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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36210

LiqTech International, Inc.

(Exact name of registrant as specified in its charter)

Nevada |  | 20-1431677
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
Industriparken 22C, DK 2750 Ballerup, Denmark |  |
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code: +453 1315941

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.001 par value |  | LIQT |  | The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Smaller reporting company | ☒
Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

On June 30, 2021, the aggregate market value of the common stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant based on the closing price of the registrant’s common stock of $7.32 per share on June 30, 2021 was $154,426,805. As of March 24, 2022, there were 21,352,688 shares of common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

|  |  | Page
PART I |  |
| Item 1 | Business | 1
| Item 1A | Risk Factors | 10
| Item 1B | Unresolved Staff Comments | 23
| Item 2 | Properties | 24
| Item 3 | Legal Proceedings | 24
| Item 4 | Mine Safety Disclosures | 24
PART II |  |
| Item 5 | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 24
| Item 6 | Selected Financial Data | 24
| Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
| Item 7A | Quantitative and Qualit28ative Disclosures About Market Risk | 34
| Item 8 | Financial Statements and Supplementary Data | 35
| Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 64
| Item 9A | Controls and Procedures | 64
| Item 9B | Other Information | 65
| Item 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 65
PART III |  |
| Item 10 | Directors, Executive Officers and Corporate Governance | 66
| Item 11 | Executive Compensation | 71
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 73
| Item 13 | Certain Relationships and Related Transactions, and Director Independence | 75
| Item 14 | Principal Accountant Fees and Services | 76
PART IV |  |
| Item 15 | Exhibits and Financial Statement Schedules | 77
| Signatures | 81

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Cautionary Language Regarding Forward-Looking Statements and Industry Data

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the plans and objectives of management for future operations and market trends and expectations. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. In some cases, you can identify forward-looking statements by the following words: “may,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking.

The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. This is especially underlined by the anticipated impacts from the COVID-19 pandemic on the Company, including the related effects to our business operations, results of operations, cash flows, and financial position. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Forward-looking statements include, but are not limited to, statements concerning:

| ● | The COVID-19 outbreak and its effects on our business operations and financial condition;

| ● | Our dependence on a few major customers for a significant portion of our revenue and the potential adverse effects to our financial condition if we fail to maintain or develop our relationship with one or more of these major customers;

| ● | The impact on our business operations and financial condition if we fail to raise additional funds;

| ● | The potential adverse effects to our business operations and financial condition by changes in China’s political, social, regulatory, or economic environments;

| ● | The potential interruption or delay of raw materials from China caused by restrictions on freight and transportation routes;

| ● | The exposure to potentially adverse tax consequences on our international operations;

| ● | The impact to our business operations by adverse conditions or events affecting the marine transportation industries;

| ● | Our ability to adapt to potentially adverse changes in global and regional economic conditions and legislative, regulatory, and political developments;

| ● | Our dependence on the expertise and experience of our management team;

| ● | Our future reliance on qualified additional personnel to expand our business;

| ● | Our ability to compete in the regulatory landscape with continued enforcement of existing emissions-related environmental regulations and the potential further tightening of emission standards worldwide;

| ● | Our dependence on the funding for emissions control programs;

| ● | Our ability to adapt to and manage our expected growth;

| ● | Our ability to compete under constantly changing governmental standards by which our products are evaluated;

| ● | The potential monetary costs of defending our intellectual property rights;

| ● | Our potential inability to successfully protect our intellectual property rights;

