What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-03-31 compared with 2021-03-31 · 77 added, 78 removed, 193 unchanged (45% of the section changed)

5 unchanged sentences

as one stockholder.

Subject to Nevada law, our Board of Directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of:

We have not paid any cash dividends on our common stock and have no intention of paying any dividends on the shares of our common stock.

Subject to Nevada law, our Board of Directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends subject to:

any contractual restrictions limiting our ability to pay dividends that may be applicable at such time;

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other factors that our Board of Directors deems relevant.

Since the beginning of our fiscal year ended December 31, 2021, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.

Since the beginning of our fiscal year ended December 31, 2021, we have not repurchased any of our equity securities.

Selected Financial Data

We are not required to provide selected financial data disclosures because we are a smaller reporting company.

Not applicable. 

Management ’

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By incorporating LiqTech's SiC liquid membrane technology with its long-standing systems design experience and capabilities, the Company offers solutions to the most difficult water pollution problems.

Acquisition of BS Plastic

On August 31, 2019, the Company, through its subsidiary, LiqTech Holding, completed the acquisition of all of the issued and outstanding capital stock (the "Shares") of BS Plastic A/S, from JS Holding Risskov A/S, a Danish company ("JS Holding") controlled by Steen Simonsen.

In consideration for the Shares, JS Holding received cash consideration in the amount of DKK 9,000,000, or approximately $1,332,090 (at the exchange rate on August 31, 2019).

Further JS Holding was entitled to an additional DKK 6,000,000 or $888,060 (at the exchange rate on August 31, 2019) if certain financial targets are met with DKK 2,000,000 ($296,020) for the period July 2019 to June 2020, DKK 2,000,000 ($296,020) for the period July 2020 to June 2021 and DKK2,000,000 ($296,020) for the period July 2021 to June 2022.

In July 2020 it was agreed between LiqTech Holding and JS Holding that the contingent earn-out was replaced by fixed and final agreement to pay DKK 2,000,000 in July 2020 and DKK 2,000,000 in July 2021 without any conditions.

2021 Developments

On January 2, 2020 the Company announced the successful installation of a new customized furnace for use in the manufacture of the Company’s proprietary silicon carbide membrane filters.

The new furnace has throughput that will more than triple the Company’s existing furnace capacity due to its size and efficiency.

On May 21, 2020 the Company announced that it had entered into a definitive securities purchase agreement with certain institutional investors.

The Private Placement consisted of common stock and pre-funded warrants totaling 1.6 million shares issued to the investors at $5.00 per share, resulting in aggregate gross proceeds of $8 million to the Company.

On August 26, 2020 the Company announced the appointment of Richard Meeusen to its Board of Directors.

On November 9, 2020 the Company announced the launch of its next-generation membrane with a pore size of 60 nanometers.

On March 24, 2021 the Company entered into a securities purchase agreement (the “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 due 2023 (the “Note”) and an aggregate of 80,000 shares of commons stock (together with the Note, the “Securities”).

The Securities Purchase Agreement provides that the net proceeds from the sale of the Securities shall be used for general corporate purposes, including working capital and potential acquisitions.

On August 20, 2021, the Company entered into a new agreement regarding the provision of LiqTech’s water filtration system for an offshore deep-sea drilling application within the European oil & gas market.

On September 23, 2021, the Company entered into a Lease Agreement through its wholly-owned subsidiary LiqTech Emission Control, for a minimum term of eight years, with Plainvim (Taicang) in China, pursuant to which LiqTech agreed to lease a 91,752 square feet property used primarily for the production, warehousing and storage of filtration supplies, products, and equipment and for ancillary office purposes.

On October 6, 2021, the Company announced its first oil and gas order in the Middle East with one of the major oil field services companies in the world.

Under the terms of the contract, the customer will be deploying LiqTech's water filtration systems.

On November 23, 2021, the Company announced the appointment of Simon S.

Stadil as Chief Financial Officer of LiqTech International.

Results of Operations

Results of Operations for the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020  

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2020 and 2019 in U.S.

The following table sets forth our revenues, expenses and net income for the years ended December 31, 2021 and 2020 in U.S.

dollars, except for percentages.  

