UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to to
Commission File Number:
LiqTech International, Inc.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: +
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of November 9, 2023, there were
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2023
TABLE OF CONTENTS
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, geopolitical instability in the Middle East and Ukraine, and the European energy crisis on the Company, including the related effects to our business operations, results of operations, cash flows, and financial position. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.
Forward-looking statements include, but are not limited to, statements concerning:
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Our exposure to increased macro-economic uncertainty; |
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The risk of a prolonged period of inflationary pressure including energy shortages and volatile energy prices in Europe; |
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The impact from prevailing conflicts across the Middle East and Ukraine including overall changes to the economic environment; |
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The resurgence of COVID-19 or similar global pandemics; |
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Our dependence on a few major customers and the ability to maintain future relationships with one or more of these major customers; |
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Our ability to operate with financial stability and secure adequate access to external financing and liquidity; |
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Our ability to secure and source supplies of raw materials and key components in due time and at competitive prices; |
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Our reliance on subcontractors or delivery of new machinery and critical components for our machinery to develop sufficient manufacturing capacity to meet demand; |
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Our ability to achieve revenue growth and execute the Company strategy; |
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Our dependence on the expertise and experience of our management team and the retention of key employees; |
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Our reliance and access to qualified personnel to expand our business; |
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Our ability to adapt to potentially adverse changes in legislative, regulatory and political frameworks; |
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Changes in emissions or environmental regulations and potential further tightening of emission standards; |
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Our ability to compete under changing governmental standards by which our products are evaluated; |
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Our exposure to potentially adverse tax consequences; |
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The financial impact from the fluctuation and volatility of foreign currencies; |
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The potential monetary costs of defending our intellectual property rights; |
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Our ability to successfully protect our intellectual property rights and manufacturing know-how; |
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The possibility of a dispute over intellectual property developed in conjunction with third parties with whom we have contractual relationships; |
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The possibility that we could become subject to litigation that could be costly, limit, or cancel our intellectual property rights, or divert time and efforts away from our business operations; |
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The potential negative impact to the sale of our products caused by technological advances of our competitors; |
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The potential liability for environmental harm or damages resulting from technical faults or failures of our products; |
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The possibility that an investor located within the United States may not be able to or find it difficult to enforce any judgments obtained in United States courts because a significant portion of our assets and some of our officers and directors may be located outside of the United States; |
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The possibility that we may not be able to develop and maintain an effective system of internal controls over financial reporting, leading to inaccurate reports of our financial results; |
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The possibility of breaches in the security of our information technology systems; |
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The liability risk of our compliance to environmental laws and regulations; |
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The potential negative impact of more stringent environmental laws and regulations as governmental agencies seek to improve minimum standards; and |
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The possibility that enforcement actions to suspend or severely restrict our business operations could be brought against the Company for our failure to comply with laws or regulations and the potential costs of defending against such actions. |
Any forward-looking statement made by us herein speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
PART I - FINANCIAL INFORMATION
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | As of | |||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and restricted cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ and $ at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Inventories, net of allowance for excess and obsolete inventory of $ and $ at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Total Current Assets | ||||||||
| Long-Term Assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $ and $ at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deposits and other assets | ||||||||
| Intangible assets, net of accumulated amortization of $ and $ at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Goodwill | ||||||||
| Total Long-Term Assets | ||||||||
| Total Assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
| As of | As of | |||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Contract liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Deferred tax liability | ||||||||
| Finance lease obligations, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Senior promissory notes payable, net of debt discount of $ and $ at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Total Long-term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock; par value $, shares authorized, shares issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock; par value $, shares authorized, and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended |
Ended |
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| September 30, |
September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold |
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| Gross Profit |
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| Operating Expenses: |
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| Selling expenses |
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| General and administrative expenses |
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| Research and development expenses |
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| Restructuring costs |
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| Total Operating Expense |
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| Loss from Operations |
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| Other Income (Expense) |
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| Interest and other income |
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| Interest expense |
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| Amortization discount on Notes |
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| Gain (Loss) on currency transactions |
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| Gain on lease termination |
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| Gain on sale of fixed assets |
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| Total Other Income (Expense) |
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| Loss Before Income Taxes |
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| Income Tax Benefit |
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| Net Loss |
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| Basic and Diluted Loss Per Share |
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| Basic and Diluted Weighted Average Common Shares Outstanding |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS (UNAUDITED)
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended |
Ended |
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| September 30, |
September 30, |
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| 2023 |
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| Net Loss |
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| Other Comprehensive Loss – Currency Translation, Net |
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| Total Comprehensive Loss |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the periods ended September 30, 2023 and September 30, 2022
| Accumulated | ||||||||||||||||||||||||
| Additional |
Accumu- |
Other |
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| Common Stock |
Paid-in |
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Comprehensive |
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| Shares |
Amount |
Capital |
Deficit |
Income/(Loss) |
TOTAL |
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| BALANCE, December 31, 2022 |
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| Common Stock issued in settlement of RSUs |
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| Stock-based compensation |
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| Currency translation, net |
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| Net Loss |
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| BALANCE, March 31, 2023 |
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| Common Stock issued in settlement of RSUs |
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| Fractional shares from individual shareholder round-up following reverse split |
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| Stock-based compensation |
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| Currency translation, net |
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| Net Loss |
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| BALANCE, June 30, 2023 |
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| Common Stock issued in settlement of RSUs |
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| Warrants issued in connection with Senior Promissory Notes |
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| Stock-based compensation |
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| Currency translation, net |
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| Net Loss |
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| BALANCE, September 30, 2023 |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
For the periods ended September 30, 2023 and September 30, 2022
| BALANCE, December 31, 2021 | | | | ( | ) | ( | ) | |||||||||||||||||
| Common Stock issued in settlement of RSUs | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Currency translation, net | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Common shares issued for cash at $ per share, net of offering cost of $, in May 2022 | ||||||||||||||||||||||||
| Warrants issued in connection with Senior Promissory Notes | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Currency translation, net | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued in settlement of RSUs | ( | ) | ||||||||||||||||||||||
| Adjustment to warrants issued in connection with Senior Promissory Notes | - | ( | ) | |||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Currency translation, net | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE, September 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Nine Months Ended |
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| September 30, |
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| 2023 |
2022 |
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| Cash Flows from Operating Activities: |
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| Net Loss |
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| Adjustments to reconcile net loss to net cash provided by (used in) operations: |
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| Depreciation and amortization |
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| Amortization of discount on convertible notes payable |
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| Stock-based compensation |
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| Change in deferred tax asset / liability |
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| Gain on lease termination |
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| Gain on sale of fixed assets |
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| Changes in assets and liabilities: |
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| Accounts receivable |
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| Inventory |
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| Contract assets |
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| Prepaid expenses and other current assets |
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| Accounts payable |
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| Accrued expenses |
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| Operating lease liabilities |
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| Contract liabilities |
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| Assets held for sale |
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| Net Cash used in Operating Activities |
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| Cash Flows from Investing Activities: |
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| Purchase of property and equipment |
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| Proceeds from sale of fixed assets |
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| Net Cash used in Investing Activities |
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| Cash Flows from Financing Activities: |
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| Payments on finance lease obligation |
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| Proceeds from Sale and Leaseback Agreements | ||||||||
| Proceeds from issuance of Common Stock and prefunded warrants |
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| Proceeds from issuance of Senior Promissory Notes |
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| Payments on Convertible Note |
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| Net Cash provided by Financing Activities |
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| Gain (Loss) on Currency Translation |
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| Net change in Cash and Restricted Cash |
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| Cash and Restricted Cash at Beginning of Period |
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| Cash and Restricted Cash at End of Period |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Nine Months Ended September 30, |
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| 2023 |
2022 |
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| Supplemental Disclosures of Cash Flow Information: |
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| Cash paid during the period for: |
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| Interest |
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| Non-cash financing activities |
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| Debt discount on Senior Promissory Notes |
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The accompanying notes are an integral part of these unaudited financial statements.
LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
The consolidated financial statements include the accounts of LiqTech International, Inc., (the “Company”) and its subsidiaries. The terms “Company”, “us”, “we” and “our” as used in this report refer to the Company and its subsidiaries, which are set forth below in Item 2, management’s discussion and analysis section. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide membrane applications and diesel particulate air filters in North America, Europe, Asia, Australia, and South America.
These interim consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. In the opinion of management, all adjustments consisting of a normal recurring nature and necessary for a fair presentation have been included.
Reverse Stock Split – On May 26, 2023, the Company effected a 1-for-
As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.”
Cash and Restricted Cash – The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of September 30, 2023, and December 31, 2022, the Company held $
Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At September 30, 2023 and December 31, 2022 the Company had $
Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts that reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, age, financial information that is publicly accessible and other currently available evidence.
The roll-forward of the allowance for doubtful accounts for the periods ended September 30, 2023 and December 31, 2022 is as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Allowance for doubtful accounts at the beginning of the period | $ | $ | ||||||
| Bad debt expense | ( | ) | ||||||
| Receivables written off during the periods | ( | ) | ( | ) | ||||
| Effect of currency translation | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts at the end of the period | $ | $ | ||||||
Inventory – Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first-in, first-out (“FIFO”) method.
For inventory produced, standard costs that approximate actual costs, applying the FIFO method, are used to value inventory. Standard costs are reviewed at least annually by management or more often in the event that circumstances indicate a change in cost has occurred.
Work in process and finished goods include material, labor, and production overhead costs. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors.
Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts.
Contracts Assets / Liabilities – Contract assets are the Company’s rights to consideration in exchange for goods or services and are recognized when a performance obligation has been satisfied but has not yet been billed. When the Company issues invoices to the customer and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.
Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit by the customer. Most commonly this invoice is sent to the customer at commissioning of the product or no later than 12 months after the delivery. Also included in Contract assets are short-term receivables such as value-added tax (“VAT”) and other receivables.
Goodwill and Intangible Assets – The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business, with the residual purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.
Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging from to years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of years.
The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.
Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions.
Revenue Recognition – The Company sells products throughout the world, and sales by geographical region are as follows for the three and nine months ended September 30, 2023 and 2022:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| Asia-Pacific | ||||||||||||||||
| Europe | ||||||||||||||||
| Middle East & Africa | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The Company’s sales by product line are as follows for the three and nine months ended September 30, 2023 and 2022:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Water | $ | $ | $ | $ | ||||||||||||
| Ceramics | ||||||||||||||||
| Plastics | ||||||||||||||||
| Corporate | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within the terms of a contract with the customer are satisfied, which occurs when control of the product transfers to the customer or when services are rendered by the Company. The majority of the Company’s sales contracts contain performance obligations satisfied at a point in time when title along with risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer. Revenue for service contracts is recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right to receive payment from the customer. The Company’s standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Considering the relatively short time between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.
For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.
System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions specified in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) asserting that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time the commissioning services are rendered together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e., the first performance obligation), this portion is recognized as Contract liabilities.
Aftermarket sales represent spare parts, extended warranties, commissioning activities, and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.
The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtration systems. We measure the transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheet as Contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.
The roll-forward of Contract assets / liabilities for the periods ended September 30, 2023 and December 31, 2022 is as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Cost incurred | $ | $ | ||||||
| Unbilled project deliveries | ||||||||
| VAT | ||||||||
| Other receivables | ||||||||
| Prepayments | ( | ) | ( | ) | ||||
| Deferred Revenue | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| Distributed as follows: | ||||||||
| Contract assets | $ | $ | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| $ | $ |
Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| ● | Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable, accrued expenses, convertible notes payable, and senior promissory notes payable approximate their recorded values due to their short-term maturities.