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| ● | The possibility of a dispute over intellectual property developed in conjunction with third parties we have contractual relationships with;

| ● | The possibility that we could become subject to litigation that could be costly, limit or cancel our intellectual property rights, or divert time and efforts away from our business operations;

| ● | The potential negative impact to the sales of our products caused by technological advances of our competitors;

| ● | The adverse effect to our business operations if we fail to obtain adequate supplies of raw materials or fail to obtain raw materials at affordable prices;

| ● | Our potential reliance on subcontractors or obtain additional manufacturing capacity to meet current demand;

| ● | The fluctuation and volatility of foreign currencies could adversely impact financial performance;

| ● | Potential liability for environmental harm or damages resulting from technical faults or failures of our products;

| ● | The possibility that an investor located within the United States may not be able to or find it difficult to enforce any judgments obtained in United States courts because a significant portion of our assets and some of our officers and directors may be located outside of the United States;

| ● | The possibility that our plan to establish a joint venture in the Middle East may not realize any benefits;

| ● | The possibility that we may not be able to maintain an effective system of internal control over financial reporting, leading to inaccurate reports of our financial results;

| ● | The possibility of breaches in the security of our information technology systems;

| ● | The risk of liability regarding compliance issues with environmental laws and regulations;

| ● | The potential negative impact of more stringent environmental laws and regulations as governmental agencies seek to improve minimum standards;

| ● | The possibility that enforcement actions to suspend or severely restrict our business operations will be brought against the Company for our failure to comply with laws or regulations and the potential costs of defending against such actions;

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PART I

Forward Looking Statements

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations and market trends and expectations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. This is especially underlined by the anticipated impacts from the COVID-19 pandemic on the Company, including the related effects to our business operations, results of operations, cash flows, and financial position. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Item 1. | Business

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. For more than two decades, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in two business areas: ceramic membranes for liquid filtration and diesel particulate filters (DPFs) to control soot exhaust particles from diesel engines. 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 offices in Denmark and local representatives and distributors across Europe, Middle East and Asia, with the products 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 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 Water Projects A/S (“LiqTech Water Projects”) and LiqTech Plastics A/S (“LiqTech Plastics”), all Danish limited companies organized under the Danish Act on Limited Companies of the Kingdom of Denmark, and LiqTech NA, Inc., a Delaware corporation (“LiqTech NA”). Collectively, LiqTech USA, LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, and LiqTech NA are referred to herein as our “Subsidiaries”.

We conduct and manage our operations from our office and manufacturing facilities in the Kingdom of Denmark, more specifically Hobro, Aarhus, and Ballerup in the Copenhagen area. We are currently working to establish manufacturing operations in China.

Our Products

We manufacture and sell a broad range of ceramic membranes and systems for the filtration of liquids and diesel particulate filters to control soot exhaust particles from diesel engines. We also provide plastic parts through the recently acquired BS Plastic A/S for various internal and external industrial applications.

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Silicon Carbide Ceramic Membranes for Liquid Filtration

For more than two decades, LiqTech has developed, manufactured, and sold innovative silicon carbide ceramic filtration technologies for liquid and gas purification. Our product portfolio consists of silicon carbide ceramic filters for liquid purification and diesel particulate filters for gas purification. Based on our continuous R&D, patented technologies, and evolved production methods, we are able to produce state-of-the-art silicon carbide filters.

Our products are manufactured with a silicon carbide ceramic membrane based on patented technology. We are not aware of other companies that make both the substrate (honeycomb) and the membrane (the part that accomplishes the filtering) solely from silicon carbide. Our products are based on the following silicon carbide membrane technologies:

| ● | CoMem ceramic membranes, which are unique patented technology designed as a tubular membrane. It utilizes a crossflow structure to handle high concentrations of suspended solids found in produced water from the oil and chemical industry, wastewater from industrial processes and manure filtration, and other applications. It offers consistent removal of oil and suspended solids at high throughput rates regardless of feed conditions. We offer onshore and offshore solutions and have extensive experience with produced water streams for fracking, gas condensate, and oil emulsions. We believe our SiC filters are the best alternative to micro-flotation and walnut shell filters due to their cost savings, reduced installation cost, robustness, and reduced downtime. Our chemically inert, plug-and-play membranes are extremely hard, chemically resistant, and durable ceramics with high flux (flow). SiC membranes are stronger, harder, longer-lasting, more temperature-resistant, and recover faster than conventional ceramic or polymeric membranes;

