LIQTECH INTERNATIONAL INC

Previous wording

At present, we conduct our operations in the Kingdom of Denmark, with locations in the Copenhagen area, Hobro, and Aarhus. However, in July 2024, we consolidated our operations into the Copenhagen area and Hobro.

Current wording

At present, we conduct our operations in the Kingdom of Denmark, with locations in the Copenhagen area and Hobro.

Previous wording

Our strategy is to leverage our core competencies in material science, advanced filtration, and systems integration, creating differentiated products with compelling value propositions to penetrate attractive end markets with regulatory and ESG tailwinds. Essential imperatives associated with our strategy include the following:

Current wording

Our strategy is to leverage our core competencies in material science, advanced filtration, and systems integration, creating differentiated products with compelling value propositions to penetrate attractive end markets with regulatory tailwinds and sustainability implications. Essential imperatives associated with our strategy include the following:

Previous wording

Revenue for the three months ended June 30, 2024 was $4,485,062 compared to $4,990,019 for the same period in 2023, representing a decrease of $504,957 or 10.1%. The unfavorable change was attributable to a decrease in deliveries of plastics products, ceramic membranes, liquid filtration systems, and aftermarket sales, partly offset by increased sales of DPFs. The decline in sales of plastic products is primarily due to a large one-time sale recorded in 2023, which did not recur in the current period. The decrease in deliveries of liquid filtration systems and aftermarket sales was primarily attributed to a reduction in aftermarket sales due to elevated remediation work and associated deliveries in the same period in 2023. The increase in sales of DPFs was primarily due to the effective execution of strategies designed to capitalize on the increased demand for DPFs.

Current wording

Revenue for the three months ended September 30, 2024 was $2,478,221 compared to $5,070,446 for the same period in 2023, representing a decrease of $2,592,225 or 51.1%. The unfavorable change was attributable to a decrease in deliveries of ceramic membranes, DPFs, liquid filtration systems, and aftermarket sales, partly offset by increased sales of plastics products and progress on an external R&D project to further strengthen our technology base. The decrease in deliveries of liquid filtration systems was primarily attributed to reduced deliveries of pool filtration systems and fewer deliveries of pilot systems for industrial applications. The decline in aftermarket sales was attributable to elevated remediation work and associated deliveries in the same period of 2023. The Company believes that the decrease in sales of ceramic membranes and DPFs reflects temporary market conditions, with customers awaiting potential interest rate cuts.

Previous wording

Gross profit for the three months ended June 30, 2024 was $717,211 (or a gross profit margin of 16%) compared to gross profit of $1,162,528 (or a gross profit margin of 23.3%) for the same period in 2023, representing a decrease of $445,317, or 38.3%. This decline in gross profit can be attributed to the decrease in revenue and an unfavorable revenue mix, which resulted in a lower proportion of high-margin products being sold. Specifically, the delivery of a containerized oil & gas pilot system to the Middle East contributed to lower-than-usual gross profit margin, reflecting a strategic decision aimed at demonstrating and validating the efficiency of our technology. The decline in gross profit was partly offset by decreased depreciation as well as continued initiatives aimed at optimizing manufacturing processes, which have improved profitability within DPF and ceramic membrane production. Included in the gross profit was depreciation of $441,936 and $636,985 for the three months ended June 30, 2024, and 2023, respectively.

Current wording

Gross loss for the three months ended September 30, 2024, was $209,533 (representing a gross loss margin of 8.5%) compared to a gross profit of $948,565 (representing a gross profit margin of 18.7%) for the same period in 2023, marking a decrease of $1,158,098, or 122.1%. This decline was primarily driven by the reduction in revenue and an unfavorable sales mix, which resulted in a lower proportion of high-margin products such as liquid filtration systems and ceramic membranes. This impact was partly offset by lower depreciation expenses. Included in the gross profit was depreciation of $478,902 and $663,938 for the three months ended September 30, 2024, and 2023, respectively.

Previous wording

Total operating expenses for the six months ended June 30, 2024 were $5,120,852, representing a decrease of $228,643, or 4.3%, compared to $5,349,495 for the same period in 2023.

Current wording

Total operating expenses for the three months ended September 30, 2024 were $2,380,440, representing a decrease of $266,978, or 10.1%, compared to $2,647,418 for the same period in 2023.