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Interest expense

Amortization discount on Convertible Note

Fair value adjustment of warrants

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Revenue for the year ended December 31, 2021 was $18,273,442 compared to $22,526,201 for the same period in 2020, representing a decrease of $4,252,759, or 19%.

The change in revenue consists of a decrease in sales of liquid filters and water treatment systems of $11,316,772 and in sales of DPFs of $520,794, offset by an increase in sales of plastics of $1,752,162.

The decrease in sales of liquid filters and water treatment systems is a result of the negative impact of the ongoing COVID-19 pandemic, which has resulted in significant restrictions and business limitations across the globe and caused a substantial decline in the demand and delivery of water treatment systems for the marine scrubber industry.

The demand for our DPFs also decreased in the period, but we see increased interest in environmental solutions to reduce global CO2-emissions.

The increase in sales of plastic components is related to the business acquired in September 2019. 

The change in revenue mainly consists of a decrease in sales of liquid filters and systems partly offset by an increase in sales of DPFs and plastics.

For the years ended December 31, 2021 and 2020, our sales of liquid filters, services and systems were $7,196,465 and $14,147,842, respectively, and accounted for 39% and 63% of our total sales, respectively

For the years ended December 31, 2021 and 2020, our sales of DPFs were $7,183,868 and $5,131,891, respectively, and accounted for 39% and 22% of our total sales, respectively.

For the years ended December 31, 2021 and 2020, our plastics revenues were $3,615,681 and $2,647,366, respectively and accounted for 20% and 12% of our total sales, respectively.

The decrease in sales of liquid filters and water treatment systems is a result of the negative impact of the ongoing COVID-19 pandemic, but also increased supply chain restrictions and general market volatility, which has resulted in significant restrictions and business limitations across the globe and caused a substantial decline in the demand and delivery of water treatment systems for the marine scrubber industry.

The demand for our DPFs reflects a continued interest in environmental solutions to reduce global CO2 emissions amid increased political and regulatory efforts.

Furthermore, for the years ended December 31, 2021 and 2020, LiqTech received revenue from government grant projects of $277,428 and $599,102, respectively.

Gross profit for the year ended December 31, 2021 was $1,576,146 compared to $2,146,682 for the same period in 2020, representing a decrease of $570,536, or approximately 27%.

The decrease in gross profit is due to the decline in sales of liquid filters and water treatment systems where sales command a higher gross margin.

Gross profit was further impaired by increased costs related to decisions made prior to the impact of COVID-19, where the Company had invested in the expansion and improvement of production facilities along with additional employees.

Further the initial effect of closing our activities in North America has resulted in a write-off of inventory, equipment, and other items in the amount of $450,000, which has been expensed in the current period.

Included in the gross profit for the year ended December 31, 2020 is depreciation of $2,204,917 compared to $1,131,008 for the same period in 2019, reflecting the increased investment in production capacity.

The decrease in gross profit is due to the decline in sales of liquid filters and water treatment systems, for which sales command a higher gross margin.

Gross profit was further impacted by increased costs related to decisions made prior to the impact of COVID-19, where the Company had invested in the expansion and improvement of production facilities along with additional employees.

Furthermore, increased cost related to the China project ramp-up and changes in sales mix negatively impacted the 2021 gross profit.

Included in the gross profit for the year ended December 31, 2021 is depreciation of $1,957,357 compared to $2,204,917 for the same period in 2020.

Total operating expenses for the year ended December 31, 2021 were $12,263,470, representing an increase of $1,861,681, or approximately 18%, compared to $10,401,789 for the same period in 2020.

Selling expenses for the year ended December 31, 2021 were $4,564,188 compared to $2,918,418 for the same period in 2020, representing an increase of $1,645,770 or approximately 56%.

This change is attributable to the pre COVID-19 decision to hire new sales employees and average number of sales employees therefore increased from 9 in 2019 to 13 in 2020.

This change is attributable to the pre-COVID-19 decision to hire new sales employees, for which the average number of sales employees increased from 13 in 2020 to 19 in 2021.

Other expenses related to the update of the Company’s website and other marketing materials have also resulted in increased selling expenses.

General and administrative expenses for the year ended December 31, 2020 were $6,205,040 compared to $4,563,216 for the same period in 2019, representing an increase of $1,641,824, or 36%.