| ● | Flat sheet membranes (FSM), which are designed for submerged outside-in filtration applications. The FSM is highly applicable for wastewater reuse, groundwater, pre reverse osmosis treatment, and other applications. LiqTech’s FSM towers can be customized with different rack sizes and tower heights. The FSMs offer low energy consumption, maximum permeation, innovative rack design, and high flux;

| ● | Disc membranes, which are designed for the removal of high-suspended solids, oil droplets, and process water. The disc membranes use outside-in filtration and have internal permeation channels, facilitating the removal of the solids. A crossflow effect is generated through the discs' rotation at high velocities, which enables flow cleaning of the filter membrane surface. This principle offers 80% energy savings compared to conventional cross-flow;

| ● | Aqua Solution®, which integrates a dead-end structural design with cutting-edge membrane technology in a solution specifically designed for applications in the pre-treatment for reverse osmosis, wastewater treatment, and swimming pool and spa water filtration. Our Aqua Solution® offers the same water flow as conventional sand filters, which typically require up to 400 times more space and have pore sizes at least three times larger than our SiC membranes. Moreover, our Aqua Solution® reduces the number of membrane elements, pressure vessels, the water consumption for backwash, and the energy costs by offering high flow capabilities at very low pressure. Also, it eliminates the consumption or maintenance of filter cartridges; and

| ● | Hybrid Technology Membranes (HTM), which is a new patented asymmetric membrane that combines the desired properties from silicon carbide (SiC) and zirconia (ZrO₂) ceramics. With a pore size of 60 nanometers (nm), it is suitable for ultrafiltration applications. This state-of-the-art membrane technology facilitates new separation processes and new filtration applications.

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Diesel Particulate Filters (DPFs) for Gas Purification

We offer diesel particulate filters for exhaust emission control solutions to the verified retrofit and original equipment manufacturer (OEM) market through our direct sales force. DPF sales are generally made to distributors specializing in sales to end-users. We use a proprietary “nano wash coat” to provide a catalytic coating for anything from diesel particulate filters to catalytic converters. Our DPF products are sold worldwide under the LiqTech brand.

We have developed a robust silicon carbide diesel particulate filter that is especially effective for vehicles that produce a high soot load. If properly maintained, a LiqTech DPF can last as long as the vehicle’s engine. Our DPFs are ideal for off-road vehicles because of their strength, chemical non-reactive nature, temperature resilience, and thermal conductivity.

Our DPF filters can handle higher soot loads than filters that do not use a silicon carbide membrane, making them ideal for situations in which engines infrequently reach high enough temperatures to burn off the soot. Examples include:

| ● | Garbage trucks;
| ● | Port vehicles;
| ● | Diesel pickup trucks not carrying a full load;
| ● | Off-road construction vehicles that idle for long periods of time; and
| ● | Intra-city vehicles that do not reach highway speeds.

Future tightening legislation in the marine industry has also created a new opportunity for our DPF product to reduce black carbon emissions from shipping.

Turnkey Water Treatment Solutions

LiqTech develop, manufacture, and sell liquid filtration systems using our patented silicon carbide technology (sometimes also referred to herein as our “SiC Filters”). Our current focus is on marine scrubber wastewater, hydrocarbon production-derived contaminated water, which we refer to herein as “produced water”, removal of heavy metals in mining and energy applications, pre-filtration for reverse osmosis in drinking water, and other industrial applications.