Previous wording

Selling expenses for the three months ended June 30, 2024 were $855,122 compared to $1,028,225 for the same period in 2023, representing a decrease of $173,103, or 16.8%. The decrease in selling expenses is attributable to the resignations of our CFO and VP of Sales, as well as reductions in travel costs, marketing expenses, and expenses related to external sales consultancy services.

Current wording

Selling expenses for the three months ended September 30, 2024 were $610,713 compared to $965,039 for the same period in 2023, representing a decrease of $354,326, or 36.7%. The decrease in selling expenses is attributable to a decrease in executive officers, as well as reductions in travel costs, investor relations, and expenses related to external sales consultancy services.

Previous wording

General and administrative expenses for the three months ended June 30, 2024 were $1,541,316 compared to $1,377,483 for the same period in 2023, representing an increase of $163,833, or 11.9%. The increase was attributable to newly created positions in supply chain and project management, as well as increased legal expenses, insurance costs, and recruitment costs associated with the resignations of our CFO and VP of Sales. Included in general and administrative expenses were non-cash compensation of $166,617 and $193,924 for the three months ended June 30, 2024 and 2023, respectively.

Current wording

General and administrative expenses for the three months ended September 30, 2024 were $1,491,366 compared to $1,253,779 for the same period in 2023, representing an increase of $237,587, or 18.9%. The increase was attributable to the addition of new positions in supply chain and project management, as well as increased legal expenses and insurance costs. Additionally, one-time expenses were incurred for the relocation of our plastics production facility. Included in general and administrative expenses were non-cash compensation of $161,853 and $143,195 for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Research and development expenses for the three months ended June 30, 2024 were $407,292 compared to $359,784 for the same period in 2023, representing an increase of $47,508, or 13.2%. The increase is solely attributable to one-time exit costs of a loss-making external development project, partly offset by more focused R&D efforts with fewer ongoing projects combined with a decrease in the average number of employees engaged in research and development activity as the Company streamlined and centralized the R&D function.

Current wording

Research and development expenses for the three months ended September 30, 2024 were $278,361 compared to $428,600 for the same period in 2023, representing a decrease of $150,239, or 35.1%. The decrease was primarily attributed to a reduction in external costs associated with finalizing ongoing projects in the same period in 2023, as well as a decrease in the average number of employees engaged in research and development activity as the Company streamlined and centralized the R&D function.

Previous wording

Other expenses for the three months ended June 30, 2024 were $39,331 compared to other income of $33,351 for the comparable period in 2023, representing a decrease of $72,682, or 217.9%. The decrease was attributable to reduced interest income as well as increased debt discount amortization due to the extension of the maturity date for the senior promissory notes, with additional warrants issued as consideration for the extension. The decrease in other expenses was offset by reduced interest expenses and gain on currency transactions due to the EUR/DKK decline against the USD during the period.

Current wording

Other expenses for the three months ended September 30, 2024 were $260,614 compared to other income of $270,143 for the comparable period in 2023, representing a decrease of $530,757, or 196.5%. The decrease was attributable to a loss on currency transactions, reduced interest income as well as increased debt discount amortization due to the extension of the maturity date for the senior promissory notes, with additional warrants issued as consideration for the extension.

Previous wording

As a result of the cumulative effect of the factors described above, we had a net loss for the three months ended June 30, 2024 of $2,111,700 compared to $1,555,292 for the comparable period in 2023, representing an increase in net loss of $556,408, or 35.8%.

Current wording

As a result of the cumulative effect of the factors described above, we had a net loss for the three months ended September 30, 2024 of $2,840,526 compared to $1,414,230 for the comparable period in 2023, representing an increase in net loss of $1,426,296, or 100.9%.

Previous wording

The following table sets forth our revenues, expenses and net loss for the six months ended June 30, 2024 and 2023:

Current wording

The following table sets forth our revenues, expenses and net loss for the nine months ended September 30, 2024 and 2023:

Previous wording

Revenue for the six months ended June 30, 2024 was $8,720,406 compared to $9,001,538 for the same period in 2023, representing a decrease of $281,132, or 3.1%. The decline was mainly due to a reduction in deliveries of plastics products, liquid filtration systems, ceramic membranes and aftermarket sales, partly offset by increased sales of DPFs.

