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 ninethree months period ended September 30, 2017March 31, 2023
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: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, | ||
(Address of principal executive offices) | (Zip Code) |
Registrant’sRegistrant’s telephone number, including area code:+45 3131 5941
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: +4544986000None
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 numberAs of May 11, 2023, there were 45,271,441 shares outstanding of the registrant’s common stock, $0.001 par value $0.001 per share, at November 14, 2017, was 44,229,264 shares. outstanding.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2017March 31, 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 reportQuarterly 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. We undertake no obligation
Forward-looking statements include, but are not limited to, revise or update publicly any forward-looking statements for any reason.concerning:
● | The impact from the prevailing Ukraine and Russia conflict and overall changes to the economic environment and our operational flexibility; | |
● | Risk of a prolonged period of inflationary pressure including energy shortages and volatile energy and electricity prices in Europe; | |
● | Our exposure to increased macro-economic uncertainty; | |
● | The resurgence of COVID-19 or similar global pandemics; | |
● | Our dependence on a few major customers and the ability to maintain future relationships with one or more of these major customers; | |
● | Our ability to operate with financial stability and secure adequate access to external financing and liquidity; | |
● | Our ability to secure and source supplies of raw materials and key components in due time and at competitive prices; | |
● | Our reliance on subcontractors or delivery of new machinery to develop sufficient manufacturing capacity to meet demand; | |
● | Our ability to achieve revenue growth and execution of the company strategy; | |
● | Our dependence on the expertise and experience of our management team and the retention of key employees; | |
● | Our reliance and access to qualified personnel to expand our business; | |
● | Our ability to adapt to potentially adverse changes in legislative, regulatory and political frameworks; | |
● | Changes in emissions and environmental regulations, and potential further tightening of emission standards; | |
● | Our dependence on corporate or government funding for emissions control programs; | |
● | Our ability to compete under changing governmental standards by which our products are evaluated; |
● | The exposure to potentially adverse tax consequences; |
● | The financial impact from the fluctuation and volatility of foreign currencies; |
● | The potential monetary costs of defending our intellectual property rights; |
● | Our ability to successfully protect our intellectual property rights and manufacturing know how; |
● | The possibility of a dispute over intellectual property developed in conjunction with third parties with whom we have contractual relationships; |
● | 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; |
● | The potential negative impact to the sale of our products caused by technological advances of our competitors; |
● | The potential liability for environmental harm or damages resulting from technical faults or failures of our products; |
● | 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; |
● | 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; |
● | The possibility of breaches in the security of our information technology systems; |
● | The liability risk of our compliance to environmental laws and regulations; |
● | The potential negative impact of more stringent environmental laws and regulations as governmental agencies seek to improve minimum standards; and |
● | 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
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of | As of | |||||||
September, 30 | December 31, | |||||||
2017 | 2016 | |||||||
Unaudited | ||||||||
Current Assets: | ||||||||
Cash | $ | 528,566 | $ | 1,208,650 | ||||
Accounts receivable, net | 1,613,668 | 1,111,759 | ||||||
Other receivables | 342,556 | 306,177 | ||||||
Cost in excess of billing | 753,615 | 642,700 | ||||||
Inventories | 4,810,497 | 5,174,874 | ||||||
Prepaid expenses | 16,383 | 62,161 | ||||||
Total Current Assets | 8,065,285 | 8,506,321 | ||||||
Property and Equipment, net accumulated depreciation | 2,123,429 | 2,633,558 | ||||||
Other Assets: | �� | |||||||
Investments at costs | 5,909 | 5,282 | ||||||
Other intangible assets | 3,963 | 5,614 | ||||||
Deposits | 297,719 | 261,553 | ||||||
Total Other Assets | 307,591 | 272,449 | ||||||
Total Assets | $ | 10,496,305 | $ | 11,412,328 |
(Continued)
As of | As of | |||||||
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and restricted cash | $ | 14,309,933 | $ | 16,597,371 | ||||
Accounts receivable, net of allowance for doubtful accounts of $60,628 and $59,559 at March 31, 2023 and December 31, 2022, respectively | 2,736,043 | 2,310,344 | ||||||
Inventories, net of allowance for excess and obsolete inventory of $675,137 and $663,227 at March 31, 2023 and December 31, 2022, respectively | 4,421,748 | 4,062,001 | ||||||
Contract assets | 2,447,668 | 2,253,295 | ||||||
Prepaid expenses and other current assets | 2,088,530 | 1,720,902 | ||||||
Assets held for sale | 734,709 | 723,872 | ||||||
Total Current Assets | 26,738,631 | 27,667,785 | ||||||
Long-Term Assets: | ||||||||
Property and equipment, net of accumulated depreciation of $9,774,851 and $9,046,499 at March 31, 2023 and December 31, 2022, respectively | 7,934,496 | 8,296,807 | ||||||
Operating lease right-of-use assets | 3,190,273 | 3,271,997 | ||||||
Deposits and other assets | 457,398 | 450,038 | ||||||
Intangible assets, net of accumulated amortization of $472,098 and $438,250 at March 31, 2023 and December 31, 2022, respectively | 190,779 | 212,933 | ||||||
Goodwill | 230,157 | 226,095 | ||||||
Total Long-Term Assets | 12,003,103 | 12,457,870 | ||||||
Total Assets | $ | 38,741,734 | $ | 40,125,655 |
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of | As of | |||||||
September, 30 | December 31, | |||||||
2017 | 2016 | |||||||
Current Liabilities: | ||||||||
Current portion of notes payable | $ | 16,061 | $ | 15,034 | ||||
Current portion of capital lease obligations | 7,808 | 45,883 | ||||||
Accounts payable | 2,290,345 | 2,262,688 | ||||||
Accrued expenses | 2,197,993 | 2,385,586 | ||||||
Billing in excess of cost | 15,224 | 106,375 | ||||||
Accrued income taxes payable | 580 | 580 | ||||||
Customers deposits | 720,561 | 192,597 | ||||||
Total Current Liabilities | 5,248,572 | 5,008,743 | ||||||
Long-term notes payable, less current portion | 32,521 | 39,895 | ||||||
Long-term capital lease obligations, less current portion | 21,054 | 93,942 | ||||||
Total Long-Term Liabilities | 53,575 | 133,837 | ||||||
Total Liabilities | 5,302,147 | 5,142,580 | ||||||
Commitment and Contingencies See Note 11 | ||||||||
Stockholders' Equity: | ||||||||
Common stock; par value $0,001, 100,000,000 shares authorized 44,229,264 and 36,835,514 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 44,230 | 36,836 | ||||||
Additional paid-in capital | 37,961,723 | 36,084,117 | ||||||
Accumulated deficit | (27,516,432 | ) | (24,011,343 | ) | ||||
Deferred compensation | (58,548 | ) | (148,561 | ) | ||||
Other comprehensive income, net | (5,236,815 | ) | (5,691,301 | ) | ||||
Total Stockholders' Equity | 5,194,158 | 6,269,748 | ||||||
Total Liabilities and Stockholders' Equity | $ | 10,496,305 | $ | 11,412,328 |
As of | As of | |||||||
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 2,215,226 | $ | 1,389,355 | ||||
Accrued expenses | 2,699,232 | 3,087,206 | ||||||
Current portion of finance lease obligations | 410,060 | 399,198 | ||||||
Current portion of operating lease liabilities | 579,552 | 561,182 | ||||||
Contract liabilities | 710,604 | 649,557 | ||||||
Total Current Liabilities | 6,614,674 | 6,086,498 | ||||||
Deferred tax liability | 142,946 | 154,645 | ||||||
Finance lease obligations, net of current portion | 2,322,913 | 2,384,011 | ||||||
Operating lease liabilities, net of current portion | 2,610,721 | 2,710,815 | ||||||
Senior promissory notes payable, less current portion | 5,564,842 | 5,480,314 | ||||||
Total Long-term Liabilities | 10,641,422 | 10,729,785 | ||||||
Total Liabilities | 17,256,096 | 16,816,283 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock; par value $0.001, 2,500,000 shares authorized, 0 shares issued and outstanding at March 31, 2023 and December 31, 2022 | - | - | ||||||
Common stock; par value $0.001, 100,000,000 shares authorized, 45,271,441 and 43,986,079 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | 45,270 | 43,986 | ||||||
Additional paid-in capital | 97,092,877 | 96,936,988 | ||||||
Accumulated deficit | (69,740,538 | ) | (67,351,035 | ) | ||||
Accumulated other comprehensive loss | (5,911,971 | ) | (6,320,567 | ) | ||||
Total Stockholders' Equity | 21,485,638 | 23,309,372 | ||||||
Total Liabilities and Stockholders' Equity | $ | 38,741,734 | $ | 40,125,655 |
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | For the Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2023 | 2022 | |||||||||||||||||||
Net Sales | $ | 2,456,484 | $ | 3,689,511 | $ | 8,350,758 | $ | 11,338,817 | ||||||||||||||||
Cost of Goods Sold | 2,772,451 | 3,303,042 | 8,202,634 | 9,078,036 | ||||||||||||||||||||
Revenue | $ | 4,011,519 | $ | 3,637,236 | ||||||||||||||||||||
Cost of goods sold | 3,620,177 | 3,391,695 | ||||||||||||||||||||||
Gross Profit | (315,967 | ) | 386,469 | 148,124 | 2,260,781 | 391,342 | 245,541 | |||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Selling expenses | 521,627 | 558,105 | 1,506,369 | 1,661,352 | 1,182,435 | 1,059,948 | ||||||||||||||||||
General and administrative expenses | 433,368 | 498,358 | 1,518,935 | 1,830,260 | 1,058,949 | 1,916,517 | ||||||||||||||||||
Non-cash compensation expenses | 24,055 | 104,416 | 150,013 | 377,140 | ||||||||||||||||||||
Research and development expenses | 121,680 | 124,165 | 375,026 | 476,734 | 342,619 | 602,737 | ||||||||||||||||||
Total Operating Expense | 1,100,730 | 1,285,044 | 3,550,343 | 4,345,486 | 2,584,003 | 3,579,202 | ||||||||||||||||||
Loss from Operations | (1,416,697 | ) | (898,575 | ) | (3,402,219 | ) | (2,084,705 | ) | (2,192,661 | ) | (3,333,661 | ) | ||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
Interest and other income | 2,790 | - | 3,093 | - | 51,673 | 99 | ||||||||||||||||||
Interest expense | (3,781 | ) | (7,347 | ) | (23,308 | ) | (23,843 | ) | (12,001 | ) | (206,461 | ) | ||||||||||||
Loss on currency transactions | (26,913 | ) | (14,060 | ) | (54,600 | ) | (26,219 | ) | ||||||||||||||||
Loss on sale of fixed assets | (34,824 | ) | - | (28,056 | ) | - | ||||||||||||||||||
Amortization discount on convertible note | (84,528 | ) | (297,338 | ) | ||||||||||||||||||||
Gain (Loss) on currency transactions | (166,278 | ) | 75,993 | |||||||||||||||||||||
Total Other Income (Expense) | (62,728 | ) | (21,407 | ) | (102,871 | ) | (50,062 | ) | (211,134 | ) | (427,707 | ) | ||||||||||||
Loss Before (Income) Taxes | (1,479,425 | ) | (919,982 | ) | (3,505,090 | ) | (2,134,767 | ) | ||||||||||||||||
Loss Before Income Taxes | (2,403,795 | ) | (3,761,368 | ) | ||||||||||||||||||||
Income Tax Expense (Income) | - | 17,646 | - | 2,885,932 | ||||||||||||||||||||
Income Tax Benefit | (14,292 | ) | (14,994 | ) | ||||||||||||||||||||
Net Loss | (1,479,425 | ) | (937,628 | ) | (3,505,090 | ) | (5,020,699 | ) | $ | (2,389,503 | ) | $ | (3,746,424 | ) | ||||||||||
Basic Loss Per Share | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.13 | ) | ||||||||||||
Basic and Diluted Loss Per Share | $ | (0.05 | ) | $ | (0.18 | ) | ||||||||||||||||||
Weighted Average Common Shares Outstanding | 44,229,264 | 39,532,035 | 40,604,129 | 39,532,035 | ||||||||||||||||||||
Diluted Loss Per Share | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.13 | ) | ||||||||||||
Weighted Average Common Shares Outstanding Assuming Dilution | 44,229,264 | 39,532,035 | 40,604,129 | 39,532,035 | ||||||||||||||||||||
Basic and Diluted Weighted Average Common Shares Outstanding | 45,228,596 | 21,350,455 |
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)CONDENSED CONSOLIDATED STATEMENTS OF OTHER
COMPREHENSIVE INCOMELOSS (UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Loss | (1,479,425 | ) | (937,628 | ) | (3,505,090 | ) | (5,020,699 | ) | ||||||||
Currency Translation, Net of Taxes | 142,599 | 66,547 | 454,487 | 401,194 | ||||||||||||
Other Comprehensive Loss | $ | (1,336,826 | ) | $ | (871,081 | ) | $ | (3,050,603 | ) | $ | (4,619,505 | ) |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Net Loss | (2,389,503 | ) | (3,746,424 | ) | ||||
Other Comprehensive Income - Currency Translation, Net | 408,596 | (355,891 | ) | |||||
Total Comprehensive Loss | $ | (1,980,907 | ) | $ | (4,102,315 | ) |
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSTOCKHOLDERS' EQUITY (UNAUDITED)
Increase (Decrease) in CashFor the period ended March 31, 2023 and Cash EquivalentsMarch 31, 2022
For the Period Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net Loss | $ | (3,505,090 | ) | $ | (5,020,699 | ) | ||
Adjustments to reconcile net (loss) to net cash provided (used) by operations: | ||||||||
Depreciation and amortization | 732,963 | 995,687 | ||||||
Non-cash compensation | 150,013 | 384,795 | ||||||
Bad debt expense (recovery) | (59,409 | ) | 23,852 | |||||
Reserve for obsolete inventory | - | 132,983 | ||||||
Change in deferred tax asset / liability | - | 3,193,214 | ||||||
Loss on sale of equipment | 28,056 | - | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in restricted cash | - | 292,826 | ||||||
(Increase) decrease in accounts receivable | (478,879 | ) | (1,026,055 | ) | ||||
(Increase) decrease in inventory | 238,986 | (572,709 | ) | |||||
(Increase) decrease in prepaid expenses/deposits | 26,817 | (79,546 | ) | |||||
Increase (decrease) in accounts payable | 27,657 | (649,056 | ) | |||||
Increase (decrease) in accrued expenses | 340,371 | (49,752 | ) | |||||
Increase (decrease) long-term contracts | (202,066 | ) | 1,271,781 | |||||
Total Adjustments | 804,509 | 3,918,020 | ||||||
Net Cash Used by Operating Activities | (2,700,581 | ) | (1,102,679 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of property and equipment | (94,950 | ) | (129,411 | ) | ||||
Proceeds from sale of property and equipment | 12,827 | - | ||||||
Net Cash Used by Investing Activities | (82,123 | ) | (129,411 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Net payments on capital lease obligation | (110,963 | ) | (112,566 | ) | ||||
Payments on loans payable | (6,347 | ) | (21,210 | ) | ||||
Proceeds from issuance of common stock and warrants | 1,825,000 | - | ||||||
Net Cash Provided by (Used in) Financing Activities | 1,707,690 | (133,776 | ) | |||||
Gain on Currency Translation | 394,930 | 232,958 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (680,084 | ) | (1,132,908 | ) | ||||
Cash and Cash Equivalents at Beginning of Period | 1,208,650 | 1,370,591 | ||||||
Cash and Cash Equivalents at End of Period | $ | 528,566 | $ | 237,683 |
Additional | Accumu- | Accumulated Other | ||||||||||||||||||||||
Common Stock | Paid-in | lated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income/(Loss) | TOTAL | |||||||||||||||||||