Our SiC ceramic membrane systems have been used in the following applications by our clients:

| ● | Marine Scrubber Wastewater: We supply water filtration systems for marine scrubber systems that may be employed on ships to reduce sulfur emissions stemming from heavy fuel oil (HFO) operations, allowing vessels to comply with the IMO 2020 sulfur cap. To date, more than 250 water treatment systems have been installed because of orders from European and Asian scrubber technology providers, shipyards, and ship owners.

| ● | Produced Water: Our membrane systems can be used for the filtration of produced water, which is a byproduct of oil and gas production. The amount of produced water varies from 0.1 to 10 times the amount of oil produced. We have performed testing with major international private and public oil and gas companies. Our solution is market-proven, approved by various international oil and gas companies, and applicable for onshore and offshore operations.

| ● | Pre-filtration of Reverse Osmosis Drinking Water: To convert seawater or surface water into potable water, the seawater or surface water must be pre-filtered before entering the reverse osmosis membranes. We have a market-proven solution for pre-filtration in reverse osmosis, tested by various customers all over the world.

| ● | Industrial Applications: We have delivered complete water treatment systems for specific targeted, aggressive fluid applications such as removing heavy metals for energy providers in Denmark and Finland and water treatment systems for mining wastewater for a European mining company. In addition, our membrane systems have achieved meaningful results to reduce OPEX and increase product quality in acidic purification.

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| ● | Producing Clean Drinking Water: The potential advantages of LiqTech SiC ceramic membranes in drinking water are numerous. Some examples include groundwater removal of precipitated salts such as iron and manganese, surface water removal of organic suspended solids and humic acid, and seawater pre-filtration before reverse osmosis.

| ● | Food and Beverage Applications: High-quality filtration products for the food and beverage industry significantly reduce chemicals and wastewater taxes by installing a fully automated LiqTech membrane system.

| ● | Pool and Spa Water: We have supplied several turnkey water filtration systems for medium to very large public swimming pool installations in Europe. Our SiC ceramic membranes provide unique advantages for the commercial pool filtration industry with the smallest footprint on the market, reduced water and chemical consumption, and consistent, high-quality water filtration.

Besides the applications mentioned above utilizing silicon carbide ceramic membranes, LiqTech has many other industrial water treatment applications that do not use ceramic membranes. These applications include:

| ● | Seawater Reverse Osmosis (SWRO): SWRO represents a brand-new LiqTech solution to turn seawater into potable water using polymeric membranes. Through its high energy efficiency and guaranteed, consistent water quality, SWRO provides one of the most efficient and sustainable solutions to convert seawater into drinkable freshwater. The LiqTech SWRO units are suitable for small commercial vessels, fishing boats, sailing boats, small port applications, and generally all places with access to seawater and where desalinated, potable water is needed.

| ● | Filter Press: The LiqTech Filter Press is a water sludge treatment system, enabling solid and liquid separation. The filter press can convert sludge into a filter cake consisting of 80% dry matter, depending on the pressure and application. One of the primary purposes of employing a filter press is to reduce discharge handling costs.

| ● | UV Disinfection: LiqTech is a distributor of UV-C LED Disinfection Systems. UV-C LED disinfection technology can be used to purify water, air, and surfaces. The solution provides reliable and low-cost disinfection to protect human health.

Highly Flexible & Innovative Plastic Manufacturing

LiqTech provides highly flexible and innovative plastics manufacturing, focusing on machining, welding, bending, and solvent cementing. With an intense focus on customer demands, LiqTech serves market leaders in the cleantech, pharma, food, healthcare, and graphics industries.

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Our Competitive Strengths

Our products compete with other filters that are made of ceramic and polymeric materials. Most of our competitors are large industrial companies; however, we believe our patented technology allows us to produce high-quality products that provide an advantage over many of our direct and, in many cases, larger competitors. We intend to continue investing in R&D with the aim of developing new technologies and improving our existing products to reinforce our competitive advantages, retain our existing customers, and acquire new customers.