NOTE 2 – GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern; however, the Company has incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. There is no assurance that the Company will be successful in executing the proposed cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations. The financial statements do not include any adjustments that might result from the realization of these uncertainties.
As of September 30, 2023, the Company had cash and cash equivalents of $
NOTE 3 – INVENTORY
Inventory consisted of the following on September 30, 2023, and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| Furnace parts and supplies | $ | $ | ||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| Finished goods and filtration systems | ||||||||
| Reserve for excess and obsolescence | ( | ) | ( | ) | ||||
| Net Inventory | $ | $ | ||||||
Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movements, expected useful lives, and estimated future demand for the products.
NOTE 4 – LEASES
The Company leases certain vehicles, real property, production equipment, and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable leases for production and office space in Hobro, Aarhus, and Copenhagen, Denmark.
During the nine months ended September 30, 2023, cash paid for amounts included for the measurement of finance lease liabilities was $
During the nine months ended September 30, 2023, cash paid for amounts included for the measurement of operating lease liabilities was $
Other information related to leases as of September 30, 2023 and December 31, 2022 was as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Operating leases: | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance leases: | ||||||||
| Property and equipment, at cost | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| Finance lease liabilities – current | $ | $ | ||||||
| Finance lease liabilities – long-term | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Maturities of lease liabilities at September 30, 2023 were as follows:
| Operating Lease | Finance lease | |||||||
| 2023 (remaining 3 months) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total payment under lease agreements | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ | ||||||
NOTE 5 – LINES OF CREDIT
In connection with certain orders, we provide the customer with a working guarantee, prepayment guarantee, or a security bond. For that purpose, the Company has a credit line of EUR
NOTE 6 – LONG-TERM DEBT
Convertible Note
On March 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor (“Investor”) pursuant to which the Company agreed to issue and sell a $
The Convertible Note was a senior, unsecured obligation of the Company, payable at
Beginning on March 1, 2022, and on the first day of each calendar month thereafter, at the election of the Investor or Holder, if applicable, the Company was required to redeem $
As of June 22, 2022, the Convertible Note, including accrued interest and all relevant obligations, was repaid in full, amounting to $
The components of the Convertible Note are as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Convertible note | $ | |||||||
| Less: unamortized debt issuance costs | ||||||||
| Convertible note payable | $ | $ | ||||||
| Current portion of convertible note payable | ||||||||
| Convertible note payable, less current portion | ||||||||
| Convertible note payable | $ | $ | ||||||
For the three months ended September 30, 2023 and 2022, the Company recognized interest expense of $
For the nine months ended September 30, 2023 and 2022, the Company recognized interest expense of $
Senior Promissory Notes
On June 22, 2022, the Company issued and sold Senior Promissory Notes in an aggregate principal amount of $
The Notes have a term of
Additionally, as part of the transaction, the Company issued
As a result, the Company recorded an initial debt discount of $
On October 13, 2023, the Company and the Purchasers entered into an amendment to the Note and Warrant Purchase Agreement (the “Amendment”) and Allonge No. 1 to each of the Notes (collectively, the “Allonges”) effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 (the “Extension”). As consideration for the Extension, simultaneously with the entry into the Amendment and Allonges, the Company issued to the Purchasers additional warrants to purchase an aggregate of
As a result of the amendment, the Company recorded an initial debt discount of $
The components of notes payable are as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Senior Promissory Notes | $ | |||||||
| Less: unamortized debt discount | ( | ) | ( | ) | ||||
| Senior Promissory Notes payable | $ | $ | ||||||
| Current portion of Senior Promissory Notes payable | ||||||||
| Senior Promissory Notes payable, less current portion | ||||||||
| Senior Promissory Notes payable | $ | $ | ||||||
For the three months ended September 30, 2023 and 2022, the Company recognized interest expense of $
For the nine months ended September 30, 2023 and 2022, the Company recognized interest expense of $
NOTE 7 – AGREEMENTS AND COMMITMENTS
Contingencies – From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
In November 2022, the Company entered into a commercial settlement agreement regarding marine wastewater treatment systems delivered in 2019 and associated, potential warranty claims related to alleged corrosion on certain parts and components. The Company disputed the claim in full, subsequently reaching an amicable settlement agreement with expected remediation work to be conducted in 2023. The cost of any remediation work is shared between the two parties.
Product Warranties – The Company provides a standard warranty for its systems, generally for a period of to years after customer acceptance. The Company estimates the costs that may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.
In addition, the Company sells an extended warranty for certain systems, which generally provides a warranty for up to years from the date of commissioning. The specific terms and conditions of the warranties vary depending upon the product sold and the country in which the installation occurred. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and the cost per claim.
Changes in the Company’s current and long-term warranty obligations included in accrued expenses on the balance sheet, as of September 30, 2023 and December 31, 2022, were as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Balance at January 1 | $ | $ | ||||||
| Warranty costs charged to cost of goods sold | ||||||||
| Utilization charges against reserve | ( | ) | ( | ) | ||||
| Foreign currency effect | ( | ) | ( | ) | ||||
| Balance at the end of the period | $ | $ | ||||||
The utilization charges against the reserve for the nine months ended September 30, 2023 relate to the commercial settlement agreement as described under “Contingencies”.
NOTE 8 – EARNINGS PER SHARE
Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. For the periods where there is a net loss, stock options, warrants and Restricted Stock Units (“RSUs”) have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Consequently, the weighted average number of shares of Common Stock used to calculate both basic and diluted net loss per common share are the same for the reported periods.
As of September 30, 2023, the Company had outstanding balances of
As of September 30, 2022, the Company had outstanding balances of
The following table shows the amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive Common Stock for the three and nine months ended September 30, 2023 and 2022:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (Loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares used in basic earnings per share | ||||||||||||||||
| Effect of dilutive securities, stock options, RSUs, and warrants | ||||||||||||||||
| Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share | ||||||||||||||||
For the three and nine months ended September 30, 2023 and 2022, respectively, the Company had
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock – The Company has
Voting – Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends – Subject to the rights and preferences of the holders of any series of preferred stock, if any, which may at the time be outstanding, holders of Common Stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.
Liquidation Rights – In the event of any liquidation, dissolution or winding-up of affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.
Other Matters – Holders of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption rights or sinking fund provisions with respect to our Common Stock. All of the issued and outstanding shares of Common Stock on the date of this Annual Report are validly issued, fully paid and non-assessable.
Preferred Stock – Our Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock.
The Company has
Stock Issuance
Since January 1, 2023, the Company has made the following issuances of Common Stock:
On January 3, 2023, the Company issued
On January 3, 2023, the Company issued
On June 26, 2023, the Company issued
On August 25, 2023, the Company issued
On September 12, 2023, the Company issued
Warrants
On May 17, 2022, the Company entered a warrant purchase agreement with existing shareholders to purchase
On June 22, 2022, the Company completed a private placement of Senior Notes in an aggregate principal amount of $
On October 13, 2023, the Company entered into an amendment to the Note and Warrant Purchase Agreement effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 (the “Extension”). As consideration for the Extension, the Company issued to the Purchasers additional warrants to purchase an aggregate of
The following is a summary of the periodic changes in warrants outstanding for the nine months ended September 30, 2023 and 2022:
| 2023 | 2022 | |||||||
| Warrants outstanding at January 1 | ||||||||
| Warrants issued | ||||||||
| Exercises and conversions | ||||||||
| Warrants outstanding at September 30 | ||||||||
Stock-based Compensation
In 2013, the Company’s Board of Directors adopted a Share Incentive Plan (the “Incentive Plan”). Under the terms and conditions of the Incentive Plan, the Board of Directors is empowered to grant RSUs to officers, directors, and consultants of the Company. At September 30, 2023,
In 2022, the Company’s Board of Directors adopted an Equity Incentive Plan (the “2022 Incentive Plan”). Under the terms and conditions of the 2022 Incentive Plan, the Board of Directors is empowered to grant RSUs to officers and directors of the Company. At September 30, 2023,
The Company recognizes compensation costs for RSU grants to Directors and management based on the stock price on the date of the grant.
The Company recognized stock-based compensation expense related to RSU grants of $
A summary of the status of the RSUs as of September 30, 2023, and changes during the period are presented below:
| September 30, 2023 | ||||||||||||
| Number of units | Weighted Average Fair value | Aggregated Intrinsic | ||||||||||
| Outstanding, December 31, 2022 | $ | $ | ||||||||||
| Granted | - | |||||||||||
| Vested and settled with share issuance | ( | ) | ( | ) | - | |||||||
| Outstanding, September 30, 2023 | $ | $ | ||||||||||
NOTE 10 - SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATED REVENUE
The following table presents customers accounting for 10% or more of the Company’s revenue:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Customer A | % | * | % | * | % | * | % | |||||||||
| Customer B | * | % | % | * | % | % | ||||||||||
| Customer C | * | % | % | * | % | * | % | |||||||||
| Customer D | * | % | % | * | % | * | % | |||||||||
| Customer E | * | % | * | % | * | % | % | |||||||||
* Zero or less than 10%
The following table presents customers accounting for 10% or more of the Company’s Accounts receivable:
| September 30, 2023 | December 31, 2022 | |||||||
| Customer A | % | * | % | |||||
| Customer D | * | % | % | |||||
| Customer E | % | % | ||||||
| Customer F | * | % | % | |||||
* Zero or less than 10%
As of September 30, 2023, approximately
NOTE 11 – SEGMENT REPORTING
The Company operates in three segments: Water, Ceramics and Plastics. Effective as of January 1, 2020, the group structure was changed, with shared group activities transferred to an individual reporting unit separated from the business units. Costs and assets for these activities were therefore separated during 2020.
Segment information for the business areas is as follows:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Water | $ | $ | $ | $ | ||||||||||||
| Ceramics | ||||||||||||||||
| Plastics | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total consolidated Revenue | ||||||||||||||||
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Income (Loss) | ||||||||||||||||
| Water | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Ceramics | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Plastics | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total consolidated Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| As of | ||||||||
| Total Assets | September 30, 2023 | December 31, 2022 | ||||||
| Water | $ | $ | ||||||
| Ceramics | ||||||||
| Plastics | ||||||||
| Corporate | ||||||||
| Total consolidated Assets | $ | $ | ||||||
NOTE 12 - SUBSEQUENT EVENTS
None
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. In addition, the following discussion should be read in conjunction with our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 22, 2023, and the financial statements and notes thereto. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Overview
LiqTech International, Inc. is a clean technology company that provides state-of-the-art gas and liquid purification products by manufacturing ceramic silicon carbide filters and membranes while also providing engineered systems. For more than two decades, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in the following business areas: water treatment systems and services, ceramic membranes and systems for liquid filtration, diesel particulate filters (DPFs) to control soot exhaust particles from diesel engines, and plastic components for applications across various industries. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes that facilitate new applications and improve existing technologies. We market our products from our office in Denmark and through local representatives and distributors. The products are shipped directly to customers from our production facilities in Denmark.
The terms “LiqTech”, “we”, “our”, “us”, the “Company” or any derivative thereof, as used herein, refer to LiqTech International, Inc., a Nevada corporation, together with its direct and indirect wholly owned subsidiaries, which we collectively refer to herein as our “Subsidiaries”.