The increase in general and administrative expenses is attributable to the addition of administrative employees, for which the number of employees increased from 16 in 2019 to 22 in 2020.

The increase in the number of employees also created additional IT and office costs.

As part of the cost reductions implemented after the impact of COVID-19, several employees have exited the Company, and at the end of 2020, the number of administrative employees was back to 16.

Included in general and administrative expenses is non-cash compensation expenses of $343,780 and $197,945 for the years ended December 31, 2020 and December 31, 2019, representing an increase of $145,835, or 74%, attributable to stock grants to members of the Board and management. 

General and administrative expenses for the year ended December 31, 2021 were $5,836,629 compared to $6,205,040 for the same period in 2020, representing a decrease of $368,411, or 6%.

The decrease in general and administrative expenses is attributable to the reduction of administrative employees, for which the average number of employees decreased from 22 in 2020 to 13 in 2021.

Included in general and administrative expenses is non-cash compensation expenses of $481,105 and $343,780 for the years ended December 31, 2021 and December 31, 2020, respectively, representing an increase of $137,327, or 40%, attributable to stock grants to members of the Board and management. 

The following is a summary of our non-cash compensation:

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Research and development expenses for the year ended December 31, 2021 were $1,862,653 compared to $1,278,331 for the same period in 2020, representing an increase of $584,322, or 46%.

This change is attributable to an increase in the number of employees engaged in research and development activities as the Company focuses on the further development of existing and new products for the marine industry.

The average number of employees in Research and development is 14 in 2020 compared to 11 in 2019.

This change is attributable to an increase in the average number of employees engaged in research and development activities as the Company focuses on the further development of existing and new products for the marine industry.

The average number of employees engaged in research and development activities increased from 14 in 2020 to 17 in 2021.

Other income (expenses)

Total Other income (expense) for the year ended December 31, 2020 was $(2,018,398) compared to $319,486 for the comparable period in 2019, representing a decrease of $2,337,884.

Included in the net other income (expenses) for the year ended December 31, 2020 is the negative effect of $901,250 resulting from the fair value measurement of the prefunded warrants issued in May 2020.

Additionally, the loss on currency transactions due to the negative impact of the USD/DKK exchange rate has impacted net other income (expenses) by $(1,469,607) compared to income of $285,742 in the comparable period, representing a decrease of $1,755,349.

Further, net income (expenses) is positively affected by $306,077 relating to the gain on modification of the earn-out agreement with the former owner of LiqTech Plastics A/S (former BS Plastic A/S), where the former owner has agreed to reduce the earn-out consideration from a total of DKK 6 million over three years to a fixed earn-out of DKK 4 million over a period of two years.

Net Income taxes

Net income taxes for the year ended December 31, 2020 was a benefit of $465,145 compared to $297,252 for the comparable period in 2019, representing an increase in benefit of $167,893.

Total Other income (expense) for the year ended December 31, 2021 was $(502,672) compared to $(2,018,398) for the comparable period in 2020, representing a decrease of $1,515,726, or 75%.

Included in the Other income (expenses) for the year ended December 31, 2020 is the negative effect of $901,250 resulting from the fair value remeasurement of the prefunded warrants issued in May 2020.

Additionally, the gain on currency transactions from the USD/DKK exchange rate impacted Other income as a gain by $668,255 in 2021 compared to a loss of $(1,469,607) in 2020, representing an increase of $2,137,862.

Further, in 2021 interest expenses was $(708,176) compared to $(120,903) in 2020, which together with the Amortization discount of $(835,331), reflects the issuance of the Convertible Note in 2021.

Income taxes provision

The income tax benefit for the year ended December 31, 2021 was $63,036 compared to a benefit of $465,145 for the comparable period in 2020, representing a decrease of $402,109 mainly driven by a reduction in tax credits associated with the Danish research and development activities.

Net Income/(Loss)

Net income/(loss) attributable to the Company for the year ended December 31, 2020 was $(9,808,360) compared to income of $39,616 for the comparable period in 2019, representing a decline of $9,847,976.

This change was primarily attributable to the significant decrease in revenue due to decreased demand for marine scrubbers, higher relative costs of goods sold as a percentage of revenue due to investments in production capacity, and the increase in operating expenses caused primarily by the growth in headcount to support additional sales and production.