We believe the following strengths underpin our ability to increase revenue and profitability:

| ● | Advantages of Silicon Carbide Membranes: Our liquid filtration and diesel exhaust products utilize silicon carbide membranes, which have unique qualities that we believe make our products more effective than those of our competitors. Unlike filtration products made of aluminum oxide, silicon carbide membranes are chemically inert and temperature resistant. Furthermore, silicon carbide membranes exhibit a high degree of hydrophilicity (the tendency of a surface to become wet or absorb water), which results in unique flux (low energy consumption). Silicon carbide is also very durable, and its hardness is only surpassed by diamonds, making it a highly desirable material for various abrasive fluids in industrial applications. As a result, we believe that such superior physical properties make our products desirable in both liquid filtration products and exhaust emission control products.
| ● | Complete Systems Fabrication: LiqTech provides full fabrication and integration of our membranes into complete filtration systems made from corrosive-resistant materials and components. We possess in-house engineering capabilities for process design, 3D modeling, and control. Our professional staff of highly dedicated engineers and craftsmen take responsibility for the entire specification, engineering, fabrication, and commissioning process. We believe that supplying our customers with turnkey solutions built upon our silicon carbide membranes is unique in the market. LiqTech is more than a membrane supplier — LiqTech is also a complete water treatment system supplier.
| ● | Broad Application of LiqTech Membranes: Our membranes can be applied in a variety of applications, including filtration of marine scrubber wastewater, processing of industrial wastewater and produced water, pre-treatment of drinking water and pre-filtration for reverse osmosis, oil emulsion separation, bacteria removal for aquaculture, commercial swimming pool water treatment, food and beverages, and the separation of metals from liquids in industrial processes.
| ● | Marketing and Manufacturing in Key Markets and Expanding to Other Markets: We have production and sales capacity in Europe, and we are planning to develop capacity in China and the Middle East. We also sell our products through distributors and agents in many other countries such as China, Korea, Spain, UK, and France. Moreover, we have established customer relationships in more than 25 countries.
| ● | Strong and Experienced Management Team: Our management team has deep experience in the clean technology and filtration industries and drives growth through developing new applications and technologies and cultivating relationships with customers.

Our Strategy

Our strategy is to create stockholder value by leveraging our competitive strengths in silicon carbide filters, membranes, and water treatment solutions through focus on discrete applications in key end markets. Essential features of our strategy include:

| ● | Retain and acquire new customers within the global marine and oil & gas industries. 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.
| ● | Enter new geographic markets and expand existing markets. We plan to continue to manufacture and sell our products from our manufacturing centers in Denmark, and in the future, also from our manufacturing center in Taicang, China. We work with distributors, agents, and partners to access other important geographic markets.
| ● | Strengthen our position in the DPF market. We believe that we have a strong position in the retrofit market for diesel particulate filter (DPF) systems. We intend to advance our efforts to maintain our market position in this area. Furthermore, we intend to leverage our OEM experience by expanding our presence with new products and in new markets relating to diesel particulate filter systems like black carbon reduction in the marine industry.

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| ● | Develop and improve technologies and enter new end markets. We intend to continue developing our ceramic membranes and enhance the efficiency of our filtration products. We intend to find new uses for our products through continuous research and development and plan to expand into new markets that offer the Company significant opportunities.
| ● | Focus on the development and sales of standardized water filtration and treatment systems. We will continue our focus on selling systems based on our unique SiC membranes. We will also combine the ceramic membranes with other technologies to offer our customers complete filtration solutions. Moreover, we will continue developing smaller standard systems like groundwater treatment and residential swimming pools.

Our Industry

Overview

We serve primarily two industries: the liquid filtration market and the diesel particle filter (DPF) market. Our goal is to leverage our products and technologies into industrial liquid filtration applications that offer significant growth opportunities and take advantage of favorable market trends.

Liquid Filtration Market

The market for marine water filtration systems is rapidly developing due to new regulations for sulfur and ballast water emissions. Industry experts estimate that 8,000-10,000 ships will be retrofitted with a scrubber water treatment system over the next five years. At the end of 2019, the industry statistics note that nearly 4,000 ships have installed or ordered scrubbers (according to the DNV GL report March 2020), with most installations being open-loop scrubbers. Open-loop scrubbers discharge the wash water directly into the sea. The addressable market for LiqTech is focused on closed-loop scrubbers, where the scrubber wash water is routed through the LiqTech filtration system to remove sulfur and other particulates, and the clean water is then recycled as wash water.