At present, we conduct our operations in the Kingdom of Denmark. Our Danish operations are located in the Copenhagen area, Hobro, and Aarhus.
Our Strategy
Our strategy is to leverage our core competencies in material science, advanced filtration, automation and systems integration, creating differentiated products with compelling value propositions to penetrate attractive end markets with regulatory and ESG tailwinds. Essential imperatives associated with our strategy include the following:
| ● |
Develop and reinforce new products and applications to provide clean water and reduce pollution. We currently provide water filtration systems for scrubber technology providers, shipowners, and ship operators as well as tailored filtration systems for oil & gas clients, chemical producers, industrial wastewater applications, and other manufacturing companies. We are expanding our range of products to better leverage existing customer relationships and develop new relationships within the oil & gas, marine, global manufacturing, and chemical industries. |
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| ● |
Better penetrate existing end markets where our value proposition is strong. We have successfully sold products and installed systems into several end markets—including automotive/transportation, clean water and pool filtration, marine, industrial wastewater, and oil & gas. We are focused on targeting and activating new customers in these end markets while working with distributors, agents, and partners to access important geographic markets. |
|
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| ● |
Develop new end markets for our core products and applications. Our existing products and systems are relevant for and valuable to other end markets, and we regularly evaluate opportunities to partner with strategic customers to perfect new applications and validate associated value propositions. |
Results of Operations
The financial information below is derived from our unaudited condensed consolidated financial statements included elsewhere in this report.
The following table sets forth our revenues, expenses and net loss for the three months ended September 30, 2023 and 2022:
| Three Months Ended September 30, |
||||||||||||||||||||||||
| Period to Period Change |
||||||||||||||||||||||||
| 2023 |
As a % of Sales |
2022 |
As a % of Sales |
Variance |
Percent % |
|||||||||||||||||||
| Revenue |
5,070,446 | 100.0 | % |
3,305,534 | 100.0 | % |
1,764,912 | 53.4 | % |
|||||||||||||||
| Cost of goods sold |
4,121,881 | 81.3 | 3,198,255 | 96.8 | 923,626 | 28.9 | ||||||||||||||||||
| Gross Profit |
948,565 | 18.7 | 107,279 | 3.2 | 841,286 | 784.2 | ||||||||||||||||||
| Operating Expenses |
||||||||||||||||||||||||
| Selling expenses |
965,039 | 19.0 | 676,420 | 20.5 | 288,619 | 42.7 | ||||||||||||||||||
| General and administrative expenses |
1,253,779 | 24.7 | 1,429,315 | 43.2 | (175,536 | ) |
(12.3 | ) |
||||||||||||||||
| Research and development expenses |
428,600 | 8.5 | 283,524 | 8.6 | 145,076 | 51.2 | ||||||||||||||||||
| Restructuring costs |
- | - | (1,964 | ) |
(0.1 | ) |
1.964 | (100.0 | ) |
|||||||||||||||
| Total Operating Expenses |
2,647,418 | 52.2 | 2,387,295 | 72.2 | 260,123 | 10.9 | ||||||||||||||||||
| Loss from Operation |
(1,698,853 | ) |
(33.5 | ) |
(2,280,016 | ) |
(69.0 | ) |
581,163 | (25.5 | ) |
|||||||||||||
| Other Income (Expense) |
||||||||||||||||||||||||
| Interest and other income |
103,887 | 2.0 | 1,870 | 0.1 | 102,017 | 5455.5 | ||||||||||||||||||
| Interest (expense) |
(34,734 | ) |
(0.7 | ) |
(28,514 | ) |
(0.9 | ) |
(6,220 | ) |
21.8 | |||||||||||||
| Amortization discount, Notes |
(86,447 | ) |
(1.7 | ) |
(84,098 | ) |
(2.5 | ) |
(2,349 | ) |
2.8 | |||||||||||||
| Gain (loss) on currency transactions |
287,437 | 5.7 | 628,137 | 19.0 | (340,700 | ) |
(54.2 | ) |
||||||||||||||||
| Gain on lease termination |
- | - | (3,317 | ) |
(0.1 | ) |
3,317 | (100.0 | ) |
|||||||||||||||
| Gain (loss) on sale of fixed assets |
- | - | (19 | ) |
- | 19 | (100.0 | ) |
||||||||||||||||
| Total Other Income (Expense) |
270,143 | 5.3 | 514,059 | 15.6 | (243,916 | ) |
(47.4 | ) |
||||||||||||||||
| Loss Before Income Taxes |
(1,428,710 | ) |
(28.2 | ) |
(1,765,957 | ) |
(53.4 | ) |
337,247 | (19.1 | ) |
|||||||||||||
| Income Tax Benefit |
14,480 |
|
0.3 |
|
13,293 |
|
0.4 |
|
1,187 |
|
8.9 | |||||||||||||
| Net Loss |
(1,414,230 | ) |
(27.9 | ) |
(1,752,664 | ) |
(53.0 | ) |
338,434 | (19.3 | ) |
|||||||||||||
Revenue
Revenue for the three months ended September 30, 2023, was $5,070,446 compared to $3,305,534 for the same period in 2022, representing an increase of $1,764,912, or 53%. The favorable variance in revenue reflects a continued strengthening of our established business lines along with a significant increase in aftermarket sales, including membrane housings and general spare part sales, and increased deliveries for pool systems in Europe and Asia Pacific. Furthermore, the quarterly revenue benefitted from stable DPF activity, continued remediation work for marine systems, and progress on external R&D projects to further strengthen our technology base.
Gross Profit
Gross profit for the quarter ended September 30, 2023, of $948,565 (or 18.7% gross margin), increased $841,626, compared to a gross profit of $107,279 (or 3.2% gross margin) for the same period in 2022. The positive variance is a result of increased volume, an improved revenue mix with elevated contribution of high-margin aftermarket activities, enhanced pricing discipline, and targeted cost reductions. During the quarter, we have onboarded new hires to ramp up our ceramics manufacturing throughput, improve kiln utilization, and compress delivery lead times. Profitability was also underpinned by new quality and production optimization efforts, seeking to standardize our system and service delivery platforms.
Included in gross profit was depreciation of $663,938 and $436,257 for the three months ended September 30, 2023, and 2022, respectively, with the increase reflecting investments in manufacturing equipment and facilities as well as an accelerated depreciation schedule for select kiln equipment.
Expenses
Total operating expenses for the three months ended September 30, 2023, were $2,647,418, representing an increase of $260,123, or 11%, compared to $2,387,295 for the same period in 2022.
Selling expenses for the three months ended September 30, 2023, were $965,039 representing an increase of $288,619 or 43%, compared to $676,420 for the same period in 2022. The increase is attributable to the onboarding of additional sales representatives, including new sales leadership to help execute the Company’s strategy to increase established business and penetrate target end markets. In addition, the Company incurred increased investor relations and marketing costs during the quarter due to conference participation and associated travel.
General and administrative expenses for the three months ended September 30, 2023, were $1,253,779, representing a decrease of $175,536 or 12%, compared to $1,429,315 for the same period in 2022. The decrease is predominantly related to CEO transition and other management changes in the quarter ended September 30, 2022, and ongoing cost reductions, partly offset by IT-related costs associated with outsourcing of IT services, onboarding of new employees, and consulting expenses.
Included in general and administrative expenses were non-cash compensation of $143,195 and $382,111 for the three months ended September 30, 2023, and 2022, respectively.
The following is a summary of non-cash compensation:
| For the Three Months Ended |
||||||||
| September 30, |
September 30, |
|||||||
| 2023 |
2022 |
|||||||
| Compensation for vesting of restricted stock awards issued to the Board of Directors |
$ | 37,146 | $ | 51,125 | ||||
| Compensation for vesting of restricted stock awards issued to management |
106,049 | 330,986 | ||||||
| Total Non-Cash Compensation |
$ | 143,195 | $ | 382,111 | ||||
Research and development expenses for the three months ended September 30, 2023, were $428,600, representing an increase of $145,076, or 51%, compared to $283,524 for the same period in 2022. The change was attributable to external costs related to finalizing ongoing projects, partially offset by a decrease in the average number of employees engaged in research and development activities, as the Company has streamlined and centralized the R&D function.
Other Income (Expenses)
Other Income for the three months ended September 30, 2023, was $270,143, representing a decrease in other income of $243,916, or 47%, compared to $514,059 for the comparable period in 2022, with the change reflecting a reduced gain on currency transactions, partially offset by increased interest income due to a more favorable deposit interest rate.
Net Loss
Net loss for the three months ended September 30, 2023, was $(1,414,230), representing an improvement of $338,434, or 19%, compared to $(1,752,664) recorded in the quarter ended September 30, 2022. The change was attributable to the increased volume from system and aftermarket sales and elevated gross profit margin due to realization of manufacturing efficiencies and associated cost reductions across our business. This was partially offset by increased operating expenses of $260,123, predominantly caused by onboarding of additional sales representatives and cost associated with finalizing ongoing R&D projects and reduced gain on currency transactions.
Comparison of the Nine Months Ended September 30, 2023, and September 30, 2022
The following table sets forth our revenues, expenses and net loss for the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, |
||||||||||||||||||||||||
| Period to Period | ||||||||||||||||||||||||
| Change |
||||||||||||||||||||||||
| 2023 |
As a % of Sales |
2022 |
As a % of Sales |
Variance |
Percent % |
|||||||||||||||||||
| Revenue |
14,071,984 | 100.0 | % |
11,961,062 | 100.0 | % |
2,110,922 | 17.6 | % |
|||||||||||||||
| Cost of Goods Sold |
11,569,549 | 82.2 | 11,460,102 | 95.8 | 109,447 | 1.0 | ||||||||||||||||||
| Gross Profit |
2,502,435 | 17.8 | 500,960 | 4.2 | 2,001,475 | 399.5 | ||||||||||||||||||
| Operating Expenses |
||||||||||||||||||||||||
| Selling expenses |
3,175,699 | 22.6 | 2,932,881 | 24.5 | 242,818 | 8.3 | ||||||||||||||||||
| General and administrative expenses |
3,690,211 | 26.2 | 4,611,375 | 38.6 | (921,164 | ) |
(20.0 | ) |
||||||||||||||||
| Research and development expenses |
1,131,003 | 8.0 | 1,377,097 | 11.5 | (246,094 | ) |
(17.9 | ) |
||||||||||||||||
| Restructuring costs |
- | - | 1,786,863 | 14.9 | (1,786,863 | ) |
(100.0 | ) |
||||||||||||||||
| Total Operating Expenses |
7,996,913 | 56.8 | 10,708,216 | 89.5 | (2,711,303 | ) |
(25.3 | ) |
||||||||||||||||
| Loss from Operation |
(5,494,478 | ) |
(39.0 | ) |
(10,207,256 | ) |
(85.3 | ) |
4,712,778 | (46.2 | ) |
|||||||||||||
| Other Income (Expense) |
||||||||||||||||||||||||
| Interest and other income |
272,105 | 1.9 | 344,593 | 2.9 | (72,488 | ) |
(21.0 | ) |
||||||||||||||||
| Interest (expense) |
(92,633 | ) |
(0.7 | ) |
(394,532 | ) |
(3.3 | ) |
301,899 | (76.5 | ) |
|||||||||||||
| Amortization discount, Notes |
(257,765 | ) |
(1.8 | ) |
(2,304,054 | ) |
(19.3 | ) |
2,046,289 | (88.8 | ) |
|||||||||||||
| Gain (loss) on currency transactions |
170,653 | 1.2 | 361,928 | 3.0 | (191,275 | ) |
(52.8 | ) |
||||||||||||||||
| Gain on lease termination |
- | - | 150,258 | 1.3 | (150,258 | ) |
(100.0 | ) |
||||||||||||||||
| Gain (loss) on sale of fixed assets |
- | - | 642 | - | (642 | ) |
(100.0 | ) |
||||||||||||||||
| Total Other Income (Expense) |
92,360 | (0.7 | ) |
(1,841,165 | ) |
(15.4 | ) |
1,933,525 | (105.0 | ) |
||||||||||||||
| Loss Before Income Taxes |
(5,402,118 | ) |
(38.4 | ) |
(12,048,421 | ) |
(100.7 | ) |
6,646,303 | (55.2 | ) |
|||||||||||||
| Income Tax Benefit |
43,093 |
|
0.3 |
|
42,274 |
|
0.4 |
|
819 |
|
1.9 |
|
||||||||||||
| Net Loss |
(5,359,025 | ) |
(38.1 | ) |
(12,006,147 | ) |
(100.4 | ) |
6,647,122 | (55.4 | ) |
|||||||||||||
Revenue
Revenue for the nine months ended September 30, 2023, was $14,071,984 (or 17.8% gross margin), representing an increase of $2,110,922, or 18%, compared to $11,961,062 (or 4.2% gross margin) recorded in for the same period in 2022. The positive variance reflects an increase in system sales and aftermarket activities, including increased spare parts and membrane housing orders, due to the establishment of a new, dedicated aftermarket organization, coupled with continued traction within our system business related to pool and marine system deliveries as well as oil & gas and industrial system applications. Furthermore, the period benefitted from a general increase in sales of plastic products and completion of external R&D projects.
