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Liqtech International Inc (LIQT) SEC Filing 10-Q Quarterly Report for the period ending Wednesday, March 31, 2021

SEC Filings

LIQT Registration of Securities

Liqtech International Inc

CIK: 1307579 Ticker: LIQT
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2021
May 12, 2021
Document Information [Line Items]  
Entity Central Index Key0001307579 
Entity Registrant NameLIQTECH INTERNATIONAL INC 
Amendment Flagfalse 
Current Fiscal Year End Date--12-31 
Document Fiscal Period FocusQ1 
Document Fiscal Year Focus2021 
Document Type10-Q 
Document Quarterly Reporttrue 
Document Period End DateMar. 31, 2021 
Document Transition Reportfalse 
Entity File Number001-36210 
Entity Incorporation, State or Country CodeNV 
Entity Tax Identification Number20-1431677 
Entity Address, Address Line OneIndustriparken 22C, DK 2750 
Entity Address, City or TownBallerup 
Entity Address, CountryDK 
City Area Code45 
Local Phone Number3131 5941 
Title of 12(b) SecurityCommon Stock, $0.001 par value 
Trading SymbolLIQT 
Security Exchange NameNASDAQ 
Entity Current Reporting StatusYes 
Entity Interactive Data CurrentYes 
Entity Filer CategoryNon-accelerated Filer 
Entity Small Businesstrue 
Entity Emerging Growth Companyfalse 
Entity Shell Companyfalse 
Entity Common Stock, Shares Outstanding 21,777,373
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

FORM 10-Q

 

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

 

For the three months period ended March 31, 2021

or

 

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

 

For the transition period from ____________________ to ____________________

 

Commission File Number: 001-36210

 

LiqTech International, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-1431677

(State or other jurisdiction of incorporation or organization)

 

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

   

Industriparken 22C, DK 2750 Ballerup, Denmark

  

(Address of principal executive offices)

 

(Zip Code)

   

Registrant’s telephone number, including area code:  +45 3131 5941

 

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

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which

registered

Common Stock, $0.001 par value

 

LIQT

 

The Nasdaq Stock Market LLC

 

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

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer 

Smaller reporting company

Emerging growth company

  

 

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

 

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

 

As of May 12, 2021, there were 21,777,373 shares of common stock, $0.001 par value per share, outstanding. 

 

 

 
 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

 

Quarterly Report on Form 10-Q

For the Period Ended March 31, 2021

 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 
   

Item 1. Financial Statements

4

   

Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

4

   

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)

6

   

Condensed Consolidated Statement of Stockholder’s Equity for the period ended March 31, 2021 and March 31, 2020 (unaudited)

8

   

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)

9

   

Notes to Condensed Consolidated Financial Statements (unaudited)

11

   

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

24

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

   

Item 4. Controls and Procedures

29

   

PART II. OTHER INFORMATION

 
   

Item 1. Legal Proceedings

30

   

Item 1A. Risk Factors

30

   

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

30

   

Item 3. Defaults Upon Senior Securities

30

   

Item 4. Mine Safety Disclosures

30

   

Item 5. Other Information

30

   

Item 6. Exhibits

31

   

SIGNATURES

32

 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements made in this Annual Report on Form 10-K 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 anticipated impacts from the COVID-19 pandemic on the Company, including the related effects to our business operations, results of operations, cash flows, and financial position. 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 Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

As of

  

As of

 
  

March 31,

  

December 31,

 
  

2021

  

2020

 
  

(Unaudited)

     

Current Assets:

        

Cash, Cash equivalents and Restricted cash

 $10,657,307  $13,264,449 

Accounts receivable, net of allowance for doubtful accounts of $522,923 and $498,044 at March 31, 2021 and December 31, 2020, respectively

  2,348,049   3,129,109 

Inventories, net of allowance for excess and obsolete inventory of $598,552 and $723,949 at March 31, 2021 and December 31, 2020, respectively

  5,408,698   5,522,038 

Contract assets

  1,820,157   2,708,136 

Prepaid expenses and other current assets

  920,860   1,031,194 
         

Total Current Assets

  21,155,071   25,654,926 
         

Long-Term Assets:

        

Property and Equipment, net of accumulated depreciation of $8,837,263 and $8,908,145 at March 31, 2021 and December 31, 2020, respectively

  9,871,522   10,321,511 

Operating lease right-of-use assets

  4,527,952   4,947,734 

Deposits and other assets

  523,789   545,673 

Intangible assets, net of accumulated amortization of $285,364 and $269,441 at March 31, 2021 and December 31, 2020, respectively

  430,402   480,060 

Goodwill

  248,520   260,233 
         

Total Long-Term Assets

  15,602,185   16,555,211 
         

Total Assets

 $36,757,256  $42,210,137 

 

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

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

As of

  

As of

 
  

March 31,

  

December 31,

 
  

2021

  

2020

 
  

(Unaudited)

     

Current Liabilities:

        

Accounts payable

 $1,867,125  $2,332,151 

Accrued expenses

  4,222,873   4,909,531 

Current portion of finance lease obligations

  379,817   394,839 

Current portion of operating lease liabilities

  939,850   1,026,235 

Contract liabilities

  1,237,614   1,152,178 
         

Total Current Liabilities

  8,647,279   9,814,934 
         

Deferred tax liability

  275,407   305,167 

Finance lease obligation, net of current portion

  2,876,412   3,112,496 

Operating lease liability, net of current portion

  3,808,405   4,159,225 
         

Total Long-term Liabilities

  6,960,224   7,576,888 
         

Total Liabilities

  15,607,503   17,391,822 
         
         

Stockholders' Equity:

        

Series A Mandatory Convertible Preferred stock; par value $0.001, 2,500,000 shares authorized, 0 shares issued and outstanding at March 31, 2021 and December 31, 2020

  -   - 

Common stock; par value $0.001, 25,000,000 shares authorized 21,697,373 and 21,655,461 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

  21,697   21,655 

Additional paid-in capital

  70,000,044   69,897,698 

Accumulated deficit

  (44,514,397

)

  (42,054,968

)

