,231

)

Deferred Revenue

  (1,093,114

)

  (876,286

)

  $3,199,885  $4,243,553 
         

Distributed as follows:

        

Contract assets

 $4,523,130  $5,664,929 

Contract liabilities

  (1,323,245

)

  (1,421,376

)

  $3,199,885  $4,243,553 

 

Advertising Cost -- Costs incurred in connection with advertising of the Company’s products are expensed as incurred. Advertising costs are included in sales expenses, and total advertising costs amounted to $62,023 and $72,349 for the six months ended June 30, 2020 and 2019, respectively. Total advertising costs for the three months period ended June 30, 2020 and 2019 respectively, was $36,786 and $49,757.

 

Research and Development Cost -- The Company expenses research and development costs for the development of new products as incurred. Included in operating expense for the six months ended June 30, 2020 and 2019 were $627,513 and $402,356, respectively, of research and development costs. For the three months period ended June 30, 2020 and 2019, research and development costs were $316,559 and $199,184.

 

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) is based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share is 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, RSUs, and warrants that have been granted but have not yet been exercised.

 

15

  

Stock Options and Awards -- During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Stock-based compensation costs of $223,557 and $151,611 have been recognized for the vesting of options and stock awards granted to Directors, management and certain key employees for the six months ended June 30, 2020 and 2019, respectively. For the three months period ended June 30, 2020 and 2019, stock-based compensation was $82,335 and $23,167 respectively.

  

Warrant Liability -- The Company issued common stock warrants in May 2020 in conjunction with an equity financing. In accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), the fair value of these warrants is classified as a liability on the Company’s Consolidated Balance Sheet because, according to the warrants' terms, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders, which is out of the control of the Company. Corresponding changes in the fair value of the warrants are recognized in earnings on the Company’s Consolidated Statement of Operations in each subsequent period.

 

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, which 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 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, other receivables, prepaid expenses, accounts payable and accrued expenses approximate their recorded values due to their short-term maturities.

 

The following table sets forth the liabilities at June 30, 2020, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:

 

  

Fair value at reporting date using:

 
  

June 30,

2020

  

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant Unobservable

Inputs

(Level 3)

 
                 

Contingent Earn-out Liability

 $901,537  $-  $-  $901,537 

Prefunded warrants

  2,811,900   2,811,900   -   - 

 

The roll-forward of the Contingent Earn-out liability is as follows:

 

Balance at December 31, 2019

 $898,755 

Foreign currency effect

  2,782 

Balance at June 30, 2020

 $901,537 

 

In connection with the equity financing in May 2020, the Company recorded a warrant liability on its Consolidated Balance Sheet based on the estimated fair value of the common stock warrants at the issuance date. The warrants are valued at the end of each reporting period with changes recorded as a mark-to-market adjustment on warrant liability on the Company's Consolidated Statement of Operations. The fair value of these warrants was $2,811,900 at June 30, 2020.

 

16

  

The mark-to-market expense on these warrants was $236,900 for the six months ended June 30, 2020 and was not presented within loss from operations. The Company’s warrant liability is carried at fair value and was classified as Level 1 in the fair value hierarchy due to the use of observable inputs such as quoted prices in active markets for identical assets or liabilities.

 

The following table summarizes the fair value measurement of the warrant liability.

 

Base value of warrants, 515,000 warrants at $5

 $2,575,000 

Fair value adjustment

  236,900 

Balance at June 30, 2020

 $2,811,900 

 

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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period and will be in effect for a limited time through December 31, 2022. Adoption is permitted at any time. The Company is currently evaluating the impact on its financial statements.

 

On March 9, 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU was issued to clarify and improve various financial instruments topics. The guidance has various effective dates but is basically effective for annual periods beginning after December 15, 2019 and 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We will adopt the new standard effective March 1, 2021 and do not expect the adoption of this guidance to have a material impact on our 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 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 June 30, 2020 the Company has recorded $2,711,608 as Restricted cash, $13,518,661 as Unrestricted cash, and a total of $16,230,269 as Cash, Cash equivalents and Restricted cash. For the period ended December 31, 2019 the amounts were $2,714,173 in Restricted cash and $7,069,759 in Unrestricted cash.

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including subsequently issued ASUs to clarify the implementation guidance in ASU 2016-13. The amendment introduces new guidance for credit losses on financial assets measured at amortized cost, including finance receivables and trade receivables. Under this new model, expected credit losses are based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability, replacing the previous incurred loss model. The ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The company adopted ASU 2016-13 effective January 1, 2020 and concluded there was no material impact to the condensed consolidated financial statements.

 

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 June 30, 2020 and December 31, 2019:

 

  

June 30,

2020

  

December 31,

2019

 

Furnace parts and supplies

 $834,710  $621,991 

Raw materials

  1,980,305   2,125,921 

Work in process

  2,124,366   1,624,499 

Finished goods and filtration systems

  1,084,111   1,492,135 

Reserve for obsolescence

  (666,878

)

  (665,308

)

Net Inventory

 $5,356,614  $5,199,238 

 

Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movements, expected useful lives, and estimated future demand for the products.

 

17

  
 

 NOTE 3 - 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 Hobro, Aarhus and Copenhagen, Denmark as well as in White Bear Lake, Minnesota.

 

During the six months ended June 30, 2020, cash paid for amounts included for the measurement of lease liabilities was $521,716 and the company recorded operating lease expense of $577,765.