Further losses on currency translations due to the negative impact of the USD/DKK exchange rate and the negative fair value adjustment related to the prefunded warrant liability have exacerbated the net loss for the period.

Net income/(loss) for the year ended December 31, 2021 was $(11,126,960) compared to $(9,808,360) for the comparable period in 2020, representing an increased loss of $1,318,600.

This change was primarily attributable to the decrease in revenue due to diminished demand for marine scrubbers, higher relative costs of goods sold as a percentage of revenue due to investments in production capacity across our Danish manufacturing facilities and inflationary pressure on both raw materials, electricity and salary related to hourly paid workers.

The year-on-year development also reflects continued investments in the global sales organization and the research and development efforts leading to an overall increase in spend compared to 2020.

Liquidity and Capital Resources

In March 2020, the World Health Organization declared the outbreak of novel coronavirus (“COVID-19”) a pandemic, which has resulted in authorities across the globe implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

In response to measures taken by state and local governments in mid-March 2020, we elected to temporarily introduce two shifts at our production facilities to minimize the risk of infection and to implement health and safety actions recommended by government and health officials to better protect our employees who must work at our production facilities.

Otherwise, most of our employees worked remotely during the shutdown.

At the beginning of May 2020, businesses in Denmark began re-opening as the effect of COVID-19 had largely been contained and the number of infections and fatalities decreased significantly.

Since August 2020, however, we again experienced a resurgence in the number of infections and fatalities and the re-introduction of tight restrictions in many countries.

Since the start of September 2020, we re-introduced limitations in the number of employees working directly at our production sites.

All employees who can work from home are encouraged to do so.

We are unable to predict the full impact that COVID-19 will have on our long-term financial condition, results of operations, liquidity and cash flows due to uncertainties.

Our compliance with the measures implemented to avoid the spread of the virus have had a material adverse impact on our financial results since March 2020.

To the extent possible, we have taken precautionary measures to reduce and/or defer operating expenses and preserve liquidity.

Based on current projections, which are subject to numerous uncertainties, including the duration and severity of the pandemic and containment measures and the effect of these on the industries in which we compete, we believe our cash on hand, as well as our ongoing cash generated from operations, should be sufficient to cover our capital requirements for at least the next 12 months from the issuance of this report.

In addition, as a result of the reduced order intake and decreased manufacturing levels, our future gross profit will also likely be unfavorably impacted until such time that we are able to operate our manufacturing facilities at higher capacity levels as originally planned prior to the COVID-19 pandemic.

Notwithstanding the reduction in our manufacturing levels, based on our current rate of production, we believe that we will be able to fulfill most, if not all, of our existing delivery obligations in 2021.

While we anticipate that the foregoing measures are temporary, we cannot predict the specific duration for which these precautionary measures will stay in effect, and how our business may be adversely affected as a result of the pandemic’s global economic impact.

In the future, the pandemic may cause reduced demand for our products, especially if it results in a global recession.

It could also lead to limitations in our ability to produce and ship products caused by governmental actions and regulations to contain the spread of the virus.

Based on the prolonged negative effects of the global pandemic, we are unable to predict the full impact that COVID-19 will have on our long-term financial condition, results of operations, liquidity, and cash flows.

Our compliance with the measures implemented to avoid the spread of the virus had a material adverse impact on our financial results since March 2020. Based on current projections, which are subject to numerous uncertainties, including the duration and severity of the pandemic and containment measures along with the effect of these on the industries in which we compete, we believe our cash on hand, as well as our ongoing cash generated from operations, might not be sufficient to cover our capital requirements for the next 12 months from the issuance of this report as we consider further investments to generate revenue growth.

In addition, as a result of the reduced order intake, continued supply chain disruptions, and decreased manufacturing levels, our future gross profit will also likely be unfavorably impacted until such time that we are able to operate our manufacturing facilities at higher capacity levels as originally planned prior to the COVID-19 pandemic.

Notwithstanding the reduction in our manufacturing levels and continued supply chain disruptions, based on our current rate of production, we believe that we will be able to fulfill most, if not all, of our existing delivery obligations in 2022.

