UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to to
Commission File Number:
LiqTech International, Inc.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: +
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| | | The |
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.
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).
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 | ☐ |
| | ☒ | 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
As of August 10, 2023, there were
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2023
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. 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 impacts from the supply chain-related disruptions, inflationary pressure, prevailing macro-economic uncertainty, and European energy crisis on the Company, including the related effects to our business operations, results of operations, cash flows, and financial position. 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 Quarterly Report on Form 10-Q 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.
Forward-looking statements include, but are not limited to, statements concerning:
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Our exposure to increased macro-economic uncertainty; |
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Risk of a prolonged period of inflationary pressure including energy shortages and volatile energy prices in Europe; |
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The impact from the prevailing Ukraine and Russia conflict and overall changes to the economic environment; |
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The resurgence of COVID-19 or similar global pandemics; |
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Our dependence on a few major customers and the ability to maintain future relationships with one or more of these major customers; |
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Our ability to operate with financial stability and secure adequate access to external financing and liquidity; |
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Our ability to secure and source supplies of raw materials and key components in due time and at competitive prices; |
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Our reliance on subcontractors or delivery of new machinery to develop sufficient manufacturing capacity to meet demand; |
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Our ability to achieve revenue growth and execute the Company strategy; |
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Our dependence on the expertise and experience of our management team and the retention of key employees; |
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Our reliance and access to qualified personnel to expand our business; |
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Our ability to adapt to potentially adverse changes in legislative, regulatory and political frameworks; |
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Changes in emissions or environmental regulations and potential further tightening of emission standards; |
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Our dependence on corporate or government funding for emissions control programs; |
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Our ability to compete under changing governmental standards by which our products are evaluated; |
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Our exposure to potentially adverse tax consequences; |
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The financial impact from the fluctuation and volatility of foreign currencies; |
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The potential monetary costs of defending our intellectual property rights; |
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Our ability to successfully protect our intellectual property rights and manufacturing know-how; |
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The possibility of a dispute over intellectual property developed in conjunction with third parties with whom we have contractual relationships; |
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The possibility that we could become subject to litigation that could be costly, limit, or cancel our intellectual property rights, or divert time and efforts away from our business operations; |
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The potential negative impact to the sale of our products caused by technological advances of our competitors; |
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The potential liability for environmental harm or damages resulting from technical faults or failures of our products; |
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The possibility that an investor located within the United States may not be able to or find it difficult to enforce any judgments obtained in United States courts because a significant portion of our assets and some of our officers and directors may be located outside of the United States; |
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The possibility that we may not be able to develop and maintain an effective system of internal controls over financial reporting, leading to inaccurate reports of our financial results; |
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The possibility of breaches in the security of our information technology systems; |
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The liability risk of our compliance to environmental laws and regulations; |
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The potential negative impact of more stringent environmental laws and regulations as governmental agencies seek to improve minimum standards; and |
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The possibility that enforcement actions to suspend or severely restrict our business operations could be brought against the Company for our failure to comply with laws or regulations and the potential costs of defending against such actions. |
Any forward-looking statement made by us herein speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and restricted cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ and $ at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Inventories, net of allowance for excess and obsolete inventory of $ and $ at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Total Current Assets | ||||||||
| Long-Term Assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $ and $ at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deposits and other assets | ||||||||
| Intangible assets, net of accumulated amortization of $ and $ at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Goodwill | ||||||||
| Total Long-Term Assets | ||||||||
| Total Assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
| As of | As of | |||||||
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Contract liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Deferred tax liability | ||||||||
| Finance lease obligations, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Senior promissory notes payable, less current portion | ||||||||
| Total Long-term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Equity: | ||||||||
| Preferred stock; par value $, shares authorized, shares issued and outstanding at June 30, 2023 and December 31, 2022 | ||||||||
| Common stock; par value $, shares authorized, and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Three Months Ended |
For the Six Months Ended |
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| June 30, |
June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold |
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| Gross Profit |
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| Operating Expenses: |
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| Selling expenses |
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| General and administrative expenses |
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| Research and development expenses |
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| Restructuring costs |
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| Total Operating Expense |
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| Loss from Operations |
( |
) |
( |
) |
( |
) |
( |
) |
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| Other Income (Expense) |
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| Interest and other income |
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| Interest expense |
( |
) |
( |
) |
( |
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( |
) |
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| Amortization discount on Notes |
( |
) |