BALANCE, December 31, 2022 | 43,986,079 | 43,986 | 96,936,988 | (67,351,035 | ) | (6,320,567 | ) | 23,309,372 | ||||||||||||||||
Common stock issued in settlement of RSUs | 1,285,362 | 1,284 | (1,284 | ) | - | |||||||||||||||||||
Stock-based compensation | 157,173 | 157,173 | ||||||||||||||||||||||
Currency translation, net | 408,596 | 408,596 | ||||||||||||||||||||||
Net Loss | (2,389,503 | ) | (2,389,503 | ) | ||||||||||||||||||||
BALANCE, March 31, 2023 | 45,271,441 | 45,270 | 97,092,877 | (69,740,538 | ) | (5,911,971 | ) | 21,485,638 | ||||||||||||||||
BALANCE, December 31, 2021 | 21,285,706 | 21,285 | 70,910,092 | (53,181,928 | ) | (4,975,399 | ) | 12,774,860 | ||||||||||||||||
Common stock issued in settlement of RSUs | 66,982 | 67 | (67 | ) | - | |||||||||||||||||||
Stock-based compensation | 178,778 | 178,778 | ||||||||||||||||||||||
Currency translation, net | (355,891 | ) | (355,891 | ) | ||||||||||||||||||||
Net Income | (3,746,424 | ) | (3,746,424 | ) | ||||||||||||||||||||
BALANCE, March 31, 2022 | 21,352,688 | 21,352 | 71,089,613 | (56,928,352 | ) | (5,331,290 | ) | 8,851,323 |
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents (UNAUDITED)
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest Paid | $ | 23,308 | $ | 23,843 | ||||
Income Taxes | $ | - | $ | 570 | ||||
Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||||
Compensation upon vesting of stock options granted to employees | $ | 58,038 | $ | 272,665 | ||||
Compensation for vesting of restricted stock awards issued to the board of directors | 78,750 | 58,250 | ||||||
Value of warrants issued for services | 13,225 | 46,225 | ||||||
Total | $ | 150,013 | $ | 377,140 |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net Loss | $ | (2,389,503 | ) | $ | (3,746,424 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operations: | ||||||||
Depreciation and amortization | 756,631 | 746,357 | ||||||
Amortization of discount on convertible notes payable | 84,528 | 297,338 | ||||||
Stock-based compensation | 157,173 | 178,778 | ||||||
Change in deferred tax asset / liability | (14,292 | ) | (14,944 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (379,330 | ) | (237,953 | ) | ||||
Inventory | (283,157 | ) | (505,962 | ) | ||||
Contract assets | (151,812 | ) | (585,678 | ) | ||||
Prepaid expenses and other current assets | (336,388 | ) | (1,399,481 | ) | ||||
Accounts payable | 791,702 | 414,995 | ||||||
Accrued expenses | (433,045 | ) | 209,038 | |||||
Operating lease liabilities | (138,699 | ) | (185,804 | ) | ||||
Contract liabilities | 48,755 | (205,206 | ) | |||||
Assets held for sale | 2,136 | - | ||||||
Total Adjustments | 107,201 |
| (1,288,522 | ) | ||||
Net Cash used in Operating Activities | (2,285,301 | ) | (5,034,944 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of property and equipment | (87,470 | ) | (183,031 | ) | ||||
Net Cash used in Investing Activities | (87,470 | ) | (183,031 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Payments on finance lease obligation | (98,945 | ) | (91,807 | ) | ||||
Interest payments on convertible note | - | (840,000 | ) | |||||
Net Cash used in Financing Activities | (98,945 | ) | (931,807 | ) | ||||
Gain (Loss) on Currency Translation | 184,278 | (112,537 | ) | |||||
Net change in Cash and Restricted Cash | (2,287,438 | ) | (6,262,319 | ) | ||||
Cash and Restricted Cash at Beginning of Period | 16,597,371 | 17,489,380 | ||||||
Cash and Restricted Cash at End of Period | $ | 14,309,933 | $ | 11,227,061 |
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 Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | (41,506 | ) | $ | 203,289 | |||
Income Taxes | - | - |
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.(“Parent”, (the “Company”) and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this report refer to Parentthe Company and its subsidiaries, which are set forth below.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, liquid filters,ceramic silicon carbide membrane applications and diesel particulate air filters and kiln furniture in United States, Canada,North America, Europe, Asia, Australia, and South America. Set forth below is a description of Parent and each of its subsidiaries:
LiqTech International, Inc., a Nevada corporation (Parent) organizedThese interim consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in July 2004, formerly known as Blue Moose Media, Inc.
LiqTech USA, a Delaware corporation and a wholly owned subsidiary of Parent formedfinancial statements prepared in May 2011.
LiqTech International AS, a Danish corporation, incorporated on January 15, 2000 (“LiqTech Int. DK”), a 100% owned subsidiary of LiqTech USA, engages in development, design, application, marketing and sales of membranes on ceramic diesel particulate and liquid filters and catalytic converters in Europe, Asia and South America.
LiqTech NA, Inc. (“LiqTech NA”), incorporated in Delaware on July 1, 2005, a 100% owned subsidiary of LiqTech USA. LiqTech NA, Inc. engagesaccordance with generally accepted accounting principles in the production, marketing and sale of ceramic diesel particulate and liquid filters and kiln furniture in United States (“GAAP”) have been condensed or omitted pursuant to the rules and Canada.
LiqTech Germanyregulations of the Securities and Exchange Commission (“LiqTech Germany”SEC”) a 100% owned subsidiary of LiqTech Int. DK, incorporated. These Condensed Consolidated Financial Statements should be read in Germany on December 9, 2011, engages in marketing and sale of liquid filters in Germany. The Company has no operation and is in the process of closing down, which is expected to be completed during 2017.
LiqTech PTE Ltd. (“LiqTech Sing”) a 95% owned subsidiary of LiqTech Int. DK, incorporated in Singapore on January 19, 2012, engages in marketing and sale of liquid filters in Singapore and other countries in the area. The Company has no operation and is in the process of closing down, which is expected to be completed during 2017.
LiqTech Systems A/S ("LiqTech Systems"), a Danish corporation (formerly Provital Solutions A/S) was incorporated on September 1, 2009 and engages in the manufacture of fully automated filtering systems for application within the pool and spa markets, marine applications, and a number of industrial applications within Denmark and international markets. Theconjunction with our financial statements includeand notes thereto included in our Annual Report on Form 10-K for the accountsyear ended December 31, 2022. The results of LiqTech Systems fromoperations for the dateperiod ended March 31, 2023 are not necessarily indicative of acquisition on July 31, 2014.the operating results for the full year and are unaudited. In the opinion of management, all adjustments consisting of normal recurring nature, necessary for a fair presentation have been included.
Consolidation--The consolidated financial statements include the accounts and operations of the Company. The non-controlling interests in the net assets of theCompany and its wholly-owned subsidiaries are recorded in equity. The non-controlling interests of the results of operations of the subsidiaries are included in the results of operations and recorded as the non-controlling interest in subsidiaries.its majority owned subsidiary. All material inter-companyintercompany transactions and accounts have been eliminated in the consolidation.
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 Translationcurrency translation-- The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The Functional Currencyfunctional currency of LiqTech Int. DKHolding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects and LiqTech SystemsEmission Control is the Danish Krone (“DKK”),; the functional currency of LiqTech China is the Renminbi (“RMB”); the functional currency of LiqTech Germany is the EuroEuro; and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The foreign subsidiaries balance sheet accounts 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 three and nine months ended September 30, 2017 March 31, 2023 and 2016.2022. 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.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 March 31, 2023 and December 31, 2022, the Company held $1,469,325 and $1,440,394, 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 products.
Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At March 31, 2023 and December 31, 2022 the Company had no balances held in a financial institution in the United States$275,028, and $12,999,271 in excess of federallythe FDIC insured amounts at September 30, 2017 and December 31, 2016.limit, respectively.
Accounts Receivable-- Accounts receivablesreceivable consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts whichthat 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 forwardroll-forward of the allowance for doubtful accounts for the nine monthsperiods ended September 30, 2017 March 31, 2023 and the year ended December 31, 2016 2022 is as follows:
2017 | 2016 | March 31, 2023 | December 31, 2022 | |||||||||||||
Allowance for doubtful accounts at the beginning of the period | $ | 2,128,452 | $ | 1,087,871 | $ | 59,559 | $ | 409,076 | ||||||||
Bad debt expense | (59,409 | ) | 1,437,949 | - | (24,534 | ) | ||||||||||
Amount of receivables written off | (31,609 | ) | (252,792 | ) | ||||||||||||
Receivables written off during the periods | - | (295,778 | ) | |||||||||||||
Effect of currency translation | 252,482 | (144,576 | ) | 1,069 | (29,205 | ) | ||||||||||
Allowance for doubtful accounts at the end of the period | $ | 2,289,916 | $ | 2,128,452 | $ | 60,628 | $ | 59,559 |
Inventory -- – Inventory directly purchased is carried at the lower of cost or market,net realizable value, as determined on the first-in, first-outfirst-in, first-out 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 is 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 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 (formerly called capital lease obligations) 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 included prepaid lease payments and 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 three to ten years (See Note 4). years.
Long-Term InvestmentsGoodwill and Intangible Assets-- Investments in non-consolidated companies 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 included in long-term investmentsnot limited to, the cash flows that an asset is expected to generate in the consolidated balance sheetfuture and the appropriate weighted average cost of capital.
Acquired intangible assets with determinable useful lives are accounted for underamortized on a straight-line or accelerated basis over the cost methodestimated periods benefited, ranging from one to ten years. Customer relationships and equity method. For these non-quoted investments, we regularly reviewother non-contractual intangible assets with determinable lives are amortized over periods of five years.
The Company evaluates the assumptions underlyingrecoverability of long-lived assets by comparing the operating performance andcarrying amount of an asset to estimated future net undiscounted cash flow forecasts based on information requested from these privately held companies. Generally, this information mayflows generated by the asset. If such assets are considered to be more limited, may not beimpaired, the impairment recognized is measured as timely as and may be less accurate than information available from publicly traded companies. Assessing each investment'sthe amount by which the carrying value requires significant judgment by management. If it is determined that there is another-than-temporary decline inof the assets exceeds the fair value of a non-public equity security, we write-down the investmentassets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, its fair valuerevenue growth rates, gross profit margins, and record the related write-down as an investment loss in the consolidated statement of operations.
Intangible Assets -- Definite life intangible assets include patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting Standards Board, (“FASB”) Accounting Standards Codification, (“ASC”) Topic 350, “Goodwill and Other Intangible Assets” and amortized the patents on a straight line basisoperating expenses over the estimatedexpected remaining useful life of two to ten years. the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.
Goodwill -- Goodwill is not amortized but is evaluated annually for impairment annually, and whenever eventsat the reporting unit level or changes in circumstances indicatewhen indicators of a potential impairment are present. The Company estimates the carryingfair value of goodwill may not be recoverable. Triggering events that may indicate impairment include, butthe reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are not limited to, a significant adverse change in customer demand or business climate that could affectbased on the valueCompany’s best estimate of goodwill or a significant decrease infuture net sales and operating expenses, using primarily expected cash flows.category expansion, pricing, market segment fundamentals, and general economic conditions.
Revenue Recognition and Sales Incentives-- The Company accounts for revenue recognition in accordance withsells products throughout the Securitiesworld, and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), FASB ASC 605 Revenue Recognition. The Company recognizes revenue when rights and risk of ownership have passed to the customer, when there is persuasive evidence of an arrangement, product has been shipped or delivered to the customer, the price and termssales by geographical region are finalized, and collections of resulting receivable is reasonably assured. Products are primarily shipped FOB shipping point at which time title passes to the customer. In some instances, the Company uses common carriersas follows for the delivery of products. In these arrangements, sales are recognized upon delivery to the customer. The Company's revenue arrangements with its customers often include early payment discounts three months ended March 31, 2023 and such sales incentives are recorded against sales.2022:
For the Three months | ||||||||||||||||
% Distribution | Ended March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Americas | 9 | % | 4 | % | $ | 333,530 | $ | 139,307 | ||||||||
Asia-Pacific | 11 | % | 23 | % | 451,895 | 835,365 | ||||||||||
Europe | 77 | % | 73 | % | 3,099,785 | 2,662,564 | ||||||||||
Middle East & Africa | 3 | % | - | % | 126,309 | - | ||||||||||
100 | % | 100 | % | $ | 4,011,519 | $ | 3,637,236 |
The Company’s sales by product line are as follows for the three months ended March 31, 2023 and 2022:
For the Three Months | ||||||||||||||||
% Distribution | Ended March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Water | 36 | % | 16 | % | $ | 1,434,919 | $ | 592,990 | ||||||||
Ceramics | 35 | % | 52 | % | 1,409,372 | 1,880,118 | ||||||||||
Plastics | 29 | % | 31 | % | 1,167,228 | 1,138,597 | ||||||||||
Corporate | - | % | 1 | % | - | 25,530 | ||||||||||
100 | % | 100 | % | $ | 4,011,519 | $ | 3,637,236 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)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 of the commissioning services 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 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.