While we anticipate that the foregoing measures are temporary, we cannot predict the specific duration for which these precautionary measures will stay in effect and how our business may be adversely affected as a result of the pandemic’s global economic impact and associated supply chain disruptions.

In the future, the pandemic may cause reduced or changed demand characteristics for our products, especially if it results in a global recession or structural shifts in the demand for our products across our end markets.

It could also lead to limitations in our ability to produce and ship products caused by governmental actions and regulations to contain the spread of the virus along with disruptions in the global supply chain.

We have historically satisfied our capital and liquidity requirements through offerings of equity instruments, internally generated cash from operations and our available lines of credit.

At the filing date, the Company had an available line of credit amounting to DKK 20,000,000 ($3,000,000), which is used for a leasing arrangement and guarantees issued to customers for prepayments and for warranties after delivery.

Additionally, on May 21, 2020, the Company completed a private placement with certain accredited investors pursuant to which the Company issued and sold an aggregate of 1,085,000 shares of common stock, par value $0.001 per share, at a purchase price of $5.00 per share for gross proceeds of $4,662,125, including costs of $762,875 for placement fees, legal fees, auditor fees and other cost related to the capital raise, and a prefunded warrant to purchase an aggregate of 515,000 shares of Common Stock, at a purchase price of $5.00 per share, for gross proceeds of $2,575,000, which together represents total gross proceeds of $7,237,125.

On December 31, 2020, we had cash of $13,264,449 and net working capital of $15,839,992, and at December 31, 2019, we had cash of $9,783,932 and net working capital of $17,155,126.

Our net working capital has decreased by $1,315,134 compared to December 31, 2019 primarily related to the decline in revenue resulting in lower receivables and contract assets.

At the filing date, the Company had a line of credit amounting to DKK 20,000,000 ($3,000,000), which is used for a leasing arrangement pertaining to deliveries of high-temp furnaces.

On December 31, 2021, we had cash of $17,489,380 and net working capital of $11,199,258, and on December 31, 2020, we had cash of $13,264,449 and net working capital of $15,839,992.

On December 31, 2021, our net working capital decreased by $4,640,734 compared to December 31, 2020, mainly as a result of the current portion of the Convertible Note and lower Accounts payable.

This was partly offset by lower Accounts receivable and an increase in cash due to the proceeds from the issuance of a Convertible Note in April 2021.

In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee or a security bond.

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The credit line is secured by a cash deposit of $2,000,000.

Further, we have a guarantee for a specific project delivered in 2016 of DKK 94,620 (approximately $15,620 at December 31, 2020) with a bank, subject to certain base limitations. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by certain assets of LiqTech Systems such as receivables, inventory, and equipment.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Cash used by operating activities is net income (losses) adjusted for certain non-cash items and changes in assets and liabilities.

Cash used by operating activities for the year ended December 31, 2020 was $2,598,865, representing an improvement of $1,947,896 compared to cash used by operating activities of $4,546,761 for the year ended December 31, 2019.

The cash used by operating activities for the year ended December 31, 2020 consists mainly of the net loss for the year of $(9,808,360) adjusted by depreciations and other non-cash related items of $3,675,322.

Further changes in assets and liabilities include decreased accounts receivables of $3,143,651, a decline in contract assets/liabilities of $2,253,077, and an increase in accrued expenses of $1,355,846, off-set by a decrease in accounts payable of $2,006,919.

Net cash used in investing activities was $4,008,521 for the year ended December 31, 2020 as compared to net cash used in investing activities of $3,700,675 for the year ended December 31, 2019, representing an increase of $307,846.

The investing activities include the purchase of property and equipment especially related to the installation of new furnaces in Ballerup to increase production capacity.

For the year ended December 31, 2019, the investing activities was mainly the initial payment for the acquisition of LiqTech Plastics A/S of $1,154,902 and investments of $2,542,757 made to prepare the installation of new furnaces in Ballerup.

Cash provided by financing activities was $7,216,902 for the year ended December 31, 2020, as compared to cash provided by financing activities of $14,627,470 for the year ended December 31, 2019.

This change of $7,410,568 was mainly due to net cash proceeds of $7,237,125 related to the capital raise in May 2020 compared to net proceeds of $14,601,554 from the capital raise in May 2019.

