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LIQTECH INTERNATIONAL, INC.

(LIQT)
  Report
Real-time Estimate Cboe BZX  -  02:54 2022-10-04 pm EDT
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LIQTECH INTERNATIONAL INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/11/2022 | 04:20pm EDT
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 March 31, 2022 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. For more than two decades, we have
developed and manufactured products of re-crystallized silicon carbide. We
specialize in three business areas: ceramic membranes for liquid filtration
systems, diesel particulate filters (DPFs) to control soot exhaust particles
from diesel engines, and plastic components for usage in various industries.
Using nanotechnology, we develop proprietary products using patented silicon
carbide technology. Our products are based on unique silicon carbide membranes
that facilitate new applications and improve existing technologies. We market
our products from our office in Denmark and through local representatives and
distributors. The products are shipped directly to customers from our production
facilities in 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, including
LiqTech USA, Inc., a Delaware corporation ("LiqTech USA"), which owns all of the
outstanding equity interest in LiqTech NA, Inc., a Delaware corporation
("LiqTech NA") and in LiqTech Holding A/S, a Danish limited company, organized
under the Danish Act on Limited Companies of the Kingdom of Denmark ("LiqTech
Holding"), together with its direct wholly owned subsidiaries LiqTech Ceramics
A/S ("LiqTech Ceramics"), LiqTech Water A/S ("LiqTech Water"), LiqTech Plastics
A/S ("LiqTech Plastics"), LiqTech Water Projects A/S ("LiqTech Water Projects"),
LiqTech Emission Control A/S ("LiqTech Emission Control"), all Danish limited
companies organized under the Danish Act on Limited Companies of the Kingdom of
Denmark, and LiqTech Environment Technologies (China) Co., Ltd. ("LiqTech
China"), a Chinese company organized under the Chinese Act on Limited Companies
in the Peoples Republic of China. Collectively, LiqTech USA, LiqTech NA, LiqTech
Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Water
Projects, LiqTech Emission Control and LiqTech China are referred to herein as
our "Subsidiaries".


At present, we conduct our operations in the Kingdom of Denmark. Our Danish operations are located in the Copenhagen area, in Hobro, and in Aarhus.



Our Strategy



Our strategy is to leverage our core competencies in material science, advanced
filtration, and systems integration, creating differentiated products with
compelling value propositions to penetrate attractive end markets with
regulatory and ESG tailwinds. 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 scrubber

technology providers, shipowners, and ship operators as well as tailored

filtration systems for oil & gas 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, and

global chemical industries.

? Better penetrate existing end markets where our value proposition is strong.

We have successfully sold products and installed systems into several end

markets--including automotive/transportation, clean water and pool filtration,

marine, industrial wastewater, and oil & gas. We are focused on targeting and

activating 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 partner with strategic customers to
    perfect new applications and validate associated value propositions.




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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.

The following table sets forth our revenues, expenses and net loss for the three months ended June 30, 2022 and 2021:



                                                       Three Months Ended June 30,
                                                                                             Period to Period
                                                                                                  Change
                                           As a %                          As a %                         Percent
                            2022          of Sales          2021          of Sales        Variance           %
Revenue                    5,018,292          100.0 %      4,016,563          100.0 %      1,001,729          24.9 %
Cost of Goods Sold         4,870,152           97.0        3,695,853           92.0        1,174,299          31.8
Gross Profit                 148,140            3.0          320,710            8.0         (172,570 )       (53.8 )

Operating Expenses
Selling expenses           1,196,513           23.8        1,202,586           29.9           (6,073 )        (0.5 )
General and
administrative
expenses                   1,265,543           25.2        1,247,132           31.0           18,411           1.5
Research and
development expenses         490,836            9.8          434,629           10.8           56,207          12.9
Restructuring costs        1,788,827           35.6                -              -        1,788,827             -
Total Operating
Expenses                   4,741,719           94.5        2,884,347        

71.8 1,857,372 64.4

Loss from Operation (4,593,579 ) (91.5 ) (2,563,637 )