Accumulated other comprehensive loss

  (4,357,591

)

  (3,046,070

)

         

Total Stockholders' Equity

  21,149,753   24,818,315 
         

Total Liabilities and Stockholders' Equity

 $36,757,256  $42,210,137 

 

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

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

  

For the Three Months Ended

March 31,

 
  

2021

  

2020

 
         

Revenue

 $3,997,877  $10,281,844 

Cost of Goods Sold

  3,883,262   7,642,768 
         

Gross Profit

  114,615   2,639,076 
         

Operating Expenses:

        

Selling expenses

  1,009,498   676,800 

General and administrative expenses

  1,474,670   1,470,393 

Research and development expenses

  437,607   310,954 
         

Total Operating Expense

  2,921,775   2,458,147 
         

Income (Loss) from Operations

  (2,807,160

)

  180,929 
         

Other Income (Expense)

        

Interest and other income

  -   4,490 

Interest expense

  (40,419

)

  (104,856

)

Gain (Loss) on currency transactions

  371,684   207,627 
         

Total Other Income

  331,265   107,261 
         

Income (Loss) Before Income Taxes

  (2,475,895

)

  288,190 
         

Income Tax Benefit

  (16,466

)

  (15,309

)

         

Net Income (Loss)

 $(2,459,429

)

 $303,499 
         
         

Basic Income (Loss) Per Share

 $(0.11

)

 $0.01 
         

Diluted Income (Loss) Per Share

 $(0.11

)

 $0.01 
         

Basic Weighted Average Common Shares Outstanding

  21,677,186   20,554,524 
         

Diluted Weighted Average Common Shares Outstanding

  21,677,186   20,711,035 

 

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

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS (UNAUDITED)

 

  

For the Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 
         

Net Income (Loss)

  (2,459,429

)

  303,499 
         

Other Comprehensive Loss - Currency Translation, Net

  (1,311,521

)

  (495,959

)

         

Total Comprehensive Loss

 $(3,770,950

)

 $(192,460

)

 

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

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

For the period ended March 31, 2021 and March 31, 2020 

 

                  

Accumulated

Other

     
          

Additional

  

Retained

  

Compre-

     
  

Common Stock

  

Paid-in

  

accumulated

  

hensive

     
  

Shares

  

Amount

  

Capital

  

Deficit

  

Income/(Loss)

  

TOTAL

 
                         
                         

BALANCE, December 31, 2020

  21,655,461   21,655   69,897,698   (42,054,968

)

  (3,046,070

)

  24,818,315 
                         

Common stock issued in settlement of RSUs

  41,912   42   (42

)

        - 
                         

Stock-based compensation

         102,388         102,388 
                         

Currency translation, net

               (1,311,521

)

  (1,311,521

)

                         

Net Income

            (2,459,429

)

     (2,459,429

)

                         

BALANCE, March 31, 2021

  21,697,373   21,697   70,000,044   (44,514,397

)

  (4,357,591

)

  21,149,753 
                         
                         

BALANCE, December 31, 2019

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

)

  (6,166,559

)

  23,005,531 
                         

Common stock issued in settlement of RSUs

  8,212   8   44,992         45,000 
                         

Stock-based compensation

         96,222         96,222 
                         

Currency translation, net

               (495,959

)

  (495,959

)

                         

Net Income

            303,499      303,499 
                         

BALANCE, March 31, 2020

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

)

  (6,662,518

)

  22,954,293 

 

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

  

For the Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 

Cash Flows from Operating Activities:

        

Net Income (Loss)

 $(2,459,429

)

 $303,499 

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

        

Depreciation and amortization

  631,217   534,021 

Stock-based compensation

  102,388   141,222 

Change in deferred tax asset / liability

  (16,466

)

  (15,309

)

Changes in assets and liabilities:

        

Accounts receivable

  657,926   (1,769,341

)

Inventory

  (138,918

)

  (125,261

)

Contract assets

  772,940   527,818 

Prepaid expenses and other current assets

  (261,232

)

  (255,908

)

Accounts payable

  (372,530

)

  (1,112,956

)

Accrued expenses

  (492,028

)

  67,435 

Operating lease liabilities

  (205,056

)

  (183,180

)

Contract liabilities

  141,066   (69,710

)

Income taxes benefits

  336,232   - 
         

Total Adjustments

  1,155,539   (2,261,169

)

         

Net Cash used in Operating Activities

  (1,303,890

)

  (1,957,670

)

         

Cash Flows from Investing Activities:

        

Purchase of property and equipment

  (414,875

)

  (1,064,960

)

Purchase of other intangible assets

  -   (2,739

)

         

Net Cash used in Investing Activities

  (414,875

)

  (1,067,699

)

         

Cash Flows from Financing Activities:

        

Payments on finance lease obligations

  (101,192

)

  (8,434

)

         

Net Cash used in Financing Activities

  (101,192

)

  (8,434

)

         

Loss on Currency Translation

  (787,185

)

  (451,087

)

         

Net change in Cash, Cash Equivalents and Restricted Cash

  (2,607,142

)

  (3,484,890

)

         

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

  13,264,449   9,783,932 
         

Cash, Cash Equivalents and Restricted Cash at End of Period

 $10,675,307  $6,299,042 

 

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

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

  

For the Three Months Ended

March 31,

 
  

2021

  

2020

 

Supplemental Disclosures of Cash Flow Information:

        

Cash paid during the period for:

        

Interest Paid

 $37,236  $16,514 

Income Taxes

 $-  $- 

 

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

 

 

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business and Basis of Presentation

 

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

 

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

 

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

 

LiqTech Holding A/S (formerly known as LiqTech International A/S), a Danish corporation, incorporated on January 15, 2000 (“LiqTech Holding”), a 100% owned subsidiary of LiqTech USA, handling all joint group activities such as management, marketing, finance, IT etc.

 

LiqTech NA, Inc. (“LiqTech NA”), incorporated in Delaware on July 1, 2005, a 100% owned subsidiary of LiqTech USA, engaged in the production, marketing and sale of ceramic diesel particulate and liquid filters in the United States and Canada. LiqTech NA has closed operations in January 2021, and all activity in this company has ceased.