Current wording

Revenue for the nine months ended September 30, 2024 was $11,198,627 compared to $14,071,984 for the same period in 2023, representing a decrease of $2,873,357, or 20.4%. The decline was mainly due to reduced deliveries of liquid filtration systems, plastics products, ceramic membranes and aftermarket sales, partly offset by increased sales of DPFs.

Previous wording

The decline in sales of plastic products is primarily due to a large one-time sale recorded in 2023, which did not recur in the current period. The decrease in deliveries of liquid filtration systems and aftermarket sales was primarily attributed to a reduction in aftermarket sales due to remediation work executed in the same period in 2023. The increase in sales of DPFs was primarily due to the effective execution of strategies designed to capitalize on the increased demand for DPFs.

Current wording

The decrease in deliveries of liquid filtration systems was mainly driven by reduced deliveries of pool filtration systems and marine scrubber systems. The decline in aftermarket sales was primarily due to remediation work executed in the same period in 2023. The reduction in sales of plastic products was largely due to a significant one-time sale recorded in 2023 that did not recur in the current period. The increase in sales of DPFs was primarily driven by the effective execution of strategies designed to capitalize on the increased demand for DPFs.

Previous wording

Gross profit for the six months ended June 30, 2024 was $988,313 (or gross profit margin of 11.3%) compared to gross profit of $1,553,870 (or a gross profit margin of 17.3%) for the same period in 2023, representing a decrease of $565,557, or 36.4%. This decline in gross profit can be attributed to the decrease in revenue and an unfavorable revenue mix, which resulted in a lower proportion of high-margin products being sold. Specifically, the delivery of a containerized oil and gas pilot system to the Middle East contributed to lower-than-usual margins, reflecting a strategic decision aimed at demonstrating and validating the efficiency of our technology. The decline in gross profit was partly offset by decreased depreciation as well as continued initiatives aimed at optimizing manufacturing processes, which have improved profitability within DPF and ceramic membrane production. Included in the gross profit was depreciation of $893,580 and $1,251,577 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Gross profit for the nine months ended September 30, 2024 was $778,780 (or gross profit margin of 7%) compared to gross profit of $2,502,435 (or a gross profit margin of 17.8%) for the same period in 2023, representing a decrease of $1,723,655, or 68.9%. This decline in gross profit can be attributed to the decrease in revenue and an unfavorable sales mix, which resulted in a lower proportion of high-margin products such as liquid filtration systems and ceramic membranes. Specifically, the deliveries of containerized oil and gas pilot systems to the Middle East and the U.S. contributed to lower-than-usual margins, reflecting a strategic decision aimed at demonstrating and validating the value proposition associated with our technology and seeding the market for future growth. The decline in gross profit was partly offset by decreased depreciation as well as continued initiatives aimed at optimizing manufacturing processes, which have improved profitability within DPF and ceramic membrane production. Included in the gross profit was depreciation of $1,372,482 and $1,915,515 for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Total operating expenses for the three months ended June 30, 2024 were $2,803,730, representing an increase of $38,238, or 1%, compared to $2,765,492 for the same period in 2023.

Current wording

Total operating expenses for the nine months ended September 30, 2024 were $7,501,292, representing a decrease of $495,621, or 6.2%, compared to $7,996,913 for the same period in 2023.

Previous wording

Selling expenses for the six months ended June 30, 2024, were $1,372,701, compared to $2,210,660 for the same period in 2023, representing a decrease of $837,959, or 37.9%. The decrease in selling expenses is attributable to the resignations of our CFO and VP of Sales, as well as reductions in bonus payouts, travel costs, marketing expenses, and expenses related to external sales consultancy services.

Current wording

Selling expenses for the nine months ended September 30, 2024, were $1,983,414, compared to $3,175,699 for the same period in 2023, representing a decrease of $1,192,285, or 37.5%. The decrease in selling expenses is attributable a decrease in executive officers, as well as reductions in bonus payouts, travel costs, marketing expenses, and expenses related to external sales consultancy services.

Previous wording

General and administrative expenses for the six months ended June 30, 2024, were $3,086,047, compared to $2,436,432 for the same period in 2023, representing an increase of $649,615, or 26.7%. The increase in general and administrative expenses was attributable to newly created positions in supply chain and project management, as well as increased legal expenses, insurance costs, and recruitment costs associated with the resignations of our CFO and VP of Sales. Furthermore, the increase is partly attributable to the release of bonus provisions in the comparable period of 2023. Included in general and administrative expenses was non-cash compensation amounting to $359,938 and $351,097 for the six months ended June 30, 2024, and 2023, respectively.