The Company has received long-term contracts for the installation of various water filtrations systems and grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications. Revenues fromapplications and historically in the installation of various water filtration systems. We measure the transfer of control of the performance obligation on long-term contracts and grants are recognized onutilizing the percentage-of-completion method, measured by the percentage of project costs incurred to date to estimated total project costs for each long-term contract or grant multiplied by the long-term contract or grant income on a project-by-project basis. This method is used because management considers costs incurred to be the best availablecost-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 contracts in process.
Project costscompletion of certain phases of the long-term contracts and grants include all direct material and laborwork, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and those indirect costs relatedestimated earnings recognized to the project. Project costs are capitalized and accreted into cost of sales based on the percentage of the project completed. Should a loss be estimated on an incomplete project it would be recorded in the period in which such a loss is determined. Changes in estimated profitability of a project are recognized in the period in which the revisions are determined. The aggregate of costs incurred and income recognized on incomplete projects are recorded as costsdate in excess of cumulative billings and are shownreported on our balance sheet as a current asset.
The aggregate ofContract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of related costs incurred and incomeestimated earnings recognized to date are reported on projects is shownour balance sheet as a current liability. Contract liabilities.
In Denmark, Value Added Tax (“VAT”)The roll-forward of 25% ofContract assets / liabilities for the invoice amount periods ended March 31, 2023 and December 31, 2022 is collected in respect of the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the authorities. follows:
March 31, 2023 | December 31, 2022 | |||||||
Cost incurred | $ | 4,338,453 | $ | 3,860,179 | ||||
Unbilled project deliveries | 506,509 | 950,105 | ||||||
VAT | 327,718 | 229,006 | ||||||
Other receivables | 75,804 | 45,814 | ||||||
Prepayments | (3,445,720 | ) | (3,363,039 | ) | ||||
Deferred Revenue | (65,701 | ) | (118,327 | ) | ||||
$ | 1,737,063 | $ | 1,603,738 | |||||
Distributed as follows: | ||||||||
Contract assets | $ | 2,447,668 | $ | 2,253,295 | ||||
Contract liabilities | (710,604 | ) | (649,557 | ) | ||||
$ | 1,737,063 | $ | 1,603,738 |
Advertising Cost-- Cost Costs incurred in connection with advertising of the Company’s products isare expensed as incurred. SuchAdvertising costs amounted to $9,270are included in sales expenses, and $21,307total advertising costs for the nine monthsthree-month periods ended September 30, 2017 March 31, 2023 and 2016,2022 were $32,599 and $55,524, respectively.
Research and Development Cost-- The Company expenses research and development costs for the development of new products and systems as incurred. Included in operating expense for the nine monthsthree-month periods ended September 30, 2017 March 31, 2023 and 20162022 were $375,026 and $476,734, respectively, of research and development costs.costs of $342,619 and $602,737, respectively.
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 forwith respect to accounting for income taxes.
Income Income/(Loss)Per Share-- The Company calculates earnings (loss) per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of common shares 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 common 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 Options and Awards-- The During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards to certain key employees and directors. See Note 14.awards. The Company accounts for optionsstock awards in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Non-cash compensation costs
Fair Value of Financial Instruments --The-- The Company accounts for fair value measurements for financial assets and financial 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 nonrecurringnon-recurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tierthree-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. |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unless otherwise disclosed, the fair value of the Company’sCompany’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations andconvertible notes payable, approximatesand 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 receivable, cost in excess of billings,accounts; contract assets; reserve for excess and obsolete inventory,inventory; depreciation and impairment of property, plant and equipmentequipment; goodwill; liabilities including contract liabilities and impairment of goodwill and liabilities billings in excess of cost commitment and contingencies,contingencies; the disclosures of contingent assets and liabilities at the date of the financial statementsstatements; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.
Recent Accounting Pronouncements -- In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On July 9 2015, the FASB agreed to delay the effective date by one year; accordingly, the new standard is effective for us beginning in the first quarter of 2018 and we expect to adopt it at that time. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method, nor have we determined the impact of the new standard on our consolidated financial statements.
In February 2016, the FASB issued changes to the accounting for leases that primarily affect presentation and disclosure requirements. The new standard will require the recognition of a right to use asset and underlying lease liability for operating leases with an initial life in excess of one year. This standard is effective for us beginning in the first quarter of 2019. We have not yet determined the impact of the new standard on our consolidated financial statements.
Other recentRecent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’sCompany’s present or future financial statements.
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,concern; however, the Company has limited cash and incurred significant recent losses. These factors raiselosses, which raises substantial doubt about the ability of the Company to continue as a going concern.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 raising additional cash throughexecuting the issuance of debt or equity instruments or return toproposed cost reductions 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 at September 30, 2017 on March 31, 2023, and December 31, 2016:2022:
|
| 2017 |
| 2016 |
| March 31, 2023 | December 31, 2022 | |||||||||
Furnace parts and supplies |
| $ | 375,529 |
| $ | 336,799 |
| $ | 67,689 | $ | 66,495 | |||||
Raw materials |
| 1,218,256 |
| 1,216,098 |
| 2,721,031 | 2,474,227 | |||||||||
Work in process |
| 2,592,894 |
| 2,499,242 |
| 1,155,789 | 982,973 | |||||||||
Finished goods and filtration systems |
| 1,934,569 |
| 2,544,080 |
| 1,152,376 | 1,201,533 | |||||||||
Reserve for obsolescence |
|
| (1,310,751 | ) |
|
| (1,421,345 | ) | (675,137 | ) | (663,227 | ) | ||||
Net Inventory |
| $ | 4,810,497 |
| $ | 5,174,874 |
| $ | 4,421,748 | $ | 4,062,001 |
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- PROPERTY AND EQUIPMENTLEASES
PropertyThe Company leases certain vehicles, real property, production equipment and office equipment consistedunder 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 the following at September 30, 2017our operating leases are non-cancelable leases for production and December 31, 2016:office space in Hobro, Aarhus and Copenhagen, Denmark.
Useful Life | 2017 | 2016 | ||||||||||||||
Production equipment | 3 | - | 10 | $ | 10,031,780 | $ | 10,370,462 | |||||||||
Lab equipment | 3 | - | 10 | 85,766 | 76,658 | |||||||||||
Computer equipment | 3 | - | 5 | 199,184 | 185,652 | |||||||||||
Vehicles | 3 | - | 5 | 74,164 | 39,090 | |||||||||||
Furniture and fixture | 5 | 104,431 | 146,453 | |||||||||||||
Leasehold improvements | 10 | 1,063,722 | 955,563 | |||||||||||||
11,559,047 | 11,773,878 | |||||||||||||||
Less Accumulated Depreciation | (9,435,618 | ) | (9,140,320 | ) | ||||||||||||
Net Property and Equipment | $ | 2,123,429 | $ | 2,633,558 |
During the three months ended March 31, 2023, cash paid for amounts included for the measurement of finance lease liabilities was $98,945, and the Company recorded finance lease expenses in other income (expenses) of $109,165.
Depreciation expense amounted to $731,312 and $992,418During the three months ended March 31, 2023, cash paid for amounts included for the nine months ended September 30, 2017measurement of operating lease liabilities was $188,555, and 2016, respectively. The property and equipment is held as collateral on linesthe Company recorded operating lease expense of credit and guarantees with financial institutions. See Note 9. $188,555.
Supplemental balance sheet information related to leases as of March 31, 2023 and December 31, 2022 was as follows:
March 31, 2023 | December 31, 2022 | |||||||
Operating leases: | ||||||||
Operating lease right-of-use assets | $ | 3,190,273 | $ | 3,271,997 | ||||
Operating lease liabilities – current | $ | 579,552 | $ | 561,182 | ||||
Operating lease liabilities – long-term | 2,610,721 | 2,710,815 | ||||||
Total operating lease liabilities | $ | 3,190,273 | $ | 3,271,997 | ||||
Finance leases: | ||||||||
Property and equipment, at cost | $ | 3,947,597 | $ | 3,877,955 | ||||
Accumulated depreciation | (631,838 | ) | (544,653 | ) | ||||
Property and equipment, net | $ | 3,315,759 | $ | 3,333,302 | ||||
Finance lease liabilities – current | $ | 410,060 | $ | 399,198 | ||||
Finance lease liabilities – long-term | 2,322,913 | 2,384,011 | ||||||
Total finance lease liabilities | $ | 2,732,973 | $ | 2,783,209 | ||||
Weighted average remaining lease term: | ||||||||
Operating leases | 9.6 | 9.6 | ||||||
Finance leases | 5.1 | 5.4 | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 6.1 | % | 6.2 | % | ||||
Finance leases | 2.2 | % | 2.2 | % |
NOTE 5 - INVESTMENTS AT COSTSMaturities of lease liabilities at March 31, 2023 were as follows:
The following tables summarize Level 1, 2 and 3 financial assets and financial (liabilities) by their classification in the Statement of Financial Position:
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At September 30, 2017 and 2016, our total investments consisted of an investment of $5,909 and $5,282 in LEA Technology in France to strengthen our sales channels in the French market.
NOTE 6 - DEFINITE-LIFE INTANGIBLE ASSETS
At September 30, 2017 and December 31, 2016, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products of $3,963 and $5,614, respectively. The patents are recorded at cost and amortized over two to ten years. Amortization expense for the nine months ended September 30, 2017 and 2016 was $1,651 and $3,269, respectively. Expected future amortization expense for the years ended are as follows:
Year ending December 31, | Amortization Expenses | |||
2017 | 755 | |||
2018 | 2,540 | |||
2019 | 668 | |||
Thereafter | - | |||
$ | 3,963 |
NOTE 7 - GOODWILL
The Company recorded Goodwill in connection with the acquisition of LiqTech Systems. Goodwill is evaluated for impairment annually in the fourth quarter of the Company’s fiscal year, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. Key variables included in evaluating goodwill for impairment include the pipeline of proposed potential customer sales, budgeted reoccurring sales, risk free interest rate and risk premium rate and future budgeted operating results. The Company recorded an impairment charge of $7,343,208 during the year ended December 31, 2016, as management's estimated fair value of the reporting unit did not exceed the carrying value during 2016 fourth quarter testing.
Operating Lease | Finance lease | |||||||
2023 (remaining 9 months) | $ | 568,313 | $ | 420,124 | ||||
2024 | 615,177 | 537,720 | ||||||
2025 | 320,664 | 534,241 | ||||||
2026 | 310,065 | 498,391 | ||||||
2027 | 310,065 | 498,391 | ||||||
Thereafter | 2,092,942 | 741,592 | ||||||
Total payment under lease agreements | 4,217,226 | 3,230,460 | ||||||
Less imputed interest | (1,026,953 | ) | (497,487 | ) | ||||
Total lease liability | $ | 3,190,273 | $ | 2,732,973 |
NOTE 8 - NOTES PAYABLE5
The Company had a 4.02% note payable used to purchase a vehicle with $48,582 and $54,929 balance outstanding as of September 30, 2017 and December 31, 2016. The note calls for monthly payments of $1,477, matures August 1, 2020 and is secured by the vehicle purchased.
The following represents the future maturities of long-term debt as of September 30, 2017:
Year ending December 31, | Payments | |||
2017 | $ | 3,947 | ||
2018 | 16,234 | |||
2019 | 16,897 | |||
2020 | 11,504 | |||
Thereafter | - | |||
$ | 48,582 | |||
Long-term notes payable, less current portion | $ | 32,521 | ||
Current portion of notes payable | $ | 16,061 |
NOTE 9- LINES OF CREDIT
In connection with certain orders, we have to giveprovide the customer a working guarantee, or a prepayment guarantee or a security bond. For that purpose, we have a guaranteeguaranteed credit line of DKK 94,620EUR 1,350,000 (approximately $15,000 at September 30, 2017) with$1,470,000) secured by a bank, subject to certain base limitations.cash deposit. As of September 30, 2017, we had DKK 94,620 (approximately $15,000) inMarch 31, 2023, our bank has issued working guaranteeguaranties of $259,366 for our customers against the line. 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.line.
NOTE 10 - LEASES6 – LONG-TERM DEBT
Operating Leases -- The Company leases office and production facilities under operating lease agreements expiring in Convertible Note
On March 24, 2021, August 2018, and May 2018. In some of these lease agreements, the Company hasentered into a Securities Purchase Agreement with an institutional investor pursuant to which the rightCompany agreed to extend.issue and sell a $15.0 million principal amount senior convertible note (the “Convertible Note”) maturing on October 1, 2023 and 80,000 shares of our common stock, $0.001 par value (“Common Stock”), for an aggregate purchase price of $15.0 million upon the satisfaction of the closing conditions set forth in the Securities Purchase Agreement. The Closing occurred on April 8, 2021, and the Company issued to the Investor the securities in connection with the Closing.