 

LiqTech Water A/S (formerly known as LiqTech Systems A/S), a Danish Corporation (“LiqTech Water”), incorporated on September 1, 2009, engaged in the manufacture of fully automated filtering systems for use within marine applications, municipal pool and spa applications, and other industrial applications within Denmark and international markets.

 

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

 

LiqTech Ceramics A/S, a Danish corporation (“LiqTech Ceramics”), incorporated on December 20, 2019, engaged in the development, design, application, marketing and sales of membranes, ceramic diesel particulate and liquid filters, and catalytic converters in Europe, Asia and South America.

 

LiqTech Water Projects A/S, a Danish corporation (“LiqTech Water Projects”), incorporated on July 28, 2020 that is a dormant company without activity. The Company was formed to include the investments for our joint venture in the Middle East.

 

LiqTech Emission Control A/S, a Danish corporation (“LiqTech Emission Control”), incorporated on March 1, 2021 that is a dormant company without activity. The Company was formed to include the investments for our joint venture in China.

 

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

 

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

 

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.

 

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 Germany is the Euro; and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The balance sheet accounts of the foreign subsidiaries are translated into U.S. Dollars at the period-end exchange rates, and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the three months ended March 31, 2021 and 2020. 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. 

 

11

 

Cash, Cash Equivalents and Restricted Cash -- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2021 and December 31, 2020, the Company held $1,514,917 and $1,515,620, respectively, of restricted cash. The restricted cash is held as security by a local financial institution for ensuring a leasing facility and for payment guarantees issued for the benefit of customers in connection with prepayments of sales orders and for warranties after the delivery of sales orders. The Company had no balances held in a financial institution in the United States in excess of federally insured amounts at March 31, 2021 and December 31, 2020.

 

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

 

The roll-forward of the allowance for doubtful accounts for the period ended March 31, 2021 and December 31, 2020 is as follows: 

 

  

March 31,

2021

  

December 31,

2020

 

Allowance for doubtful accounts at the beginning of the period

 $498,044  $612,434 

Bad debt expense

  48,595   320,270 

Receivables written off during the periods

  -

 

  (484,265

)

Effect of currency translation

  (23,716)  (49,605

)

Allowance for doubtful accounts at the end of the period

 $522,923  $498,044 

 

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

 

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

 

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

 

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

 

Contracts Assets – Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but has not yet been billed. When the Company issues invoices to the customer, and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.

 

Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit by the customer. Most commonly this invoice is sent to the customer at commissioning of the product or no later than 12 months after the delivery. Also included in Contract assets are short-term receivables such as VAT and other receivables.

 

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

 

12

 

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

 

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

 

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

 

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

 

The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying 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. Forecast of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, primarily using expected category expansion, pricing, market segment fundamentals, and general economic conditions.

 

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

 

The Company sells products throughout the world; sales by geographical region are as follows for the three months ended March 31, 2021 and 2020:

 

  

For the Three months ended

March 31,

 
  

2021

  

2020

 

United States and Canada

 $165,588  $126,482 

Australia

  32,141   42,255 

South America

  -   10,896 

Asia

  1,157,155   2,033,288 

Europe

  2,642,993   8,068,923 
  $3,997,877  $10,281,844 

 

13

 

The Company’s sales by product line are as follows for the three months ended March 31, 2021 and 2020:

 

  

For the Three months ended

March 31,

 
  

2021

  

2020

 

Ceramic diesel particulate

 $1,931,064  $1,560,062 

Liquid filters and systems

  1,157,336   7,980,287 

Plastics

  814,025   581,411 

Development projects

  95,452   160,084 
  $3,997,877  $10,281,844 

 

For membranes, diesel particulate filters and plastic components, revenue is recognized when performance obligations under 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 and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer.  Revenue for service contracts 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. Given the insignificant days between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.

 

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

 

System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions specified in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) asserting that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time of provision of the commissioning services together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e. the first performance obligation), some of the invoicing will still be awaiting commissioning and is therefore recognized as Contract assets.

 

Aftermarket sales represent parts, extended warranties and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.

 

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

 

14

 

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

 

The roll-forward of Contract assets / liabilities for the three months ended March 31, 2021 and December 31, 2020 is as follows:

 

  

March 31,

2021

  

December 31,

2020

 

Cost incurred

 $3,771,411  $3,997,161 

Unbilled project deliveries

  530,982   1,015,977 

VAT

  256,168   446,608 

Other receivables

  58,517   75,010 

Prepayments

  (3,183,216

)

  (3,112,118

)

Deferred revenue

  (851,319

)

  (866,680

)

  $582,543  $1,555,958 
         

Distributed as follows:

        

Contract assets

 $1,820,157  $2,708,136 

Contract liabilities

  (1,237,614

)

  (1,152,178

)

  $582,543  $1,555,958 

 

Advertising Cost -- Costs incurred in connection with advertising of the Company’s products are expensed as incurred. Advertising costs are included in sales expenses and total advertising costs amounted to $122,148 and $25,237 for the three months ended March 31, 2021 and 2020, respectively.

 

Research and Development Cost -- The Company expenses research and development costs for the development of new products as incurred. Included in operating expense for the three months ended March 31, 2021 and 2020 were $437,607 and $310,954, respectively, of research and development costs.

 

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

 

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

 

Stock Options and Awards -- During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Stock-based compensation costs of $102,388 and $141,222 have been recognized for the vesting of options and stock awards granted to Directors and management for the three months ended March 31, 2021 and 2020, respectively.

 

Warrant Liability -- The Company issued common stock warrants in May 2020 in conjunction with an equity financing. In accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), the fair value of these warrants was initially classified as a liability on the Company’s Consolidated Balance Sheet because, according to the original terms of the warrants, a fundamental transaction could have given rise to an obligation of the Company to pay cash to its warrant holders, which was out of the control of the Company. On August 12, 2020, the terms of the prefunded warrant were amended and the potential obligation of the Company to pay cash to its warrant holders was removed. From the date of the execution of the amended warrant, it qualifies as an equity instrument and the liability measured at fair value on August 12, 2020 of $3,476,250 has been reclassified to the Company´s Equity. Corresponding changes in the fair value measurement of the warrants are recognized in earnings on the Company’s Consolidated Statement of Operations in each subsequent period.