( |
) |
( |
) |
( |
) |
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| Gain (Loss) on currency transactions |
( |
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( |
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( |
) |
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| Gain on lease termination |
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| Gain on sale of fixed assets |
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| Total Other Income (Expense) |
( |
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( |
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( |
) |
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| Loss Before Income Taxes |
( |
) |
( |
) |
( |
) |
( |
) |
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| Income Tax Benefit |
( |
) |
( |
) |
( |
) |
( |
) |
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| Net Loss |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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| Basic and Diluted Loss Per Share |
$ | ( |
) |
$ | ( |
) |
$ | ( |
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$ | ( |
) |
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| Basic and Diluted Weighted Average Common Shares Outstanding |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS (UNAUDITED)
| For the Three Months Ended |
For the Six Months Ended |
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| June 30, |
June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net Loss |
( |
) |
( |
) |
( |
) |
( |
) |
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| Other Comprehensive Income (Loss) - Currency Translation, Net |
( |
) |
( |
) |
( |
) |
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| Total Comprehensive Loss |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
For the period ended June 30, 2023 and June 30, 2022
| Additional |
Accumu- |
Accumulated Other |
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| Common Stock |
Paid-in |
lated |
Comprehensive |
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| Shares |
Amount |
Capital |
Deficit |
Income/(Loss) |
TOTAL |
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| BALANCE, December 31, 2022 |
( |
) |
( |
) |
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| Common Stock issued in settlement of RSUs |
( |
) |
- | |||||||||||||||||||||
| Stock-based compensation |
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| Currency translation, net |
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| Net Loss |
( |
) |
( |
) |
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| BALANCE, March 31, 2023 |
( |
) |
( |
) |
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| Common Stock issued in settlement of RSUs |
( |
) |
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| Fractional shares from individual shareholder round-up following reverse split | ( |
) | ||||||||||||||||||||||
| Stock-based compensation |
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| Currency translation, net |
( |
) |
( |
) |
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| Net Loss |
( |
) |
( |
) |
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| BALANCE, June 30, 2023 |
( |
) |
( |
) |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
For the period ended June 30, 2023 and June 30, 2022
| BALANCE, December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Common Stock issued in settlement of RSUs | ( | ) | - | |||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Currency translation, net | ( | ) | ( | ) | ||||||||||||||||||||
| Net Income | ( | ) | ( | ) | ||||||||||||||||||||
| BALANCE, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Common shares issued for cash at $ per share, net of offering cost of $, in May 2022 | ||||||||||||||||||||||||
| Warrants issued in connection with Senior Promissory Notes | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Currency translation, net | ( | ) | ( | ) | ||||||||||||||||||||
| Net Income | ( | ) | ( | ) | ||||||||||||||||||||
| BALANCE, June 30, 2022 | ( | ) | ( | ) |
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Six Months Ended |
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| June 30, |
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| 2023 |
2022 |
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| Cash Flows from Operating Activities: |
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| Net Loss |
$ | ( |
) |
$ | ( |
) |
||
| Adjustments to reconcile net loss to net cash provided by (used in) operations: |
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| Depreciation and amortization |
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| Amortization of discount on convertible notes payable |
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| Stock-based compensation |
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| Change in deferred tax asset / liability |
( |
) |
) |
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| Gain on lease termination |
( |
) |
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| Gain on sale of fixed assets |
( |
) |
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| Changes in assets and liabilities: |
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| Accounts receivable |
( |
) |
( |
) |
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| Inventory |
( |
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( |
) |
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| Contract assets |
( |
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( |
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| Prepaid expenses and other current assets |
( |
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( |
) |
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| Accounts payable |
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| Accrued expenses |
( |
) |
( |
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| Operating lease liabilities |
( |
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( |
) |
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| Contract liabilities |
( |
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| Assets held for sale |
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| Total Adjustments |
( |
) |
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| Net Cash used in Operating Activities |
( |
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( |
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| Cash Flows from Investing Activities: |
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| Purchase of property and equipment |
( |
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( |
) |
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| Proceeds from sale of fixed assets |
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| Net Cash used in Investing Activities |
( |
) |
( |
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| Cash Flows from Financing Activities: |
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| Payments on finance lease obligation |
( |
) |
( |
) |
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| Proceeds from issuance of Common Stock and prefunded warrants |
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| Proceeds from issuance of Senior Promissory Notes |
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| Payments on Convertible Note |
( |
) |
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| Net Cash used in Financing Activities |
( |
) |
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| Gain (Loss) on Currency Translation |
( |
) |
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| Net change in Cash and Restricted Cash |
( |
) |
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| Cash and Restricted Cash at Beginning of Period |
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| Cash and Restricted Cash at End of Period |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the six Months Ended June 30, |
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| 2023 |
2022 |
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| Supplemental Disclosures of Cash Flow Information: |
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| Cash paid during the period for: |
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| Interest |
$ | ( |
) |
$ | ||||
| Income Taxes |
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The accompanying notes are an integral part of these unaudited 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 in Item 2, the management's discussion and analysis section. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide membrane applications and diesel particulate air filters in North America, Europe, Asia, Australia, and South America.