  (63.8 )     (2,029,942 )        79.2

Other Income
(Expense)
Interest and other
income                       342,624            6.8                -              -          342,624             -
Interest (expense)          (159,557 )         (3.2 )       (215,598 )         (5.4 )         56,041         (26.0 )
Amortization
discount, Notes           (1,922,618 )        (38.3 )       (251,804 )         (6.3 )     (1,670,814 )       663.5
Gain (loss) on
currency transactions       (342,202 )         (6.8 )        (83,696 )         (2.1 )       (258,506 )       308.9
Gain on lease                153,575            3.1                -              -          153,575             -
termination
Gain (loss) on sale
of fixed assets                  661              -            1,134              -             (473 )       (41.7 )
Total Other Income
(Expense)                 (1,927,517 )        (38.4 )       (549,964 )      

(13.7 ) (1,377,553 ) (250.5 )


Loss Before Income
Taxes                     (6,521,096 )       (129.9 )     (3,113,601 )        (77.5 )     (3,407,495 )       109.4
Income Tax Benefit           (14,037 )         (0.3 )        (15,493 )         (0.4 )          1,456          (0.1 )

Net Loss                  (6,507,059 )       (129.7 )     (3,098,108 )        (77.1 )     (3,408,951 )       110.0




Revenue



Revenue for the three months ended June 30, 2022 was $5,018,292 compared to
$4,016,563 for the same period in 2021, representing an increase of $1,001,729,
or 25%. The increase was particularly attributed to an increase in sales of
liquid filters and water treatment systems of $1,064,007, partly offset by a
decrease in sales of development projects of $83,204. Sales of DPFs and Plastics
components were comparable to the same period in 2021, reflecting stable
activity amid volatile market conditions and more recently, geopolitical unrest
and macroeconomic uncertainty impacting demand.



Gross Profit



Gross profit for the three months ended June 30, 2022, was $148,140 compared to
gross profit of $320,710 for the same period in 2021, representing a decrease of
$172,570. The decrease in gross profit was mainly caused by reduced
profitability in our Ceramics business driven by lower share of ceramic
membranes, lost productivity linked to quality issues, and finally negative
impact from rising input cost inflation associated with the production of our
silicon carbide products, more specifically increased electricity and raw
material prices, labor cost inflation, and general price increases on freight
and logistic services. This was partly offset by an increase in system sales
with deliveries in both the Middle East and Europe, coupled with elevated
profitability from sales of plastics components, systems spare-parts, and
general commission activities. Included in the gross profit was depreciation of
$473,697 and $496,049 for the three months ended June 30, 2022 and 2021,
respectively.



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Expenses


Total operating expenses for the three months ended June 30, 2022 were $4,741,719, representing an increase of $1,857,372, or 64%, compared to $2,884,347 for the same period in 2021, mainly driven by this quarter's restructuring costs of $1,788,827.




Selling expenses for the three months ended June 30, 2022 of $1,196,513 compared
to $1,202,586 for the same period in 2021, representing a decrease of $6,073, or
1%. The current quarter was negatively impacted by a bad debt provision of
approximately $150,000 pertaining to a European Ceramics client, offset by cost
reductions associated with direct sales and consulting activities.



General and administrative expenses for the three months ended June 30, 2022,
were $1,265,543 compared to $1,247,132 for the same period in 2021, representing
an increase of $18,411, or 2%. Included in general and administrative expenses
was increased cost associated with the CFO and CEO transition and non-cash
compensation of $221,472 and $125,076 for the three months ended June 30, 2022,
and 2021, respectively. Notably, the second quarter general and administrative
expenses have decreased by $650,974 compared to the first quarter, which was
mainly driven by project management and leasehold expenses in China, coupled
with the implementation of a new ERP platform and general recruitment costs, all
underpinned by the Company's cost reduction efforts.



