Liqtech International Inc: Form 10-Q for the period ended Mar 31, 2026

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 February 27, 2026 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 and membrane incorporated 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, the U.S. 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, systems integration, and application knowledge, creating differentiated products with compelling value propositions to penetrate attractive end markets with customer needs and regulatory tailwind. 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 penetration of 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, chemical/petrochemical, 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 access other important geographic markets.
• 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 March 31, 2026, and March 31, 2025

The following table sets forth our revenues, expenses, and net loss for the three months ended March 31, 2026, and 2025:

Revenues

Revenue for the three months ended March 31, 2026 was $4,136,320 compared to $4,617,541 for the same period in 2025, representing a decrease of $481,221, or 10.4%. The decrease was solely attributable to a reduction in system sales, reflecting a significant Water for Energy delivery in 2025 that did not recur in 2026. Within the Systems segment, sales to both the Pool and Marine segments increased significantly. Furthermore, deliveries of Filters, Membranes, and Components increased during the period.

Gross Profit (Loss)

Gross profit for the three months ended March 31, 2026 was $393,744 (representing a gross profit margin of 9.5%) compared to a gross profit of $125,056 (representing a gross profit margin of 2.7%) for the same period in 2025, marking an increase of $268,688, or 214.9%. This increase was primarily driven by mix towards higher value system sales, better utilization of our manufacturing capacity, procurement effects on prices, and low depreciation expenses. Included in the gross profit was depreciation of $330,006 and $392,292 for the three months ended March 31, 2026, and 2025, respectively.

Expenses

Total operating expenses for the three months ended March 31, 2026 were $2,670,953, representing an increase of $360,568, or 15.6%, compared to $2,310,385 for the same period in 2025. Approximately 60% of the increase relates to foreign exchange rate developments, as the average USD/DKK exchange rate for the three months ended March 31st, was 6.385 in 2026 and 7.092 in 2025.

Selling expenses for the three months ended March 31, 2026 were $980,674 compared to $718,016 for the same period in 2025, representing an increase of $262,658, or 36.6%. Excluding the impact of foreign exchange rate developments, costs increased primarily due to the full-year effect of hires within the joint venture in China, Nantong JiTRI LiqTech Green Energy Technology Co., Ltd. (the “JV”), as well as continued investments in the sales organization across the U.S. and Europe, and annualization of the Service Center cost in the U.S.

General and administrative expenses for the three months ended March 31, 2026 were $1,414,145 compared to $1,362,246 for the same period in 2025, representing an increase of $51,899, or 3.8%. Adjusting for foreign exchange rate developments, expenses remained stable and below general inflation, as filing of open positions were covered by savings on other overhead expenses. Included in general and administrative expenses were non-cash compensation of $218,252 and $241,245 for the three months ended March 31, 2026, and 2025, respectively.

Research and development expenses for the three months ended March 31, 2026 were $276,134 compared to $230,123 for the same period in 2025, representing an increase of $46,011, or 20.0%. The increase was primarily attributed to membrane development costs and cost related to development of Marine systems.

Other Income (Expenses)

Other expenses for the three months ended March 31, 2026 were $448,267 compared to other expenses of $173,352 for the comparable period in 2025, representing an increase of $274,915, or 158.6%. The change was primarily attributable to losses on foreign currency transactions, lower interest income, and accrued interests on the senior promissory notes, partly balanced by lower amortization of debt discount, and a decrease of net interest expenses for the three months ended March 31, 2026

Net Loss

As a result of the cumulative effect of the factors described above, we reported a net loss for the three months ended March 31, 2026 of $2,725,099 compared to $2,358,342 for the comparable period in 2025, representing an increase in net loss of $366,757, or 15.6%.

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 March 31, 2026, we had cash of $2,732,739 and net working capital of $8,483,730, and on December 31, 2025, we had cash of $5,070,385 and net working capital of $11,237,788. On March 31, 2026, our net working capital had decreased by $2,754,058 compared to December 31, 2025, mainly as a result of a reduction in cash and cash equivalents used to fund operating losses

The Company has experienced operating losses and cash outflows from continuing operations and will require additional funding to support operations for the twelve months following the issuance of these financial statements. These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management has implemented cost optimization operational initiatives and working capital control designed to improve liquidity and support a sustainable path toward profitability, supported by an updated strategic focus and strengthened leadership. The Company continues to evaluate financing alternatives and strategic opportunities to enhance its capital position. While there can be no assurance that additional funding will be obtained on favorable terms, management believes its ongoing initiatives position the Company to support operations and advance its strategic objectives.

Cash Flows

Three months ended March 31, 2026 compared to three months ended March 31, 2025

Cash flows used in operating activities for the three months ended March 31, 2026 were $1,941,544 representing an increase of $644,358 compared to cash flows used in operating activities of $1,297,186 for the three months ended March 31, 2025. The cash flows used in operating activities for the period consists mainly of the net loss of $2,725,099, adjusted for depreciation and other non-cash-related items of $835,210, an increase in accounts receivables of $317,277, prepaid expenses and other current assets of $399,522, and partially offset by an increase in accounts payable of $526,117.

Cash flows used in investing activities were $269,724 for the three months ended March 31, 2026 as compared to cash flows used in investing activities of $110,860 for the three months ended March 31, 2025, representing a change of $158,864. The investing activities include general purchases of production equipment to continue optimizing production throughput and the internal production of rental assets. For the three months ended March 31, 2026, the main additions were investments in assembly equipment in our JV in China and in the U.S. Service Center.

Cash flows provided from financing activities were $(311,911) for the three months ended March 31, 2026 compared to cash flows used by financing activities of $989,722 for the three months ended March 31, 2025, representing a change of $1,301,633. Financing activities primarily consisted of repayments of lease obligations and the acquisition of common stock to satisfy tax withholding obligations. Additionally, in the prior-year period, the Company received proceeds from a long-term loan as well as a capital contribution from the noncontrolling interest in the joint venture.

Off Balance Sheet Arrangements

As of March 31, 2026, 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 March 31, 2026 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 February 27, 2026 for the year ended December 31, 2025.

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 in 2025 hired additional employees into the finance department, and we plan to continue to work on remediating the material weaknesses during 2026 by improving competencies and processes. Further, the Company is evaluating an ERP reimplementation 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 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.

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, 2025, filed with the SEC on February 27, 2026.

We will require substantial capital investment in the future, and our inability to raise adequate capital could affect our ability to continue as a going concern.

We will require significant funding to continue our operations and advance our development of new products. Our ability to raise additional capital, on timely and favorable terms or at all, will depend on various factors, including macroeconomic conditions, future commodity prices, our exploration success, and market conditions. If these factors deteriorate, our ability to raise capital to fund ongoing operations and business activities could be significantly impacted. If we cannot obtain adequate additional financing, we may have to substantially curtail our exploration and development activities or sell assets, which could materially and adversely affect our business plan. Inadequate financial resources could also raise substantial doubt about our ability to continue as a going concern.