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. 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. We assemble our marine water treatment systems in China with silicon carbon membranes delivered from 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, US and Nantong, China.
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.
● Optimization of operation efficiency. We focus on sales & operations planning, supply chain stability and product cost reduction.
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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 June 30, 2026, and June 30, 2025
The following table sets forth our revenues, expenses, and net loss for the three months ended June 30, 2026, and 2025:
Three Months Ended June 30,
Period to Period Change
As a % As a % Percent
2026 of Sales 2025 of Sales Variance %
Revenue $ 4,363,752 100.0 % $ 4,957,489 100.0 % $ (593,737 ) (12.0 )%
Cost of goods sold 3,998,213 91.6 4,472,911 90.2 (474,698 ) (10.6 )
Gross Profit (Loss) 365,539 8.4 484,578 9.8 (119,039 ) (24.6 )
Operating Expenses
Selling expenses 835,836 19.2 812,568 16.4 23,268 2.9
General and administrative expenses 1,589,775 36.4 1,539,323 31.1 50,452 3.3
Research and development expenses 271,745 6.2 242,556 4.9 29,189 12.0
Total Operating Expenses 2,697,356 61.8 2,594,447 52.3 102,909 4.0
Loss from Operation (2,331,817 ) (53.4 ) (2,109,869 ) (42.6 ) (221,948 ) 10.5
Other Income (Expense)
Interest and other income 22,378 0.5 64,605 1.3 (42,227 ) (65.4 )
Interest expense (231,160 ) (5.3 ) (63,466 ) (1.3 ) (167,694 ) 264.2
Amortization of debt discount (401,951 ) (9.2 ) (84,318 ) (1.7 ) (317,633 ) 376.7
Gain (loss) on foreign currency transactions (94,457 ) (2.2 ) 34,060 0.7 (128,517 ) (377.3 )
Gain (loss) on disposal of property and equipment (15,058 ) (0.3 ) (2,158 ) (0.0 ) (12,900 ) 597.8
Total Other Income (Expense) (720,248 ) (16.5 ) (51,277 ) (1.0 ) (668,971 ) 1,304.6
Loss Before Income Taxes (3,052,065 ) (69.9 ) (2,161,146 ) (43.6 ) (890,919 ) 41.2
Income tax benefit (370 ) (0.0 ) (360 ) (0.0 ) (10 ) 2.8
Net Loss $ (3,051,695 ) (69.9 )% $ (2,160,786 ) (43.6 )% $ (890,909 ) 41.2 %
Net Loss attributable to Noncontrolling Interest (35,330 ) (0.8 ) (8,901 ) (0.2 ) (26,429 ) 296.9
Net Loss attributable to LiqTech International, Inc. (3,016,365 ) (69.1 ) (2,151,885 ) (43.4 ) (864,480 ) 40.2
Revenues
Revenue for the three months ended June 30, 2026 was $4,363,752 compared to $4,957,489 for the same period in 2025, representing a decrease of $593,737, or 12.0%. 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 were on par with last year, while Components declined during the period.
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Gross Profit (Loss)
Gross profit for the three months ended June 30, 2026 was $365,539 (representing a gross profit margin of 8.4%) compared to a gross profit of $484,578 (representing a gross profit margin of 9.8%) for the same period in 2025, marking an decline of $119,039, or 24.6%. This decline was driven by the decrease in revenue, mix towards, less high value system sales, lower utilization of our manufacturing capacity to preserve costs partly offset by procurement effects. Included in the gross profit was depreciation of $274,530 and $412,291 for the three months ended June 30, 2026, and 2025, respectively.
Expenses
Total operating expenses for the three months ended June 30, 2026 were $2,697,356, representing an increase of $102,909, or 4.0%, compared to $2,594,447 for the same period in 2025. Approximately 60% of the increase continue to be related to foreign exchange rate developments, as the average USD/DKK exchange rate for the three months ended June 30, was 6.43 in 2026 and 6.58 in 2025.
Selling expenses for the three months ended June 30, 2026 were $835,836 compared to $812,568 for the same period in 2025, representing an increase of $23,268, or 2.9%. 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 June 30, 2026 were $1,589,775 compared to $1,539,323 for the same period in 2025, representing an increase of $50,452, or 3.3%. Adjusting for foreign exchange rate developments, expenses remained stable and below general inflation, as filling 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 $230,552 for the three months ended June 30, 2026, and 2025, respectively.
Research and development expenses for the three months ended June 30, 2026 were $271,745 compared to $242,556 for the same period in 2025, representing an increase of $29,189, or 12.0%. The increase was primarily attributed to membrane development costs and cost related to development of Marine systems and Pool systems.