 

15

 

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

 

 

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

 

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

 

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

 

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable and accrued expenses 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; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill and intangible assets; liabilities including contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; warrant liability; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

 

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

 

On March 9, 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU was issued to clarify and improve various financial instruments topics. The guidance has various effective dates but is basically effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The Company adopted ASU 2020-03 effective January 1, 2020 and concluded there was no material impact to the condensed consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We have adopted the new standard effective January 1, 2021 and the adoption of this guidance did not have a material impact on our consolidated financial statements.

 

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

 

16

 
 

NOTE 2 - INVENTORY

 

Inventory consisted of the following on March 31, 2021 and December 31, 2020:

 

  

March 31,

2021

  

December 31,

2020

 

Furnace parts and supplies

 $447,548  $471,622 

Raw materials

  2,177,424   1,955,713 

Work in process

  2,104,016   2,394,481 

Finished goods and filtration systems

  1,278,262   1,424,171 

Reserve for obsolescence

  (598,552

)

  (723,949

)

Net Inventory

 $5,408,698  $5,522,038 

 

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 3 - 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 operating leases for production and office space in Hobro, Aarhus and Copenhagen, Denmark as well as in White Bear Lake, Minnesota. The lease in White Bear Lake expired in February 2021, and due to the closure of the activity in North America, the lease has not been extended.

 

During the three months ended March 31, 2021, cash paid for amounts included for the measurement of operating lease liabilities was $286,633, and the Company recorded operating lease expenses included in operating expenses of $278,689.

 

During the three months ended March 31, 2021, cash paid for amounts included for the measurement of finance lease liabilities was $119,851, and the Company recorded finance lease expenses included in other income (expenses) of $61,941.

 

17

 

Supplemental balance sheet information related to leases as of March 31, 2021 and December 31, 2020 was as follows:

 

  

March 31,

2021

  

December 31,

2020

 

Operating leases:

        

Operating lease right-of-use

 $4,527,952  $4,947,734 
         

Operating lease liabilities - current

 $939,850  $1,026,235 

Operating lease liabilities – long-term

  3,808,405   4,159,225 

Total operating lease liabilities

 $4,748,255  $5,185,460 
         

Finance leases:

        

Property and equipment, at cost

 $4,602,291  $4,819,201 

Accumulated depreciation

  (1,363,829

)

  (1,389,488

)

Property and equipment, net

 $3,238,462  $3,429,713 
         

Finance lease liabilities - current

 $379,817  $394,839 

Finance lease liabilities – long-term

  2,876,412   3,112,496 

Total finance lease liabilities

 $3,256,229  $3,507,335 
         

Weighted average remaining lease term:

        

Operating leases

  9.9   10.0 

Finance leases

  6.6   6.9 
         

Weighted average discount rate:

        

Operating leases

  6.2

%

  6.2

%

Finance leases

  2.8

%

  2.8

%

 

Maturities of lease liabilities at March 31, 2021 were as follows:

 

  

Operating

lease

  

Finance

lease

 

2021 (remaining 9 months)

 $734,337  $350,208 

2022

  914,122   465,294 

2023

  812,028   460,429 

2024

  655,175   461,420 

2025

  338,303   457,663 

Thereafter

  2,860,017   1,429,100 

Total payment under lease agreements

  6,313,982   3,624,114 

Less imputed interest

  (1,565,727

)

  (367,885

)

Total lease liability

 $4,748,255  $3,256,229 

 

 

 

NOTE 4 - LINES OF CREDIT

 

In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee or security bond. For that purpose, we have a guaranteed credit line of DKK10,000,000 (approximately $1,650,000). The credit line is secured by a cash deposit of $1,500,000. Further, we have a guarantee for a specific project delivered in 2016 of DKK 94,620 (approximately $14,917 at March 31, 2021) with a bank, subject to certain base limitations. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by certain assets of LiqTech Water such as receivables, inventory, and equipment. 

 

18

 
 

NOTE 5 - AGREEMENTS AND COMMITMENTS

 

Agreements -- LiqTech Water Projects has entered into a joint venture agreement to supply and operate water treatment systems for oil and gas producers in the Middle East. The partner in the joint venture is a local company. LiqTech Water Projects expects to deliver technological know-how, design of water treatment systems and components to support potential projects in the Middle East. The joint venture will be established in the form of a jointly owned limited liability company, incorporated under the laws in the local country, and LiqTech Water Projects holds 49% of the shares. All profits of the company are to be allocated proportionally to the ownership share and none of the parties are liable for the company’s liabilities towards third parties.

 

401(K) Profit Sharing Plan -- LiqTech NA has a 401(k) profit sharing plan and trust covering certain eligible employees. The amount LiqTech NA contributes is discretionary. For the three months ended March 31, 2021 and 2020, matching contributions were expensed and totaled $718 and $3,949, respectively.

 

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

 

On November 20, 2018 a former supplier to Liqtech Ceramics contacted the Company with a claim of DKK 448,500 ($68,800) alleging that an agreement from 2016 had not been respected. The Company contested the claim but in December 2020 the court ruled in favor of the supplier and LiqTech was ordered to pay  an amount totaling DKK 587,000 ($96,900) which amount included interest and court fees was expensed in 2020. The amount was paid in January 2021.

 

On February 27, 2019, LiqTech Water was contacted by a former supplier alleging that the Company owed DKK 543,905 ($89,800) for services rendered in 2017. The claimant has previously filed a lawsuit to claim payment for the services, which was denied by the Company due to severe errors in the services rendered, and the claim was rejected by a court of law in 2018. Due to the nature of the claim and the previous ruling from the court of law, no provision has been made as of March 31, 2021.

 

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

 

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

 

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts, as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.