The future minimum lease paymentsConvertible Note was a senior, unsecured obligation of the Company, payable at 112% of the principal amount at maturity ( October 1, 2023), or earlier upon redemption or repurchase as set forth in the Convertible Note. The Convertible Note was convertible into shares of Common Stock pursuant to the terms of the Convertible Note, in part or in whole, from time to time, at the election of the Investor. The initial conversion rate was 100.6749 shares of Common Stock per $1,000 of principal amount of the Convertible Note. The conversion rate was subject to anti-dilution adjustments, including for non-cancelable operating leases having remainingstock dividends, splits, and combinations; issuances of options, warrants, or similar rights; spin-offs and distributions of property; cash dividends or distributions; and tender or exchange offers, in each case as further described in and pursuant to the terms in excess of one year as of September 30, 2017 are as follows:
Year ending December 31, | Lease Payments | |||
2017 | 162,739 | |||
2018 | 467,758 | |||
2019 | 179,094 | |||
2020 | 182,676 | |||
2021 | 30,546 | |||
Thereafter | - | |||
Total Minimum Lease Payments | $ | 1,022,813 |
Lease expense charged to operations was $481,001 and $559,755 for the nine months ended September 30, 2017 and 2016, respectively.Convertible Note.
Capital Leases -- The Company leases equipmentBeginning on various variable rate capital leases currently calling for monthly paymentsMarch 1, 2022, and on the first day of approximately $661 and $595 expiring through July 2018. Included in property and equipment,each calendar month thereafter, at September 30, 2017 and December 31, 2016,the election of the Investor or Holder, if applicable, the Company had recorded equipmentwas required to redeem $840,000 of the amounts due under the Convertible Note in cash or Common Stock at 90% of the lesser of (i) the volume-weighted average price (“VWAP”) of the Common Stock on capital lease at $1,267,773the trading day immediately preceding the payment date and $1,240,358, respectively, with related accumulated depreciation(ii) the average of $1,230,832 and $1,126,550, respectively. the lowest three (3) VWAPs over the 10 trading days immediately preceding the payment date, which shall in no case be less than the floor price of $1.75 per share. Beginning on March 1, 2022, the Company paid the first monthly installment of $840,000 in cash.
During As of June 22, 2022, the nine months ended September 30, 2017Convertible Note, including accrued interest and 2016 depreciation expense for equipment on capital leases amountedall relevant obligations, was repaid in full, amounting to $39,445,$13,446,875, allocated between a principal repayment of $11,640,000 and $103,219, respectively, and has been included in depreciation expense. During the nine months ended September 30, 2017 and 2016, interest expense on a capital lease obligation amounted to $6,216 and $13,770, respectively. contractual repayment premium of $1,806,875.
The following represents future minimum capital lease paymentscomponents of the Convertible Note are as of September 30, 2017: follows:
Year ending December 31, | Lease Payments | |||
2017 | 3,766 | |||
2018 | 26,538 | |||
Thereafter | - | |||
Total minimum lease payments | 30,304 | |||
Less amount representing interest | (1,442 | ) | ||
Present value of minimum lease payments | 28,862 | |||
Less Current Portion | (7,808 | ) | ||
$ | 21,054 |
March 31, 2023 | March 31, 2022 | |||||||
Convertible note | $ | - | 15,960,000 | |||||
Less: unamortized debt issuance costs | - | (1,915,726 | ||||||
Convertible note payable | $ | - | $ | 14,044,274 | ||||
Current portion of convertible note payable | - | 10,080,000 | ||||||
Convertible note payable, less current portion | - | 3,964,273 | ||||||
Convertible note payable | $ | - | $ | 14,044,274 |
For the three months ended March 31, 2023 and 2022, the Company recognized interest expense of $0 and $187,500, respectively, and $0 and $297,338, respectively, related to the amortization of debt issuance costs.
Senior Promissory Notes
On June 22, 2022, the Company issued and sold Senior Promissory Notes in an aggregate principal amount of $6.0 million (the "Notes") and issued warrants to purchase 4,250,000 shares of common stock of the Company to affiliates of Bleichroeder L.P., 21April Fund, L.P., and 21April Fund, Ltd. (together, the "Purchasers"), pursuant to a note and warrant purchase agreement entered into with the Purchasers.
The Notes have a term of 24 months and do not bear interest during this period. If the notes are not repaid on or before the second anniversary of issuance, however, the Notes will thereafter bear interest of 10% per annum, which will increase by 1% each month the Notes remain unpaid, up to a maximum of 16% per annum, payable monthly.
Additionally, as part of the transaction, the Company issued 230,000 warrants to the placement agent. All of the warrants issued in this transaction have an exercise price of $0.65 per share, a term of five years and are exercisable for cash at any time.
As a result, the Company recorded an initial debt discount of $695,749, based on the relative fair value of the warrants and notes issued. The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions: expected term of 2.5 years, stock price of $0.43, exercise price of $0.65, volatility of 80.8%, risk-free rate of 3.13%, and no forfeiture rate. The debt discount will be accreted according to the effective interest method over the contractual term of the note. The warrants qualified for equity classification and were reported within Additional Paid-In Capital.
The components of notes payable are as follows:
March 31, 2023 | December 31, 2022 | |||||||
Senior Promissory Notes | $ | 6,000,000 | 6,000,000 | |||||
Less: unamortized debt discount | (435,158 | ) | (519,686 | ) | ||||
Senior Promissory Notes payable | $ | 5,564,842 | $ | 5,480,314 | ||||
Current portion of Senior Promissory Notes payable | - | - | ||||||
Senior Promissory Notes payable, less current portion | 5,564,842 | 5,480,314 | ||||||
Senior Promissory Notes payable | $ | 5,564,842 | $ | 5,480,314 |
For the three months ended March 31, 2023 and 2022, the Company recognized interest expense of $0 and $0, respectively, and $84,528 and $0, respectively on the Senior Promissory Notes, related to the amortization of debt issuance costs.
NOTE 11 -7 – 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 nine months ended September 30, 2017 and 2016, matching contributions were expensed and totaled $8,636 and $9,291, 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 September 9, 2014, Mr. Raffaele Bruno Tronchetti Provera (“Plaintiff”), the 60% owner of LiqTech Italy s.r.l. (the “Venture”), sued LiqTech International A/S, the 40% owner of the Venture (“Defendant”), 750,000 Euros before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. As of August 14, 2017, the case is in the preliminary stages where the court has appointed an expert in order to verify the quality of the products in order to determine whether there is sufficient evidence to proceed. An evaluation of the outcome will only be possible after the results of the court appointment expert are known. This outcome of the court appointment expert is expected to be reported during 2017. Defendant believes that the claims are without merit and intends to vigorously defend any litigation.
In connectionNovember 2022, the Company entered into a commercial settlement agreement regarding marine wastewater treatment systems delivered in 2019, more specifically 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 certain orders, we haveexpected remediation work to givebe conducted in the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guarantee line first half of DKK 94,620 (approximately $15,000 at September 30, 2017) with a bank, subject to certain base limitations. As2023. The cost of September 30, 2017, we had DKK 94,620 (approximately $15,000 at September 30, 2017) in working guarantee againstany remediation work is shared between the line. two parties.
NOTE 12 - INCOME TAXESProduct Warranties – The Company provides a standard warranty for 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 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 accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes, which requiresperiodically assesses the Company to provide a net deferred tax asset oradequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability equal toinclude the expected future tax benefit or expensenumber of temporary reporting differences between bookunits sold, historical and tax accounting and any available operating loss or tax credit carry forwards. The amountanticipated rates of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax position meets the more-likely-than-not condition for recognitionwarranty claims and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Actual results could differ from these estimates.cost per claim.
As of September 30, 2017, the Company had net operating loss carryovers of approximately $10,857,383 for U.S. federal tax purposes expiring through 2036; approximately $8,645,417 for Danish tax purposes, which do not expire; approximately $491,212 for German tax purposes, which do not expire and approximately $637,307 for Singapore tax purposes which do not expire.
As of September 30, 2017 and December 31, 2016, the Company established a valuation allowance of $3,491,779 and $3,542,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively, $2,116,505 and $1,095,000 for the tax components of LiqTech International AS and LiqTech Systems, respectively, $137,000 and $122,000 for the tax component of LiqTech Germany and $108,000 and $97,000 for the tax component of LiqTech Singapore as management could not determine that it was more than likely not that sufficient income could be generated by these components to realize the resulting net operating loss carry forwards and other deferred tax assets of these components.
The Company is not relying on the reversal of deferred tax liabilities to realize the deferred tax assets. The same variable used by the Company in evaluating goodwill for impairment was used in assessing the realization of deferred tax assets (See Note 7).
The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset (liabilities) at September 30, 2017 and December 31, 2016:
2017 | 2016 | |||||||
Vacation accrual | $ | 5,450 | $ | 5,450 | ||||
Allowance for doubtful accounts | 1,202 | 1,202 | ||||||
Reserve for obsolete inventory | 213,745 | 200,118 | ||||||
Business tax credit carryover | 30,935 | 30,935 | ||||||
Deferred Compensation | 50,512 | 8,500 | ||||||
Net operating loss carryover | 5,838,958 | 4,906,974 | ||||||
Excess of book over tax depreciation | (287,072 | ) | (296,227 | ) | ||||
Valuation allowance | (5,853,730 | ) | (4,856,952 | ) | ||||
Long term deferred tax asset | $ | - | $ | - |
A reconciliationChanges in the Company’s current and long-term warranty obligations included in accrued expenses on the balance sheet, as of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate isMarch 31, 2023 and December 31, 2022, were as follows for the nine months ended September 30, 2017 and 2016: follows:
2017 | 2016 | |||||||
Computed tax at expected statutory rate | $ | (1,191,730 | ) | $ | (725,821 | ) | ||
State and local income taxes, net of federal benefit | - | - | ||||||
Non-US income taxed at different rates | 186,512 | 15,135 | ||||||
Valuation allowance | 1,005,218 | 3,553,605 | ||||||
Other | - | 43,013 | ||||||
Income tax expense (benefit) | $ | - | $ | 2,885,932 |
March 31, 2023 | December 31, 2022 | |||||||
Balance at January 1 | $ | 898,072 | $ | 962,313 | ||||
Warranty costs charged to cost of goods sold | 22,579 | 86,256 | ||||||
Utilization charges against reserve | (239,052 | ) | (93,653 | ) | ||||
Foreign currency effect | 13,343 | (56,844 | ) | |||||
Balance at the end of the period | $ | 694,943 | $ | 898,072 |
The components of income tax expense (benefit) from continuing operationsutilization charges against reserve for the ninethree months ended September 30, 2017 and 2016 consisted ofMarch 31, 2023 relates to the following:commercial settlement agreement as described under “Note 7 – Agreements And Commitments”.
2017 | 2016 | |||||||
Current income tax expense: | ||||||||
Danish | $ | - | $ | (577,892 | ) | |||
Federal | - | - | ||||||
State | - | - | ||||||
Current tax (benefit) | $ | - | $ | (577,892 | ) | |||
Book in excess of tax depreciation | $ | - | $ | - | ||||
Deferred rent | - | - | ||||||
Business tax credit carryover | - | - | ||||||
Net operating loss carryover | 440,787 | (88,023 | ) | |||||
Valuation allowance | (440,787 | ) | 3,551,847 | |||||
Deferred compensation | - | - | ||||||
Accrued vacation | - | - | ||||||
Reserve for obsolete inventory | - | - | ||||||
Deferred tax expense (benefit) | $ | - | $ | 3,463,824 | ||||
Total tax expense (benefit) | $ | - | $ | 2,885,932 |
Deferred income tax expense / (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income. NOTE 8 – EARNINGS PER SHARE
The Company files Danish, U.S. federalBasic and Minnesota state diluted net income tax returns. LiqTech International AS(loss) per common share is generally no longer subjectdetermined 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 tax examinationscalculate both basic and diluted net loss per common share are the same for years prior to 2012 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2013 for U.S. federal and U.S. states tax returns. the reported periods.
NOTE 13 - INCOME (LOSS) PER SHAREAs of March 31, 2023, the Company had outstanding balances of 2,832,909 RSUs, 31,440,000 prefunded warrants, and 4,480,000 warrants, all exercisable for shares of Common Stock
As of March 31, 2022, the Company had 561,862 RSUs outstanding and 1,015,000 prefunded warrants exercisable for shares of Common Stock outstanding.
The following datatable shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potentialpotentially dilutive common stockCommon Stock for the ninethree months ended September 30, 2017 March 31, 2023 and 2016:2022:
For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Loss | $ | (1,479,425 | ) | $ | (937,628 | ) | $ | (3,505,090 | ) | $ | (5,020,699 | ) | ||||
Weighted average number of common shares used in basic earnings per share | 44,229,264 | 39,532,035 | 40,604,129 | 39,532,035 | ||||||||||||
Effect of dilutive securities, stock options and warrants | - | - | - | - | ||||||||||||
Weighted average number of common shares and potentially dilutive securities | 44,229,264 | 39,532,035 | 40,604,129 | 39,532,035 |
For the Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net (Loss) | $ | (2,389,503 | ) | $ | (3,746,424 | ) | ||
Weighted average number of common shares used in basic earnings per share | 45,228,596 | 21,350,455 | ||||||
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 | 45,228,596 | 21,350,455 |
For the ninethree months ended September 30, 2017, ParentMarch 31, 2023 and 2022 respectively, the Company had 455,000no options outstanding to purchase shares of common stock of Parent at $0.74 to $1.01 per share and Parent had 700,000 warrants outstanding to purchase shares of common stock of Parent at $0.81 to $1.65 per share, which were not included in the loss per share computation because their effect would be anti-dilutive.stock.
For the nine months ended September 30, 2016, Parent had 1,046,000 options outstanding to purchase shares of common stock of Parent at $0.74 to $1.90 per share and Parent had 7,325,575 warrants outstanding to purchase shares of common stock of Parent at $0.81 to $4.06 per share, which were not included in the loss per share computation because their effect would be anti-dilutive.
NOTE 14 - STOCKHOLDERS'9 – STOCKHOLDERS’ EQUITY
Common Stock-- Parent– The Company has 100,000,000 authorized shares of common stock, $0.001 par value.value (“Common Stock”). As of September 30, 2017 March 31, 2023 and December 31, 2016, respectively, 2022, there were 44,229,26445,271,441 and 36,835,514 common43,986,079 shares of Common Stock issued and outstanding.outstanding, respectively.
Voting ---- Holders of Parent 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 Parent common stockCommon Stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.