The following is a summary of non-cash compensation:



                                                              For the Three Months Ended
                                                              June 30,            June 30,
                                                                2022                2021

Compensation for vesting of restricted stock awards issued to the Board of Directors

                           $       51,125       $     49,375
Compensation for vesting of restricted stock awards
issued to management                                              170,347             75,701
Total Non-Cash Compensation                                $      221,472       $    125,076




Research and development expenses for the three months ended June 30, 2022,
were $490,836 compared to $434,629 for the same period in 2021, representing an
increase of $56,207, or 13%. The increase represents the completion of several
development projects during the quarter mainly related to improvement and
optimization of filtration systems.



Restructuring costs for the three months ended June 30, 2022, were $1,788,827
compared to $0 for the same period in 2021. During the quarter, the Company
completed a restructuring program to reduce costs, decrease operating losses and
improve cash flow. Total restructuring and restructuring-related net charges
pursuant to this program were $1,788,827 (see Note 3).



Other Income (Expenses)



Other Income (Expenses) for the three months ended June 30, 2022 was
$(1,927,517) compared to $(549,964) for the comparable period in 2021,
representing a negative variance of $1,377,553. This change was mainly related
to the repayment of the Convertible Note issued in April 2021, with $1,922,618
for the amortization discount and $121,458 for interest expenses. Further, Other
Income (Expenses) was positively affected by the receipt of COVID-19 grants and
the gain on lease termination related to the China closings, offset by a loss on
currency transactions due to a less favorable DKK/USD exchange rate during the
period.



Net Loss



Net loss for the three months ended June 30, 2022, was $(6,507,059) compared to
$(3,098,108) for the comparable period in 2021, representing an increase in net
loss of $3,408,951.


This change was primarily attributable to this quarter's recognized restructuring costs of $1,788,827 and other expenses including interest and amortization discount primarily related to the repayment of the Convertible Note.




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Comparison of the Six Months Ended June 30, 2022 and June 30, 2021

The following table sets forth our revenues, expenses and net loss for the six months ended June 30, 2022 and 2021:



                                                         Six Months Ended June 30,
                                                                                              Period to Period
                                                                                                   Change
                                            As a %                          As a %                         Percent
                            2022           of Sales          2021          of Sales        Variance           %
Revenue                     8,655,528          100.0 %      8,014,440          100.0 %        641,088           8.0 %
Cost of Goods Sold          8,261,847           95.5        7,579,118           94.6          682,732           9.0
Gross Profit                  393,681            4.5          435,325            5.4          (41,644 )        (9.6 )

Operating Expenses
Selling expenses            2,256,461           26.1        2,212,084           27.6           44,377           2.0
General and
administrative
expenses                    3,182,060           36.8        2,721,802           34.0          460,258          16.9
Research and
development expenses        1,093,573           12.6          872,236           10.9          221,337          25.4
Restructuring costs         1,788,827           20.7                -              -        1,788,827             -
Total Operating
Expenses                    8,320,921           96.1        5,806,122       

72.4 2,514,799 43.3

Loss from Operation (7,927,240 ) (91.6 ) (5,370,797 )

   (67.0 )     (2,556,443 )        47.6

Other Income
(Expense)
Interest and other
income                        342,729            4.0                -              -          342,624             -
Interest (expense)           (366,018 )         (4.2 )       (256,017 )         (3.2 )        110,001          43.0
Amortization
discount, Notes            (2,219,956 )        (25.6 )       (251,804 )         (3.1 )     (1,968,152 )       781.6
Gain (loss) on
currency transactions        (266,209 )         (3.1 )        287,988            3.6         (554,197 )      (192.4 )
Gain on lease                 153,575            1.8                -              -          153,575             -
termination
Gain (loss) on sale
of fixed assets                   661              -            1,134              -             (473 )       (41.7 )
Total Other Income
(Expense)                  (2,355,244 )        (27.2 )       (218,699 )     

(2.7 ) (2,136,525 ) 976.9


Loss Before Income
Taxes                     (10,282,464 )       (118.8 )     (5,589,496 )        (69.7 )     (4,692,968 )        84.0
Income Tax Benefit            (28,981 )          0.3          (31,959 )          0.4            2,978          (9.3 )

Net Loss                  (10,253,483 )       (118.5 )     (5,557,537 )        (69.3 )     (4,695,946 )        84.5




Revenue



Revenue for the six months ended June 30, 2022, was $8,655,528 compared to
$8,014,440 for the same period in 2021, representing an increase of $641,088, or
8%. The increase was particularly attributed to an increase in sales of liquid
filters and water treatment systems of $499,661, and engineered plastic products
of $343,906, partly offset by lower share of completed development projects of
$153,125 and Ceramics products of $49,355 due to lower share of direct membrane
sales and the continued negative impact from the USD appreciation against the
EURO and DKK.