Other Income (Expenses)
Other expenses for the three months ended June 30, 2026 were $720,248 compared to other expenses of $51,277 for the comparable period in 2025, representing an increase of $668,971, or 1304.6%. The change was primarily attributable to amortization of debt discount, accrued interests on the senior promissory notes and losses on foreign currency transactions for the three months ended June 30, 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 June 30, 2026 of $3,051,695 compared to $2,160,786 for the comparable period in 2025, representing an increase in net loss of $890,909, or 41.2%.
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Comparison of the Six Months Ended June 30, 2026, and June 30, 2025
The following table sets forth our revenues, expenses, and net loss for the six months ended June 30, 2026, and 2025:
Six Months Ended June 30,
Period to Period Change
As a % As a % Percent
2026 of Sales 2025 of Sales Variance %
Revenue $ 8,500,072 100.0 % $ 9,575,030 100.0 % $ (1,074,958 ) (11.2 )%
Cost of goods sold 7,740,789 91.1 8,965,396 93.6 (1,224,607 ) (13.7 )
Gross Profit (Loss) 759,283 8.9 609,634 6.4 149,649 24.5
Operating Expenses
Selling expenses 1,816,510 21.4 1,530,584 16.0 285,926 18.7
General and administrative expenses 3,003,920 35.3 2,901,569 30.3 102,351 3.5
Research and development expenses 547,879 6.4 472,679 4.9 75,200 15.9
Total Operating Expenses 5,368,309 63.2 4,904,832 51.2 463,477 9.4
Loss from Operation (4,609,026 ) (54.2 ) (4,295,198 ) (44.9 ) (313,828 ) 7.3
Other Income (Expense)
Interest and other income 39,235 0.5 133,356 1.4 (94,121 ) (70.6 )
Interest and other expense (440,224 ) (5.2 ) (111,749 ) (1.2 ) (328,475 ) 293.9
Amortization of debt discount (489,455 ) (5.8 ) (252,348 ) (2.6 ) (237,107 ) 94.0
Gain (loss) on foreign currency transactions (263,013 ) (3.1 ) 69,576 0.7 (332,589 ) (478.0 )
Gain (loss) on disposal of property and equipment (15,058 ) (0.2 ) (63,464 ) (0.7 ) 48,406 (76.3 )
Total Other Expense (1,168,515 ) (13.7 ) (224,629 ) (2.3 ) (943,886 ) 420.2
Loss Before Income Taxes (5,777,541 ) (68.0 ) (4,519,827 ) (47.2 ) (1,257,714 ) 27.8
Income Tax Benefit (747 ) (0.0 ) (699 ) (0.0 ) (48 ) 6.9
Net Loss $ (5,776,794 ) (68.0 )% $ (4,519,128 ) (47.2 )% $ (1,257,666 ) 27.8 %
Net Loss attributable to Noncontrolling Interest (50,317 ) (0.6 ) (15,851 ) (0.2 ) (34,466 ) 217.4
Net Loss attributable to LiqTech International, Inc. (5,726,477 ) (67.4 ) (4,503,277 ) (47.0 ) (1,223,200 ) 27.2
Revenues
Revenue for the six months ended June 30, 2026 was $8,500,072 compared to $9,575,030 for the same period in 2025, representing a decrease of $1,074,958, or 11.2%. The decrease was mainly 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 increased while Components declined during the period.
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Gross Profit (Loss)
Gross profit for the six months ended June 30, 2026 was $759,283 (representing a gross profit margin of 8.9%) compared to a gross profit of $609,634 (representing a gross profit margin of 6.4%) for the same period in 2025, marking an increase of $149,649, or 24.5%. 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 $604,536 and $804,583 for the six months ended June 30, 2026, and 2025, respectively.
Expenses
Total operating expenses for the six months ended June 30, 2026 were $5,368,309, representing an increase of $463,477, or 9.4%, compared to $4,904,832 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 six months ended March 31st, was 6.40 in 2026 and 6.85 in 2025.
Selling expenses for the six months ended June 30, 2026 were $1,816,510 compared to $1,530,584 for the same period in 2025, representing an increase of $285,926, or 18.7%. 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 six months ended June 30, 2026 were $3,003,920 compared to $2,901,569 for the same period in 2025, representing an increase of $102,351, or 3.5%. Adjusting for foreign exchange rate developments, expenses remained stable and well 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 $436,650 and $471,797 for the six months ended June 30, 2026, and 2025, respectively.
Research and development expenses for the six months ended June 30, 2026 were $547,879 compared to $472,679 for the same period in 2025, representing an increase of $75,200, or 15.9%. The increase was primarily attributed to membrane development costs and cost related to development of Marine systems and Pool systems.