Cash used by operating activities for the year ended December 31, 2021 was $7,203,843 compared to cash used by operating activities of $2,598,865 for the year ended December 31, 2020, representing a reduction of $4,604,978.

The cash used by operating activities for the year ended December 31, 2021 consists mainly of the net loss for the year of $(11,126,960) adjusted by depreciation and other non-cash related items of $3,992,529.

Further, changes in assets and liabilities include decreased Accounts receivables of $971,460, a decline in Contract assets/liabilities of $455,185, and an increase in Accrued expenses of $798,543, offset by a decrease in Accounts payable of $532,718.

Net cash used in investing activities was $1,450,139 for the year ended December 31, 2021 as compared to $4,008,521 for the year ended December 31, 2020, representing a reduction of $2,558,382, or 64%.

The investing activities include the purchase of property and equipment, especially related to the Danish manufacturing facilities.

For the year ended December 31, 2020, the investments mainly related to the new furnaces in Ballerup.

Cash provided by financing activities was $13,902,999 for the year ended December 31, 2021 as compared to $7,216,902 for the year ended December 31, 2020.

This change of $6,686,097 was mainly attributable to the net cash proceeds of $14,283,333 related to the Convertible bond issuance in March 2021 compared to the capital raise in May 2020 of $7,237,127.

Net Cash Used in Operating Activities

Net Cash Used in Investing Activities

Net Cash Provided by Financing Activities

Net Change in Cash and Cash Equivalents

Cash and Cash Equivalents at End of Period

Off-Balance Sheet Arrangements

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We are not aware of any material transactions that are not disclosed in our consolidated financial statements.

Significant Accounting Policies and Critical Accounting Estimates

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.

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The new revenue standard was applied to all open revenue contracts using the modified retrospective method as of January 1, 2018.

The new revenue standard did not have a material impact on revenue recognition.

The Company sells products throughout the world;

sales by geographical region are as follows:

% Distribution

For the Year Ended December 31

United States and Canada

North America

The Company’s sales by product line are as follows for the years ended December 31, 2021 and 2020:

For the Year Ended

% Distribution

For the Year Ended December 31

Liquid filters and systems

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Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations.

The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or products are shipped.

Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheet as Contract assets.

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Contract liabilities also include deferred revenue related to the second performance obligation stated under Revenue Recognition, where the obligation is attributed to the commissioning of the water treatment system.

The roll-forward of Contract assets / liabilities for the period ended December 31, 2020 and December 31, 2019 is as follows:

The roll-forward of Contract assets / liabilities for the periods ended December 31, 2021 and December 31, 2020 is as follows: 

Cost incurred

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Contract liabilities

We must make estimates and judgments in determining the provision for taxes for financial statement purposes.

We must make estimates and judgments in determining the provision for income taxes for financial statement purposes.

These estimates and judgments occur in the calculation of tax credits, benefits, and deductions and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

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The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of excess or obsolete inventory.

As of December 31, 2020, we had total furnace parts and supplies of $471,622, raw materials of $1,955,713, work-in-process inventory of $2,394,481, total finished goods inventory of $1,424,171 and a reserve for obsolescence of $723,949.

As of December 31, 2021, we had total furnace parts and supplies of $213,224, raw materials of $2,144,076, work-in-process inventory of $1,671,290, total finished goods inventory of $1,660,907 and a reserve for excess and obsolescence of $268,470.

The estimated future demand is included in the development of our short-term manufacturing plans to enable consistency between inventory valuation and production decisions.

Product-specific facts and circumstances reviewed in the inventory valuation process include a review of the customer base, acceptance of the product by the customer and the various environmental authorities, competitor’s products, as well as an assessment of the selling price in relation to the product cost.

If our demand forecast for specific products is greater than actual demand, and we fail to reduce manufacturing output accordingly, we could be required to write off inventory, which would negatively impact our gross profit.

products, as well as an assessment of the selling price in relation to the product cost.

If our demand forecast for specific products is greater than actual demand, and we fail to reduce manufacturing output accordingly, we could be required to write off inventory or increase our allowance, which would negatively impact our gross profit.

In order to determine what costs can be included in the valuation of inventory, we must determine normal capacity at our manufacturing, assembly and test facilities, based on historical production, compared to total available capacity.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity