10-Q: LiqTech Narrows Q3 Loss on Strong Filtration Sales

LiqTech International, Inc. reported a significant reduction in net loss for Q3 2025, driven by robust growth in liquid filtration and plastics segments.

Summary

• Revenue for the three months ended September 30, 2025, increased by 53.6% to $3,807,274, up from $2,478,221 in the prior year.
• Gross profit for Q3 2025 was $747,878 (19.6% margin), a substantial improvement from a gross loss of $209,533 (-8.5% margin) in Q3 2024.
• Net loss for Q3 2025 decreased by 48.6% to $1,459,762, compared to $2,840,526 in Q3 2024.
• Loss per common share for Q3 2025 was $0.15, an improvement from $0.49 in Q3 2024.
• For the nine months ended September 30, 2025, revenue grew by 19.5% to $13,382,304, up from $11,198,627 in the prior year.
• Nine-month gross profit increased by 74.3% to $1,357,512 (10.1% margin) from $778,780 (7.0% margin) in the prior year.
• Nine-month net loss decreased by 18.5% to $5,978,890, compared to $7,340,521 in the prior year.
• Cash and restricted cash stood at $7,354,024 as of September 30, 2025, down from $10,868,728 at December 31, 2024.
• Net working capital decreased by $2,329,926 to $13,406,883 as of September 30, 2025, from $15,736,809 at December 31, 2024.
• A joint venture, Nantong JiTRI LiqTech Green Energy Technology Co., Ltd, was established in January 2025, with a 90% ownership interest, focusing on the marine water treatment market in China.
• The joint venture received RMB 8,000,000 (approximately USD 1.2 million) in R&D funding from its partner, structured as a long-term loan with a 12% annual interest rate.
• The maturity date for senior promissory notes was extended from January 1, 2026, to May 1, 2027, with interest rates increasing to 10% from January 1, 2026, and a default rate up to 16%.
• Warrant exercise price was reduced from $5.20 to $2.00 per share, and the expiration date extended to December 31, 2029.

Sentiment

Score: 6

Explanation: The company shows significant improvements in revenue growth and gross profit, leading to a substantial reduction in net loss. Strategic moves like the China JV and debt extension are positive. However, continued cash burn, a decrease in overall cash, and identified material weaknesses in internal controls temper the positive sentiment, indicating ongoing challenges despite progress.

Positives

• Revenue increased by 53.6% for the three months and 19.5% for the nine months ended September 30, 2025, driven by liquid filtration systems (pool systems, aftermarket sales, full-scale PureFlow system) and plastics products.
• Gross profit significantly improved, moving from a loss of $209,533 in Q3 2024 to a profit of $747,878 in Q3 2025, with margin increasing from -8.5% to 19.6%.
• Net loss was nearly halved in Q3 2025, decreasing by 48.6% to $1,459,762, and reduced by 18.5% for the nine-month period.
• Operating expenses decreased by 12.6% for the three months and 6.9% for the nine months, partly due to a release of bad debt provision and R&D streamlining.
• The establishment of a joint venture in China for marine water treatment indicates strategic market expansion.
• The extension of senior promissory notes maturity to May 1, 2027, provides additional financial flexibility.
• The reduction in warrant exercise price to $2.00 and extension of expiration to December 31, 2029, could incentivize future exercises and provide capital.

Negatives

• The company continues to report a net loss, totaling $1,459,762 for Q3 2025 and $5,978,890 for the nine months ended September 30, 2025.
• Cash and restricted cash decreased by $3,514,704 from December 31, 2024, to September 30, 2025, indicating continued cash burn.
• Net working capital decreased by $2,329,926 over the nine-month period.
• Deliveries of Diesel Particulate Filters (DPFs) decreased, and write-offs for slow-moving DPF inventory impacted gross profit.
• Total liabilities increased from $15,773,387 at December 31, 2024, to $17,519,010 at September 30, 2025.
• The interest rate on senior promissory notes will increase to 10% from January 1, 2026, with a potential default rate up to 16%, increasing future interest expense.
• Material weaknesses in internal controls over financial reporting were identified, indicating potential risks to financial reporting accuracy.

Risks

• Potential adverse effects on operations and financial performance from armed conflicts or geopolitical tensions.
• Potential adverse impact of global trade restrictions, tariffs (especially with China and EU), and geopolitical tensions on business and supply chain.
• Potential negative impact of prolonged energy market volatility and supply disruptions on the business.
• Potential adverse impact of health crises, pandemics, and public health emergencies on business, financial condition, and operations.
• Dependence on a few major customers and the ability to maintain future relationships with them.
• Ability to operate with financial stability and secure access to external financing and adequate liquidity.
• Ability to secure and source supplies of raw materials and key components in due time and at competitive prices.
• Ability to achieve revenue growth and penetrate new markets.
• Dependence on the expertise and experience of the management team and the retention of key employees.
• Reliance and access to qualified personnel to expand the business.
• Ability to adapt to potentially adverse changes in legislative, regulatory, and political frameworks.
• Changes in interest rates or tightening of debt capital markets.
• Changes in emissions and environmental regulations, and potential further tightening of emission standards.
• Exposure to potentially adverse tax consequences.
• Ability to compete under changing governmental standards by which products are evaluated.
• Financial impact from the fluctuation and volatility of foreign currencies.
• Potential monetary costs of defending intellectual property rights.
• Ability to successfully protect intellectual property rights and manufacturing know-how.
• Possibility of a dispute over intellectual property developed in conjunction with third parties.
• Possibility of costly litigation that could limit or cancel intellectual property rights or divert management efforts.
• Potential negative impact to product sales caused by technological advances of competitors.
• Potential liability for environmental harm or damages resulting from technical faults or failures of products.
• Difficulty for U.S. investors to enforce judgments obtained in U.S. courts due to significant assets and some officers/directors being located outside the U.S.
• Possibility of not being able to develop and maintain an effective system of internal control over financial reporting, leading to inaccurate financial reports.
• Possibility of breaches in the security of information technology systems.
• Liability risk of compliance to environmental laws and regulations.
• Potential negative impact of more stringent environmental laws and regulations as governmental agencies seek to improve minimum standards.
• 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, particularly with regard to China and EU, may have a material adverse impact on the business, results of operations, or financial condition.

