LIQT

Business Context and Reporting Period

LiqTech International, Inc. (LIQT) is a clean technology company specializing in ceramic silicon carbide filters, membranes, and filtration systems. The company operates through three segments: Systems and Aftermarket, Filters and Membranes, and Components. This Form 10-Q covers the quarterly period ended March 31, 2026. The company is classified as a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Note: Total Debt includes Senior Promissory Notes ($5,598,049) and total Finance/Operating Lease Liabilities ($1,765,491).

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased by 10.4% ($481,221) compared to Q1 2025. Management attributes this solely to a reduction in system sales, specifically the absence of a significant "Water for Energy" delivery that occurred in the prior year. However, sales in the Pool and Marine sub-segments increased.
• Margin Expansion: Despite lower revenue, Gross Profit increased by 214.9% to $393,744. Gross margin improved from 2.7% to 9.5%, driven by a product mix shift toward higher-value systems, better manufacturing utilization, and lower depreciation expenses.
• Operating Expenses: Total operating expenses rose 15.6% to $2.67 million. Approximately 60% of this increase is due to foreign exchange rate fluctuations (USD/DKK). Excluding FX, costs increased due to the full-year effect of the China joint venture and investments in the U.S. and European sales organizations.
• Foreign Currency Impact: The company recorded a loss of $168,556 on foreign currency transactions in Q1 2026, compared to a gain of $35,516 in Q1 2025.
• Cash Burn: Cash and restricted cash decreased by approximately $2.34 million during the quarter, resulting in a net cash outflow from operating activities of $1.94 million.

Guidance, Outlook, Risks, and Contingencies

• Going Concern: The filing explicitly states that the company's operating losses and cash outflows raise substantial doubt about its ability to continue as a going concern for the twelve months following the issuance of the financial statements. Management is evaluating financing alternatives, including debt or equity financing.
• Debt Obligations: Senior promissory notes totaling $6 million mature on May 1, 2027. Interest is currently 10% per annum but can step up to 13% (and potentially 16%) in the event of default or non-repayment. Accrued interest may be paid in cash or stock.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2026, due to material weaknesses in internal controls over financial reporting. Remediation efforts include hiring finance staff and evaluating ERP reimplementation.
• Joint Venture: The company holds a 90% interest in a China-based joint venture (Nantong JiTRI LiqTech Green Energy Technology Co., Ltd.). The remaining 10% is held by a third party who provided a loan of approximately $1.2 million (RMB 8 million) to the JV.
• Risk Factors: Key risks include dependence on a few major customers (Customer A and B represented 12% and 11% of revenue respectively), geopolitical tensions, supply chain disruptions, and the inability to secure additional capital.

Investor Verification Checklist

• Liquidity Runway: Verify the company's ability to fund operations for the next 12 months given the "substantial doubt" disclosure and the $2.3M cash burn in a single quarter.
• Debt Maturity: Confirm the status of the $6 million senior promissory notes maturing in May 2027 and the company's plan to service or refinance this debt.
• Revenue Concentration: Assess the risk associated with the top two customers (Customer A and B) accounting for 23% of total revenue.
• Internal Control Remediation: Monitor progress on fixing material weaknesses in financial reporting, as this impacts the reliability of future financial data.
• FX Exposure: Evaluate the impact of continued currency volatility (USD/DKK) on operating expenses and net income, which significantly impacted Q1 2026 results.