The positive variance for the nine months ended September 30, 2023, was partly offset by a decrease in sale of ceramic products (DPF and membranes) as the period ended September 30, 2022, benefitted from delivery of a large legacy DPF order, and the Company is deliberately targeting an improved revenue mix consisting of higher-margin products.
Gross Profit
Gross profit for the nine months ended September 30, 2023, was $2,502,435 representing an increase of $2,001,475 or 400% compared to the gross profit of $500,960 reported for the same period in 2022. The increase derives from a reduction in cost of goods sold due to improved product mix and renewed pricing discipline within the recurring ceramic DPF business and the continued delivery of profitable system and aftermarket orders within the pool and phosphoric acid businesses.
The efforts specified above resulted in improved profitability, despite remediation costs related to legacy system deliveries and increased depreciation from recent investments in manufacturing equipment and facilities to improve kiln utilization and manufacturing throughput. Included in the gross profit was depreciation of $1,915,515 and $1,406,003 for the nine months ended September 30, 2023, and 2022, respectively.
Expenses
Total operating expenses for the nine months ended September 30, 2023, were $7,996,913, representing a decrease of $2,711,303, or 25%, compared to $10,708,216 for the comparable period in 2022, partly due to the restructuring costs of $1,786,863 incurred in the quarter ended June 30, 2022. Adjusting for the reported restructuring costs, total operating expenses decreased $924,440, or 9%.
Selling expenses for the nine months ended September 30, 2023, were $3,175,699, representing an increase of $242,818, or 8%, compared to $2,932,881 for the same period in 2022, primarily attributable to the onboarding of new sales and commercial leadership in 2023, partly offset by the ongoing focus on cost reduction and reduced bad debt expenses.
General and administrative expenses for the nine months ended September 30, 2023, were $3,690,211, representing a decrease of $921,164, or 20%, compared to $4,611,375 recorded in the same period of 2022. The decrease reflects reduced legal expenses and the absence of costs associated with the now-closed production facility in China, CEO transition and other transition costs, management changes executed in 2022. Non-cash compensation included in general and administrative expenses was $494,293 and $782,360 for the nine months ended September 30, 2023, and 2022, respectively.
The following is a summary of non-cash compensation:
| For the Nine Months Ended |
||||||||
| September 30, |
September 30, |
|||||||
| 2023 |
2022 |
|||||||
| Compensation for vesting of restricted stock awards issued to the Board of Directors |
$ | 176,146 | $ | 153,375 | ||||
| Compensation for vesting of restricted stock awards issued to management |
318,146 | 628,985 | ||||||
| Total Non-Cash Compensation |
$ | 494,292 | $ | 782,360 | ||||
Research and development expenses for the nine months ended September 30, 2023, of $1,131,003 represented a decrease of $246,094, or 18%, compared to $1,377,097 recorded for the same period in 2022. The decrease was attributable to the centralization of R&D to inspire more focused R&D efforts, partially offset by costs related to completion of external R&D projects in the third quarter of 2023.
Restructuring costs for the nine months ended September 30, 2023, were $0 compared to $1,786,863 for the same period in 2022. The restructuring program was executed in the second quarter of 2022.
Other Income (Expenses)
Other Income for the nine months ended September 30, 2023, was $92,360, representing an increase of $1,933,525, compared to $(1,841,165) for the comparable period in 2022. The favorable variance is predominantly a result of early repayment of the Convertible Note in the second quarter of 2022, including associated amortization cost incurred, and increased interest income due to a more favorable deposit interest rate, offset by a lower gain on currency transactions, the non-recurring gain on the lease termination related to the now-closed production facility in China, and the receipt of COVID-19 grants in the second quarter of 2022.
Net Loss
Net loss for the nine months ended September 30, 2023, was $(5,359,025) compared to $(12,006,147) for the comparable period in 2022, representing an improvement in net loss of $6,647,122. The improvement was attributable to increased volume; the favorable trend in gross profit margin due to improved mix from system sales and aftermarket activities, and cost efficiencies realized through elevated manufacturing throughput, reduced operating expenses from the absence of restructuring costs incurred in the quarter ended June 30, 2022, and the reduction in other expense following the repayment of the Convertible Note in 2022.
Liquidity and Capital Resources
Based on the prevailing market volatility and macro-economic uncertainty, including the geopolitical unrest pertaining to the Middle East and the Russia/Ukraine conflicts, the Company is unable to predict the full impact this will have on its long-term financial condition, results of operations, liquidity, and cash flows. The Company has recently planned and executed on decisive measures to help safeguard the business and its financial position by reducing cost, headcount controlling, and overall capex commitments, improving the Company’s ability to fund investments and general operating expenses from anticipated future Company profits.
Furthermore, in relation to the delivery and installation of new machinery and equipment to facilitate revenue growth, the Company has secured approximately $1.4 million of new finance leases from financial institutions to further strengthen its liquidity. On September 30, 2023, the Company proactively addressed the maturity of the $6 million senior promissory notes, extending the original maturity from June 2024 to January 2026 with terms and conditions that are aligned with the original agreement dated on June 22, 2022.
Based on current projections, which are subject to significant uncertainties, including the duration and severity of global macroeconomic issues, geopolitical instability, commodity price volatility, and continued global supply chain disruptions, the Company believes that 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, continued and escalating geopolitical instability, 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 characteristics 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 investment decisions of 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. On September 30, 2023, we had cash of $11,832,959 and net working capital of $16,836,699, and on December 31, 2022, we had cash of $16,597,371 and net working capital of $21,581,287. On September 30, 2023, our net working capital had decreased by $4,744,588 compared to December 31, 2022, mainly due to a reduction in cash and cash equivalents.
In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee, or a security bond. For that purpose, we maintain a guaranteed credit line of EUR 850,000 (approximately $900,000). The credit line is secured by a cash deposit.
Going Concern and Management’s Plans
The financial statements included herein for the period ended September 30, 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 September 30, 2023, we had cash and cash equivalents of $11,832,959, net working capital of $16,836,699, an accumulated deficit of $72,710,060, and total assets and liabilities of $36,839,028 and $17,563,507, respectively. We have incurred losses from continuing operations, used cash in our continuing operations, and remain dependent on external 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 to help right-size the business and develop a clear and sustainable path to profitability, further underpinned by an updated strategy and onboarding of key executives. There can be no assurance, however, that the Company will be able to obtain any sources of funding. Such additional funding may not be available or may not be available on reasonable 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 debt funding, our cash resources could 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 relationships with third parties with whom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue 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.
Convertible Note
On March 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor pursuant to which the Company agreed to issue and sell a $15.0 million principal amount senior convertible note (the “Convertible Note”) maturing on October 1, 2023 and 10,000 shares of our 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 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 805.3992 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 $14.00 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 and 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 531,250 shares of Common Stock of the Company to affiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April 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.
On October 13, 2023, the Company and the Purchasers entered into an amendment to the Note and Warrant Purchase Agreement (the “Amendment”) and Allonge No. 1 to each of the Notes (collectively, the “Allonges”) effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 (the “Extension”). As consideration for the Extension, simultaneously with the entry into the Amendment and Allonges, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $5.20 per share, subject to adjustment as provided therein (the “2023 Warrants”). The 2023 Warrants are exercisable at any time prior to the five-year anniversary of the initial exercise date of September 30, 2023. The Amendment qualifies as a modification and entitles the Purchasers to registration rights with respect to the shares of Common Stock issuable upon exercise of the 2023 Warrants pursuant to the existing Registration Rights Agreement, dated June 22, 2022, by and between the Company and the Purchasers.
Cash Flows
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Cash flows from operating activities for the period ending September 30, 2023 consist of the net loss for the period, adjusted for non-cash items and changes in assets and liabilities. Cash flows from operating activities for the nine months ended September 30, 2023 were $(2,973,663), representing an improvement of $8,509,273 compared to $(11,482,936) for the nine months ended September 30, 2022. The favorable change reflects the reported improvement in net loss benefiting from an improved gross profit and a general reduction in both operating and other expenses adjusted for depreciation and other non-cash-related items, and further underpinned by a reduction in Changes in assets and liabilities of $3,976,848 for the nine months ended September 30, 2023 compared to the same period in 2022, mainly caused by a reduction in prepaid expenses and increase in accrued expenses.
Cash flows from investing activities were $(2,261,131) for the nine months ended September 30, 2023 as compared to $(791,881) for the nine months ended September 30, 2022, representing an increase of $1,469,250. The investing activities were mainly related to growth investments in new machinery for ceramics production, as we redirected purchased and inbound equipment from our closed facility in China, as well as general maintenance investments across our manufacturing facilities.
Cash flows from financing activities were $718,327 for the nine months ended September 30, 2023 compared to $13,359,415 for the nine months ended September 30, 2022, representing a decrease of $12,641,088. The decrease was mainly driven by the equity raise recorded in May 2022, generating net proceeds of $24,418,612 from the issuance of Common Stock and prefunded warrants, coupled with proceeds of $6,000,000 from the issuance of the new Senior Promissory Notes, and partly offset by the full repayment of the Convertible Note issued in April 2021 of $16,800,000.