Liquidation Rights ---- In the event of any liquidation, dissolution or winding-up of affairs, of Parent, 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 Parent common stockCommon Stock will be entitled to share ratably in the distribution of any of our remaining assets.
Other Matters ---- Holders of Parent common stock have no conversion, preemptive or other subscription rights, and there are no redemption rights or sinking fund provisions with respect to theour common stock. All of the issued and outstanding shares of common stock on the date of this reportAnnual Report are validly issued, fully paid and non-assessable.
Preferred Stock-- Our Board of Directors has the authority to issue Parent 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 Parent preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.Common Stock.
The Company has 2,500,000 authorized Preferred stock, $0.001 par value. As of March 31, 2023, there were no preferred shares issued and outstanding.
Stock Issuance
Since January 1, 2023, the Company has made the following issuances of Common Stock CancelationStock:
On December 31, 2016, January 3, 2023, the Company canceled 2,696,521 commonissued 18,719 shares of the previously issued common shares held in escrow issued in connection with the acquisition of all of the issued and outstanding capital stock of LiqTech Systems (formerly Provital Solutions A/S), as LiqTech Systems failed to meet 2014, 2015 and 2016 catchup gross revenue and EBITDA thresholds.
Common Stock Issuance
On April 13, 2015, Parent issued an additional 100,000 shares of restricted stockto settle RSUs. The RSUs were valued at $75,000$110,254 for services provided and to be provided to a member ofby the Board of Directors.Directors in 2022. The Company will recognizerecognized the non-cashstock-based compensation of the award over the requisite service period of which 33,333 shares vested on January 1, 2016, 33,333 shares will vest on January 1, 2017 and 33,334 shares will vest on January 1, 2018.during the year ended December 31, 2022.
On January 2, 2016, Parent3, 2023, the Company issued an additional 27,2531,266,643 shares of restricted stockCommon Stock to settle RSUs. The RSUs were valued at $20,167$674,164 for services provided by the Board of Directors.management in 2022. The Company will recognizerecognized the non-cashstock-based compensation of the award over the requisite service period. The shares vested immediately.period during the year ended December 31, 2022.
Warrants
On January 2, 2017, Parent issuedAugust 17, 2021, the Company entered an additional 93,750exchange agreement with an existing shareholder to exchange an aggregate of 500,000 shares of restricted stock valuedCommon Stock for equivalent shares of prefunded warrants (the “Exchange Agreement”). The prefunded warrants are exercisable at $60,000 for servicesan exercise price of $0.001 per share, subject to adjustments as provided under the terms of the prefunded warrants. The prefunded warrants are exercisable at any time on or after the closing date. The Exchange Agreement contained additional terms typical of exchange agreements including representations and warranties of the parties. In connection with and as of the date of the Exchange Agreement, the Company issued the prefunded warrants to the shareholder, and the prefunded warrants are exercisable on August 17, 2021, subject to the limitations on exercise and conditions set forth by the Boardprefunded warrants. The prefunded warrants became subject to customary adjustments in the event of Directors. Thestock splits and dividends, fundamental transactions, and subsequent offerings of rights to purchase stock.
On May 17, 2022, the Company will recognizeentered a warrant purchase agreement with existing shareholders to purchase 30,425,000 shares of common stock at an offering price of $0.499 per prefunded warrant, which represents the non-cash compensationoffering price of $0.50 per share of the award overCompany’s common stock less the requisite service period. $0.001 per share exercise price for each pre-funded warrant, for total gross proceeds of approximately $15,182,075 as part of the Company’s public offering of common stock and pre-funded warrants totaling $23,000,000 before underwriting discounts, commissions, and offering expenses payable by the Company.
On June 23, 2022, the Company completed a private placement of Senior Notes in an aggregate principal amount of $6,000,000 and warrants to purchase 4,250,000 shares of common stock of the Company to affiliates of Bleichroeder L.P., 21April Fund, L.P., and 21April Fund, Ltd. (together, the "Purchasers"), pursuant to a note and warrant purchase agreement. Additionally, as part of the transaction, the Company issued 230,770 warrants to the placement agent. All warrants issued in this transaction have an exercise price of $0.65 per share, a term of five years, and are exercisable for cash at any time.
The shares vested immediately.following is a summary of the periodic changes in warrants outstanding for the three months ended March 31, 2023 and 2022:
2023 | 2022 | |||||||
Warrants outstanding at January 1 | 35,920,000 | 1,015,000 | ||||||
Warrants issued in connection with public offering and private placement | - | - | ||||||
Exercises and conversions | - | - | ||||||
Warrants outstanding at March 31 | 35,920,000 | 1,015,000 |
On May 19, 2017, Parent completed a private placement of its common stock. The Company issued 7,300,000 new shares at a price of $0.25 per share. The private placement was made directly by LiqTech and the Company plans to use the net proceeds of $1,825,000 for acceleration of its business in the marine scrubber industry.Stock-based Compensation
ForIn 2013, the nine months ended September 30, 2017Company’s Board of Directors adopted a Share Incentive Plan (the “Incentive Plan”). Under the terms and 2016,conditions of the Incentive Plan, the Board of Directors is empowered to grant RSUs to officers, directors, and consultants of the Company. At March 31, 2023, 1,123,529 RSUs were granted and outstanding under the Incentive Plan. Directors of the Company has recorded non-cashreceive share compensation as follows: an initial grant of 25,000 RSUs of Common Stock that vest over a three-year period upon appointment to the Board, followed by an annual grant of $36,750 ($73,500 for the Chairman of the Board) in RSUs per annum after full vesting of the initial grant.
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 March 31, 2023, 1,709,379 RSUs were granted and outstanding under the 2022 Incentive Plan.
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 $78,750$157,174 and $58,250, respectively, relating$178,778 for the three-month period ended March 31, 2023 and 2022, respectively. On March 31, 2023, the Company had $1,122,970 of unrecognized compensation cost related to the vesting of restrictednon-vested stock awards issued to the board of directors.
Common Stock Purchase Warrants grants.
A summary of the status of the warrants outstanding at September 30, 2017 is presented below:
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
Exercise Prices | Number | Weighted | Weighted Exercise | Number | Weighted | |||||||||||||||||
$ | 0.81 | 100,000 | 0.25 | $ | 0.81 | 100,000 | $ | 0.81 | ||||||||||||||
$ | 1.00 | 200,000 | 0.25 | $ | 1.00 | 200,000 | $ | 1.00 | ||||||||||||||
$ | 1.65 | 400,000 | 1.83 | $ | 1.65 | 400,000 | $ | 1.65 | ||||||||||||||
Total | 700,000 | 1.15 | $ | 1.34 | 700,000 | $ | 1.34 |
At September 30, 2017, the Company had zero non-vested warrants. We have recorded non-cash compensation expenseRSUs as of $13,225 for the nine months ended September 30, 2017 related to the warrants issued.
The exercise price of the warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions of the outstanding shares of common stock and combinations of the outstanding shares of common stock. For so long as the warrants remain outstanding, we are required to keep reserved from our authorized and unissued shares of common stock a sufficient number of shares to provide for the issuance of the shares of common stock underlying the warrants.
On February 15, 2016, the Company issued to LCL Finance Limited warrants to purchase 100,000 shares of common stock at an exercise price of $0.81 per share. The warrants are exercisable immediately and will remain exercisable until DecemberMarch 31, 2017.
Stock Options
In August 2011, Parent’s Board of Directors adopted a Stock Option Plan (the “Plan”). Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, officers, and directors of the Company. At September 30, 2017, 455,000 options were granted and outstanding under the Plan.
The Company recognizes compensation costs for stock option awards to employees, during 2016, based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used to estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as follows:
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The Company recognized stock based compensation expense related to the options of $58,038 and $272,665 for the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017, the Company had approximately $28,206 of unrecognized compensation cost related to non-vested options expected to be recognized through December 31, 2025.
A summary of the status of the options outstanding under the Plan at September 30, 2017 is presented below:
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Exercise | Number | Weighted Life (years) | Weighted | Number | Weighted | |||||||||||||||||
$ | 0.74 | 325,000 | 2.87 | $ | 0.74 | 108,333 | $ | 0.74 | ||||||||||||||
$ | 1.01 | 130,000 | 8.22 | $ | 1.01 | 130,000 | $ | 1.01 | ||||||||||||||
Total | 455,000 | 4.40 | $ | 0.82 | 238,333 | $ | 0.89 |
A summary of the status of the options at September 30, 2017, 2023 and changes during the period are presented below:
September 30, 2017 | ||||||||||||||||
Shares | Weighted | Average | Weighted | |||||||||||||
Outstanding at beginning of period | 868,000 | $ | 1.10 | 3.41 | $ | - | ||||||||||
Granted | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited | (175,000 | ) | 0.75 | - | - | |||||||||||
Expired | (238,000 | ) | 1.90 | - | - | |||||||||||
Outstanding at end of period | 455,000 | $ | 0.82 | 4.40 | $ | - | ||||||||||
Vested and expected to vest | 455,000 | $ | 0.82 | 4.40 | $ | - | ||||||||||
Exercisable end of period | 238,333 | $ | 0.89 | 5.79 | $ | - |
March 31, 2023 | ||||||||||||
Number of units | Weighted Average Fair value | Aggregated Intrinsic | ||||||||||
Outstanding, December 31, 2022 | 2,408,892 | $ | 0.60 | $ | - | |||||||
Granted | 1,709,379 | 0.38 | - | |||||||||
Vested and settled with share issuance | (1,285,362 | ) | (0.61 | ) | - | |||||||
Outstanding, March 31, 2023 | 2,832,909 | $ | 0.46 | $ | - |
At September 30, 2017, Parent had 216,667 non-vested options to purchase shares of Parent common stock with a weighted average exercise price of $0.74 and with a weighted average grant date fair value of $0.46, resulting in unrecognized compensation expense of $18,804, which is expected to be expensed over a weighted-average period of 0.5 years.NOTE 10-SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATEDREVENUE
The total intrinsic valuefollowing table presents customers accounting for 10% or more of options at September 30, 2017 was $0. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at September 30, 2017 (for outstanding options), less the applicable exercise price. Company’s revenue:
For the Three Months | ||||||||
Ended March 31, | ||||||||
2023 | 2022 | |||||||
Customer A | * | % | 12 | % | ||||
Customer B | * | % | 10 | % |
NOTE 15 - SIGNIFICANT CUSTOMERS / CONCENTRATION
For the nine months ended September 30, 2017, our four largest customers accounted for approximately 13%, 12%, 9% and 5%, respectively, of our net sales (approximately 39% in total).
For the nine months ended September 30, 2016, the Company had two customers who account for 30% and 19%, respectively, of our net sales (approximately 49% in total).* Zero or less than 10%
The Company sells products throughoutfollowing table presents customers accounting for 10% or more of the world. Sales by geographical region are as follows for the three and nine months ended September 30, 2017 and 2016:Company’s Accounts receivable:
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
United States and Canada | $ | 271,434 | $ | 204,134 | $ | 835,602 | $ | 554,678 | ||||||||
Australia | 215,713 | 43,883 | 502,895 | 266,625 | ||||||||||||
South America | - | - | - | 81,480 | ||||||||||||
Asia | 253,460 | 427,511 | 1,379,607 | 649,295 | ||||||||||||
Europe | 1,715,877 | 3,013,983 | 5,632,654 | 9,786,739 | ||||||||||||
$ | 2,456,484 | $ | 3,689,511 | $ | 8,350,758 | $ | 11,338,817 |
March 31, 2023 | December 31, 2022 | |||||||
Customer C | 22 | % | 17 | % | ||||
Customer D | 10 | % | * | % | ||||
Customer B | * | % | 20 | % | ||||
Customer A | * | % | 10 | % |
* Zero or less than 10%
The Company’s sales by product line are as follows forAs of March 31, 2023, approximately 95% of the threeCompany’s assets were located in Denmark, 3% were located in the U.S., and nine months ended September 30, 20172% were located in China. As of December 31, 2022, approximately 65% of the Company’s assets were located in Denmark, 33% were located in the U.S., and 2016:2% were located in China.
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Ceramic diesel particulate | $ | 1,519,920 | $ | 1,749,925 | $ | 5,677,005 | $ | 4,318,202 | ||||||||
Liquid filters and systems | 933,182 | 1,759,285 | 2,550,144 | 6,745,397 | ||||||||||||
Kiln furniture | 3,382 | 180,301 | 123,609 | 275,218 | ||||||||||||
$ | 2,456,484 | $ | 3,689,511 | $ | 8,350,758 | $ | 11,338,817 |
NOTE 16 11– SUBSEQUENT EVENTS
SEGMENT REPORTING
On November 14, 2017, the Parent effected a private placement of 1,617,503 shares of preferred stock (1 to 4 conversion rate) or 6,470,012 ordinary shares of its common stock at a per share price of $1.20 per preferred share for aggregate proceeds to Parent of $1,941,203.60. Immediately prior to the closing of the private placement, Parent had 44,229,264 of its common stock issued and outstanding, and after the issuance of the 1,617,503 shares of preferred stock in the private placement, or 14.63% equivalent shares of the total shares of common stock issued and outstanding immediately prior to effecting the private placement, Parent has 1,617,503 preferred shares and 44,229,264 common shares issued and outstanding as of the date of this Report. The private placement was completed pursuant to Rule 506 of Regulation D and/or Regulation S of the Securities Act. In connection with the private placement, each investor executed a subscription agreement, which contains customary representations and warranties of Parent and of each investor. The private placement was made directly by Parent and no underwriter or placement agent was engaged by Parent.
ExceptThe Company operates in three segments: Water, Ceramics and Plastics. Effective as set forth above, of January 1, 2020, the Company's management reviewed material events through November 14, 2017group structure was changed, with shared group activities transferred to an individual reporting unit separated from the business units. Costs and thereassets for these activities were no other subsequent events. therefore separated during 2020.