 

Changes in the Company's current and long-term warranty obligations included in accrued expenses on the balance sheet, as of March 31, 2021 and December 31, 2020, were as follows:

 

  

March 31,

2021

  

December 31,

2020

 

Balance at the beginning of the period

 $1,056,613  $813,288 

Warranty costs charged to cost of goods sold

  29,861   348,241 

Utilization charges against reserve

  (23,747

)

  (199,624

)

Release of accrual related to expired warranties

  -   - 

Foreign currency effect

  (47,721

)

  94,708 

Balance at the end of the period

 $1,015,006  $1,056,613 

 

19

 
 

NOTE 6 - EARNINGS PER SHARE

 

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

 

For the period ended March 31, 2021, the Company had 145,460 stock grants outstanding to issue common stock (“RSUs”). Further, the Company had 515,000 prefunded warrants outstanding to issue common stock.

 

The following data shows the amounts used in computing earnings per share and the weighted average number of shares of potential dilutive common stock for the three months ended March 31, 2021 and 2020:

 

  

For the Three Months

Ended March 31,

 
  

2021

  

2020

 

Net Income (Loss) attributable to LiqTech International Inc.

 $(2,459,429

)

 $303,499 

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

  21,677,186   20,554,524 

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

  -   156,511 

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

  21,677,186   20,711,035 

 

For the three months ended March 31, 2021, the Company had no options outstanding to purchase common stock.

 

For the three months ended March 31, 2020, the Company had 25,000 options outstanding to purchase common stock at $2.96 per share.

 

 

 

NOTE 7 - STOCKHOLDERS' EQUITY

 

Common Stock – The Company has 25,000,000 authorized shares of common stock, $0.001 par value. As of March 31, 2021, there were 21,697,373 common shares issued and outstanding.

 

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

 

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

 

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

 

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

 

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

 

The Company has 2,500,000 authorized Preferred stock, $0.001 par value. As of March 31, 2021 there were no mandatory convertible preferred shares issued and outstanding. 

 

20

 

Stock Issuance 

 

Since  January 1, 2021, the Company has made the following issuances of common stock: 

 

On January 6, 2021, the Company issued 11,218 common shares to settle RSUs. The RSUs were valued at $70,000 for services provided by the Board of Directors in 2020. The Company recognized the stock-based compensation of the award over the requisite service period.

 

On February 26, 2021, the Company issued 30,694 common shares to settle RSUs. The RSUs were valued at $166,667 for services provided by management in 2020. The Company is recognizing the stock-based compensation of the award over the requisite service period.

 

For the three months ended March 31, 2021 and 2020, the Company has recorded stock-based compensation expense of $102,388 and $141,222, respectively.  

 

Warrants 

 

In connection with the Securities Purchase Agreement entered into in May 2020, we issued a prefunded warrant (“the Warrant”) to purchase an aggregate of 515,000 shares of Common Stock at a purchase price of $5.00 per share. Subject to certain beneficial ownership limitations, the Warrant is immediately exercisable and may be exercised for no additional consideration. The Warrant does not expire. A holder of the Warrant will not have the right to exercise any portion of the Warrant if the holder, together with Affiliates and Attribution Parties (as such terms are defined in the Warrant), would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrant. Upon notice from the holder to the Company, however, the holder may decrease or increase the beneficial ownership limitation (but not above 9.99% of the number of shares of Common Stock outstanding).

 

The following is a summary of the periodic changes in warrants outstanding for the three months ended March 31, 2021:

 

  

2021

 

Warrants outstanding at January 1

  515,000 

Exercises and conversions

  - 

Warrants outstanding at March 31

  515,000 

 

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 and directors of the Company. At March 31, 2021, 145,460 RSUs were granted and outstanding under the Incentive Plan. Directors of the Company receive share compensation as follows: (i) an initial grant of 25,000 RSUs of common stock that vest over a three-year period upon appointment to the Board, followed by an annual grant of $35,000 ($70,000 for the Chairman of the Board) in RSUs per annum after full vesting of the initial grant. Further, the Company has granted shares to management for 2020 as part of the Incentive Plan, totaling 40,432 shares that vest over a three-year period.

 

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 $102,388 and $141,222 for the three months ended March 31, 2021 and 2020, respectively. On March 31, 2021, the Company had $896,112 of unrecognized compensation cost related to non-vested stock grants.

 

21

 

A summary of the status of the RSUs outstanding as of March 31, 2021 and changes during the period are presented below:

 

  

March 31, 2021

 
  

Number of

units

  

Weighted

Average
Grant-Date

Fair value

  

Aggregated

Intrinsic
Value

 
             

Outstanding, December 31, 2020

  128,299  $5.79  $250,183 

Granted

  59,073   8.90   - 

Vested and settled with share issuance

  (41,912

)

  5.65   - 

Forfeited

  -   -   - 

Outstanding, March 31, 2021

  145,460  $7.09  $145,460 

 

Stock Options 

 

In August 2015, the Company’s Board of Directors adopted a Stock Option Plan (the “Plan”). Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, officers, and directors of the Company. On March 31, 2021, no options were granted and outstanding under the Plan. 

 

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

 

 

 

NOTE 8 - SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATED REVENUE

 

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

 

  

For the three months ended

 
  

March 31,

2021

  

March 31,

2020

 

Customer A

  18

%

  12

%

Customer B

  10

%

  35

%

Customer C

  *   12

%

Customer D

  *   11

%

* Zero or less than 10%

 

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

 

  

March 31,

2021

  

December 31,

2020

 

Customer A

  11

%

  11

%

Customer B

  17

%

  40

%

Customer C

  *   16

%

Customer E

  16

%

  * 

* Zero or less than 10%

 

As of March 31, 2021, approximately 99% of the Company’s assets were located in Denmark and 1% in the United States, respectively. As of December 31, 2020, approximately 100% of the Company’s assets were located in Denmark and 0% in the United States, respectively.

 

22

 
 

NOTE 9 SEGMENT REPORTING

 

The Company operates in three main segments: Water, Ceramics and Plastics. With effect from January 1, 2020, the group structure was changed as shared group activities were transferred to an individual reporting unit separated from the business units. Costs and assets for these activities were therefore separated during the fiscal year 2020.