These interim consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the period ended June 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. In the opinion of management, all adjustments consisting of a normal recurring nature and necessary for a fair presentation have been included.
Consolidation -- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and its majority-owned subsidiary. All material intercompany transactions and accounts have been eliminated in the consolidation.
Reverse Stock Split -- On May 26, 2023, the Company effected a 1-for-
As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “additional paid-in capital.”
Reclassification – Certain amounts presented in previously issued financial statements have been reclassified to be consistent with the current period presentation. In the statement of operations and comprehensive 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, LiqTech Ceramics, LiqTech Water Projects and LiqTech Emission Control is the Danish Krone (“DKK”); the functional currency of LiqTech China is the Renminbi (“RMB”); 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, 2023 and 2022. Translation gains and losses are deferred and accumulated as a component of other comprehensive income (loss) 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 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, 2023, and December 31, 2022, the Company held $
Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At June 30, 2023 and December 31, 2022 the Company had $
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 periods ended June 30, 2023 and December 31, 2022 is as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Allowance for doubtful accounts at the beginning of the period | $ | $ | ||||||
| Bad debt expense | ( | ) | ||||||
| Receivables written off during the periods | ( | ) | ( | ) | ||||
| Effect of currency translation | ( | ) | ||||||
| Allowance for doubtful accounts at the end of the period | $ | $ | ||||||
Inventory – Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first-in, first-out (“FIFO”) method.
For inventory produced, standard costs that approximate actual costs, applying 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 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 / Liabilities – Contract assets are the Company’s rights to consideration in exchange for goods or services and are recognized when a performance obligation has been satisfied but has not yet been billed. When the Company issues invoices to the customer and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.
Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit 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. Also included in Contract assets are short-term receivables such as value-added tax (VAT) and other receivables.
Assets Held for Sale -- Assets are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets are classified as held for sale on the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale.
Leases -- The Company has elected 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 remains substantially unchanged. Operating lease right-of-use (“ROU”) assets and liabilities are 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 is used in determining the present value. The Company will use the implicit rate when readily determinable. The operating lease ROU asset also includes prepaid lease payments, reduced by accrued lease payments. The Company’s lease terms may include options to extend or terminate the lease, for which the Company will reflect the change 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.
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 to 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 to years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of 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 value 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. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions.
Revenue Recognition -- The Company sells products throughout the world, and sales by geographical region are as follows for the three and six months ended June 30, 2023 and 2022:
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| Asia-Pacific | ||||||||||||||||
| Europe | ||||||||||||||||
| Middle East & Africa | ||||||||||||||||
| $ | 4,990,019 | $ | 5,018,292 | $ | 9,001,538 | $ | 8,655,528 | |||||||||
The Company’s sales by product line are as follows for the three and six months ended June 30, 2023 and 2022:
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Water | $ | $ | $ | $ | ||||||||||||
| Ceramics | ||||||||||||||||
| Plastics | ||||||||||||||||
| Corporate | ||||||||||||||||
| $ | 4,990,019 | $ | 5,018,292 | $ | 9,001,538 | $ | 8,655,528 | |||||||||
For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within the terms of a contract with the customer are satisfied, which occurs when control of the product 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 along with 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 is 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 to receive 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. Considering the relatively short time 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 to the customer based upon sales and delivery conditions specified in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) asserting that the customer has accepted the performance of the system as it is being shipped from our 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 the commissioning services are being rendered 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), this portion is recognized as Contract liabilities.
Aftermarket sales represent spare parts, extended warranties, commissionings, 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.
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 filtration systems. We measure the 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.