Segment information for the business areas is as follows:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Revenue | ||||||||
Water | $ | 1,434,919 | $ | 592,990 | ||||
Ceramics | 1,409,372 | 1,880,118 | ||||||
Plastics | 1,167,228 | 1,138,597 | ||||||
Corporate | - | 25,531 | ||||||
Total consolidated Revenue | 4,011,519 | 3,637,236 |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Income (Loss) | ||||||||
Water | $ | (463,475 | ) | $ | (793,949 | ) | ||
Ceramics | (561,684 | ) | (1,056,348 | ) | ||||
Plastics | (66,061 | ) | (107,402 | ) | ||||
Other | (1,298,283 | ) | (1,788,725 | ) | ||||
Total consolidated Loss | (2,389,503 | ) | (3,746,424 | ) |
As of | ||||||||
Total Assets | March 31, 2023 | December 31, 2022 | ||||||
Water | $ | 8,285,608 | $ | 7,781,211 | ||||
Ceramics | 13,924,728 | 13,808,529 | ||||||
Plastics | 1,272,322 | 1,099,019 | ||||||
Other | 15,259,076 | 17,436,896 | ||||||
Total consolidated Assets | $ | 38,741,734 | $ | 40,125,655 |
NOTE 12-SUBSEQUENT EVENTS
None
ITEM 2. MANAGEMENT’SMANAGEMENT’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 30, 2017, 31, 2023and the financial statements and notes thereto. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Overview
We areLiqTech International, Inc. is a clean technology company that provides state-of-the-art technologies for gas and liquid purification products by manufacturing ceramic silicon carbide filters.filters, membranes and providing engineered systems. For more than a decade,two decades, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in twothe following business areas: water treatment systems and services, ceramic membranes for liquid filtration, anddiesel particulate filters (DPFs) for theto control of soot exhaust particles from diesel engines. We are phasing out the fabrication of kiln furnitureengines, and plastic components for the refractory industry.applications across various industries. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes whichthat facilitate new applications and improve existing technologies. We market our products from our officesoffice in the United States and Denmark and through local representatives.representatives and distributors. The products are shipped directly to customers from our production facilities in the United States and Denmark.
The terms “LiqTech”, “we”, “our”, “us”, the “Company” or any derivative thereof, as used herein, refer to LiqTech International, Inc., a Nevada corporation, together with its direct and indirect wholly owned subsidiaries, including LiqTech USA, Inc., a Delaware corporation (“LiqTech USA”), which owns all of the outstanding equity interest in LiqTech International A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Int. DK”), together with its direct wholly owned subsidiary LiqTech Systems A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Systems”) and LiqTech NA, Inc., a Delaware corporation (“LiqTech Delaware”). Collectively, LiqTech USA, LiqTech Int. DK, LiqTech Systems and LiqTech Delaware are referredwe collectively refer to herein as our “Subsidiaries”.
WeAt present, we conduct our operations in the Kingdom of Denmark and the United States.Denmark. Our Danish operations are located in the Copenhagen area, Hobro, and in Hobro in Jutland, Denmark, and our U.S. operations are conducted by LiqTech Delaware located in White Bear Lake, Minnesota.Aarhus.
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 limited cash and incurred significant recent losses raising substantial doubt about the ability of the Company to continue as a going concern.
Our Strategy
Our strategy is to create stockholderleverage our core competencies in material science, fluid dynamics, and systems integration, creating differentiated products with compelling value by leveraging our competitivepropositions to penetrate attractive end markets with regulatory and strengths and focusing on the opportunities in the end-markets we serve. Key features ofESG tailwinds. Essential imperatives associated with our strategy include: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, industrial wastewater applications, and integrated services 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. | |
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Developments
Signed Contracts
On January 5, 2017, we announced that we and Grundfos Biobooster A/S (Grundfos) have signed a framework agreement for the delivery of silicon carbide ceramic discs. The agreement has a minimum value of $450,000 and an initial term of 2 years. The ceramic discs will be used in Grundfos´s Ultra Filtration systems for water re-use.
On January 17, 2017, we announced that we had received a $120,000 order for the Company´s water treatment systems for flue gas condensate. The order was received from Tjæreborg Industri A/S, a Danish company who specializes in the development and manufacturing of equipment for power plants. The system has been installed at Uldum Varmeværk, Denmark in 2017.
On March 1, 2017, we announced that due to regulatory issues it has not been feasible for Hunan Yonker Investment Group (Yonker) to complete the agreed investment in LiqTech before the deadline of February 28, 2017. The parties amended the Investment Agreement and the deadline for completion of the US$4,000,000 investment in LiqTech was extended to April 15, 2017, however Yonker subsequently informed the Company that the National Development and Reform Commission (NDRC) was still reviewing and verifying the submitted documents.
On April 17, 2017, we announced that we had received a $480,000 order for the Company´s standardized systems for treatment of waste water from marine scrubbers.
On April 17, 2017, we announced that we had been informed by Hunan Yonker Investment Group (Yonker) that they had completed the mandatory due diligence process related to earlier announced USD 4 million investment in LiqTech.
Yonker further confirmed that the final application has been submitted to the National Development and Reform Commission (NDRC) and now awaits the formal approval.
On May 15, 2017, we announced that we had received a $380,000 order for the Company´s system for treatment of waste water from marine scrubbers. The order is from a new customer and includes an option for further two systems.
On May 19, 2017, we announced that we had received subscription agreements for 7,300,000 new shares at a price of $0.25 per share. The private placement was made directly by LiqTech and the Company plans to use the net proceeds of $1,825,000 million for acceleration of its business in the marine scrubber industry.
On June 8, 2017, we announced that we had been informed by Hunan Yonker Investment Group (Yonker) that its application for a USD 4 million investment in LiqTech has been declined by the National Development and Reform Commission (NDRC).
On June 14, 2017, we announced that we had received a $290,000 order for the Company´s system for treatment of waste water from marine scrubbers.
On August 28, 2017, we announced that we had received two new orders for the Company's systems for treatment of waste water from marine scrubbers.
Results of Operations
The financial information below is derived from our unaudited condensed consolidated financial statements included elsewhere in this report.
The following table sets forth our revenues, expenses and net income for the three months ended September 30, 2017 and 2016:
Three Months Ended September 30, | ||||||||||||||||||||||||
Period to Period Change | ||||||||||||||||||||||||
2017 | As a % of Sales | 2016 | As a % of Sales | US$ | Percent % | |||||||||||||||||||
Net Sales | 2,456,484 | 100 | % | 3,689,511 | 100 | % | (1,233,027 | ) | (33.4 | ) | ||||||||||||||
Cost of Goods Sold | 2,772,451 | 112.9 | 3,303,042 | 89.5 | (530,591 | ) | (16.1 | ) | ||||||||||||||||
Gross Profit | (315,967 | ) | (12.9 | ) | 386,469 | 10.5 | (702,436 | ) | (181.8 | ) | ||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Selling expenses | 521,627 | 21.2 | 558,105 | 15.1 | (36,478 | ) | (6.5 | ) | ||||||||||||||||
General and administrative expenses | 433,368 | 17.6 | 498,358 | 13.5 | (64,990 | ) | (13.0 | ) | ||||||||||||||||
Non-cash compensation expenses | 24,055 | 1.0 | 104,416 | 2.8 | (80,361 | ) | (77.0 | ) | ||||||||||||||||
Research and development expenses | 121,680 | 5.0 | 124,165 | 3.4 | (2,485 | ) | (2.0 | ) | ||||||||||||||||
Total Operating Expenses | 1,100,730 | 44.8 | 1,285,044 | 34.8 | (184,314 | ) | (14.3 | ) | ||||||||||||||||
Loss from Operating | (1,416,697 | ) | (57.7 | ) | (898,575 | ) | (24.4 | ) | (518,122 | ) | 57.7 | |||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
Interest and other income | 2,790 | 0.1 | - | - | 2,790 | - | ||||||||||||||||||
Interest (expense) | (3,781 | ) | (0.2 | ) | (7,347 | ) | (0.2 | ) | 3,566 | (48.5 | ) | |||||||||||||
Loss on currency transactions | (26,913 | ) | (1.1 | ) | (14,060 | ) | (0.4 | ) | (12,853 | ) | 91.4 | |||||||||||||
Loss on sale of fixed assets | (34,824 | ) | (1.4 | ) | - | - | (34,824 | ) | - | |||||||||||||||
Total Other Income (Expense) | (62,728 | ) | (2.6 | ) | (21,407 | ) | (0.6 | ) | (41,321 | ) | 193.0 | |||||||||||||
Loss Before Income Taxes | (1,479,425 | ) | (60.2 | ) | (919,982 | ) | (24.9 | ) | (559,443 | ) | 60.8 | |||||||||||||
Income Taxes Expense | - | - | 17,646 | 0.5 | (17,646 | ) | (100.0 | ) | ||||||||||||||||
Net Loss | (1,479,425 | ) | (60.2 | ) | (937,628 | ) | (25.4 | ) | (541,797 | ) | 57.8 |
Nine Months Ended September 30, | ||||||||||||||||||||||||
Period to Period Change | ||||||||||||||||||||||||
2017 | As a % of Sales | 2016 | As a % of Sales | $ | Percent % | |||||||||||||||||||
Net Sales | 8,350,758 | 100 | % | 11,338,817 | 100 | % | (2,988,059 | ) | (26.4 | ) | ||||||||||||||
Cost of Goods Sold | 8,202,634 | 98.2 | 9,078,036 | �� | 80.1 | (875,402 | ) | (9.6 | ) | |||||||||||||||
Gross Profit | 148,124 | 1.8 | 2,260,781 | 19.9 | (2,112,657 | ) | (93.4 | ) | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Selling expenses | 1,506,369 | 18.0 | 1,661,352 | 14.7 | (154,983 | ) | (9.3 | ) | ||||||||||||||||
General and administrative expenses | 1,518,935 | 18.2 | 1,830,260 | 16.1 | (311,325 | ) | (17.0 | ) | ||||||||||||||||
Non-cash compensation expenses | 150,013 | 1.8 | 377,140 | 3.3 | (227,127 | ) | (60.2 | ) | ||||||||||||||||
Research and development expenses | 375,026 | 4.5 | 476,734 | 4.2 | (101,708 | ) | (21.3 | ) | ||||||||||||||||
Total Operating Expenses | 3,550,343 | 42.5 | 4,345,486 | 38.3 | (795,143 | ) | (18.3 | ) | ||||||||||||||||
Loss from Operating | (3,402,219 | ) | (40.7 | ) | (2,084,705 | ) | (18.4 | ) | (1,317,514 | ) | 63.2 | |||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
Interest and other income | 3,093 | 0.0 | 0 | 0.0 | 3,093 | - | ||||||||||||||||||
Interest expense | (23,308 | ) | (0.3 | ) | (23,843 | ) | (0.2 | ) | 535 | (2.2 | ) | |||||||||||||
Loss on currency transactions | (54,600 | ) | (0.7 | ) | (26,219 | ) | -0.2 | (28,381 | ) | 108.2 | ||||||||||||||
Gain on sale of fixed assets | (28,056 | ) | (0.3 | ) | 0 | 0.0 | (28,056 | ) | - | |||||||||||||||
Total Other Expense | (102,871 | ) | (1.2 | ) | (50,062 | ) | (0.4 | ) | (52,809 | ) | 105.5 | |||||||||||||
Loss Before Income Taxes | (3,505,090 | ) | (42.0 | ) | (2,134,767 | ) | (18.8 | ) | (1,370,323 | ) | 64.2 | |||||||||||||
Income Taxes Expense | - | - | 2,885,932 | 25.5 | (2,885,932 | ) | (100.0 | ) | ||||||||||||||||
Net Loss | (3,505,090 | ) | (42.0 | ) | (5,020,699 | ) | (44.3 | ) | 1,515,609 | (30.2 | ) |
Comparison of the Three Months Ended September 30, 2017 and September 30, 2016
Revenues
Net sales for the three months ended September 30, 2017 were $2,456,484 compared to $3,689,511 for the same period in 2016, representing a decrease of $1,233,027 or 33.4%. The decrease in sales consisted of a decrease in sales of liquid filters and systems of $826,103, a decrease in sales of DPFs of $230,005 and a decrease in sales of kiln furniture of $176,919. The decrease in demand for our liquid filters and systems is mainly due to a delay in certain business opportunities compared to the same period last year where various projects were realized. The decrease in demand for our DPFs is mainly due to a decrease in market activity in general compared to the same period last year. The decrease in demand for our kiln furniture is due to the decision that we will not focus on this product line anymore and expect very limited activity going forward.
