LiqTech International, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; filed March 30, 2022. This is an annual report, not a standalone fourth-quarter report. The filing does not provide clear Q4-only financial results.
Business context
LiqTech develops and sells silicon-carbide filtration products and systems, including liquid-filtration and water-treatment systems, diesel particulate filters (DPFs), and plastic components. Its operations and manufacturing were primarily in Denmark; the company began establishing manufacturing operations in Taicang, China. It reported three operating segments: Water, Ceramics, and Plastics.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $18.27 million | $22.53 million |
| Gross profit / margin | $1.58 million / 8.6% | $2.15 million / 9.5% |
| Operating loss | $10.69 million | $8.26 million |
| Net loss | $11.13 million | $9.81 million |
| Loss per share, basic and diluted | $0.52 | $0.46 |
| Cash used in operating activities | $7.20 million | $2.60 million |
| Cash used in investing activities | $1.45 million | $4.01 million |
| Cash provided by financing activities | $13.90 million | $7.22 million |
At year-end, cash, cash equivalents and restricted cash were $17.49 million, including $2.13 million of restricted cash; net working capital was $11.20 million, down from $15.84 million. Total assets were $45.05 million and total liabilities were $32.28 million. The filing reports $14.59 million in carrying value for the convertible note ($8.40 million current and $6.19 million long-term). Finance-lease liabilities were $2.87 million and operating-lease liabilities were $7.00 million.
Changes versus 2020
- Revenue fell 18.9%, mainly because liquid-filter and water-system sales declined; DPF and plastics revenue increased.
- Liquid filters and systems generated $7.20 million, down from $14.15 million. DPF revenue rose to $7.18 million from $5.13 million, and plastics revenue rose to $3.62 million from $2.65 million.
- Gross margin declined as lower-margin sales mix, facility expansion costs, China ramp-up costs, and inflation weighed on results. The company also cited operating below manufacturing capacity.
- Operating expenses rose 17.9% to $12.26 million. Selling expenses increased 56% and R&D expense increased 46%; general and administrative expense decreased 6%.
- Operating cash use increased to $7.20 million from $2.60 million. Financing inflows included $14.28 million net proceeds from the 2021 convertible-note financing.
- Net loss widened by $1.32 million. The 2021 loss included $835,331 of convertible-note discount amortization and $708,176 of interest expense. Currency transactions produced a $668,225 gain, versus a $1.47 million loss in 2020.
Outlook, risks, and unusual items
- Liquidity and going concern: The auditor’s report and Note 2 state that recurring losses and limited cash raise substantial doubt about the company’s ability to continue as a going concern. Management said available cash and operating cash generation might not cover capital requirements for the next 12 months as of the report date, and acknowledged uncertainty about raising funds or returning to profitability. The statements contain no adjustments for the outcome of this uncertainty.
- Convertible note: The company issued a $15.0 million principal senior convertible note in April 2021, due October 1, 2023, with a 5% interest rate and repayment at 112% of principal at maturity. At the holder’s election, monthly redemptions of $840,000 could begin March 1, 2022, paid in cash or common stock under specified pricing terms. The note creates refinancing, repayment, interest, and potential dilution risks.
- Demand and supply: Management attributed lower liquid-system sales to COVID-19, reduced marine scrubber demand, supply-chain restrictions, and market volatility. It expected gross profit to remain pressured until factory utilization improves, while stating it expected to fulfill most, if not all, existing 2022 delivery obligations.
- Customer concentration: The four largest customers represented approximately 37% of 2021 sales, versus 53% in 2020. The company has no firm long-term volume commitments from major customers, and customer orders may be delayed or cancelled.
- Controls: Management concluded disclosure controls were not effective at year-end because of material weaknesses in internal control over financial reporting. Remediation efforts included finance-team hires, ERP and IT improvements, and redesign and documentation of reporting processes; weaknesses were not yet considered remediated. The auditor did not audit internal controls.
- Contingency: LiqTech was disputing an arbitration claim concerning a water-treatment system installed at a power plant. The claim was approximately DKK 1.67 million ($254,796), plus interest; the company filed a counterclaim for unpaid invoices. The filing does not state a final outcome.
- Other developments: The Middle East joint venture had not been legally established at year-end. In March 2022, CEO Sune Mathiesen took medical leave and director Alexander Buehler was appointed interim CEO. The China facility lease has a minimum eight-year term.
- The company cited continued risks from COVID-19, geopolitical and macroeconomic volatility, inflation, raw-material costs, foreign exchange, regulation, customer credit, and execution of international expansion. No formal revenue or earnings guidance is provided.
Most important facts for investors to verify
- How the company expects to fund operations and capital needs, given the going-concern warning, operating cash burn, and management’s stated liquidity concerns.
- The convertible note’s redemption schedule, payment method, conversion economics, and any resulting dilution or cash demands.
- Whether revenue and gross margins recover, particularly in liquid filtration, and whether DPF and plastics growth can offset weaker water-system sales.
- Progress in remediating internal-control material weaknesses and any subsequent changes to management or reporting controls.
- The status and potential financial exposure of the power-plant arbitration, and the establishment and economics of the China and Middle East initiatives.