The roll-forward of Contract assets / liabilities for the periods ended June 30, 2023 and December 31, 2022 is as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Cost incurred | $ | $ | ||||||
| Unbilled project deliveries | ||||||||
| VAT | ||||||||
| Other receivables | ||||||||
| Prepayments | ( | ) | ( | ) | ||||
| Deferred Revenue | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| Distributed as follows: | ||||||||
| Contract assets | $ | $ | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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 for the three-month periods ended June 30, 2023 and 2022 were $
Research and Development Cost -- The Company expenses research and development costs as incurred. Included in operating expense for the three-month periods ended June 30, 2023, and 2022 were research and development costs of $
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 with respect to 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 shares of Common Stock 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 shares of Common Stock 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.
Stock Awards -- During the years presented in the accompanying consolidated financial statements, the Company has granted stock awards. The Company accounts for stock awards in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation.
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 non-recurring 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, accrued expenses, convertible notes payable, and senior promissory notes payable approximate 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.
NOTE 2 – GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern; however, the Company has incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. There is no assurance that the Company will be successful in executing the proposed cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 - INVENTORY
Inventory consisted of the following on June 30, 2023, and December 31, 2022:
| June 30, 2023 |
December 31, 2022 |
|||||||
| Furnace parts and supplies |
$ | $ | ||||||
| Raw materials |
||||||||
| Work in process |
||||||||
| Finished goods and filtration systems |
||||||||
| Reserve for obsolescence |
( |
) |
( |
) |
||||
| Net Inventory |
$ | $ | ||||||
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.
NOTE 4 - LEASES
The Company leases certain vehicles, real property, production equipment 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 leases for production and office space in Hobro, Aarhus, and Copenhagen, Denmark.
During the six months ended June 30, 2023, cash paid for amounts included for the measurement of finance lease liabilities was $
During the six months ended June 30, 2023, cash paid for amounts included for the measurement of operating lease liabilities was $
Other information related to leases as of June 30, 2023 and December 31, 2022 was as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Operating leases: | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance leases: | ||||||||
| Property and equipment, at cost | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| Finance lease liabilities – current | $ | $ | ||||||
| Finance lease liabilities – long-term | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Maturities of lease liabilities at June 30, 2023 were as follows:
| Operating Lease | Finance lease | |||||||
| 2023 (remaining 6 months) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total payment under lease agreements | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ | ||||||
NOTE 5 - LINES OF CREDIT
In connection with certain orders, we provide the customer with a working guarantee, prepayment guarantee, or a security bond. For that purpose, the Company has a credit line of EUR
NOTE 6 – LONG-TERM DEBT
Convertible Note
On March 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor pursuant to which the Company agreed to issue and sell a $
The Convertible Note was a senior, unsecured obligation of the Company, payable at
Beginning on March 1, 2022, and on the first day of each calendar month thereafter, at the election of the Investor or Holder, if applicable, the Company was required to redeem $
As of June 22, 2022, the Convertible Note, including accrued interest and all relevant obligations, was repaid in full, amounting to $
The components of the Convertible Note are as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Convertible note | $ | |||||||
| Less: unamortized debt issuance costs | ||||||||
| Convertible note payable | $ | $ | ||||||
| Current portion of convertible note payable | ||||||||
| Convertible note payable, less current portion | ||||||||
| Convertible note payable | $ | $ | ||||||
For the three months ended June 30, 2023 and 2022, the Company recognized interest expense of $
For the six months ended June 30, 2023 and 2022, the Company recognized interest expense of $
Senior Promissory Notes
On June 22, 2022, the Company issued and sold Senior Promissory Notes in an aggregate principal amount of $
The Notes have a term of
Additionally, as part of the transaction, the Company issued
As a result, the Company recorded an initial debt discount of $
The components of notes payable are as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Senior Promissory Notes | $ | |||||||
| Less: unamortized debt discount | ( | ) | ( | ) | ||||
| Senior Promissory Notes payable | $ | $ | ||||||
| Current portion of Senior Promissory Notes payable | ||||||||
| Senior Promissory Notes payable, less current portion | ||||||||
| Senior Promissory Notes payable | $ | $ | ||||||
For the three months ended June 30, 2023 and 2022, the Company recognized interest expense of $
For the six months ended June 30, 2023 and 2022, the Company recognized interest expense of $
NOTE 7 – AGREEMENTS AND COMMITMENTS
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.
In November 2022, the Company entered into a commercial settlement agreement regarding marine wastewater treatment systems delivered in 2019 and associated, potential warranty claims related to alleged corrosion on certain parts and components. The Company disputed the claim in full, subsequently reaching an amicable settlement agreement with expected remediation work to be conducted in 2023. The cost of any remediation work is shared between the two parties.