Gross Profit



Gross profit for the six months ended June 30, 2022, was $393,681 compared to
gross profit of $435,325 for the same period in 2021, representing a decrease of
$41,644. The decrease in gross profit was mainly caused by reduced profitability
from the Ceramics business due to unfavorable mix further exacerbated by
continued input cost inflation and the negative impact from the USD
appreciation, but also the delivery of a significant water treatment system at
comparatively lower margin during the second quarter with subsequent service and
commissioning revenue expected to elevate the full project margin. This was
partly offset by continued resilient contribution from both the sale of plastics
components, systems spare-parts, and general commission activities during the
period. Included in the gross profit was depreciation of $969,746 and $967,055,
for the six months ended June 30, 2022, and 2021, respectively.



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Expenses



Total operating expenses for the six months ended June 30, 2022 were $8,320,921,
representing an increase of $2,514,799, or 43%, compared to $5,806,122 for the
same period in 2021, mainly driven by the second quarter restructuring costs of
$1,788,827.



Selling expenses for the six months ended June 30, 2022 of $2,256,461 compared
to $2,212,084 for the same period in 2021, representing an increase of $44,377,
or 2%. The current increase was a combination of increased costs associated with
intensified direct sales efforts, consulting service engagements, and direct
marketing activities during the period, combined with a bad debt provision
booked in the second quarter.



General and administrative expenses for the six months ended June 30, 2022, were
$3,182,060 compared to $2,721,802 for the same period in 2021, representing an
increase of $460,258, or 17%. The increase was mainly driven by increased
headcounts and continued spend associated with the China capacity expansion in
the first quarter. Included in general and administrative expenses for the
period was also increased cost associated with recent management changes as well
as and non-cash compensation of $400,250 and $227,464 for the six months ended
June 30, 2022, and 2021, respectively.



The following is a summary of non-cash compensation:



                                                              For the Six Months Ended
                                                             June 30,           June 30,
                                                               2022               2021

Compensation for vesting of restricted stock awards issued to the Board of Directors

                           $     102,250       $    98,750
Compensation for vesting of restricted stock awards
issued to management                                             297,999           128,713
Total Non-Cash Compensation                                $     400,250       $   227,464



Research and development expenses for the six months ended June 30, 2022, were $1,093,573 compared to $872,236 for the same period in 2021, representing an increase of $221,337, or 25%. The increase represents the completion of several development projects during the period.

Restructuring costs for the six months ended June 30, 2022, were $1,788,827 compared to $0 for the same period in 2021. The restructuring program was executed in the second quarter.



Other Income (Expenses)



Other Income (Expenses) for the six months ended June 30, 2022, was $(2,355,244)
compared to $(218,699) for the comparable period in 2021, representing a
negative variance of $2,136,525. The variance was mainly related to the
Convertible including interest and cost related to the repayment with a combined
expense of $1,968,152 compared to the same period in 2021. Further, the period
was negatively impacted by loss on currency transactions of $266,209 compared to
a gain in the same period last year of $287,988, due to a less favorable DKK/USD
exchange rate, partly offset by the receipt of COVID-19 grants in the Danish
entities.



Net Loss



Net loss for the six months ended June 30, 2022, was $(10,253,483) compared to
$(5,557,537) for the comparable period in 2021, representing an increase in net
loss of $4,695,946.


This change was primarily attributable to the operating losses for the period, second quarter restructuring charges, and refinancing cost related to the repayment of the Convertible Note.