Gross Profit
Gross loss for the three months ended September 30, 2017 was $315,967 compared to a gross profit of $386,469 for same period in 2016, representing a decrease of $702,436 or 181.8%. The decrease in gross profit was due to low sales activity compared to our fixed cost of goods sold. Included in gross profit is depreciation of $268,872March 31, 2023 and $325,9902022:
Three Months Ended March 31, | ||||||||||||||||||||||||
Period to Period Change | ||||||||||||||||||||||||
2023 | As a % of Sales | 2022 | As a % of Sales | Variance | Percent % | |||||||||||||||||||
Revenue | 4,011,519 | 100.0 | % | 3,637,236 | 100.0 | % | 374,283 | 10.3 | % | |||||||||||||||
Cost of goods sold | 3,620,177 | 90.2 | 3,391,695 | 93.2 | 228,482 | 6.7 | ||||||||||||||||||
Gross Profit | 391,342 | 9.8 | 245,541 | 6.8 | 145,801 | 60.0 | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Selling expenses | 1,182,435 | 29.5 | 1,059,948 | 29.1 | 122,487 | 11.6 | ||||||||||||||||||
General and administrative expenses | 1,058,949 | 26.4 | 1,916,517 | 52.7 | (857,568 | ) | (44.7 | ) | ||||||||||||||||
Research and development expenses | 342,619 | 8.5 | 602,737 | 16.6 | (260,118 | ) | (43.2 | ) | ||||||||||||||||
Total Operating Expenses | 2,584,003 | 64.0 | 3,579,202 | 98.4 | (995,199 | ) | (27.8 | ) | ||||||||||||||||
Loss from Operation | (2,192,661 | ) | (54.7 | ) | (3,333,661 | ) | (91.7 | ) | 1,141,000 | (34.2 | ) | |||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
Interest and other income | 51,673 | 1.3 | 99 | - | 51,574 | 52,094.8 | ||||||||||||||||||
Interest (expense) | (12,001 | ) | (0.3 | ) | (206,461 | ) | (5.7 | ) | 194,460 | (94.2 | ) | |||||||||||||
Amortization discount, convertible note | (84,528 | ) | (2.1 | ) | (297,338 | ) | (8.2 | ) | 212,810 | (71.6 | ) | |||||||||||||
Gain (loss) on currency transactions | (166,278 | ) | (4.1 | ) | 75,993 | 2.1 | (242,271 | ) | (318.8 | ) | ||||||||||||||
Total Other Income (Expense) | (211,134 | ) | (5.3 | ) | (427,707 | ) | (11.8 | ) | 216,573 | (50.6 | ) | |||||||||||||
Loss Before Income Taxes | (2,403,795 | ) | (59.9 | ) | (3,761,368 | ) | (103.4 | ) | 1,357,572 | (36.1 | ) | |||||||||||||
Income Tax Benefit | (14,292 | ) | (0.4 | ) | (14,944 | ) | (0.4 | ) | 652 | 0.0 | ||||||||||||||
Net Loss | (2,389,503 | ) | (59.6 | ) | (3,746,424 | ) | (103.0 | ) | 1,356,921 | (36.2 | ) |
Revenue
Revenue for the three months ended September 30, 2017March 31, 2023 was $4,011,519 compared to $3,637,236 for the same period in 2022, representing an increase of $374,283, or 10%. The positive development was attributable to an increase in sales of liquid filtration systems of $613,337, aftermarket sales of $229,658 and 2016, respectively.plastics products of $28,035, partly offset by a decline in sales of DPFs and ceramic membranes. The increase in liquid filtration systems pertains to deliveries of pool and marine orders in Europe and Asia, increased sales of spare parts and associated services related to legacy installations. The offsetting decline in DPF sales was caused by large deliveries of legacy orders in the first quarter of 2022 combined with a strategic decision to focus on improved product mix and higher profit orders that are better suited for Ceramic manufacturing . The decline in ceramic membranes revenue was largely driven by slow order intake due to reduced sales activity.
Gross Profit
Gross profit for the three months ended March 31, 2023 was $391,342 compared to gross profit of $245,541 for the same period in 2022, representing an increase of $145,801, or 60%. The increase in gross profit was primarily driven by revenue growth, improvements in product mix, and improved pricing discipline underpinned by the enhanced insights gained from the newly implemented ERP platform. The efforts resulted in improved profitability from our recurring business activities, despite ongoing remediation costs associated with legacy liquid filtration systems and ongoing manufacturing optimization initiatives seeking to improve kiln utilization and manufacturing throughput. Furthermore, profitability within our ceramics business continues to benefit from the proactive measures implemented in the second half of 2022 to help offset the negative impact from the inflationary cost pressures on raw materials and labor. Included in the gross profit was depreciation of $614,592 and $496,049 for the three months ended March 31, 2023, and 2022, respectively.
Expenses
Total operating expenses for the three months ended September 30, 2017March 31, 2023 were $1,100,730$2,584,003, representing a decrease of $184,314$995,199, or 14.3%28%, compared to $1,285,044$3,579,202 for the same period in 2016. This decrease in operating expenses is attributable to an decrease in selling and marketing expenses of $36,478, or 6.5%, a decrease in general and administrative expenses of $64,990, or 13.0%, a decrease in non-cash compensation expenses of $80,361, or 77.0% and a decrease in research and development expenses of $2,485, or 2.0%, compared to the same period in 2016.2022.
Selling expenses for the three months ended September 30, 2017March 31, 2023 were $521,627$1,182,435 compared to $558,105$1,059,948 for the same period in 2016,2022, representing a decreasean increase of $36,478,$122,487, or 6.5%. This decrease is attributable12%, due to a cost reduction in selling expenses in generalincreased costs associated with direct sales efforts, onboarding of new sales leadership, interim consulting services, and a centralization of the sales structure for the three months ending September 30, 2017 compared to the same period in 2016.intensified travel and marketing activities.
General and administrative expenses for the three months ended September 30, 2017March 31, 2023 were $433,368$1,058,949 compared to $498,358$1,916,517 for the same period in 2016,2022, representing a decrease of $64,990,$857,568, or 13.0%45%. ThisThe decrease iswas attributable to a generalthe cost reduction and reorganization efforts initiated in 2022 as well as elevated spend in the same period last year due to the implementation of the new corporate ERP platform and China expansion. Included in general and administrative expenses for the three months ending September 30, 2017 compared to the same period in 2016.
Non-cashwere non-cash compensation expensesof $157,173 and $178,778 for the three months ended September 30, 2017 were $24,055 compared to $104,416 for the same period in 2016, representing a decrease of $80,361, or 77.0%. This decrease is attributable to decreased non-cash compensation expense for options, sharesMarch 31, 2023 and warrants for services performed granted to directors, employees and management compared to the same period in 2016.2022, respectively.
The following is a summary of our non-cash compensation:
For the Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Compensation upon vesting of stock options granted to employees | $ | 13,397 | $ | 80,591 | ||||
Compensation for vesting of restricted stock awards issued to the board of directors | 6,250 | 19,417 | ||||||
Value of Warrants granted for services | 4,408 | 4,408 | ||||||
Total Non-Cash Compensation | $ | 24,055 | $ | 104,416 |
For the Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2023 | 2022 | |||||||
Compensation for vesting of restricted stock awards issued to the Board of Directors | $ | 51,124 | $ | 51,125 | ||||
Compensation for vesting of restricted stock awards issued to management | 106,049 | 127,653 | ||||||
Total Non-Cash Compensation | $ | 157,173 | $ | 178,778 |
Research and development expenses for the three months ended September 30, 2017March 31, 2023 were $121,680$342,619 compared to $124,165$602,737 for the same period in 2016,2022, representing a decrease of $2,485,$260,118, or 2.0%43%. This decreaseThe change is attributable to more focused R&D efforts with fewer ongoing projects combined with a cost reductiondecrease in the average number of employees engaged in research and development expenditures in generalactivities from 17 as of March 31, 2022 to 8 as of March 31, 2023, as the Company streamlined and centralized the R&D function.
Other Income (Expenses)
Other Income (Expenses) for the three months ending September 30, 2017ended March 31, 2023 was $(211,134) compared to $(427,707) for the samecomparable period in 2016.2022, representing a decrease in other expenses of $216,573, or 51%. The change reflects the improved capital structure with reduced interest expense and amortization cost due to the early repayment and refinancing of the Convertible Note in the second quarter of 2022, offset by the loss on currency transactions of $242,271 due to the USD depreciation against the EUR/DKK during the period.
Net IncomeLoss
Net loss for the three months ended September 30, 2017March 31, 2023 was a loss of $1,479,425$(2,389,503) compared to a loss of $937,628$(3,746,424) for the comparable period in 2016,2022, representing an increasea reduction in net loss of $541,797, or 57.8%. This increase$1,356,921.
The change was primarily attributable to lowerthe improved gross profit for the three months ending September 30, 2017 compared to the same periodof $145,801, savings in 2016. This was partiallyoperating expenses of $995,199, reduced interesting expense and amortization costs, and higher interest income on excess cash, partly offset by a decrease in total operating expenses for the three months ending September 30, 2017 compared to the same period in 2016.
Comparison of the Nine Months Ended September 30, 2017 and September 30, 2016
Revenues
Net sales for the nine months ended September 30, 2017 were $8,350,758 compared to $11,338,817 for the same period in 2016, representing a decrease of 2,988,059 or 26.4%. The decrease in sales consisted of a decrease in sales of liquid filters and systems of $4,195,253, a decrease in sales of kiln furniture of $151,609 offset by an increase in sales of DPFs of $1,358,803. The decrease in demand for our liquid filters and systems is mainly due to a delay in certain business opportunities compared to the same period last year where various projects were realized. The increase in demand for our DPFs is mainly due to an increase in market activities compared to the same period last year. The decrease in demand for our kiln furniture isloss on currency transactions due to the decision that we will not focus on this product line anymore and expect very limited activity going forward.USD depreciation against the EUR/DKK.
Gross Profit
Gross profit for the nine months ended September 30, 2017 was $148,124 compared to a gross profit of $2,260,781 for same period in 2016, representing a decrease of $2,112,657 or 93.4%. The decrease in gross profit was due to lower sales activity in general, lower gross margin and due to lower sales activity for our liquid filters and systems, which historically have a higher gross margin, compared to the same period in 2016. Included in gross profit is depreciation of $732,963 and $995,687 for the nine months ended September 30, 2017 and 2016, respectively.
Expenses
Total operating expenses for the nine months ended September 30, 2017 were $3,550,343 representing a decrease of $795,143 or 18.3%, compared to $4,345,486 for the same period in 2016. This decrease in operating expenses is attributable to a decrease in selling and marketing expenses of $154,983, or 9.3%, a decrease in general and administrative expenses of $311.325, or 17.0%, a decrease in non-cash compensation expenses of $227,127, or 60.2% and a decrease in research and development expenses of $101,708, or 21.3%, compared to the same period in 2016.
Selling expenses for the nine months ended September 30, 2017 were $1,506,369 compared to $1,661,352 for the same period in 2016, representing a decrease of $154,983, or 9.3%. This decrease is attributable to a cost reduction in selling expenses in general and a centralization of the sales structure for the nine months ending September 30, 2017 compared to the same period in 2016.
General and administrative expenses for the nine months ended September 30, 2017 were $1,518,935 compared to $1,830,260 for the same period in 2016, representing a decrease of $311,325, or 17.0%. This decrease is attributable to a general cost reduction in general and administrative expenses for the nine months ending September 30, 2017 compared to the same period in 2016.
Non-cash compensation expenses for the nine months ended September 30, 2017 were $150,013 compared to $377,140 for the same period in 2016, representing a decrease of $227,127, or 60.2%. This decrease is attributable to decreased non-cash compensation expense for options, shares and warrants for services performed granted to directors, employees and management compared to the same period in 2016.
The following is a summary of our non-cash compensation:
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Compensation upon vesting of stock options granted to employees | $ | 58,038 | $ | 272,665 | ||||
Compensation for vesting of restricted stock awards issued to the board of directors | 78,750 | 58,250 | ||||||
Value of Warrants granted for services | 13,225 | 46,225 | ||||||
Total Non-Cash Compensation | $ | 150,013 | $ | 377,140 |
Research and development expenses for the nine months ended September 30, 2017 were $375,026 compared to $476,734 for the same period in 2016, representing a decrease of $101,708, or 21.3%. This decrease is attributable to a cost reduction in research and development expenditures in general for the nine months ending September 30, 2017 compared to the same period in 2016.
Net Income
Net loss for the nine months ended September 30, 2017 was a loss of $3,505,090 compared to a loss of $5,020,699 for the comparable period in 2016, representing a decrease in net loss of $1,515,609, or 30.2%. This decrease in net loss was primarily attributable to a tax expense of $2,868,286 in 2016 and a decrease in total operating expenses offset by a decrease in gross profit compared to same period in 2016.
Liquidity and Capital Resources
Based on the continued market volatility and geopolitical unrest pertaining to the Russia and Ukraine conflict, European energy crisis, and macro-economic uncertainty, the Company is unable to predict the full impact this will have on our long-term financial condition, results of operations, liquidity, and cash flows. The accompanying consolidatedCompany has planned and executed on decisive measures in 2022 to help safeguard the business and its financial statements have been prepared in conformityposition by reducing cost, headcount, and overall capex commitments, which together with generally accepted accounting principlesthe successful completion of the United States$26.5 million public offering of America,common stock and pre-funded warrants, substantially improved the near-term liquidity position of the Company.
Furthermore, in June 2022, the Company completed the refinancing of its $15 million Convertible Note due in 2023, partly funded by the issuance of the new $6 million Senior Promissory Notes due in June 2024 along with the proceeds from the public offering. The Senior Promissory Notes are interest-free, with full redemption after 24 months.
Based on current projections, which contemplateare subject to significant uncertainties, including the duration and severity of global macroeconomic issues, commodity volatility, and continued global supply chain disruptions, the Company believes the cash on hand, as well as ongoing cash generated from operations, will be sufficient to cover its capital requirements and committed investments for the next 12 months.
Continued market uncertainty and reduced order intake caused by weakening global macroeconomic conditions, recession, or a resurgence of the COVID-19 pandemic, however, could unfavorably impact the Company’s ability to generate positive cash flow and thereby significantly reduce its profitability and liquidity position.
While the Company anticipates that its proactive measures will be sufficient to protect the business over the coming 12 months, the Company cannot predict the specific duration and severity of the unfavorable market dynamics that may adversely affect the business. In the future, the Company may experience reduced or changed demand for its products and services, especially if there is a global recession, structural shift in regulation, or the continuation of escalating interest rates that adversely impacts the Company as a going concern. However, the Company has limited cash and incurred significant recent losses raising substantial doubt about the abilityinvestment decisions of the Company to continue as a going concern. our customers.
We have historically satisfied our capital and liquidity requirements through offerings of equity instruments, internally generated cash from operations and our available lines of credit. At September 30, 2017, the Company did not have any available lines of credit with any lender. At September 30, 2017,On March 31, 2023, we had cash of $528,566$14,309,933 and net working capital of $2,816,713$20,123,957, and aton December 31, 2016,2022, we had cash of $1,208,650$16,597,371 and net working capital of $3,497,578. At September 30, 2017,$21,581,287. On March 31, 2023, our net working capital had decreased by $680,865$1,457,330 compared to December 31, 2016. Total current assets were $8,065,2852022, mainly as a result of a reduction in cash and $8,506,321 at September 30, 2017 and at December 31, 2016, respectively, and total current liabilities were $5,248,572 and $5,008,743 at September 30, 2017 and at December 31, 2016, respectively.