Product Warranties – The Company provides a standard warranty for its systems, generally for a period of to 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 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 installation occurred. 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.
Changes in the Company’s current and long-term warranty obligations included in accrued expenses on the balance sheet, as of June 30, 2023 and December 31, 2022, were as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Balance at January 1 | $ | $ | ||||||
| Warranty costs charged to cost of goods sold | ||||||||
| Utilization charges against reserve | ( | ) | ( | ) | ||||
| Foreign currency effect | ( | ) | ||||||
| Balance at the end of the period | $ | $ | ||||||
The utilization charges against the reserve for the six months ended June 30, 2023 relate to the commercial settlement agreement as described under “Contingencies”.
NOTE 8 – EARNINGS PER SHARE
Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. For the periods where there is a net loss, stock options, warrants and Restricted Stock Units (“RSUs”) have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Consequently, the weighted average number of shares of Common Stock used to calculate both basic and diluted net loss per common share are the same for the reported periods.
As of June 30, 2023, the Company had outstanding balances of
As of June 30, 2022, the Company had outstanding balances of
The following table shows the amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive Common Stock for the three and six months ended June 30, 2023 and 2022:
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (Loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares used in basic earnings per share | ||||||||||||||||
| Effect of dilutive securities, stock options, RSUs, and warrants | ||||||||||||||||
| Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share | ||||||||||||||||
For the three and six months ended June 30, 2023 and 2022, respectively, the Company had
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock – The Company has
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, 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
Stock Issuance
Since January 1, 2023, the Company has made the following issuances of Common Stock:
On January 3, 2023, the Company issued
On January 3, 2023, the Company issued
On June 26, 2023, the Company issued
Warrants
On May 17, 2022, the Company entered a warrant purchase agreement with existing shareholders to purchase
On June 23, 2022, the Company completed a private placement of Senior Notes in an aggregate principal amount of $
The following is a summary of the periodic changes in warrants outstanding for the six months ended June 30, 2023 and 2022:
| 2023 | 2022 | |||||||
| Warrants outstanding at January 1 | ||||||||
| Warrants issued in connection with public offering and private placement | ||||||||
| Exercises and conversions | ||||||||
| Warrants outstanding at June 30 | ||||||||
Stock-based Compensation
In 2013, the Company’s Board of Directors adopted a Share Incentive Plan (the “Incentive Plan”). Under the terms and conditions of the Incentive Plan, the Board of Directors is empowered to grant RSUs to officers, directors, and consultants of the Company. At June 30, 2023,
In 2022, the Company’s Board of Directors adopted an Equity Incentive Plan (the “2022 Incentive Plan”). Under the terms and conditions of the 2022 Incentive Plan, the Board of Directors is empowered to grant RSUs to officers and directors of the Company. At June 30, 2023,
The Company recognizes compensation costs for RSU grants to Directors and management based on the stock price on the date of the grant.
The Company recognized stock-based compensation expense related to RSU grants of $
A summary of the status of the RSUs as of June 30, 2023 and changes during the period are presented below:
| June 30, 2023 | ||||||||||||
| Number of units | Weighted Average Fair value | Aggregated Intrinsic | ||||||||||
| Outstanding, December 31, 2022 | $ | $ | ||||||||||
| Granted | - | |||||||||||
| Vested and settled with share issuance | ( | ) | ( | ) | - | |||||||
| Outstanding, June 30, 2023 | $ | $ | ||||||||||
NOTE 10 - SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATED REVENUE
The following table presents customers accounting for 10% or more of the Company’s revenue:
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Customer A | % | * | % | * | % | * | % | |||||||||
| Customer B | * | % | % | * | % | % | ||||||||||
| Customer C | * | % | % | * | % | % | ||||||||||
* Zero or less than 10%
The following table presents customers accounting for 10% or more of the Company’s Accounts receivable:
| June 30, 2023 | December 31, 2022 | |||||||
| Customer B | % | % | ||||||
| Customer D | * | % | % | |||||
| Customer E | * | % | % | |||||
* Zero or less than 10%
As of June 30, 2023, approximately
NOTE 11 – SEGMENT REPORTING
The Company operates in three segments: Water, Ceramics and Plastics. Effective as of January 1, 2020, the group structure was changed, with shared group activities transferred to an individual reporting unit separated from the business units. Costs and assets for these activities were therefore separated during 2020.