 

Segment information for the business areas is as follows:

 

  

For the Three months ended March 31,

 

Revenues

 

2021

  

2020

 

Water

 $1,157,336  $7,911,803 

Ceramics

  1,931,065   1,628,546 

Plastics

  814,025   581,411 

Other

  95,451   160,084 

Total consolidated revenue

 $3,997,877  $10,281,844 

 

  

For the Three months ended March 31,

 

Income (Loss)

 

2021

  

2020

 

Water

 $(636,439

)

 $616,967 

Ceramics

  (424,535

)

  (101,095

)

Plastics

  (252,979

)

  (31,847

)

Other

  (1,145,476

)

  (180,526

)

Total consolidated Income (Loss)

 $(2,459,429

)

 $303,499 

 

  

For the period ended

 

Total assets

 

March 31, 2021

  

December 31, 2020

 

Water

 $12,470,391  $14,033,107 

Ceramics

  15,943,251   16,734,371 

Plastics

  1,622,276   2,022,381 

Other

  6,721,338   9,420,278 

Total consolidated assets

 $36,757,256  $42,210,137 

 

 

 

NOTE 10 - SUBSEQUENT EVENTS

 

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 due 2023 and an aggregate of 80,000 shares of common stock, par value $0.001 per share for an aggregate purchase price of $15.0 million upon the satisfaction of the closing conditions set forth in the Purchase Agreement. The closing occurred on April 8, 2021 and the Company issued to the investor the securities in connection with the closing.

 

23

 
 

ITEM 2.    MANAGEMENTS 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 31, 2021 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. For more than two decades, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in three business areas: ceramic membranes for liquid filtration systems, diesel particulate filters (DPFs) to control soot exhaust particles from diesel engines, and plastic components for usage in 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, including LiqTech USA, Inc., a Delaware corporation (“LiqTech USA”), which owns all of the outstanding equity interest in LiqTech Holding A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Holding”), together with its direct wholly owned subsidiaries LiqTech Ceramics A/S (“LiqTech Ceramics”), LiqTech Water A/S (“LiqTech Water”), LiqTech Plastics A/S (“LiqTech Plastics”), LiqTech Water Projects A/S ("LiqTech Water Projects”) and LiqTech Emission Control A/S (“LiqTech Emission Control”), all Danish limited companies organized under the Danish Act on Limited Companies of the Kingdom of Denmark, and LiqTech NA, Inc., a Delaware corporation (“LiqTech NA”). Collectively, LiqTech USA, LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Water Projects, LiqTech Emission Control and LiqTech NA are referred to herein as our “Subsidiaries”.  

 

We conduct operations in the Kingdom of Denmark. Our Danish operations are located in the Copenhagen area, in Hobro and in Aarhus.

 

Our Strategy

 

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

 

 

Retain and acquire new customers in the marine industry.  We currently provide water filtration systems for scrubber technology providers, shipowners, and ship operators. We are expanding our range of marine products to better leverage existing customer relationships and develop new relationships.

   

 

 

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

   

 

 

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

 

 

Develop and improve technologies and enter new end markets. We intend to continue to develop our ceramic membranes and improve the efficiency of our filtration products. Through continuous research and development, we intend to find new uses for our products and plan to expand into new markets that offer the company significant opportunities.

   

 

 

Focus on the development and sales of standardized water filtration and treatment systems. We will continue our focus on selling systems based on our unique SiC membranes, and we will also combine the ceramic membranes with other technologies to offer our customers complete filtration solutions. Moreover, we will continue developing smaller standard systems, like those for groundwater treatment and residential swimming pools.

 

 

Developments

 

Results of Operations

 

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

 

The following table sets forth our revenues, expenses and net income for the three months ended March 31, 2021 and 2020:  

 

   

Three Months Ended March 31,

 
                                   

Period to Period

Change

 
   

2021

   

As a %

of

Sales

   

2020

   

As a %

of

Sales

           

Percent

%

 

Revenue

    3,997,877       100.0

%

    10,281,844       100.0

%

    (6,283,967

)

    (61.1

)%

Cost of Goods Sold

    3,883,262       97.1       7,642,768       74.3       (3,759,506

)

    (49.2

)

Gross Profit

    114,615       2.9       2,639,076       25.7       (2,524,461

)

    (95.7

)

                                                 

Operating Expenses

                                               

Selling expenses

    1,009,498       25.3       676,800       6.6       332,698       49.2  

General and administrative expenses

    1,474,670       36.9       1,470,393       14.3       4,277       0.3  

Research and development expenses

    437,607       10.9       310,954       3.0       126,653       40.7  

Total Operating Expenses

    2,921,775       73.1       2,458,147       23.9       463,628       18.9  
                                                 

Income (Loss) from Operations

    (2,807,160

)

    (70.2

)

    180,929       1.8       (2,988,089

)

    (1,651.5

)

                                                 

Other Income (Expense)

                                               

Interest and other income

    -       -       4,490       0.0       (4,490

)

    (100.0

)

Interest expense

    (40,419

)

    (1.0

)

    (104,856

)

    (1.0

)

    64,437       (61.5

)

Gain (Loss) on currency transactions

    371,864       9.3       207,627       2.0       164,057       79.0  

Total Other Income

    331,365       8.3       107,261       1.0       224,004       208.8  
                                                 

Income (Loss) Before Income Taxes

    (2,475,895

)

    (61.9

)

    288,190       2.8       (2,764,085

)

    (959.1

)

Income Taxes Provision (Benefit)

    (16,466

)

    (0.4

)

    (15,309

)

    (0.1

)

    (1,157

)

    0.1  
                                                 

Net Income (Loss)

    (2,459,429

)

    (61.5

)

    303,499       3.0       (2,762,928

)

    (910.4

)

 

 

Comparison of the Three Months Ended March 31, 2021 and March 31, 2020
 

Revenues 

 

Revenue for the three months ended March 31, 2021 was $3,997,877 compared to $10,281,844 for the same period in 2020, representing a decrease of $6,283,967, or 61%. The change in sales mainly consists of a decrease in liquid filters of $6,822,950, offset by an increase in plastics of $232,615 and an increase in DPFs of $371,002. The decrease in sales of liquid filters and water treatment systems is a result of the negative impact of the ongoing COVID-19 pandemic, which has resulted in significant restrictions and business limitations across the globe and caused a substantial decline in the demand and delivery of water treatment systems for the marine scrubber industry. The demand for our DPFs increased based on the positive interest in environmental solutions to reduce global CO2 emissions. The increase in sales of plastic components is related to the increased sales activity started in 2020.