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Liquidity and Capital Resources




Based on the prolonged negative effects of the global pandemic, continued market
volatility and geopolitical unrest pertaining to the Russia and Ukraine
conflict, the Company is unable to predict the full impact this will have on our
long-term financial condition, results of operations, liquidity, and cash flows.
The Company has planned and executed on decisive measures in the first half of
2022 to help safeguard the business and its financial position by reducing cost,
headcount, and overall capex commitments, which together with the successful
completion of the $26.45 million public offering of common stock and pre-funded
warrants, substantially improves the near-term liquidity position of the
Company.



Furthermore, in June the Company completed the refinancing of its $15 million
Convertible Note due in 2023, partly funded by the issuance of the new $6
million Senior Promissory Notes due in June 2024 along with the proceeds from
the public offering. The Senior Promissory Notes are interest-free, with full
redemption after 24 months.



Based on current projections, which are subject to significant uncertainties,
including the duration and severity of global macroeconomic issues, commodity
volatility, and continued global supply chain disruptions, the Company believes
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.



Continued market uncertainty and reduced order intake caused by global
macroeconomic conditions, recession, or a resurgence of the COVID-19 pandemic,
however, could unfavorably impact the Company's ability to generate positive
cash flow and thereby significantly reduce the profitability and liquidity
position.



While the Company anticipates that its proactive measures will be sufficient to
protect and fund 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 as a result of these global economic
issues and associated supply chain disruptions. In the future, the Company may
experience reduced or changed demand for its products and services, especially
if there is global recession or structural shift in regulation or demand for its
products across its core markets.



The Company has historically satisfied its capital and liquidity requirements
through offerings of equity instruments, internally generated cash from
operations and our available lines of credit. On June 30, 2022, the Company had
cash of $19,695,722 and net working capital of $25,884,809, and on December 31,
2021, the Company had cash of $17,489,380 and net working capital of
$11,199,258. The increase in working capital of $14,685,551 compared to December
31, 2021 is mainly a result of the capital raise and repayment of the
Convertible Note.



In connection with certain orders, we provide the customer a working guarantee,
a prepayment guarantee or a security bond. For that purpose, we maintain a
guaranteed credit line of EUR1,750,000 (approximately $1,820,000). The credit
line is secured by a cash deposit.



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Convertible Note



On March 24, 2021, the Company entered into a Securities Purchase Agreement with
an institutional investor pursuant to which the Company agreed to issue and sell
a $15.0 million principal amount senior Convertible Note (the "Note") due on
October 1, 2023 and 80,000 shares of common stock, $0.001 par value ("Common
Stock"), for an aggregate purchase price of $15.0 million upon the satisfaction
of the closing conditions set forth in the Securities Purchase Agreement. The
Closing occurred on April 8, 2021, and the Company issued to the Investor the
securities in connection with the Closing.



The Note is a senior, unsecured obligation of the Company, payable at 112% of
the principal amount at maturity (October 1, 2023) or earlier upon redemption or
repurchase as set forth in the Note. The Note is convertible into shares of
Common Stock pursuant to the terms of the Note, in part or in whole, from time
to time, at the election of the Investor. The initial conversion rate is
100.6749 shares of Common Stock per $1,000 of principal amount of the Note. The
conversion rate is subject to anti-dilution adjustments including for stock
dividends, splits and combinations; issuances of options, warrants or similar
rights; spin-offs and distributions of property; cash dividends or
distributions; and tender or exchange offers, in each case as further described
in and pursuant to the terms of the Note.



The Note has interest payable quarterly beginning on June 1, 2021 at a rate of 5% per annum. The number of shares issuable if the Company elects to pay interest in shares of Common Stock shall be based on the Market Price.




The Company may provide written notice to the Holder electing to convert the
entire Principal Amount of the Note if (1) the Daily VWAP per share of Common
Stock exceeds one hundred and seventy-five percent (175%) of the Conversion
Price on each of twelve (12) consecutive VWAP Trading Days beginning after
September 24, 2021; and (2) the Equity Conditions are satisfied on each of such
twelve (12) consecutive VWAP Trading Days.