Segment information for the business areas is as follows:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Water | $ | $ | $ | $ | ||||||||||||
| Ceramics | ||||||||||||||||
| Plastics | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total consolidated Revenue | ||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Income (Loss) | ||||||||||||||||
| Water | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Ceramics | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Plastics | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total consolidated Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| As of | ||||||||
| Total Assets | June 30, 2023 | December 31, 2022 | ||||||
| Water | $ | $ | ||||||
| Ceramics | ||||||||
| Plastics | ||||||||
| Corporate | ||||||||
| Total consolidated Assets | $ | $ | ||||||
NOTE 12 - SUBSEQUENT EVENTS
None
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 March 22, 2023, 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
LiqTech International, Inc. is a clean technology company that provides state-of-the-art gas and liquid purification products by manufacturing ceramic silicon carbide filters and membranes while also providing engineered systems. For more than two decades, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in the following business areas: water treatment systems and services, ceramic membranes for liquid filtration, diesel particulate filters (DPFs) to control soot exhaust particles from diesel engines, and plastic components for applications across various industries. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes that facilitate new applications and improve existing technologies. We market our products from our office in Denmark and through local representatives and distributors. The products are shipped directly to customers from our production facilities in 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, which we collectively refer to herein as our “Subsidiaries”.
At present, we conduct our operations in the Kingdom of Denmark. Our Danish operations are located in the Copenhagen area, Hobro, and Aarhus.
Our Strategy
Our strategy is to leverage our core competencies in material science, fluid dynamics, automation and systems integration, creating differentiated products with compelling value propositions to penetrate attractive end markets with regulatory and ESG tailwinds. Essential imperatives associated with our strategy include the following:
| ● |
Develop and reinforce new products and applications to provide clean water and reduce pollution We currently provide water filtration systems for scrubber technology providers, shipowners, and ship operators as well as tailored filtration systems for oil & gas clients, chemical producers, industrial wastewater applications, and other manufacturing companies. We are expanding our range of products to better leverage existing customer relationships and develop new relationships within the oil & gas, marine, global manufacturing, and chemical industries. |
| ● |
Better penetrate existing end markets where our value proposition is strong We have successfully sold products and installed systems into several end markets—including automotive/transportation, clean water and pool filtration, marine, industrial wastewater, and oil & gas. We are focused on targeting and activating new customers in these end markets while working with distributors, agents, and partners to access important geographic markets. |
| ● |
Develop new end markets for our core products and applications. Our existing products and systems are relevant for and valuable to other end markets, and we regularly evaluate opportunities to partner with strategic customers to perfect new applications and validate associated value propositions. |
Results of Operations
The financial information below is derived from our unaudited condensed consolidated financial statements included elsewhere in this report.
The following table sets forth our revenues, expenses and net loss for the three months ended June 30, 2023 and 2022:
| Three Months Ended June 30, |
||||||||||||||||||||||||
| Period to Period Change |
||||||||||||||||||||||||
| 2023 |
As a % of Sales |
2022 |
As a % of Sales |
Variance |
Percent % |
|||||||||||||||||||
| Revenue |
4,990,019 | 100.0 | % |
5,018,292 | 100.0 | % |
(28,273 | ) |
(0.6 | )% |
||||||||||||||
| Cost of goods sold |
3,827,491 | 76.7 | 4,870,152 | 97.0 | (1,042,661 | ) |
(21.4 | ) |
||||||||||||||||
| Gross Profit |
1,162,528 | 23.3 | 148,140 | 3.0 | 1,014,388 | 684.7 | ||||||||||||||||||
| Operating Expenses |
||||||||||||||||||||||||
| Selling expenses |
1,028,225 | 20.6 | 1,196,513 | 23.8 | (168,288 | ) |
(14.1 | ) |
||||||||||||||||
| General and administrative expenses |
1,377,483 | 27.6 | 1,265,543 | 25.2 | 111,940 | 8.8 | ||||||||||||||||||
| Research and development expenses |
359,784 | 7.2 | 490,836 | 9.8 | (131,052 | ) |
(26.7 | ) |
||||||||||||||||
| Restructuring costs |
- | - | 1,788,827 | 35.6 | (1,788,827 | ) |
(100.0 | ) |
||||||||||||||||
| Total Operating Expenses |
2,765,492 | 55.4 | 4,741,719 | 94.5 | (1,976,227 | ) |
(41.7 | ) |
||||||||||||||||
| Loss from Operation |
(1,602,964 | ) |
(32.1 | ) |
(4,593,579 | ) |
(91.5 | ) |
2,990,615 | (65.1 | ) |
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| &#x | ||||||||||||||||||||||||