Current wording

General and administrative expenses for the nine months ended September 30, 2024, were $4,577,413, compared to $3,690,211 for the same period in 2023, representing an increase of $887,202, or 24.0%. The increase in general and administrative expenses was attributable to newly created positions in supply chain and project management, as well as increased legal expenses, insurance costs, and recruitment costs associated with the resignations of our CFO and VP of Sales. Additionally, one-time expenses were incurred for the relocation of our plastics production facility. Furthermore, the increase is partly attributable to the release of bonus provisions in the comparable period of 2023. Included in general and administrative expenses was non-cash compensation amounting to $521,791 and $494,292 for the nine months ended September 30, 2024, and 2023, respectively.

Previous wording

Research and development expenses for the six months ended June 30, 2024 were $662,104 compared to $702,403 for the same period in 2023, representing a decrease of $40,299, or 5.7%. The change is attributable to more focused R&D efforts with fewer ongoing projects combined with a decrease in the average number of employees engaged in research and development activities, as the Company streamlined and centralized the R&D function, partly offset by one-time exit costs of a loss-making external development project.

Current wording

Research and development expenses for the nine months ended September 30, 2024 were $940,465 compared to $1,131,003 for the same period in 2023, representing a decrease of $190,538, or 16.8%. The change is attributable to more focused R&D efforts with fewer ongoing projects combined with a decrease in the average number of employees engaged in research and development activities, as the Company streamlined and centralized the R&D function, partly offset by one-time exit costs of a loss-making external development project.

Previous wording

Other expenses for the six months ended June 30, 2024 was $396,045 compared to $177,783 for the comparable period in 2023, representing an increase of $218,262, or 122.8%. The increase was attributable to the non-cash loss associated with the disposal of property and equipment, decreased interest income and increased debt discount amortization cost due to the extension of the maturity date for the senior promissory notes, with additional warrants issued as consideration for the extension. The decrease in other expenses was offset by a gain on currency transactions due to the EUR/DKK decline against the USD during the period.

Current wording

Other expenses for the nine months ended September 30, 2024 were $656,659 compared to other income of $92,360 for the comparable period in 2023, representing a decrease of $749,019, or 811.0%. The increase in other expenses was attributable to the non-cash loss associated with the disposal of property and equipment, decreased interest income and increased debt discount amortization cost due to the extension of the maturity date for the senior promissory notes, with additional warrants issued as consideration for the extension. The increase in other expenses was offset by a gain on currency transactions due to the EUR/DKK decline against the USD during the period.

Previous wording

As a result of the cumulative effect of the factors described above, we had a net loss for the six months ended June 30, 2024 of $4,499,995 compared to $3,944,795 for the comparable period in 2023, representing an increase in net loss of $555,200, or 14.1%.

Current wording

As a result of the cumulative effect of the factors described above, we had a net loss for the nine months ended September 30, 2024 of $7,340,521 compared to $5,359,025 for the comparable period in 2023, representing an increase in net loss of $1,981,496, or 37.0%.

Previous wording

The Company has historically financed operations through offerings of equity or debt instruments, internally generated cash from operations and our available lines of credit. On June 30, 2024, we had cash of $5,489,776 and net working capital of $10,922,792, and on December 31, 2023, we had cash of $10,442,181 and net working capital of $14,590,432. On June 30, 2024, our net working capital had decreased by $3,667,640 compared to December 31, 2023, mainly as a result of a reduction in cash and cash equivalents.

Current wording

The Company has historically financed operations through offerings of equity or debt instruments, internally generated cash from operations and our available lines of credit. On September 30, 2024, we had cash of $4,535,266 and net working capital of $9,963,511, and on December 31, 2023, we had cash of $10,422,181 and net working capital of $14,590,432. On September 30, 2024, our net working capital had decreased by $4,626,921 compared to December 31, 2023, mainly as a result of a reduction in cash and cash equivalents to fund operating losses.

Previous wording

The Company has incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. There is no assurance that the Company will be successful in executing the planned revenue growth, cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations. We continue to analyze various alternatives, including potentially obtaining debt or equity financings or other arrangements. Our future success depends on our ability to accelerate growth, restore profitability, and raise capital as needed.

Current wording

The Company has incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. Continued market uncertainty and reduced order intake caused by weakening global macroeconomic conditions or recession could unfavorably impact the Company’s ability to generate positive cash flow and thereby significantly reduce its profitability and liquidity position. There is no assurance that the Company will be successful in executing the planned revenue growth, cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations.

Previous wording

We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current shareholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current development programs, reduce operating costs, forego future development and other opportunities, or even terminate our operations.

Current wording

As we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current shareholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current development programs, reduce operating costs, forgo future development and other opportunities, or even terminate our operations.

Previous wording

As a result of the amendment, the Company recorded an initial debt discount of $1,193,206, based on fair value of the warrants issued. The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions: expected term of 5.0 years, stock price of $3.89, exercise price of $5.20, volatility of 73.66%, risk-free rate of 4.60%, and no forfeiture rate. The debt discount will be accreted according to the effective interest method over the contractual term of the Notes. The warrants qualified for equity classification and were reported within Additional Paid-In Capital

Current wording

As a result of the amendment, the Company recorded an initial debt discount of $1,193,206, based on the fair value of the warrants issued. The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions: expected term of 5.0 years, stock price of $3.89, exercise price of $5.20, volatility of 73.66%, risk-free rate of 4.60%, and no forfeiture rate. The debt discount will be accreted according to the effective interest method over the contractual term of the Notes. The warrants qualified for equity classification and were reported within Additional Paid-In Capital

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

Previous wording

Cash flows from operating activities for the period ending June 30, 2024 derived from the net loss for the period, adjusted for non-cash items and changes in assets and liabilities. Cash flows used in operating activities for the six months ended June 30, 2024 were $3,779,679, representing an unfavorable change of $22,991 compared to cash flows used in operating activities of $3,756,688 for the six months ended June 30, 2023. The cash flows used in operating activities for the period consists mainly of the net loss of $4,499,995, adjusted for depreciation and other non-cash-related items of $2,420,451, as well as a decrease in accounts payable of $562,014 and an increase in inventory of $525,240, partly offset by a decrease in accounts receivable of $268,143.

Current wording

Cash flows from operating activities for the period ending September 30, 2024 derived from the net loss for the period, adjusted for non-cash items and changes in assets and liabilities. Cash flows used in operating activities for the nine months ended September 30, 2024 were $5,528,442, representing an unfavorable change of $2,554,778 compared to cash flows used in operating activities of $2,973,664 for the nine months ended September 30, 2023. The cash flows used in operating activities for the period consists mainly of the net loss of $7,340,521, adjusted for depreciation and other non-cash-related items of $3,455,950, as well as an increase in inventory of $901,122 and a decrease in accounts payable of $736,726, partly offset by a decrease in accounts receivable of $867,035.

Previous wording

Cash flows provided by investing activities were $333,171 for the six months ended June 30, 2024 as compared to cash flows used in investing activities of $290,468 for the six months ended June 30, 2023, representing an improvement of $639,639. The investing activities include proceeds from the disposition of production equipment in Ballerup, offset by general purchases of production equipment to continue optimizing production throughput.

Current wording

Cash flows used in investing activities were $28,767 for the nine months ended September 30, 2024 as compared to cash flows used in investing activities of $2,261,131 for the nine months ended September 30, 2023, representing an improvement of $2,232,364. The investing activities include general purchases of production equipment to continue optimizing production throughput and the internal production of rental assets, partly offset by proceeds from the disposition of production equipment in our Ballerup facility.

Previous wording

Cash flows used in financing activities were $1,115,153 for the six months ended June 30, 2024 compared to $200,095 for the six months ended June 30, 2023, representing an increase of $915,058. The increase was mainly driven by the repayment of lease agreements in connection with the sales of production equipment in Ballerup as mentioned above.

Current wording

Cash flows used in financing activities were $125,718 for the nine months ended September 30, 2024 compared to cash flows provided by financing activities of $718,327 for the nine months ended September 30, 2023, representing an unfavorable change of $844,045. The finance activities include the repayment of lease agreements in connection with the sales of production equipment in Ballerup as mentioned above, partly offset by the equity raise, generating net proceeds $1,107,385 from the issuance of common stock and prefunded warrants.