Beginning on March 1, 2022, and on the first day of each calendar month
thereafter, at the election of the Investor or Holder, if applicable, the
Company shall be required to redeem $840,000 of the amounts due under the Note
in cash or Common Stock at 90% of the lesser of (i) the volume-weighted average
price ("VWAP") of the Common Stock on the trading day immediately preceding the
payment date and (ii) the average of the lowest three (3) VWAPs over the 10
trading days immediately preceding the payment date, which shall in no case be
less than the floor price of $1.75 per share. On March 1, 2022, the Company paid
the first installment of $840,000 in cash.



As of June 22, 2022, the Note, including accrued interests and all relevant obligations, was repaid in full, amounting to $13,446,875, allocated to principal repayment of $11,640,000 and contractual repayment premium of $1,806,875. During the quarter, the Company paid the second, third, and fourth installment, totaling $2,520,000, in cash according to the original payment schedule.




Senior Promissory Notes



On June 22, 2022, the Company issued and sold Senior Promissory Notes in an
aggregate principal amount of $6.0 million (the "Notes") and issued warrants to
purchase 4,250,000 shares of common stock of the Company to affiliates of
Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd. (together, the
"Purchasers"), pursuant to a note and warrant purchase agreement entered into
with the Purchasers.



The Notes have a term of 24 months and do not bear interest during this period.
If the notes are not repaid on or before the second anniversary of issuance,
however, the Notes will thereafter bear interest of 10% per annum, which will
increase by 1% each month the Notes remain unpaid, up to a maximum of 16% per
annum, payable monthly.



Additionally, as part of the transaction, the Company issued 230,000 warrants to
the placement agent. All of the warrants issued in this transaction have an
exercise price of $0.65 per share, a term of five years and are exercisable for
cash at any time.



As a result, the Company recorded an initial debt discount of $664,704 based on
the relative fair value of the warrants and notes issued. The Company determined
the fair value of the warrants by using the Black-Scholes Option Pricing Model
with the following assumptions: expected term of 2.5 years, stock price of
$0.43, exercise price of $0.65, volatility of 80.8%, risk-free rate of 3.13%,
and no forfeiture rate. The debt discount will be accreted according to the
effective interest method over the contractual term of the note. The warrants
qualified for equity classification and were reported within Additional Paid-In
Capital.



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Cash Flows


Six months ended June 30, 2022 compared to six months ended June 30, 2021




Cash provided by (used in) operating activities for the six months ended June
30, 2022 of $(11,032,241) represents a decrease of $10,121,981 compared to
$(910,259) for the six months ended June 30, 2021. For the six months ended June
30, 2022, the result is mainly attributable to the net loss for the period of
$(10,253,483) adjusted for depreciation and other non-cash-related items of
$4,274,243. Changes in assets and liabilities include increased Accounts
receivable of $660,578 and net Contract assets/liabilities of $1,358,363, with
the latter caused by delivery of a water treatment system in Q2 2022 includes an
extended payment schedule that runs until August 2025. Furthermore, Accounts
payable increased by $432,337 and Accrued expenses decreased by $178,716.



Net cash used in investing activities of $229,204 for the six months ended June
30, 2022 compared to $717,232 for the six months ended June 30, 2021,
representing a decrease of $488,028 due to limited delivery of production
equipment during the quarter, with investments confined to the purchase of
production equipment in Ballerup to relieve manufacturing bottlenecks and the
continued investment in the new ERP platform, for which full implementation is
anticipated in Q3 2022.



Cash provided from financing activities was $13,473,839 for the six months ended
June 30, 2022 compared to $14,090,829 for the six months ended June 30, 2021,
representing a decrease of $616,990. For the six-month period ended June 30,
2022, the result is mainly affected by the equity raise, generating net proceeds
of $24,453,527 from the issuance of common stock and prefunded warrants, and
proceeds of $6,000,000 from the issuance of the new Senior Promissory Notes,
offset by the full repayment of the Convertible Note issued in April 2021 of
$16,800,000.



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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 when and if 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 when and if 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: Recently Enacted Accounting Standards" in the accompanying Financial Statements.



Subsequent Events


For a description of subsequent events, see "Note 13 - Subsequent Events".

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