LiqTech International, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. LiqTech develops and sells silicon-carbide filtration products and systems across Water, Ceramics, and Plastics businesses.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $4.01 million | $3.64 million |
| Gross profit / margin | $0.39 million / 9.8% | $0.25 million / 6.8% |
| Operating loss | $2.19 million | $3.33 million |
| Net loss | $2.39 million | $3.75 million |
| Loss per share, basic and diluted | $0.05 | $0.18 |
| Net cash used in operating activities | $2.29 million | $5.03 million |
- Revenue increased 10.3%. Water revenue rose to $1.43 million from $0.59 million, while Ceramics revenue declined to $1.41 million from $1.88 million; Plastics revenue was $1.17 million versus $1.14 million.
- Gross margin improved to 9.8% from 6.8%. Management attributed the improvement to higher revenue, product mix and pricing discipline, while noting continued legacy-system remediation costs and manufacturing optimization efforts.
- Operating expenses fell 27.8% to $2.58 million, primarily reflecting lower general and administrative and R&D costs. Selling expenses increased 11.6%.
- Q1 2023 operating cash use improved by $2.75 million year over year. Capital expenditures were $0.09 million; financing cash use was $0.10 million.
Financial position and material changes
- At March 31, 2023, cash and restricted cash totaled $14.31 million, down from $16.60 million at year-end 2022. Net working capital was $20.12 million, compared with $21.58 million at year-end.
- Total liabilities were $17.26 million and stockholders’ equity was $21.49 million. Senior promissory notes had a $6.0 million face amount and $5.56 million carrying value; they mature in June 2024 and bear no interest during the initial 24-month term. Finance and operating lease liabilities totaled approximately $5.92 million.
- The prior $15 million convertible note was repaid in June 2022. The company reported no current portion of the senior notes at quarter-end.
- Common shares outstanding rose to 45.27 million from 43.99 million at year-end, following settlement of restricted stock units. At March 31, the company also reported 31.44 million prefunded warrants, 4.48 million warrants and 2.83 million outstanding RSUs.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management stated that current projections indicate cash on hand and ongoing operating cash generation should cover capital requirements and committed investments for the next 12 months, but emphasized significant uncertainty.
- The company disclosed substantial doubt about its ability to continue as a going concern for one year after issuance of the financial statements, citing recurring losses, operating cash use and dependence on additional financing. Cost reductions and profitability initiatives may not succeed; financing may be unavailable or dilutive.
- Key risks include weaker order intake, macroeconomic and geopolitical uncertainty, inflation and European energy costs, supply-chain disruptions, currency volatility, dependence on major customers, and the ability to obtain financing.
- A 2022 commercial settlement concerning alleged corrosion in marine wastewater systems called for remediation work, with costs shared by the parties. Warranty-reserve utilization in Q1 included charges related to that settlement.
- Management concluded disclosure controls were not effective at March 31, 2023 because of previously identified material weaknesses in internal controls over financial reporting. Remediation efforts were underway but were not considered complete.
Investor verification priorities
- Assess the going-concern disclosure against cash burn, the stated 12-month liquidity outlook and the company’s need for potential additional financing.
- Review subsequent order intake and margin trends, particularly in Water and Ceramics, and progress in manufacturing optimization and warranty remediation.
- Evaluate potential dilution from the substantial outstanding prefunded warrants, warrants and RSUs.
- Monitor remediation of internal-control material weaknesses and any future developments in the marine-system settlement or warranty obligations.