Off Balance Sheet Arrangements
As of September 30, 2023, we had no off-balance sheet arrangements. We are not aware of any material transactions that 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 Accounts receivable, which impacts operating expenses when and if we record bad debt or adjust the allowance for doubtful accounts; |
| ● |
the assessment of recoverability of long-lived assets, which impacts gross profit or operating expenses when and if we record asset impairments or accelerate their depreciation; |
| ● |
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 profit; |
| ● |
the recognition and measurement of loss contingencies, which impact gross profit or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment; and |
| ● | the valuation of warrants issued in connection with the Senior Promissory Notes, which impacts other income (expense). |
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 RISK
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
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the design and effectiveness of our internal controls over financial reporting and disclosure controls and procedures (pursuant to Rule 13a-15(b) and (c) under the Exchange Act) as of the end of the period covered by this Quarterly Report. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a misstatement of the registrant'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, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 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 continue to dedicate necessary resources to enhance the Company’s internal control over financial reporting and remediate the identified material weaknesses. As an example of such 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, the Company made an investment in a new ERP system 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 taken and those planned will improve 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 control system are met. Further, the design of a 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 control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if 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 any system of controls also is based in 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.
While management believes that the steps that we have taken and plan to take will improve the overall system of internal control over financial 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.
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.
None.
| 3.1 |
Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on August 10, 2023 | ||
| 3.2 |
Incorporated by reference to Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012 |
||
| 4.1 | Form of Warrant | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the SEC on October 19, 2023 | |
| 10.1 | First Amendment to Note and Warrant Purchase Agreement | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on October 19, 2023 | |
| 10.2 | Form of Allonge No. 1 | Included in Exhibit 10.1 | |
| 31.1 |
Filed herewith |
||
| 31.2 |
Filed herewith |
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| 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) |
Provided herewith |
|
| 101. CAL |
Inline XBRL Taxonomy Extension Calculation Link base Document |
Provided herewith |
|
| 101. DEF |
Inline XBRL Taxonomy Extension Definition Link base Document |
Provided herewith |
|
| 101. LAB |
Inline XBRL Taxonomy Label Link base Document |
Provided herewith |
|
| 101. PRE |
Inline XBRL Extension Presentation Link base Document |
Provided herewith |
|
| 101. SCH |
Inline XBRL Taxonomy Extension Scheme Document |
Provided herewith |
|
| 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: November 9, 2023 |
/s/ Fei Chen |
|
| Fei Chen, Chief Executive Officer |
||
| (Principal Executive Officer) |
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| Dated: November 9, 2023 |
/s/ Simon S. Stadil |
|
| Simon S. Stadil, Chief Financial Officer |
||
| (Principal Financial and Accounting Officer) |
||
Exhibit 31.1
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Fei Chen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2023 of LiqTech International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 9, 2023 |
By: |
/s/ Fei Chen |
|
Name: |
Fei Chen |
|
|
Title: |
President and Chief Executive Officer and Principal Executive Officer |
Exhibit 31.2
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Simon S. Stadil, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2023 of LiqTech International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 9, 2023 |
By: |
/s/ Simon S. Stadil |
|
Name: |
Simon S. Stadil |
|
|
Title: |
Chief Financial Officer and Principal Financial and Accounting Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LiqTech International, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to her knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
|
Date: November 9, 2023 |
By: |
/s/ Fei Chen |
|
Name: |
Fei Chen |
|
|
Title: |
President & Chief Executive Officer and Principal Executive Officer |
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LiqTech International, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
|
Date: November 9, 2023 |
By: |
/s/ Simon S. Stadil |
|
Name: |
Simon S. Stadil |
|
|
Title: |
Chief Financial Officer and Principal Financial and Accounting Officer |
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounts receivable, allowance for doubtful accounts | $ 48,909 | $ 59,559 |
| Inventories, allowance for excess and obsolete inventory | 898,944 | 663,227 |
| Property and equipment, accumulated depreciation | 10,713,077 | 9,046,499 |
| Intangible assets, accumulated depreciations | 509,641 | 438,250 |
| Debt discount | $ 1,455,127 | $ 519,686 |
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized (in shares) | 2,500,000 | 2,500,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shared outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, authorized (in shares) | 12,500,000 | 12,500,000 |
| Common stock, issued (in shares) | 5,727,310 | 5,498,260 |
| Common stock, outstanding (in shares) | 5,727,310 | 5,498,260 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Revenue | $ 5,070,446 | $ 3,305,534 | $ 14,071,984 | $ 11,961,062 |
| Cost of Goods Sold | 4,121,881 | 3,198,255 | 11,569,549 | 11,460,102 |
| Gross Profit | 948,565 | 107,279 | 2,502,435 | 500,960 |
| Operating Expenses: | ||||
| Selling expenses | 965,039 | 676,420 | 3,175,699 | 2,932,881 |
| General and administrative expenses | 1,253,779 | 1,429,315 | 3,690,211 | 4,611,375 |
| Research and development expenses | 428,600 | 283,524 | 1,131,003 | 1,377,097 |
| Restructuring costs | 0 | (1,964) | 0 | 1,786,863 |
| Total Operating Expense | 2,647,418 | 2,387,295 | 7,996,913 | 10,708,216 |
| Loss from Operations | (1,698,853) | (2,280,016) | (5,494,478) | (10,207,256) |
| Other Income (Expense) | ||||
| Interest and other income | 103,887 | 1,870 | 272,105 | 344,593 |
| Interest expense | (34,734) | (28,514) | (92,633) | (394,532) |
| Amortization discount on Notes | (86,447) | (84,098) | (257,765) | (2,304,054) |
| Gain (Loss) on currency transactions | 287,437 | 628,137 | 170,653 | 361,928 |
| Gain on lease termination | 0 | (3,317) | 0 | 150,258 |
| Gain on sale of fixed assets | 0 | (19) | 0 | 642 |
| Total Other Income (Expense) | 270,143 | 514,059 | 92,360 | (1,841,165) |
| Loss Before Income Taxes | (1,428,710) | (1,765,957) | (5,402,118) | (12,048,421) |
| Income Tax Benefit | 14,480 | 13,293 | 43,093 | 42,274 |
| Net Loss | $ (1,414,230) | $ (1,752,664) | $ (5,359,025) | $ (12,006,147) |
| Basic and Diluted Loss Per Share (in dollars per share) | $ (0.25) | $ (0.32) | $ (0.94) | $ (2.95) |
| Basic and Diluted Weighted Average Common Shares Outstanding (in shares) | 5,705,729 | 5,486,475 | 5,684,430 | 4,066,144 |
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Net (Loss) | $ (1,414,230) | $ (1,752,664) | $ (5,359,025) | $ (12,006,147) |
| Other Comprehensive Loss – Currency Translation, Net | (671,128) | (1,646,038) | (362,324) | (2,616,504) |
| Total Comprehensive Loss | $ (2,085,358) | $ (3,398,702) | $ (5,721,349) | $ (14,622,651) |
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (Parentheticals) |
3 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
$ / shares
| |
| Shares issued, offering cost per share (in dollars per share) | $ / shares | $ 0.5 |
| Shares issued, offering cost | $ | $ 1,996,469 |
Note 1 - Summary of Significant Accounting Policies |
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| Significant Accounting Policies [Text Block] |
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
The consolidated financial statements include the accounts of LiqTech International, Inc., (the “Company”) and its subsidiaries. The terms “Company”, “us”, “we” and “our” as used in this report refer to the Company and its subsidiaries, which are set forth below in Item 2, management’s discussion and analysis section. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide membrane applications and diesel particulate air filters in North America, Europe, Asia, Australia, and South America.
These interim consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. In the opinion of management, all adjustments consisting of a normal recurring nature and necessary for a fair presentation have been included.
Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and its majority-owned subsidiary. All material intercompany transactions and accounts have been eliminated in the consolidation.
Reverse Stock Split – On May 26, 2023, the Company effected a 1-for-8 reverse split of its outstanding Common Stock, $0.001 par value (“Common Stock”). All outstanding Common Stock, warrants, and RSUs were adjusted to reflect the 1-for-8 reverse split, with respective exercise prices of the warrants proportionately increased. All stock and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split. The total number of authorized Common Stock was adjusted to reflect the 1-for-8 reverse split.
As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.”
Functional Currency / Foreign Currency translation – The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The functional currency of LiqTech Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects and LiqTech Emission Control is the Danish Krone (“DKK”); the functional currency of LiqTech China is the Renminbi (“RMB”); and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The balance sheet accounts of the foreign subsidiaries are translated into U.S. Dollars at the period-end exchange rates, and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the nine months ended September 30, 2023 and 2022. Translation gains and losses are deferred and accumulated as a component of other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.
Cash and Restricted Cash – The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of September 30, 2023, and December 31, 2022, the Company held $901,437 and $1,440,394, respectively, of restricted cash. The restricted cash is held as security by a local financial institution against a leasing facility and for bank guarantees issued for the benefit of customers in connection with prepayments of sales orders and general product warranties.
Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At September 30, 2023 and December 31, 2022 the Company had $0 and $12,999,271 in excess of the FDIC insured limit, respectively.
Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts that reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, age, financial information that is publicly accessible and other currently available evidence.
The roll-forward of the allowance for doubtful accounts for the periods ended September 30, 2023 and December 31, 2022 is as follows:
Inventory – Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first-in, first-out (“FIFO”) method.
For inventory produced, standard costs that approximate actual costs, applying the FIFO method, are used to value inventory. Standard costs are reviewed at least annually by management or more often in the event that circumstances indicate a change in cost has occurred.
Work in process and finished goods include material, labor, and production overhead costs. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors.
Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts.
Contracts Assets / Liabilities – Contract assets are the Company’s rights to consideration in exchange for goods or services and are recognized when a performance obligation has been satisfied but has not yet been billed. When the Company issues invoices to the customer and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.
Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit by the customer. Most commonly this invoice is sent to the customer at commissioning of the product or no later than 12 months after the delivery. Also included in Contract assets are short-term receivables such as value-added tax (“VAT”) and other receivables.
Assets Held for Sale – Assets are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets are classified as held for sale on the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale.
Leases – The Company has elected to not recognize lease assets and liabilities with an initial term of 12 months or less and to not separate lease and non-lease components. The Company’s accounting for finance leases remains substantially unchanged. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value. The Company will use the implicit rate when readily determinable. The operating lease ROU asset also includes prepaid lease payments, reduced by accrued lease payments. The Company’s lease terms may include options to extend or terminate the lease, for which the Company will reflect the change when it is reasonably certain that those options will be exercised. Operating lease cost for lease payments will be recognized on a straight-line basis over the lease term.
Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from to years.
Goodwill and Intangible Assets – The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business, with the residual purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.
Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging from to years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of years.
The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.
Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions.
Revenue Recognition – The Company sells products throughout the world, and sales by geographical region are as follows for the three and nine months ended September 30, 2023 and 2022:
The Company’s sales by product line are as follows for the three and nine months ended September 30, 2023 and 2022:
For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within the terms of a contract with the customer are satisfied, which occurs when control of the product transfers to the customer or when services are rendered by the Company. The majority of the Company’s sales contracts contain performance obligations satisfied at a point in time when title along with risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer. Revenue for service contracts is recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right to receive payment from the customer. The Company’s standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Considering the relatively short time between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.
For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.
System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions specified in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) asserting that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time the commissioning services are rendered together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e., the first performance obligation), this portion is recognized as Contract liabilities.
Aftermarket sales represent spare parts, extended warranties, commissioning activities, and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.
The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtration systems. We measure the transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheet as Contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.