On May 19, 2017, the Parent completed a private placement of 7,300,000 shares of its common stock at a per share price of $0.25 for aggregate proceeds to Parent of $1,825,000. Immediately prior to the closing of the private placement, Parent had 36,929,264 of its common stock issued and outstanding, and after the issuance of the 7,300,000 shares of common stock in the private placement, or 19.8% of the total shares of common stock issued and outstanding immediately prior to the closing of the private placement, Parent has 44,229,264 shares issued and outstanding as of the date of this Report. The private placement was completed pursuant to Section 4(a)(2) of the Securities Act and/or Regulation S promulgated under the Securities Act. In connection with the private placement, each investor executed a subscription agreement, which contains customary representations and warranties of Parent and of each investor. The private placement was made directly by Parent and no underwriter or placement agent was engaged by Parent.
On November 14, 2017, the Parent effected a private placement of 1,617,503 shares of preferred stock (1 to 4 conversion rate) or 6,470,012 ordinary shares of its common stock at a per share price of $1.20 per preferred share for aggregate proceeds to Parent of $1,941,203.60. Immediately prior to the closing of the private placement, Parent had 44,229,264 of its common stock issued and outstanding, and after the issuance of the 1,617,503 shares of preferred stock in the private placement, or 14.63% equivalent shares of the total shares of common stock issued and outstanding immediately prior to effecting the private placement, Parent has 1,617,503 preferred shares and 44,229,264 common shares issued and outstanding as of the date of this Report. The private placement was completed pursuant to Rule 506 of Regulation D and/or Regulation S of the Securities Act. In connection with the private placement, each investor executed a subscription agreement, which contains customary representations and warranties of Parent and of each investor. The private placement was made directly by Parent and no underwriter or placement agent was engaged by Parent.cash equivalents.
In connection with certain orders, we have to giveprovide the customer a working guarantee, or a prepayment guarantee or a security bond. For that purpose, we havemaintain a guaranteeguaranteed credit line of DKK 94,620EUR1,350,000 (approximately $15,000 at September 30, 2017) with a bank, subject to certain base limitations. As of September 30, 2017, we had DKK 94,620 (approximately $15,000) in working guarantee against the line. This$1,470,000). The credit 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.a cash deposit.
Going Concern and Management’s Plans
The financial statements included elsewhere herein for the period ended March 31, 2023, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. As of March 31, 2023, we had cash and cash equivalents of $14,309,933, an accumulated deficit of $69,740,538, and total liabilities of $17,256,096. We have incurred losses from continuing operations, have used cash in our continuing operations, and are dependent on additional financing to fund operations. These conditions raise substantial doubt about our ability to continue as a going concern for one year after the date the financial statements are issued. The financial statements included elsewhere herein do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
The Company has initiated substantial cost reductions and profitability improvement measures in order to right size the business and develop a clear and sustainable path to profitability, further underpinned by an updated strategy and onboarding of key management resources. However, there can be no assurance that the Company will needbe able to obtain any sources of funding. Such additional funds to sustain our business. Wefunding may raise such funds from time to time through publicnot be available or private sales of equity or debt securities. Financing may not be available on acceptablereasonable terms, and, in the case of equity financing transactions, could result in significant additional dilution to our stockholders. If we do not obtain required additional equity or at all,debt funding, our cash resources will be depleted and we could be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and our failurerelationships with third parties with whom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to raisecontinue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us.
Funding that we may receive during fiscal 2023 is expected to be used to satisfy existing and future obligations and liabilities and working capital when needed could materially adversely impact our financial conditionneeds, as well as future operating losses.
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 results of operations. Additional equity financing may be dilutive to holderssell a $15.0 million principal amount senior convertible note (the “Convertible Note”) maturing on October 1, 2023 and 80,000 shares of our common stock, and debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate our business. In$0.001 par value (“Common Stock”), for an aggregate purchase price of $15.0 million upon the event thatsatisfaction of the closing conditions set forth in the Securities Purchase Agreement. The Closing occurred on April 8, 2021, and the Company is unableissued to raise funds, there is substantial doubt about the abilityInvestor the securities in connection with the Closing.
The Convertible Note was a senior, unsecured obligation of the Company, payable at 112% of the principal amount at maturity (October 1, 2023), or earlier upon redemption or repurchase as set forth in the Convertible Note. The Convertible Note was convertible into shares of Common Stock pursuant to the terms of the Convertible Note, in part or in whole, from time to time, at the election of the Investor. The initial conversion rate was 100.6749 shares of Common Stock per $1,000 of principal amount of the Convertible Note. The conversion rate was subject to anti-dilution adjustments, including for stock dividends, splits, and combinations; issuances of options, warrants, or similar rights; spin-offs and distributions of property; cash dividends or distributions; and tender or exchange offers, in each case as further described in and pursuant to the terms of the Convertible Note.
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 $840,000 of the amounts due under the Convertible Note in cash or Common Stock at 90% of the lesser of (i) the volume-weighted average price (“VWAP”) of the Common Stock on the trading day immediately preceding the payment date and (ii) the average of the lowest three (3) VWAPs over the 10 trading days immediately preceding the payment date, which shall in no case be less than the floor price of $1.75 per share. Beginning on March 1, 2022, the Company paid the first monthly installment of $840,000 in cash.
As of June 22, 2022, the Note, including accrued interest and all relevant obligations, was repaid in full, amounting to $13,446,875, allocated between a principal repayment of $11,640,000 and contractual repayment premium of $1,806,875.
Senior Promissory Notes
On June 22, 2022, the Company issued and sold Senior Promissory Notes in an aggregate principal amount of $6.0 million (the “Notes”) and issued warrants to purchase 4,250,000 shares of common stock of the Company to continue asaffiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd. (together, the “Purchasers”), pursuant to a going concern.note and warrant purchase agreement entered into with the Purchasers.
The Notes have a term of 24 months and do not bear interest during this period. If the notes are not repaid on or before the second anniversary of issuance, however, the Notes will thereafter bear interest of 10% per annum, which will increase by 1% each month the Notes remain unpaid, up to a maximum of 16% per annum, payable monthly.
Cash Flows
NineThree months ended September 30, 2017 ComparedMarch 31, 2023 compared to ninethree months ended March 31, 2022September 30, 2016
Cash provided (used) byflows from operating activities isfor the period ending March 31, 2023 derived from the net income (losses)loss for the period, adjusted for certain non-cash items and changes in assets and liabilities. Cash used byflows from operating activities for the ninethree months ended September 30, 2017March 31, 2023 was $2,700,581,$(2,285,301), representing an increaseimprovement of $1,597,902$2,749,643 compared to cash used byflows from operating activities of $1,102,679$(5,034,944) for the ninethree months ended September 30, 2016.March 31, 2022. The $1,597,902 increase in cash used byflows from operating activities for the nine months ended September 30, 2017 wasperiod consists mainly of the net loss of $(2,389,503) adjusted for depreciation and other non-cash-related items of $984,040, partly offset by a reduction in accrued expenses of $433,045 due to a loss of $3,505,090 adjusted for no cash items, an increase of $478,879 in accounts receivablethis quarter’s utilization charges against the warranty reserve and a decrease in salary provisions, and increased accounts receivable of $202,066 in long-term contracts. This$379,330 due to back-end loaded revenue recognition.
Cash flows from investing activities was partially offset by$(87,470) for the three months ended March 31, 2023 as compared to $(183,031) for the three months ended March 31, 2022, representing a decrease of $238,986 in inventory, an increase of $27,657 in accounts payable and an increase of $340,371 in accrued expenses.
$95,561. The increase in in accounts receivable, the increase in accrued expenses, the increase in accounts payable, the decrease in inventory and the decrease in long-term, were all due to normal variations in the ordinary course of business.
Cash used in investing activities was $82,123 for the nine months ended September 30, 2017, as compared to cash used in investing activities of $129,411 for the nine months ended September 30, 2016. Cash used in investing activities decreased by $47,288 for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. This decrease was due to a period over period decrease of $34,461 ininclude the purchase of property and proceeds from sale of property andproduction equipment of $12,827.in Ballerup to help optimize production throughput.
Cash provided byflows from financing activities was $1,707,690$(98,945) for the ninethree months ended September 30, 2017, asMarch 31, 2023 compared to cash used by financing activities of $133,776$(931,807) for the ninethree months ended September 30, 2016. This changeMarch 31, 2022, representing a decrease of $1,841,466 in cash provided by financing activities for the nine months ended September 30, 2017, compared to 2016,$832,862. The decrease was mainly due to cash receiveddriven by the repayment of $840,000 regarding the Convertible Note in connection with the private placement on May 19, 2017 where the Company raised $1,825,000 with no offering costs issuing 7,300,000 sharessecond quarter of common stock.2022.
Off Balance Sheet Arrangements
As of September 30, 2017,March 31, 2023, we had no off-balance sheet arrangements other than normal operating leases.arrangements. We are not aware of any material transactions whichthat are not disclosed in our consolidated financial statements.
Significant Accounting Policies and Critical Accounting Estimates The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include: ● The assessment of revenue recognition, which impacts revenue and cost of sales; ● the assessment of allowance for product warranties, which impacts gross profit; ● the assessment of collectability of ● the assessment of recoverability of long-lived assets, which impacts gross ● the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes; ● the valuation of inventory, which impacts gross ● the recognition and measurement of loss contingencies, which impact gross Recently Enacted Accounting Standards For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Note 1: Recently Enacted Accounting Standards” in the accompanying Financial Statements. ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKOperating Leases -- The Company leases office and production facilities under operating lease agreements expiring in March 2021, August 2018, May 2018, and September 2017, In someaccountsAccounts receivable, which impacts operating expenses when and if we record bad debt or adjust the allowance for doubtful accounts;marginprofit or operating expenses when and if we record asset impairments or accelerate their depreciation;margin;profit; andmarginprofit or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment,impairment.
Not applicable.We are not required to provide quantitative and qualitative disclosures about market risk because we are a smaller reporting company.
ITEM 4.CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures
Our management, under supervision andManagement, with the participation of both of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness ofevaluated the design and operationeffectiveness of our “disclosureinternal controls over financial reporting and disclosure controls and procedures” (as defined inprocedures (pursuant to Rule 13a-15(b) and (c) under the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15-d-15(e))Act) as of the end of the period covered by this report (the “Evaluation Date”). Based uponQuarterly Report. A weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that evaluation, both of our Chief Executive Officer and Chief Financial Officer concludedthere is a reasonable possibility that asa misstatement of the Evaluation Date, ourregistrant's financial statements will not be prevented or detected on a timely basis.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, areincluding the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective to ensuredisclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, includingevaluation, our Chief Executive Officer and our Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
We do not expectconcluded that our disclosure controls and procedures as of March 31, 2023 were not effective as of the period covered by this Quarterly Report due to material weaknesses in internal controls over financial reporting. For more information on material weaknesses identified by management, please reference our Form 10-K filed on March 31, 2023 for the year ended December 31, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Remediation Initiatives
In response to the identified material weaknesses, Company management, with oversight from the Company’s Audit Committee, has been and will prevent all errorscontinue to dedicate necessary resources to enhance the Company’s internal control over financial reporting and all instancesremediate the identified material weaknesses. As an example of fraud. Disclosuresuch remediation, the Company has hired additional employees into the finance department, and we plan to continue to work on remediating the material weaknesses during 2023 by improving competencies and work processes. Further, an investment in a new ERP system has been made along with other supporting IT systems to support the controls and processes of the Company. These investments are an important part of our remediation plan. Lastly, the Company has started the process of redesigning and ensuring documentation of all processes and procedures related to financial reporting to ensure the effective design and operation of process-level controls.
While management believes that the steps that have been taken and plan to take will improve the overall system of internal control over financial reporting and will remediate the identified material weaknesses, these material weaknesses cannot be considered fully remediated until the applicable relevant controls operate for a sufficient period of time.
Limitations on the Effectiveness of Internal Controls
An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedurescontrol system are met. Further, the design of disclosure controls and proceduresa control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures,control systems, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficienciesissues and instances of fraud, if any.any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of disclosureany system of controls and procedures also is based partly onin part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reportingWhile management believes that occurred during the period covered by this reportsteps that has materially affected, or is reasonably likelywe have taken and plan to materially affect, ourtake will improve the overall system of internal control over financial reporting.reporting and will remediate identified material weaknesses, the material weaknesses cannot be considered remediated until the applicable relevant controls operate for a sufficient period of time.
None.From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. For a description of contingencies, see “Note 7 – Agreements And Commitments”.
Not required for a “smaller reporting company.”
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
None.
On November 14, 2017, the Parent effected a private placement of 1,617,503 shares of preferred stock (1 to 4 conversion rate) or 6,470,012 ordinary shares of its common stock at a per share price of $1.20 per preferred share for aggregate proceeds to Parent of $1,941,203.60. Immediately prior to the closing of the private placement, Parent had 44,229,264 of its common stock issued and outstanding, and after the issuance of the 1,617,503 shares of preferred stock in the private placement, or 14.63% equivalent shares of the total shares of common stock issued and outstanding immediately prior to effecting the private placement, Parent has 1,617,503 preferred shares and 44,229,264 common shares issued and outstanding as of the date of this Report. The private placement was completed pursuant to Rule 506 of Regulation D and/or Regulation S of the Securities Act. In connection with the private placement, each investor executed a subscription agreement, which contains customary representations and warranties of Parent and of each investor. The private placement was made directly by Parent and no underwriter or placement agent was engaged by Parent.None.
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3.2 |
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Incorporated by reference to Exhibit 3.4 to the Company’s Quarterly Report on Form |
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31.1 | Filed herewith | |
31.2 | Filed herewith |
32.1 | Furnished herewith | |
32.2 | Furnished herewith | |
101. INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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101. CAL | Inline XBRL Taxonomy Extension Calculation Link base Document |
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101. DEF | Inline XBRL Taxonomy Extension Definition Link base Document |
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101. LAB | Inline XBRL Taxonomy Label Link base Document |
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101. PRE | Inline XBRL Extension Presentation Link base Document |
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101. SCH | Inline XBRL Taxonomy Extension Scheme Document |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | Provided herewith |
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LiqTech International, Inc. | |||
Dated: | /s/ Fei Chen |
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(Principal Executive Officer) | |||
Dated: | May 11, 2023 | /s/ | |
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(Principal Financial and Accounting Officer) | |||
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