Liqtech International Inc: Form 10-Q for the period ended Sep 30, 2025

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 28, 2025 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 as well as developing industry-leading and fully automated filtration solutions and systems. 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, ceramic diesel particulate filters (DPFs) to control soot exhaust particles and black carbon emission from diesel engines, and plastic components for usage across various industries. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on innovative silicon carbide membranes that facilitate new applications and improve existing technologies. We market our products from our offices in Denmark and through local representatives and distributors. The products are shipped directly to customers from our production facilities in Denmark.

The terms “LiqTech”, “we”, “our”, “us”, the “Company” or any derivative thereof, as used herein, refer to LiqTech International, Inc., a Nevada corporation, together with its direct and indirect wholly-owned subsidiaries, which we collectively refer to herein as our “Subsidiaries”.

At present, we conduct our operations in the Kingdom of Denmark, US and China, with locations in the Copenhagen area, Hobro, Fort Worth and Nantong.

Our Strategy

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 value creation regulatory tailwinds and sustainability implications. Essential imperatives associated with our strategy include the following:

• Develop and reinforce new products and applications to provide clean water and reduce pollution. We currently provide water filtration systems for commercial pool owners, dual fuel marine vessels, shipowners, and ship operators as well as tailored filtration systems for oil & gas operators, industrial operators and services companies. We are expanding our range of products to better leverage existing customer relationships and develop new relationships within the oil & gas, marine, chemical, and other industries.
• Better penetrate existing end markets where our value proposition is strong. We have successfully sold products and installed systems into several end market segments--including automotive/transportation, clean water and pool filtration, marine, industrial wastewater, chemicals/petrochemicals, and oil & gas applications. We are focused on targeting and developing new customers in these end markets while working with distributors, agents, and partners to accelerate our market and geographic penetration.
• Develop new end markets for our core products and applications. Our existing products and systems are relevant for and valuable to other end markets, and we regularly evaluate opportunities to develop strategic partners to perfect new applications and validate associated value propositions.

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Results of Operations

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

Comparison of the Three Months Ended September 30, 2025, and September 30, 2024

The following table sets forth our revenues, expenses, and net loss for the three months ended September 30, 2025, and 2024:

Revenues

Revenue for the three months ended September 30, 2025 was $3,807,274 compared to $2,478,221 for the same period in 2024, representing an increase of $1,329,053, or 53.6%. The favorable change was attributable to an increase in liquid filtration systems, specifically an increase in pool system deliveries and aftermarket sales, along with increased sales of plastics products, partially offset by a decrease in deliveries of DPFs.

Gross Profit (Loss)

Gross profit for the three months ended September 30, 2025 was $747,878 (representing a gross profit margin of 19.6%) compared to a gross profit loss of $209,533 (representing a gross profit margin of -8.5%) for the same period in 2024, marking an increase of $957,411, or 456.9%. This increase was primarily driven by system sales utilization of our manufacturing capacity for membranes and low depreciation expenses offset by write-offs for slow-moving inventory linked to DPF activity. Included in the gross profit was depreciation of $371,654 and $478,902 for the three months ended September 30, 2025, and 2024, respectively.

Expenses

Total operating expenses for the three months ended September 30, 2025 were $2,080,880, representing a decrease of $299,560, or 12.6%, compared to $2,380,440 for the same period in 2024.

Selling expenses for the three months ended September 30, 2025 were $541,259 compared to $610,713 for the same period in 2024, representing a decrease of $69,454, or 11.4%. The decrease in selling expenses is related to the release of a bad debt provision due to aging improvements as well as lower depreciatio,n partially offset by costs associated with the newly formed joint venture in China, Nantong JiTRI LiqTech Green Energy Technology Co., Ltd.(the "JV"). The primary focus of the JV is to develop and commercialize systems for the marine water treatment market in China.

General and administrative expenses for the three months ended September 30, 2025 were $1,270,195 compared to $1,491,366 for the same period in 2024, representing a decrease of $221,171, or 14.8%. While overall expenses remained stable, an increase in non-cash compensation was offset by corresponding decrease in salaries. Included in general and administrative expenses were non-cash compensation of $258,538 and $157,000 for the three months ended September 30, 2025, and 2024, respectively.

Research and development expenses for the three months ended September 30, 2025 were $269,426 compared to $278,361 for the same period in 2024, representing a decrease of $8,935, or 3.2%. The decrease was primarily attributed to one-time exit costs of a loss-making external development project in the prior-year period and, a reduction in the average number of employees engaged in research and development activity as the Company streamlined and centralized the R&D function.

Other Income (Expenses)

Other expenses for the three months ended September 30, 2025 were $127,135 compared to other expenses of $260,614 for the comparable period in 2024, representing a favorable change of $133,479, or 51.2%. The change was primarily attributable to slower amortization of debt discount, reduced losses on currency transactions, and a decrease of net interest expenses for the three months ended September 30, 2025

Net Loss

As a result of the cumulative effect of the factors described above, we reported a net loss for the three months ended September 30, 2025 of $1,459,762 compared to $2,840,526 for the comparable period in 2024, representing a favorable change in net loss of $1,380,764, or 48.6%.

Comparison of the Nine Months Ended September 30, 2025, and September 30, 2024

The following table sets forth our revenues, expenses, and net loss for the nine months ended September 30, 2025, and 2024:

Revenues

Revenue for the nine months ended September 30, 2025 was $13,382,304 compared to $11,198,627 for the same period in 2024, representing an increase of $2,183,677, or 19.5%. The favorable change was attributable to an increase in liquid filtration systems, specifically a full-scale PureFlow™ system delivery and pool filtration systems, increased sales of plastics products, and increased sales of ceramic membranes, partially offset by a decrease in deliveries of DPFs.

Gross Profit (Loss)

Gross profit for the nine months ended September 30, 2025 was $1,357,512 (representing a gross profit margin of 10.1%) compared to a gross profit of $778,780 (representing a gross profit margin of 7.0%) for the same period in 2024, marking a increase of $578,732, or 74.3%. This increase was primarily driven by the higher revenue related to the delivery of a first time full-scale PureFlow™ liquid filtration system to the U.S. Also impacting gross profit was the improved utilization of our membrane manufacturing capacity. This impact was partially offset by lower depreciation expenses. Included in the gross profit was depreciation of $1,176,237 and $1,372,482 for the nine months ended September 30, 2025, and 2024, respectively.

Expenses

Total operating expenses for the nine months ended September 30, 2025 were $6,985,712, representing a decrease of $515,580, or 6.9%, compared to $7,501,292 for the same period in 2024.

Selling expenses for the nine months ended September 30, 2025 were $2,071,843 compared to $1,983,414 for the same period in 2024, representing an increase of $88,429, or 4.5%. The increase in selling expenses was mainly related to lower sales commissions in 2024, along with the cost associated with the JV. The primary focus of the JV is to develop and commercialize systems for the marine water treatment market in China. The increase was partially offset by decreased bad debt expense and lower depreciation.

General and administrative expenses for the nine months ended September 30, 2025 were $4,171,764 compared to $4,577,413 for the same period in 2024, representing a decrease of $405,649, or 8.9%. The decrease was mainly attributable to non-recurring costs in the comparable period related to recruitment expenses associated with the CFO transition along with savings on external consulting services during this period. Included in general and administrative expenses were non-cash compensation of $730,335 and $521,791 for the nine months ended September 30, 2025, and 2024, respectively.

Research and development expenses for the nine months ended September 30, 2025 were $742,105 compared to $940,465 for the same period in 2024, representing a decrease of $198,360, or 21.1%. The decrease was primarily attributed to one-time exit costs of a loss-making external development project in the prior-year period and a reduction in the average number of employees engaged in research and development activity as the Company streamlined and centralized the R&D function.

Other Income (Expenses)

Other expenses for the nine months ended September 30, 2025 were $351,764 compared to other expenses of $656,659 for the comparable period in 2024, representing a favorable change of $304,895, or 46.4%. The change was primarily attributable to significant losses on the disposal of property and equipment in the prior-year period, partially offset by a lower gain on currency transactions for the nine months ended September 30, 2025.

Net Loss

As a result of the cumulative effect of the factors described above, we reported a net loss for the nine months ended September 30, 2025 of $5,978,890 compared to $7,340,521 for the comparable period in 2024, representing a decrease in net loss of $1,361,631, or 18.5%.

Liquidity and Capital Resources

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, 2025, we had cash of $7,354,024 and net working capital of $13,406,883, and on December 31, 2024, we had cash of $10,868,728 and net working capital of $15,736,809. On September 30, 2025, our net working capital had decreased by $2,329,926 compared to December 31, 2024, mainly as a result of a focused effort to improve working capital through improved inventory management.

Based on current projections, which are subject to significant uncertainties--including the duration and severity of global macroeconomic issues, trade wars and associated tariffs, geopolitical instability, commodity price volatility, and continued global supply chain disruptions-the Company believes that the cash on hand, as well as ongoing cash generated from operations, will be sufficient to cover its capital requirements and committed investments for the next 12 months.

While the Company anticipates that its proactive measures will be sufficient to protect the business over the coming 12 months, the Company cannot predict the specific duration and severity of the unfavorable market dynamics that may adversely affect the business. In the future, the Company may experience reduced or changed demand for its products and services, especially if there is a global recession, structural shift in regulation, or the escalating interest rates and tariffs that adversely impact the investment decisions of our customers.

Cash Flows

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

Cash flows from operating activities for the period ending September 30, 2025 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, 2025 were $3,977,121 representing a favorable change of $1,551,321 compared to cash flows used in operating activities of $5,528,442 for the nine months ended September 30, 2024. The cash flows used in operating activities for the period consists mainly of the net loss of $5,978,890, adjusted for depreciation and other non-cash-related items of $2,884,217, and an increase in accounts receivables of $1,010,624, partially offset by decrease in contract assets of $863,564 and inventories of $190,640.

Cash flows used in investing activities were $173,139 for the nine months ended September 30, 2025 as compared to cash flows used in investing activities of $28,767 for the nine months ended September 30, 2024, representing an unfavorable change of $144,372. 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 disposal of production equipment in our Ballerup facility.

Cash flows provided from financing activities were $787,024 for the nine months ended September 30, 2025 compared to cash flows used by financing activities of $125,718 for the nine months ended September 30, 2024, representing a favorable change of $912,742. The finance activities include proceeds from a long-term loan and capital contribution from the noncontrolling interest in the JV. Additionally, in the prior-year period, finance activities included the repayment of a lease agreement.

Off Balance Sheet Arrangements

As of September 30, 2025, we had no off-balance sheet arrangements. We are not aware of any material transactions that are not disclosed in our consolidated financial statements.

Significant Accounting Policies and Critical Accounting Estimates

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:

• The assessment of revenue recognition, which impacts revenue and cost of sales;
• the assessment of allowance for product warranties, which impacts gross profit;
• the assessment of collectability of accounts receivable, which impacts operating expenses if and when we record bad debt or adjust the allowance for doubtful accounts;
• the assessment of recoverability of long-lived assets, which impacts gross profit or operating expenses if and when 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 profit 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: Basis of Presentation and Other Information” in the accompanying financial statements.

We are not required to provide quantitative and qualitative disclosures about market risk because we are a smaller reporting company.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the design and effectiveness of our internal controls over financial reporting and disclosure controls and procedures (pursuant to Rule 13a-15(b) and (c) under the Exchange Act) as of the end of the period covered by this Quarterly Report. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a misstatement of the registrant's financial statements will not be prevented or detected on a timely basis.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2025 were not effective as of the period covered by this Quarterly Report due to material weaknesses in internal controls over financial reporting. For more information on material weaknesses identified by management, please refer to our Form 10-K filed on March 28, 2025 for the year ended December 31, 2024.

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, in 2023 the Company hired additional employees into the finance department, and the Company implemented a new ERP system along with other IT programs to help reinforce its controls and processes, and these investments are an important step in the remediation of the material weaknesses. During 2022, the Company introduced an updated Delegation of Authority, with the overall purpose to provide clarity for all employees on the extent to which they can commit the Company and at the same time provide the Company with assurance that decisions about agreements are made by the appropriate functions and employees. 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 actions implemented and planned will improve the overall system of internal control over financial reporting and will remediate the identified material weaknesses, these material weaknesses cannot be considered fully remediated until the applicable relevant controls operate for a sufficient period of time.

Limitations on the Effectiveness of Internal Controls

An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the 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.

There have been no material changes to the risk factors discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 28, 2025 except the following:

Changes in U.S. policy, including the imposition of or increases in tariffs, changes to existing trade agreements and any resulting changes in international trade relations, such as reciprocal tariffs or trade wars, particularly with regard to China and EU, may have a material adverse impact on our business, results of operations, or financial condition.

In April-May 2025, the global tariff landscape began to quickly change with the U.S. implementing new and/or increased tariffs on various foreign countries, either generally or with respect to certain products. Certain foreign countries, including China and EU, have, and may continue to, change their tariff policies in response to changes in the U.S. tariff policy. These recent tariffs and the subsequent retaliatory tariffs could increase the cost of goods for our products or reduce our ability to sell products globally, particularly in China and US, which may adversely affect our operating results and financial condition. So far, these new tariffs and trade policies have not had a significant impact on our business operations and financial results, primarily due to our prior efforts to accumulate and maintain inventories at favorable cost levels. However, there is no guarantee that we can avoid the impact of tariff and related economic effects in the future, and these trade measures and retaliations may directly impact our business by increasing trade-related costs or affecting the demand for our products globally. Any further unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impacting the competitive position of our products. If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions due to the recent trade tension, such changes could have an adverse effect on our business, financial condition and results of operations.