The roll-forward of Contract assets / liabilities for the periods ended September 30, 2023 and December 31, 2022 is as follows:
Advertising Cost – Costs incurred in connection with advertising of the Company’s products are expensed as incurred. Advertising costs are included in sales expenses, and total advertising costs for the three-month periods ended September 30, 2023, and 2022 were $7,372 and $39,094, respectively. Total advertising costs amounted to $52,138 and $142,522 for the nine months ended September 30, 2023, and 2022, respectively.
Research and Development Cost – The Company expenses research and development costs as incurred. Included in operating expense for the three-month periods ended September 30, 2023, and 2022 were research and development costs of $428,600 and $283,524, respectively. For the nine-month periods ended September 30, 2023, and 2022, research and development costs were $1,131,003 and $1,377,097, 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 with respect to accounting for income taxes.
Income/(Loss) Per Share – The Company calculates earnings (loss) per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of Common Stock outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options, RSUs and warrants that have been granted but have not yet been exercised.
Stock Awards – During the years presented in the accompanying consolidated financial statements, the Company has granted stock awards. The Company accounts for stock awards in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation.
Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable, accrued expenses, convertible notes payable, and senior promissory notes payable approximate their recorded values due to their short-term maturities.
Accounting Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets including accounts receivable; allowance for doubtful accounts; contract assets; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill; liabilities including contract liabilities and contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.
Recent Accounting Pronouncements – Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
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Note 2 - Going Concern |
9 Months Ended |
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| Substantial Doubt about Going Concern [Text Block] |
NOTE 2 – GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern; however, the Company has incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. There is no assurance that the Company will be successful in executing the proposed cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations. The financial statements do not include any adjustments that might result from the realization of these uncertainties.
As of September 30, 2023, the Company had cash and cash equivalents of $11,832,959, net working capital of $16,836,699, an accumulated deficit of $72,710,060, and total assets and liabilities of $36,839,028 and $17,563,507, respectively.
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Note 3 - Inventory |
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NOTE 3 – INVENTORY
Inventory consisted of the following on September 30, 2023, and December 31, 2022:
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.
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Note 4 - Leases |
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| Lessee, Operating and Finance Leases [Text Block] |
NOTE 4 – LEASES
The Company leases certain vehicles, real property, production equipment, and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable leases for production and office space in Hobro, Aarhus, and Copenhagen, Denmark.
During the nine months ended September 30, 2023, cash paid for amounts included for the measurement of finance lease liabilities was $406,235, and the Company recorded finance lease expenses in other income (expenses) of $335,342.
During the nine months ended September 30, 2023, cash paid for amounts included for the measurement of operating lease liabilities was $567,544, and the Company recorded operating lease expense of $567,544.
Other information related to leases as of September 30, 2023 and December 31, 2022 was as follows:
Maturities of lease liabilities at September 30, 2023 were as follows:
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Note 5 - Lines of Credit |
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| Debt Disclosure [Text Block] |
NOTE 5 – LINES OF CREDIT
In connection with certain orders, we provide the customer with a working guarantee, prepayment guarantee, or a security bond. For that purpose, the Company has a credit line of EUR 850,000 (approximately $900,000) secured by a cash deposit, available for issuance of trade finance products. As of September 30, 2023, the Company had guaranties of $47,141 issued against the credit line.
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Note 6 - Long-term Debt |
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| Long-Term Debt [Text Block] |
NOTE 6 – LONG-TERM DEBT
Convertible Note
On March 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor (“Investor”) pursuant to which the Company agreed to issue and sell a $15.0 million principal amount senior convertible note (the “Convertible Note”) maturing on October 1, 2023 and 10,000 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 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 805.3992 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 $14.00 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 Convertible 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.
The components of the Convertible Note are as follows:
For the three months ended September 30, 2023 and 2022, the Company recognized interest expense of $0 and $0, respectively, and $0 and $0, respectively, related to the amortization of debt issuance costs.
For the nine months ended September 30, 2023 and 2022, the Company recognized interest expense of $0 and $308,958, respectively, and $0 and $2,213,065, 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 531,250 shares of Common Stock to affiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd. (together, the “Purchasers”), pursuant to a note and warrant purchase agreement entered into with the Purchasers. The warrants issued in this transaction have an exercise price of $5.20 per share, a term of years and are exercisable for cash at any time.
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 28,846 warrants to the placement agent. The warrants issued in this transaction have an exercise price of $5.20 per share, a term of 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 $3.44, exercise price of $5.20, 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.
On October 13, 2023, the Company and the Purchasers entered into an amendment to the Note and Warrant Purchase Agreement (the “Amendment”) and Allonge No. 1 to each of the Notes (collectively, the “Allonges”) effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 (the “Extension”). As consideration for the Extension, simultaneously with the entry into the Amendment and Allonges, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $5.20 per share, subject to adjustment as provided therein (the “2023 Warrants”). The 2023 Warrants are exercisable at any time prior to the -year anniversary of the initial exercise date of September 30, 2023. The Amendment qualifies as a modification and entitles the Purchasers to registration rights with respect to the shares of Common Stock issuable upon exercise of the 2023 Warrants pursuant to the existing Registration Rights Agreement, dated June 22, 2022, by and between the Company and the Purchasers.
As a result of the amendment, the Company recorded an initial debt discount of $1,193,206, 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 5.0 years, stock price of $3.89, exercise price of $5.20, volatility of 73.66%, risk-free rate of 4.60%, and 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:
For the three months ended September 30, 2023 and 2022, the Company recognized interest expense of $0 and $0, respectively, and $86,447 and $84,098, respectively, on the Senior Promissory Notes related to the amortization of debt issuance costs.
For the nine months ended September 30, 2023 and 2022, the Company recognized interest expense of $0 and $0, respectively, and $257,765 and $90,989, respectively, on the Senior Promissory Notes related to the amortization of debt issuance costs.
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Note 7 - Agreements and Commitments |
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| Commitments and Contingencies Disclosure [Text Block] |
NOTE 7 – AGREEMENTS AND COMMITMENTS
Contingencies – From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
In November 2022, the Company entered into a commercial settlement agreement regarding marine wastewater treatment systems delivered in 2019 and associated, potential warranty claims related to alleged corrosion on certain parts and components. The Company disputed the claim in full, subsequently reaching an amicable settlement agreement with expected remediation work to be conducted in 2023. The cost of any remediation work is shared between the two parties.
Product Warranties – The Company provides a standard warranty for its systems, generally for a period of to years after customer acceptance. The Company estimates the costs that may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.
In addition, the Company sells an extended warranty for certain systems, which generally provides a warranty for up to years from the date of commissioning. The specific terms and conditions of the warranties vary depending upon the product sold and the country in which the installation occurred. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and the cost per claim.
Changes in the Company’s current and long-term warranty obligations included in accrued expenses on the balance sheet, as of September 30, 2023 and December 31, 2022, were as follows:
The utilization charges against the reserve for the nine months ended September 30, 2023 relate to the commercial settlement agreement as described under “Contingencies”.
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Note 8 - Earnings Per Share |
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| Earnings Per Share [Text Block] |
NOTE 8 – EARNINGS PER SHARE
Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. For the periods where there is a net loss, stock options, warrants and Restricted Stock Units (“RSUs”) have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Consequently, the weighted average number of shares of Common Stock used to calculate both basic and diluted net loss per common share are the same for the reported periods.
As of September 30, 2023, the Company had outstanding balances of 314,462 RSUs, 3,930,008 prefunded warrants, and 1,091,346 warrants, all exercisable for shares of Common Stock.
As of September 30, 2022, the Company had outstanding balances of 313,043 RSUs, 3,930,008 prefunded warrants, and 560,096 warrants, all exercisable for shares of Common Stock.
The following table shows the amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive Common Stock for the three and nine months ended September 30, 2023 and 2022:
For the three and nine months ended September 30, 2023 and 2022, respectively, the Company had no options outstanding to purchase Common Stock.
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Note 9 - Stockholders' Equity |
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| Equity [Text Block] |
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock – The Company has 12,500,000 authorized shares of Common Stock. As of September 30, 2023 and December 2022, there were 5,727,310 and 5,498,260 shares of Common Stock issued and outstanding, respectively.
Voting – Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends – Subject to the rights and preferences of the holders of any series of preferred stock, if any, which may at the time be outstanding, holders of Common Stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.
Liquidation Rights – In the event of any liquidation, dissolution or winding-up of affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.
Other Matters – Holders of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption rights or sinking fund provisions with respect to our Common Stock. All of the issued and outstanding shares of Common Stock on the date of this Annual Report are validly issued, fully paid and non-assessable.
Preferred Stock – Our Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock.
The Company has 2,500,000 shares of authorized Preferred stock, $0.001 par value. As of September 30, 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:
On January 3, 2023, the Company issued 2,340 shares of Common Stock to settle RSUs. The RSUs were valued at $110,254 for services provided by the Board of Directors in 2022. The Company recognized the stock-based compensation of the award over the requisite service period during the year ended December 31, 2022.
On January 3, 2023, the Company issued 158,330 shares of Common Stock to settle RSUs. The RSUs were valued at $674,164 for services provided by management in 2022. The Company recognized the stock-based compensation of the award over the requisite service period during the year ended December 31, 2022.
On June 26, 2023, the Company issued 24,500 shares of Common Stock to settle RSUs. The RSUs were valued at $73,500 for services provided by the Board of Directors in 2023. The Company recognized the stock-based compensation of the award over the requisite service period during the period ended June 30, 2023.
On August 25, 2023, the Company issued 1,042 shares of Common Stock to settle RSUs. The RSUs were valued at $57,500 for services provided by the Board of Directors in 2023. The Company recognized the stock-based compensation of the award over the requisite service period during the period ended September 30, 2023.
On September 12, 2023, the Company issued 26,042 shares of Common Stock to settle RSUs. The RSUs were valued at $116,667 for services provided by management in the last 12 months. The Company recognized the stock-based compensation of the award over the requisite service period during the period ended September 30, 2023.
Warrants
On May 17, 2022, the Company entered a warrant purchase agreement with existing shareholders to purchase 3,803,133 shares of Common Stock at an offering price of $3.992 per prefunded warrant, which represents the offering price of $4.00 per share of the Company’s Common Stock less the $0.008 per share exercise price for each pre-funded warrant. The warrants represented 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 22, 2022, the Company completed a private placement of Senior Notes in an aggregate principal amount of $6,000,000 and warrants to purchase 531,250 shares of Common Stock of the Company to affiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd. (together, the "Purchasers"), pursuant to a Note and warrant purchase agreement. Additionally, as part of the transaction, the Company issued 28,846 warrants to the placement agent. All warrants issued in this transaction have an exercise price of $5.20 per share, a term of five years, and are exercisable for cash at any time.
On October 13, 2023, the Company entered into an amendment to the Note and Warrant Purchase Agreement effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 (the “Extension”). As consideration for the Extension, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $5.20 per share. The warrants are exercisable at any time prior to the -year anniversary of the initial exercise date of September 30, 2023.
The following is a summary of the periodic changes in warrants outstanding for the nine months ended September 30, 2023 and 2022:
Stock-based Compensation
In 2013, the Company’s Board of Directors adopted a Share Incentive Plan (the “Incentive Plan”). Under the terms and conditions of the Incentive Plan, the Board of Directors is empowered to grant RSUs to officers, directors, and consultants of the Company. At September 30, 2023, 113,357 RSUs were granted and outstanding under the Incentive Plan. Directors of the Company receive share compensation consisting of annual grants of $36,750 ($73,500 for the Chairman of the Board) in RSUs per annum with one-year vesting.
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 September 30, 2023, 201,104 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 $143,195 and $382,111 for the three-month periods ended September 30, 2023, and 2022, respectively. For the nine months periods ended September 30, 2023, and 2022, the stock-based compensation related to share grants was $494,292 and $782,360, respectively. On September 30, 2023, the Company had $822,601 of unrecognized compensation cost related to non-vested stock grants.
A summary of the status of the RSUs as of September 30, 2023, and changes during the period are presented below:
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Note 10 - Significant Customers / Concentration / Disaggregated Revenue |
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| Concentration Risk Disclosure [Text Block] |
NOTE 10 - SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATED REVENUE
The following table presents customers accounting for 10% or more of the Company’s revenue:
* Zero or less than 10%
The following table presents customers accounting for 10% or more of the Company’s Accounts receivable:
* Zero or less than 10%
As of September 30, 2023, approximately 97% of the Company’s assets were located in Denmark, 1% were located in the U.S., and 2% 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 2% were located in China.
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Note 11 - Segment Reporting |
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| Segment Reporting Disclosure [Text Block] |
NOTE 11 – SEGMENT REPORTING
The Company operates in three segments: Water, Ceramics and Plastics. Effective as of January 1, 2020, the group structure was changed, with shared group activities transferred to an individual reporting unit separated from the business units. Costs and assets for these activities were therefore separated during 2020.
Segment information for the business areas is as follows:
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Note 12 - Subsequent Events |
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| Subsequent Events [Text Block] |
NOTE 12 - SUBSEQUENT EVENTS
None
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Significant Accounting Policies (Policies) |
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| Basis of Accounting, Policy [Policy Text Block] | Business and Basis of Presentation
The consolidated financial statements include the accounts of LiqTech International, Inc., (the “Company”) and its subsidiaries. The terms “Company”, “us”, “we” and “our” as used in this report refer to the Company and its subsidiaries, which are set forth below in Item 2, management’s discussion and analysis section. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide membrane applications and diesel particulate air filters in North America, Europe, Asia, Australia, and South America.
These interim consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. In the opinion of management, all adjustments consisting of a normal recurring nature and necessary for a fair presentation have been included. |
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| Consolidation, Policy [Policy Text Block] | Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and its majority-owned subsidiary. All material intercompany transactions and accounts have been eliminated in the consolidation. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse Stock Split [Policy Text Block] | Reverse Stock Split – On May 26, 2023, the Company effected a 1-for-8 reverse split of its outstanding Common Stock, $0.001 par value (“Common Stock”). All outstanding Common Stock, warrants, and RSUs were adjusted to reflect the 1-for-8 reverse split, with respective exercise prices of the warrants proportionately increased. All stock and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split. The total number of authorized Common Stock was adjusted to reflect the 1-for-8 reverse split.
As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.” |
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| Foreign Currency Transactions and Translations Policy [Policy Text Block] | Functional Currency / Foreign Currency translation – The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The functional currency of LiqTech Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects and LiqTech Emission Control is the Danish Krone (“DKK”); the functional currency of LiqTech China is the Renminbi (“RMB”); and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The balance sheet accounts of the foreign subsidiaries are translated into U.S. Dollars at the period-end exchange rates, and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the nine months ended September 30, 2023 and 2022. Translation gains and losses are deferred and accumulated as a component of other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Restricted Cash – The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of September 30, 2023, and December 31, 2022, the Company held $901,437 and $1,440,394, respectively, of restricted cash. The restricted cash is held as security by a local financial institution against a leasing facility and for bank guarantees issued for the benefit of customers in connection with prepayments of sales orders and general product warranties.
Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At September 30, 2023 and December 31, 2022 the Company had $0 and $12,999,271 in excess of the FDIC insured limit, respectively. |
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| Accounts Receivable [Policy Text Block] | Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts that reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, age, financial information that is publicly accessible and other currently available evidence.
The roll-forward of the allowance for doubtful accounts for the periods ended September 30, 2023 and December 31, 2022 is as follows:
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| Inventory, Policy [Policy Text Block] | Inventory – Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first-in, first-out (“FIFO”) method.
For inventory produced, standard costs that approximate actual costs, applying the FIFO method, are used to value inventory. Standard costs are reviewed at least annually by management or more often in the event that circumstances indicate a change in cost has occurred.
Work in process and finished goods include material, labor, and production overhead costs. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors.
Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts. |
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| Receivable [Policy Text Block] | Contracts Assets / Liabilities – Contract assets are the Company’s rights to consideration in exchange for goods or services and are recognized when a performance obligation has been satisfied but has not yet been billed. When the Company issues invoices to the customer and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.
Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit by the customer. Most commonly this invoice is sent to the customer at commissioning of the product or no later than 12 months after the delivery. Also included in Contract assets are short-term receivables such as value-added tax (“VAT”) and other receivables. |
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| Assets Held for Sale [Policy Text Block] | 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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lessee, Leases [Policy Text Block] | Leases – The Company has elected to not recognize lease assets and liabilities with an initial term of 12 months or less and to not separate lease and non-lease components. The Company’s accounting for finance leases remains substantially unchanged. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value. The Company will use the implicit rate when readily determinable. The operating lease ROU asset also includes prepaid lease payments, reduced by accrued lease payments. The Company’s lease terms may include options to extend or terminate the lease, for which the Company will reflect the change when it is reasonably certain that those options will be exercised. Operating lease cost for lease payments will be recognized on a straight-line basis over the lease term. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment, Policy [Policy Text Block] | Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from to years. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets, Policy [Policy Text Block] | Goodwill and Intangible Assets – The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business, with the residual purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.
Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging from to years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of years.
The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.
Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions. |
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| Revenue [Policy Text Block] | Revenue Recognition – The Company sells products throughout the world, and sales by geographical region are as follows for the three and nine months ended September 30, 2023 and 2022:
The Company’s sales by product line are as follows for the three and nine months ended September 30, 2023 and 2022:
For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within the terms of a contract with the customer are satisfied, which occurs when control of the product transfers to the customer or when services are rendered by the Company. The majority of the Company’s sales contracts contain performance obligations satisfied at a point in time when title along with risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer. Revenue for service contracts is recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right to receive payment from the customer. The Company’s standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Considering the relatively short time between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.
For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.
System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions specified in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) asserting that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time the commissioning services are rendered together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e., the first performance obligation), this portion is recognized as Contract liabilities.
Aftermarket sales represent spare parts, extended warranties, commissioning activities, and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.
The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtration systems. We measure the transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheet as Contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.
The roll-forward of Contract assets / liabilities for the periods ended September 30, 2023 and December 31, 2022 is as follows:
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| Advertising Cost [Policy Text Block] | Advertising Cost – Costs incurred in connection with advertising of the Company’s products are expensed as incurred. Advertising costs are included in sales expenses, and total advertising costs for the three-month periods ended September 30, 2023, and 2022 were $7,372 and $39,094, respectively. Total advertising costs amounted to $52,138 and $142,522 for the nine months ended September 30, 2023, and 2022, respectively. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and Development Expense, Policy [Policy Text Block] | Research and Development Cost – The Company expenses research and development costs as incurred. Included in operating expense for the three-month periods ended September 30, 2023, and 2022 were research and development costs of $428,600 and $283,524, respectively. For the nine-month periods ended September 30, 2023, and 2022, research and development costs were $1,131,003 and $1,377,097, respectively. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax, Policy [Policy Text Block] | Income Taxes – The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes. This statement requires an asset and liability approach with respect to accounting for income taxes. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share, Policy [Policy Text Block] | Income/(Loss) Per Share – The Company calculates earnings (loss) per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of Common Stock outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options, RSUs and warrants that have been granted but have not yet been exercised. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Policy Text Block] | Stock Awards – During the years presented in the accompanying consolidated financial statements, the Company has granted stock awards. The Company accounts for stock awards in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurement, Policy [Policy Text Block] | Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable, accrued expenses, convertible notes payable, and senior promissory notes payable approximate their recorded values due to their short-term maturities. |
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| Use of Estimates, Policy [Policy Text Block] | Accounting Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets including accounts receivable; allowance for doubtful accounts; contract assets; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill; liabilities including contract liabilities and contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting Pronouncements – Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 1 - Summary of Significant Accounting Policies (Tables) |
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| Financing Receivable, Allowance for Credit Loss [Table Text Block] |
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| Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block] |
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| Reconciliation of Revenue from Segments to Consolidated [Table Text Block] |
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Note 3 - Inventory (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 4 - Leases (Tables) |
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| Lessee, Operating and Finance Lease, Assets and Liabilities [Table Text Block] |
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| Maturity of Operating and Finance Lease Liabilities [Table Text Block] |
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Note 6 - Long-term Debt (Tables) |
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| Convertible Debt [Table Text Block] |
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| Schedule of Debt [Table Text Block] |
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Note 7 - Agreements and Commitments (Tables) |
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| Schedule of Product Warranty Liability [Table Text Block] |
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Note 8 - Earnings Per Share (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Weighted Average Number of Shares [Table Text Block] |
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Note 9 - Stockholders' Equity (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] |
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| Schedule of Nonvested Restricted Stock Units Activity [Table Text Block] |
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Note 10 - Significant Customers / Concentration / Disaggregated Revenue (Tables) |
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| Schedules of Concentration of Risk, by Risk Factor [Table Text Block] |
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Note 11 - Segment Reporting (Tables) |
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 1 - Summary of Significant Accounting Policies - Allowance for Doubtful Accounts (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Allowance for doubtful accounts | $ 59,559 | $ 409,076 |
| Bad debt expense | 0 | (24,534) |
| Receivables written off during the periods | (10,322) | (295,778) |
| Effect of currency translation | (328) | (29,205) |
| Allowance for doubtful accounts | $ 48,909 | $ 59,559 |
Note 1 - Summary of Significant Accounting Policies - Net Sales by Geographical Region (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Revenue | $ 5,070,446 | $ 3,305,534 | $ 14,071,984 | $ 11,961,062 |
| Reportable Geographical Components [Member] | Americas [Member] | ||||
| Revenue | 986,316 | 382,573 | 1,798,608 | 861,260 |
| Reportable Geographical Components [Member] | Asia Pacific [Member] | ||||
| Revenue | 891,058 | 895,696 | 2,031,013 | 2,944,449 |
| Reportable Geographical Components [Member] | Europe [Member] | ||||
| Revenue | 2,933,092 | 1,903,930 | 8,944,536 | 6,651,065 |
| Reportable Geographical Components [Member] | Middle East and Africa [Member] | ||||
| Revenue | $ 259,980 | $ 123,335 | $ 1,297,827 | $ 1,504,288 |
Note 1 - Summary of Significant Accounting Policies - Sales by Product Line (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Revenue | $ 5,070,446 | $ 3,305,534 | $ 14,071,984 | $ 11,961,062 |
| Water Segment [Member] | ||||
| Revenue | 2,629,910 | 785,046 | 6,135,127 | 3,522,049 |
| Ceramics Segment [Member] | ||||
| Revenue | 1,608,763 | 1,854,981 | 4,807,600 | 5,548,951 |
| Plastics Segment [Member] | ||||
| Revenue | 656,693 | 665,507 | 2,951,376 | 2,839,809 |
| Corporate Segment [Member] | ||||
| Revenue | $ 175,080 | $ 0 | $ 177,881 | $ 50,253 |
Note 1 - Summary of Significant Accounting Policies - Contract Assets and Liabilities (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Cost incurred | $ 4,176,466 | $ 3,860,179 |
| Unbilled project deliveries | 941,767 | 950,105 |
| VAT | 242,831 | 229,006 |
| Other receivables | 107,607 | 45,814 |
| Prepayments | (3,357,497) | (3,363,039) |
| Deferred Revenue | (63,930) | (118,327) |
| Contract with Customer, Asset (Liability), Net | 2,047,244 | 1,603,738 |
| Contract assets | 2,587,397 | 2,253,295 |
| Contract liabilities | (540,153) | (649,557) |
| Contract with Customer, Asset (Liability), Net | $ 2,047,244 | $ 1,603,738 |
Note 2 - Going Concern (Details Textual) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Cash and Cash Equivalents, at Carrying Value | $ 11,832,959 | |
| Working Capital Deficit | 16,836,699 | |
| Retained Earnings (Accumulated Deficit) | (72,710,060) | $ (67,351,035) |
| Assets | 36,839,028 | 40,125,655 |
| Liabilities | $ 17,563,507 | $ 16,816,283 |
Note 3 - Inventory - Summary of Inventory (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Furnace parts and supplies | $ 60,826 | $ 66,495 |
| Raw materials | 2,846,711 | 2,474,227 |
| Work in process | 1,305,301 | 982,973 |
| Finished goods and filtration systems | 1,242,106 | 1,201,533 |
| Reserve for excess and obsolescence | (898,944) | (663,227) |
| Net Inventory | $ 4,556,000 | $ 4,062,001 |
Note 4 - Leases (Details Textual) |
9 Months Ended |
|---|---|
|
Sep. 30, 2023
USD ($)
| |
| Finance Lease, Principal Payments | $ 406,235 |
| Finance Lease Expense | 335,342 |
| Operating Lease, Payments | 567,544 |
| Operating Lease, Expense | $ 567,544 |
Note 4 - Leases - Balance Sheet Information (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Operating lease right-of-use assets | $ 2,827,101 | $ 3,271,997 |
| Operating lease liabilities – current | 548,417 | 561,182 |
| Operating lease liabilities – long-term | 2,278,684 | 2,710,815 |
| Total operating lease liability | 2,827,101 | 3,271,997 |
| Property and equipment, at cost | 5,211,613 | 3,877,955 |
| Accumulated depreciation | (765,434) | (544,653) |
| Finance lease liabilities – current | 558,961 | 399,198 |
| Finance lease liabilities – long-term | 2,899,640 | 2,384,011 |
| Total finance lease liabilities | $ 3,458,601 | $ 2,783,209 |
| Operating leases (Year) | 9 years 7 months 6 days | 9 years 7 months 6 days |
| Finance leases (Year) | 4 years 10 months 24 days | 5 years 4 months 24 days |
| Operating leases | 6.10% | 6.20% |
| Finance leases | 6.50% | 2.20% |
| Property and equipment, Net [Member] | ||
| Property and equipment, net | $ 4,446,179 | $ 3,333,302 |
Note 4 - Leases - Maturities of Lease Liabilities (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| 2023 (remaining 9 months), operating lease | $ 184,330 | |
| 2023 (remaining 9 months), finance lease | 190,998 | |
| 2024, operating lease | 598,589 | |
| 2024, finance lease | 764,883 | |
| 2025, operating lease | 312,017 | |
| 2025, finance lease | 761,497 | |
| 2026, operating lease | 301,705 | |
| 2026, finance lease | 726,614 | |
| 2027, operating lease | 301,705 | |
| 2027, finance lease | 1,259,360 | |
| Thereafter, operating lease | 2,036,507 | |
| Thereafter, finance lease | 463,845 | |
| Total payment under operating lease agreements | 3,734,853 | |
| Total payment under lease agreements | 4,167,198 | |
| Less imputed interest on operating lease | (907,752) | |
| Less imputed interest on finance lease | (708,597) | |
| Total operating lease liability | 2,827,101 | $ 3,271,997 |
| Total finance lease liability | $ 3,458,601 | $ 2,783,209 |
Note 5 - Lines of Credit (Details Textual) - Sep. 30, 2023 |
USD ($) |
EUR (€) |
|---|---|---|
| Line of Credit Facility, Maximum Borrowing Capacity | $ 900,000 | € 850,000 |
| Guarantor Obligations, Current Carrying Value | $ 47,141 |
Note 6 - Long-term Debt - Schedule of Convertible Note Payable (Details) - Convertible Debt [Member] - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Convertible note | $ 0 | $ 0 |
| Less: unamortized debt issuance costs | 0 | 0 |
| Convertible note payable | 0 | 0 |
| Current portion of convertible note payable | 0 | 0 |
| Convertible note payable, less current portion | $ 0 | $ 0 |
Note 6 - Long-term Debt - Notes Payable (Details) - Senior Promissory Notes [Member] - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
Jun. 22, 2022 |
|---|---|---|---|
| Senior Promissory Notes | $ 6,000,000 | $ 6,000,000 | $ 6,000,000 |
| Less: unamortized debt discount | (1,455,127) | (519,686) | $ (695,749) |
| Senior Promissory Notes payable | 4,544,873 | 5,480,314 | |
| Current portion of Senior Promissory Notes payable | 0 | 0 | |
| Senior Promissory Notes payable, less current portion | $ 4,544,873 | $ 5,480,314 |
Note 7 - Agreements and Commitments (Details Textual) |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Minimum [Member] | |
| Standard Product Warranty, Term (Year) | 1 year |
| Maximum [Member] | |
| Standard Product Warranty, Term (Year) | 3 years |
| Extended Product Warranty, Term (Year) | 4 years |
Note 7 - Agreements and Commitments - Changes in Warranty Obligations (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Balance | $ 898,072 | $ 962,313 |
| Warranty costs charged to cost of goods sold | 91,609 | 86,256 |
| Utilization charges against reserve | (296,522) | (93,653) |
| Foreign currency effect | (3,810) | (56,844) |
| Balance | $ 689,349 | $ 898,072 |
Note 8 - Earnings Per Share (Details Textual) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Restricted Stock Units (RSUs) [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 314,462 | 313,043 | ||
| Prefunded Warrants [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 3,930,008 | 3,930,008 | ||
| Warrant [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 1,091,346 | 560,096 | ||
| Share-Based Payment Arrangement, Option [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 0 | 0 | 0 | 0 |
Note 8 - Earnings Per Share - Amounts Used in Computing Earnings Per Share (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Net (Loss) | $ (1,414,230) | $ (1,555,292) | $ (2,389,503) | $ (1,752,664) | $ (6,507,059) | $ (3,746,424) | $ (5,359,025) | $ (12,006,147) |
| Weighted average number of common shares used in basic earnings per share (in shares) | 5,705,729 | 5,486,475 | 5,684,430 | 4,066,144 | ||||
| Effect of dilutive securities, stock options, RSUs, and warrants (in shares) | 0 | 0 | 0 | 0 | ||||
| Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share (in shares) | 5,705,729 | 5,486,475 | 5,684,430 | 4,066,144 | ||||
Note 9 - Stockholders' Equity - Warrants (Details) - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Balance, Warrants (in shares) | 4,490,104 | 126,875 |
| Warrants issued (in shares) | 531,250 | 4,363,229 |
| Exercises and conversions (in shares) | 0 | 0 |
| Balance, Warrants (in shares) | 5,021,354 | 4,490,104 |
Note 9 - Stockholders' Equity - Share Incentive Plan Activity (Details) - Restricted Stock Units (RSUs) [Member] |
9 Months Ended | |
|---|---|---|
|
Sep. 30, 2023
USD ($)
$ / shares
shares
|
Dec. 31, 2022
USD ($)
|
|
| Outstanding, units (in shares) | shares | 301,111 | |
| Outstanding, weighted average grant-date fair value (in dollars per share) | $ / shares | $ 4.8 | |
| Outstanding, aggregated intrinsic value | $ | $ 0 | $ 0 |
| Granted, units (in shares) | shares | 225,604 | |
| Granted, weighted average grant-date fair value (in dollars per share) | $ / shares | $ 3 | |
| Vested and settled with share issuance, units (in shares) | shares | (212,253) | |
| Vested and settled with share issuance, weighted average grant-date fair value (in dollars per share) | $ / shares | $ (4.86) | |
| Outstanding, September 30, 2023 (in shares) | shares | 314,462 | |
| Outstanding, September 30, 2023 (in dollars per share) | $ / shares | $ 3.46 |
Note 10 - Significant Customers / Concentration / Disaggregated Revenue (Details Textual) - Geographic Concentration Risk [Member] - Assets, Total [Member] |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| DENMARK | ||
| Concentration Risk, Percentage | 97.00% | 65.00% |
| UNITED STATES | ||
| Concentration Risk, Percentage | 1.00% | 33.00% |
| CHINA | ||
| Concentration Risk, Percentage | 2.00% | 2.00% |
Note 11 - Segment Reporting - Summary of Segment Activity (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| Revenue | $ 5,070,446 | $ 3,305,534 | $ 14,071,984 | $ 11,961,062 | |||||
| Net Loss | (1,414,230) | $ (1,555,292) | $ (2,389,503) | (1,752,664) | $ (6,507,059) | $ (3,746,424) | (5,359,025) | (12,006,147) | |
| Segment assets | 36,839,028 | 36,839,028 | $ 40,125,655 | ||||||
| Corporate, Non-Segment [Member] | |||||||||
| Revenue | 175,080 | 0 | 177,881 | 50,253 | |||||
| Water Segment [Member] | |||||||||
| Revenue | 2,629,910 | 785,046 | 6,135,127 | 3,522,049 | |||||
| Net Loss | 177,446 | (107,681) | (283,590) | (864,378) | |||||
| Segment assets | 9,114,839 | 9,114,839 | 7,781,211 | ||||||
| Water Segment [Member] | Operating Segments [Member] | |||||||||
| Revenue | 2,629,910 | 785,046 | 6,135,127 | 3,522,049 | |||||
| Ceramics Segment [Member] | |||||||||
| Revenue | 1,608,763 | 1,854,981 | 4,807,600 | 5,548,951 | |||||
| Net Loss | (531,682) | (772,862) | (1,532,455) | (3,519,182) | |||||
| Segment assets | 14,900,727 | 14,900,727 | 13,808,529 | ||||||
| Ceramics Segment [Member] | Operating Segments [Member] | |||||||||
| Revenue | 1,608,763 | 1,854,981 | 4,807,600 | 5,548,951 | |||||
| Plastics Segment [Member] | |||||||||
| Revenue | 656,693 | 665,507 | 2,951,376 | 2,839,809 | |||||
| Plastics Segment [Member] | Operating Segments [Member] | |||||||||
| Revenue | 656,693 | 665,507 | 2,951,376 | 2,839,809 | |||||
| Plastic Products [Member] | |||||||||
| Net Loss | (365,978) | (152,492) | (499,312) | (392,092) | |||||
| Segment assets | 894,434 | 894,434 | 1,099,019 | ||||||
| Corporate Segment [Member] | |||||||||
| Revenue | 175,080 | 0 | 177,881 | 50,253 | |||||
| Net Loss | (694,016) | $ (719,629) | (3,043,668) | $ (7,230,495) | |||||
| Segment assets | $ 11,929,028 | $ 11,929,028 | $ 17,436,896 | ||||||