Other Income (Expenses)
Other expenses for the six months ended June 30, 2026 were $1,168,515 compared to other expenses of $224,629 for the comparable period in 2025, representing an increase of $943,886, or 420.2%. The change was primarily attributable to losses on foreign currency transactions, lower interest income, and accrued interests on the senior promissory notes, and higher amortization of debt discount for the six months ended June 30, 2026.
Net Loss
As a result of the cumulative effect of the factors described above, we reported a net loss for the six months ended June 30, 2026 of $5,776,794 compared to $4,519,128 for the comparable period in 2025, representing an increase in net loss of $1,257,666, or 27.8%.
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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 June 30, 2026, we had cash of $15,655,731 and net working capital of $21,368,974, and on December 31, 2025, we had cash of $5,070,385 and net working capital of $11,237,788. On June 30, 2026, our net working capital had increased by $10,131,186 compared to December 31, 2025, mainly as a result of the capital raise.
Based on current projections, which are subject to significant uncertainties - including the duration and severity of global macroeconomic issues, trade wars and associated tariffs, geopolitical instability, commodity price volatility, and continued global supply chain disruptions-the Company believes that the cash on hand, as well as ongoing cash generated from operations, will be sufficient to cover its capital requirements and committed investments for the next 12 months.
While the Company anticipates that its proactive measures will be sufficient to protect the business over the coming 12 months, the Company cannot predict the specific duration and severity of the unfavorable market dynamics that may adversely affect the business. For example, in the future, the Company may experience reduced or changed demand for its products and services, especially if there is a global recession, structural shift in regulation, or escalating interest rates and tariffs.
On May 22, 2026, the Company issued and sold 9.09% original issue discount promissory notes in an aggregate principal amount of $1.1 million to affiliates of Bleichroeder L.P. and Laurence W. Lytton for aggregate cash proceeds of $1.0 million. The notes had a two-month term and did not bear interest prior to maturity. If not repaid at maturity, the notes bear interest at 10% per annum, increasing by 1% for each month they remain outstanding, up to a maximum of 16% per annum. The proceeds from the notes were used for working capital and general corporate purposes.
On June 4, 2026, the Company entered into an underwriting agreement with Konik Capital Partners, LLC, a division of T.R. Winston & Company, LLC, relating to the issuance and sale of 20,000,000 shares of the Company’s common stock at a public offering price of $1.00 per share. The offering closed on June 8, 2026, resulting in net proceeds to the Company of approximately $18.0 million, after deducting underwriting discounts and commissions and estimated offering expenses. In connection with the offering, the Company issued to the underwriter warrants to purchase up to 800,000 shares of common stock at an exercise price of $1.25 per share. The underwriter warrants are exercisable beginning 180 days following the commencement of sales in the offering and expire five years following such commencement date.
In connection with the closing of the offering, the Company also issued 3,000,000 shares of common stock to affiliates of Bleichroeder L.P., 21 April Fund, L.P. and 21 April Fund, Ltd. in exchange for the cancellation of $3.0 million of outstanding senior promissory notes in a concurrent private placement. The remaining $3.0 million principal amount outstanding under the senior promissory notes was repaid in cash from the proceeds of the offering. Accordingly, the full $6.0 million outstanding principal amount under the senior promissory notes was settled in connection with the transaction through a combination of $3.0 million in common stock and $3.0 million in cash.
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Cash Flows
Six months ended June 30, 2026 compared to six months ended June 30, 2025
Cash flows used in operating activities for the six months ended June 30, 2026 were $5,037,030 representing an increase of $2,129,194 compared to cash flows used in operating activities of $2,907,836 for the six months ended June 30, 2025. The cash flows used in operating activities for the period consist mainly of the net loss of $5,776,794, adjusted for depreciation and other non-cash-related items of $1,916,422, an increase in accounts receivables of $1,955,382, prepaid expenses and current account payables of $398,619, and partially offset by an increase in accrued expenses of $679,736.
Cash flows used in investing activities were $257,552 for the six months ended June 30, 2026 as compared to cash flows used in investing activities of $47,885 for the six months ended June 30, 2025, representing a change of $209,637. The investing activities include general purchases of production equipment to continue optimizing production throughput and the internal production of rental assets. For the six months ended June 30, 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 $15,760,658 for the six months ended June 30, 2026 compared to cash flows used by financing activities of $856,496 for the six months ended June 30, 2025, representing a change of $14,904,162. Financing activities primarily consisted of proceeds from the issuance of common stock, net of discounts and commissions of $18,106,656, and proceeds from a $1,000,000 shareholder loan, being partly offset by the repayment of the $3,000,000 note payable. 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 June 30, 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.