 

Gross Profit

 

Gross profit for the three months ended March 31, 2021 was $114,615 compared to gross profit of $2,639,076 for the same period in 2020, representing a decrease of $2,524,461, or 96%. The decrease in gross profit is due to the decline in sales of liquid filters and water treatment systems, where sales command a higher gross margin. Gross profit was further impaired by increased costs related to decisions made prior to the impact of COVID-19, when the Company had invested in the expansion and improvement of production facilities along with the hiring of additional employees. Included in the gross profit is depreciation of $471,885 and $416,265 for the three months ended March 31, 2021 and 2020, respectively.

 

Operating Expenses

 

Total operating expenses for the three months ended March 31, 2021 were $2,921,775, representing an increase of $463,628, or 19%, compared to $2,458,147 for the same period in 2020.

 

Selling expenses for the three months ended March 31, 2021 were $1,009,498 compared to $676,800 for the same period in 2020, representing an increase of $332,698, or 49%. This change is attributable to the implementation of the growth strategy by adding additional sales employees, increasing from an average of 11 in 2020 to an average of 17 in 2021. Further the company has invested in additional marketing activities to help increase future sales.

 

General and administrative expenses for the three months ended March 31, 2021 were $1,474,670 compared to $1,470,393 for the same period in 2020, representing an increase of $4,277, or 0.3%. Included in general and administrative expenses is non-cash compensation of $102,388 and $141,222 for the three months ended March 31, 2021 and March 31, 2020, respectively, representing a decrease of $38,834, or 27%, attributable to stock grants to members of the Board and management.

 

The following is a summary of non-cash compensation: 

 

   

For the Three Months Ended

 
   

March 31,

   

March 31,

 
   

2021

   

2020

 

Compensation for vesting of restricted stock awards issued to the Board of Directors

  $ 49,376     $ 85,667  

Compensation for vesting of restricted stock awards issued to management

    53,012       55,555  

Total non-cash compensation

  $ 102,388     $ 141,222  

 

Research and development expenses for the three months ended March 31, 2021 were $437,607 compared to $310,954 for the same period in 2020, representing an increase of $126,653, or 41%. This change is attributable to an increase in the number of employees engaged in research and development activities as the Company focuses on the further development of existing and new products for the marine industry.

 

 

Net Income

 

Net income (loss) for the three months ended March 31, 2021 was $(2,459,429) compared to $303,499 for the comparable period in 2020, representing a decrease of $2,762,928.

 

This change was primarily attributable to the significant decrease in revenue due to decreased demand for marine scrubbers, higher relative costs of goods sold as a percentage of revenue due to investments in production capacity, and the increase in operating expenses caused primarily by the growth in headcount to support additional sales and production.

 

Liquidity and Capital Resources 

 

Based on the still ongoing negative effects of the global pandemic, we are unable to predict the full impact that COVID-19 will have on our long-term financial condition, results of operations, liquidity and cash flows due to uncertainties. Our compliance with the measures implemented to avoid the spread of the virus have had a material adverse impact on our financial results since March 2020. To the extent possible, we have taken precautionary measures to reduce and/or defer operating expenses and preserve liquidity. Based on current projections, which are subject to numerous uncertainties, including the duration and severity of the pandemic and containment measures along with the effect of these on the industries in which we compete, we believe our cash on hand, as well as our ongoing cash generated from operations, should be sufficient to cover our capital requirements for at least the next 12 months from the issuance of this report. In addition, as a result of the reduced order intake and decreased manufacturing levels, our future gross profit will also likely be unfavorably impacted until such time that we are able to operate our manufacturing facilities at higher capacity levels as originally planned prior to the COVID-19 pandemic. Notwithstanding the reduction in our manufacturing levels, based on our current rate of production, we believe that we will be able to fulfill most, if not all, of our existing delivery obligations in 2021.

 

While we anticipate that the foregoing measures are temporary, we cannot predict the specific duration for which these precautionary measures will stay in effect, and how our business may be adversely affected as a result of the pandemic’s global economic impact. In the future, the pandemic may cause reduced demand for our products, especially if it results in a global recession. It could also lead to limitations in our ability to produce and ship products caused by governmental actions and regulations to contain the spread of the virus.

 

We have historically satisfied our capital and liquidity requirements through offerings of equity instruments, internally generated cash from operations and our available lines of credit. At the filing date, the Company had an available line of credit amounting to DKK 20,000,000 ($3,000,000), which is used for a leasing arrangement and guarantees issued to customers for prepayments and for warranties after delivery. On March 31, 2021, we had cash of $10,657,307 and net working capital of $12,507,792, and on December 31, 2020, we had cash of $13,264,449 and net working capital of $15,839,992. On March 31, 2021, our net working capital had decreased by $3,332,200 compared to December 31, 2020 as a result of a reduction in cash and cash equivalents, account receivables, contract assets, account payables and other accrued expenses.

 

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 DKK10,000,000 (approximately $1,500,000). The credit line is secured by a cash deposit of $1,500,000. Further, we have a guarantee for a specific project delivered in 2016 of DKK 94,620 (approximately $14,917 on March 31, 2021) with a bank, subject to certain base limitations. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by certain assets of LiqTech Water such as receivables, inventory, and equipment.

 

Cash Flows 

 

Three months ended March 31, 2021 compared to three months ended March 31, 2020

 

Cash provided (used) by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. Cash used by operating activities for the three months ended March 31, 2021 was $1,303,890, representing a decrease of $653,780 compared to cash used by operating activities of $1,957,670 for the three months ended March 31, 2020. The cash used by operating activities for the three months ended March 31, 2021 consists mainly of the net loss for the period of $(2,459,429) adjusted for depreciation and other non-cash related items of $717,139. Further changes in assets and liabilities include decreased accounts receivables of $657,926, a decline in contract assets/liabilities of $914,006, and tax refunds of $336,232, offset by a decrease in accrued expenses of $492,028 and decrease in accounts payable of $372,530.

 

Net cash used in investing activities was $414,875 for the three months ended March 31, 2021 as compared to net cash used in investing activities of $1,067,699 for the three months ended March 31, 2020, representing a decrease of $652,824. The investing activities include the purchase of property and equipment primarily related to the installation of new furnaces in Ballerup to increase production capacity.

 

Cash used in financing activities was $101,192 for the three months ended March 31, 2021 as compared to net cash used by financing activities of $8,434 for the three months ended March 31, 2020. This change of $92,758 was mainly due to start-up of the finance lease agreement for the furnaces.

 

Off Balance Sheet Arrangements

 

As of March 31, 2021, 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 margin;

 

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 margin 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; and

 

The recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.

 

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.

 

Subsequent Events

 

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 due 2023 and an aggregate of 80,000 shares of common stock, par value $0.001 per share for an aggregate purchase price of $15.0 million upon the satisfaction of the closing conditions set forth in the Purchase Agreement. The closing occurred on April 8, 2021 and the Company issued to the investor the securities in connection with the closing.

 

 

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 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 March 31, 2021 were not effective as of the period covered by this Quarterly Report due to material weaknesses in internal controls over financial reporting, described below. For more information on material weaknesses identified by management, please reference our Form 10-K filed on March 31, 2021 for the year ended December 31, 2020.

 

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, our 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 2021 by improving competencies and processes. Further, an investment in a new ERP system has been made along with other supporting IT systems to support the controls and processes of the Company, and these investments are an important part of the remediation of the material weaknesses. Lastly, the Company has started the process of redesigning and ensuring documentation of all processes and procedures related to the financial reporting process to ensure the effective design and operation of process-level controls.

 

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.

 

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.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

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.  

 

ITEM 5.   OTHER INFORMATION

 

None.  

 

 

ITEM 6.    EXHIBITS

 
     

31.1

Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

     

31.2

Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

     

32.1

Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002

Furnished herewith

     

32.2

Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002

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

 

 

SIGNATURES

 

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: May 12, 2021 

 

/s/ Sune Mathiesen 

 
   

Sune Mathiesen, Chief Executive Officer

 
   

(Principal Executive Officer)

 
       
       

Dated: May 12, 2021 

 

/s/ Claus Toftegaard 

 
   

Claus Toftegaard, Chief Financial Officer

 
   

(Principal Financial and Accounting Officer)

 

 

32

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Inside Liqtech International Inc's 10-Q Quarterly Report:

Financial Statements, Disclosures and Schedules

Inside this 10-Q Quarterly Report

Document And Entity Information
Condensed Consolidated Balance Sheets (Current Period Unaudited)
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals)
Condensed Consolidated Statement Of Stockholders' Equity (Unaudited)
Condensed Consolidated Statements Of Cash Flows (Unaudited)
Condensed Consolidated Statements Of Comprehensive Loss (Unaudited)
Condensed Consolidated Statements Of Operations (Unaudited)
Note 1 - Summary Of Significant Accounting Policies
Note 1 - Summary Of Significant Accounting Policies (Details Textual)
Note 1 - Summary Of Significant Accounting Policies (Tables)
Note 1 - Summary Of Significant Accounting Policies - Allowance For Doubtful Accounts (Details)
Note 1 - Summary Of Significant Accounting Policies - Contract Assets And Liabilities (Details)
Note 1 - Summary Of Significant Accounting Policies - Net Sales By Geographical Region (Details)
Note 1 - Summary Of Significant Accounting Policies - Sales By Product Line (Details)
Note 10 - Subsequent Events
Note 10 - Subsequent Events (Details Textual)
Note 2 - Inventory
Note 2 - Inventory (Tables)
Note 2 - Inventory - Summary Of Inventory (Details)
Note 3 - Leases
Note 3 - Leases (Details Textual)
Note 3 - Leases (Tables)
Note 3 - Leases - Balance Sheet Information (Details)
Note 3 - Leases - Maturities Of Lease Liabilities (Details)
Note 4 - Lines Of Credit
Note 4 - Lines Of Credit (Details Textual)
Note 5 - Agreements And Commitments
Note 5 - Agreements And Commitments (Details Textual)
Note 5 - Agreements And Commitments (Tables)
Note 5 - Agreements And Commitments - Changes In Warranty Obligations (Details)
Note 6 - Earnings Per Share
Note 6 - Earnings Per Share (Details Textual)
Note 6 - Earnings Per Share (Tables)
Note 6 - Earnings Per Share - Amounts Used In Computing Earnings Per Share (Details)
Note 7 - Stockholders' Equity
Note 7 - Stockholders' Equity (Details Textual)
Note 7 - Stockholders' Equity (Tables)
Note 7 - Stockholders' Equity - Share Incentive Plan Activity (Details)
Note 7 - Stockholders' Equity - Warrants (Details)
Note 8 - Significant Customers / Concentration / Disaggregated Revenue
Note 8 - Significant Customers / Concentration / Disaggregated Revenue (Details Textual)
Note 8 - Significant Customers / Concentration / Disaggregated Revenue (Tables)
Note 8 - Significant Customers / Concentration / Disaggregated Revenue - Concentration Of Risk (Details)
Note 9 - Segment Reporting
Note 9 - Segment Reporting (Tables)
Note 9 - Segment Reporting - Summary Of Segment Activity (Details)
Significant Accounting Policies (Policies)

Material Contracts, Statements, Certifications & more

Liqtech International Inc provided additional information to their SEC Filing as exhibits

Ticker: LIQT
CIK: 1307579
Form Type: 10-Q Quarterly Report
Accession Number: 0001437749-21-011831
Submitted to the SEC: Wed May 12 2021 4:06:48 PM EST
Accepted by the SEC: Wed May 12 2021
Period: Wednesday, March 31, 2021
Industry: Misc Industrial And Commercial Machinery And Equipment

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