NOTE

- AGREEMENTS AND COMMITMENTS

401

(K) Profit Sharing Plan

-- LiqTech NA has a

401

(k) -profit sharing plan and trust covering certain eligible employees. The amount LiqTech NA contributes is discretionary. For the

three

months ended

March 31, 2020

and

2019,

matching contributions were expensed and totaled

$3,949

and

$2,621,

respectively.

Contingencies --

From time to time, we

may

be involved in litigation relating to claims arising out of our operations in the normal course of business.

November 20, 2018

a former supplier to Liqtech International AS contacted the Company with a claim of DKK

448,500

(

$68,800

) alleging that an Agreement from

2016

had

not

been respected. The Company has contested the claim due to lack of evidence to support the claim.

provision has been made as of

March 31, 2020

as the Company has meritorious defenses and does

not

expect the claim to materialize in any payments to the former supplier.

February 27, 2019,

LiqTech Systems AS was contacted by a former supplier alleging that the Company owed DKK

543,905

(

$83,400

) for services rendered in

2017.

The claimant has previously filed a lawsuit to claim payment for the services, which was denied by the Company due to severe errors in the services supplied, and the claim was rejected by a court of law in

2018.

Due to the nature of the new claim and the previous ruling from the court of law,

provision has been made as of

March 31, 2020.

Product Warranties

- The Company provides a standard warranty on its systems, generally for a period of

one

three

years after customer acceptance. The Company estimates the costs that

may

be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

In addition, the Company sells an extended warranty for certain systems, which generally provides a warranty for up to

four

years from the date of commissioning. The specific terms and conditions of the warranties vary depending upon the product sold and the country in which the Company does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim. The Company has assessed the adequacy of the recorded warranty liability at the end of the

third

quarter of

2019

based on realized warranty expenses for the

four

years passed since the start-up of producing water treatment systems. Based on the assessment, the Company has reduced the warranty accrual from

of the sales value for delivered products since

January 1, 2019

and going forward.

Changes in the Company's current and long-term warranty obligations included in accrued expenses on the balance sheet, as of

March 31, 2020

and

December 31, 2019

were as follows:

	March 31, 2020			December 31, 2019
Balance at December 31	$	813,288		$	432,225
Warranty costs charged to cost of goods sold		226,079			707,079
Utilization charges against reserve		(51,643	)		(315,556	)
Release of accrual related to expired warranties		-			-
Foreign currency effect		(17,679	)		(10,460	)
Balance at March 31	$	970,045		$	813,288

Purchase obligation

- The Company has a purchase obligation to the supplier of the new furnaces to the production facility in Ballerup for which the Company has

not

received the related goods. The total obligation amounts to

$3.8

million and the Company has entered into a leasing agreement with the bank to finance the purchase. The lease agreement will commence upon the receipt of all furnaces covered by the purchase contract. The Company has

right to cancel the order.