Future Outlook

Management believes that current cash on hand and ongoing cash generated from operations will be sufficient to cover capital requirements and committed investments for the next 12 months. This outlook is subject to significant uncertainties, including global macroeconomic issues, trade wars, geopolitical instability, commodity price volatility, and supply chain disruptions. The company acknowledges potential reduced or changed demand for products and services if a global recession, structural regulatory shifts, or escalating interest rates and tariffs adversely impact customer investment decisions.

Management Comments

• The favorable change in revenue 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.
• The increase in gross profit 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.
• The decrease in selling expenses is related to the release of a bad debt provision due to aging improvements as well as lower depreciation, partially offset by costs associated with the newly formed joint venture in China.
• The decrease in general and administrative expenses 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.
• The decrease in research and development expenses 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.
• 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, though these cannot be considered fully remediated until applicable controls operate for a sufficient period.

Industry Context

LiqTech operates in the clean technology sector, focusing on ceramic silicon carbide filters and membranes for gas and liquid purification. The growth in liquid filtration systems, particularly for pool and marine water treatment, aligns with increasing global demand for water purification solutions and stricter environmental regulations. The establishment of a joint venture in China specifically for the marine water treatment market positions the company to capitalize on a significant and growing regional demand for environmental compliance in shipping. The decline in DPF sales suggests a potential shift in market dynamics or competitive pressures within the diesel emissions control segment, possibly due to evolving automotive technologies or regulatory changes.

Comparison to Industry Standards

• NA The filing does not provide specific comparable company data or industry benchmarks to assess results against global standards or competitors.

Corporate Governance

Legal Proceedings

• The company may be involved in litigation relating to claims arising out of operations in the normal course of business, as disclosed in Note 9 Agreements And Commitments.

Related Party Transactions

• A long-term loan of RMB 8,000,000 (approximately USD 1.2 million) was received from the joint venture partner for the Nantong JiTRI LiqTech Green Energy Technology Co., Ltd JV. This loan bears a fixed annual interest rate of 12% and has no set maturity date, convertible into equity at LiqTech's discretion.

Stakeholder Impact

• Shareholders: Reduced net loss and revenue growth are positive, but continued cash burn and internal control weaknesses pose risks. The debt extension and warrant repricing could impact future equity dilution and debt servicing costs.
• Employees: Streamlining of R&D function led to a reduction in the average number of employees engaged in R&D. Hiring additional finance employees is part of internal control remediation.
• Customers: Increased sales in liquid filtration and plastics suggest positive customer reception for these products. Decreased DPF deliveries might indicate shifting customer demand in that segment.
• Creditors: The extension of senior promissory notes maturity provides more time for repayment, but the increased interest rate from 2026 and potential default rate increase the cost of debt.

Next Steps

• Continue efforts to develop and reinforce new products and applications to provide clean water and reduce pollution.
• Better penetrate existing end markets where the value proposition is strong, targeting new customers and working with distributors/partners.
• Develop new end markets for core products and applications, evaluating opportunities for strategic partners.
• Remediate identified material weaknesses in internal controls over financial reporting by dedicating resources, enhancing controls, implementing a new ERP system, updating Delegation of Authority, and redesigning/documenting processes.

Key Dates

Recommendation

LiqTech International shows promising signs of operational improvement with significant revenue growth and a substantial reduction in net losses, driven by strong performance in its liquid filtration and plastics segments. Strategic initiatives like the China JV and the extension of debt maturity provide a longer runway. However, the company continues to operate at a net loss, experiences ongoing cash burn, and has identified material weaknesses in its internal controls, which are critical concerns. The increased interest rate on senior debt from 2026 will also add to future expenses. While the positive trends are encouraging, the persistent financial challenges and governance issues warrant a 'hold' recommendation, suggesting investors monitor the company's progress on profitability, cash flow, and internal control remediation before making further investment decisions.

Keywords

LiqTech International, LIQT, SEC Filing, 10-Q, Quarterly Report, Financial Results, Clean Technology, Water Filtration, Ceramic Filters, Silicon Carbide, Diesel Particulate Filters, DPF, Plastics Products, Marine Water Treatment, Joint Venture, Nantong JiTRI LiqTech Green Energy Technology, Financial Performance, Revenue Growth, Net Loss Reduction, Gross Profit Improvement, Liquidity, Working Capital, Debt Extension, Warrant Repricing, Internal Controls, Risk Factors, Environmental Technology