 

Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019 was as follows

 

  

June 30,

2020

  

December 31,

2019

 

Operating leases:

        

Operating lease right-of-use

 $4,776,456  $5,053,614 
         

Operating lease liabilities - current

 $957,971  $999,685 

Operating lease liabilities – long-term

  3,951,093   4,141,855 

Total operating lease liabilities

 $4,909,064  $5,141,540 
         

Finance leases:

        

Property and equipment, at cost

 $1,366,488  $1,362,272 

Accumulated depreciation

  (1,178,583

)

  (1,156,145

)

Property and equipment, net

 $187,905  $206,127 
         

Finance lease liabilities - current

 $35,589  $34,772 

Finance lease liabilities – long-term

  154,832   172,273 

Total finance lease liabilities

 $190,421  $207,045 
         

Weighted average remaining lease term:

        

Operating leases

  10.2   10.2 

Finance leases

  5.0   5.5 
         

Weighted average discount rate:

        

Operating leases

  6.3

%

  6.4

%

Finance leases

  3.9

%

  3.9

%

 

Maturities of lease liabilities at June 30, 2020 were as follows:

 

  

Operating

lease

  

Finance

lease

 

2020 (remaining 6 months)

 $529,443  $21,210 

2021

  885,165   42,421 

2022

  805,270   40,848 

2023

  761,361   36,211 

2024

  610,822   37,156 

Thereafter

  3,041,218   32,650 

Total payment under lease agreements

  6,633,279   210,496 

Less imputed interest

  (1,724,215

)

  (20,075

)

Total lease liability

 $4,909,064  $190,421 

 

18

 

 

 NOTE 4 - LINES OF CREDIT

 

In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee or security bond. For that purpose, we have a guarantee credit line of DKK10,000,000 (approximately $1,500,000). The credit line is secured by a cash deposit of $2,700,000. Further, we have a guarantee for a specific project delivered in 2016 of DKK 94,620 (approximately $14,217 at June 30, 2020) with a bank, subject to certain base limitations. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by certain assets of LiqTech Systems such as receivables, inventory, and equipment.

 

 

 

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 six months ended June 30, 2020 and 2019, matching contributions were expensed and totaled $6,984 and $5,677, respectively. For the three months period ended June 30, 2020 and 2019, matchng contributions expensed totaled $3,949 and $2,621 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 Holding contacted the Company with a claim of DKK 448,500 ($68,800) alleging that an 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 as of June 30, 2020 as the Company believes that it has valid supporting defenses and does not expect the claim to materialize in any payments to the former supplier.

 

On February 27, 2019, LiqTech Water was contacted by a former supplier alleging that the Company owed DKK 543,905 ($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 rendered, 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 as of June 30, 2020.

 

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 that 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 the 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 third quarter of 2019 based on realized warranty expenses for the four years passed since the start-up of producing water treatment systems. Based on the assessment, the Company has reduced the warranty accrual from 7% to 3% of the sales value for delivered products since January 1, 2019.

 

Changes in the Company's current and long-term warranty obligations included in accrued expenses on the balance sheet, as of June 30, 2020 and December 31, 2019 were as follows:

 

  

June 30,

2020

  

December 31,

2019

 

Balance at December 31

 $813,288  $432,225 

Warranty costs charged to cost of goods sold

  287,847   707,079 

Utilization charges against reserve

  (76,225

)

  (315,556

)

Release of accrual related to expired warranties

  -   - 

Foreign currency effect

  6,145   (10,460

)

Balance at June 30

 $1,031,055  $813,288 

 

19

 

 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 received two units while the remaining two units will be delivered in the second half of 2020. The total obligation amounts to $3.8 million and the Company has entered into a leasing agreement with the bank to partly finance the purchase. The lease agreement will commence upon the receipt of all furnaces covered by the purchase contract. The Company has no right to cancel the order.

 

 

 

NOTE 6 - EARNINGS PER SHARE

 

Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average common shares outstanding during the period. For the periods where there is a net loss, stock options and warrants have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same.

 

The following data show the amounts used in computing earnings per share and the weighted average number of shares of potential dilutive common stock for the three months ended June 30, 2020 and 2019:

 

  

For the Six Months

Ended June 30,

 
  

2020

  

2019

 

Net Income (Loss) attributable to LiqTech International Inc.

 $(2,260,312

)

 $181,030 

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

  20,758,855   18,742,029 

Effect of dilutive securities, stock options, RSUs, and warrants

  -   16,079 

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

  20,758,855   18,758,108 

 

For the six months ended June 30, 2020, the Company had 136,632 stock grants outstanding to issue common stock (RSUs). Further the company had 25,000 options outstanding to purchase common stock at $2.96 per share and 515,000 prefunded warrants at $5.00 per share outstanding to issue common stock.

 

For the six months ended June 30, 2019, the Company had 58,334 stock grants outstanding to issue common stock (RSUs). Further the company had 25,000 options outstanding to purchase common stock at $2.96 per share.

 

  

 

NOTE 7 - STOCKHOLDERS' EQUITY

 

Common Stock – The Company has 25,000,000 authorized shares of common stock, $0.001 par value. As of June 30, 2020 and 2019, respectively, there were 21,649,213 and 20,547,668 common shares issued and outstanding.

 

Voting -- Holders of 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 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, 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 common stock will be entitled to share ratably in the distribution of any of our remaining assets.  

  

Other Matters -- Holders of 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 Annual 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 Preferred stock, $0.001 par value. As of June 30, 2020, and 2019 there were 0 mandatory convertible preferred shares issued and outstanding.

 

20

 

Stock Issuance 

 

Since  January 1, 2020, the Company has made the following issuances of common stock: 

 

On January 15, 2020, the Company issued an additional 8,212 shares of restricted stock valued at $45,000 for services provided by the Board of Directors. The Company will recognize the stock-based compensation of the award over the requisite service period. The shares vested immediately.

 

On May 21, 2020, the Company completed a Securities Purchase Agreement with certain accredited investors in a private placement pursuant to which the Company issued and sold an aggregate of 1,085,000 shares of common stock, par value $