As noted above, the use of open-loop scrubbers to clean the exhaust from marine engines that use high-sulfur residual oil and diesel fuels may lead to the discharge of high concentrations of harmful compounds in the waters from vessels using such scrubbers. Several trials have been conducted on board vessels by scrubber suppliers to define the constituent concentrations in wash water discharge. The research concluded that scrubber wash water also contains suspended solids, heavy metals, hydrocarbons, and polycyclic aromatic hydrocarbons (PAHs). Before the scrubber wash water is discharged, it must be treated to remove solids. LiqTech’s water treatment systems can be used to remove the solids from the wet scrubber wash water. The treatment process includes a pre-filtration step followed by a LiqTech SiC membrane filtration. Treated water quality is monitored (NTU, PAH, and pH) before discharge. We believe that many of the open-loop scrubbers already installed will eventually be converted to closed-loop (where the LiqTech filtration system is employed), thus resulting in a significantly larger market for LiqTech. The Company is globally engaging with scrubber equipment suppliers, ship owners/operators, and shipyards. Furthermore, we present our water treatment and filtration solutions at marine conferences and trade shows, while also through digital marketing.

In addition to our marine scrubbers, LiqTech offers packaged filtration systems consisting of ceramic SiC and conventional reverse-osmosis (RO) membranes for industrial and municipal customers. We anticipate that global demand will increase for robust and low operating expense products such as ours that are well-suited for mobile and modular systems. RO membranes are increasingly used to produce drinking water (desalination of seawater or brackish water), demineralized water for industrial processes (boiler feed water, microelectronics production), and food processing and pharmaceuticals. Moreover, many laboratories rely on pure water, for which demineralization is an essential step. LiqTech is differentiated by what we believe is our superior SiC membrane technology and by being able to provide a complete water treatment system. According to Global Industry Analyst report, dated April 2021, the global membrane filtration market is expected to grow at a compound annual growth rate (CAGR) of 5.3%, from $14 billion in 2020 to $20 billion in 2027.

Generally, we also see a growing, global demand for higher-quality re-injection water from unconventional oil and gas productions. In addition, we see tightening water discharge legislation, increasing water usage (more water produced per barrel of oil), and the introduction of Enhanced Oil Recovery (“EOR”) techniques. The tightening water discharge legislation is a problem for conventional treatment and filtration technologies; however, our SiC Filters can mitigate these challenges, and we believe the increasing demand represents a favorable market trend for our business.

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Water is essential to life on earth, and clean water shortages are affecting billions of people. Today, 2.2 billion people lack safely managed drinking water, and 3 billion people worldwide lack basic handwashing facilities at home. In addition, more than 700 million people could be displaced due to water scarcity (according to the UN). According to the World Health Organization, approximately 361,000 children die every year due to unsafe water and lack of basic sanitation. Due to the growing need for pure water for drinking and industrial purposes, the market for water filtration is growing rapidly, with more and larger plants being commissioned all over the world.

Diesel Particulate Filter (DPF) Market

Our legacy business related to the provision of DPF filters is expected to continue growing across Asia, Europe, and the United States as regulators require diesel engines to comply with new and more stringent environmental rules and regulation. In Europe, for example, German cities continue enforcing increased requirements for diesel engines to include DPF filters, with the same trend also taking place in select Asian countries.

Furthermore, our proprietary DPF technology has paved the way for new market opportunities such as black carbon marine, where our solutions allow both ocean-going and inland marine vessels to comply with current and future regulatory thresholds as defined by both IMO and regional regulators. In Asia, we are currently intensifying our commercial efforts and expanding our regional manufacturing capabilities in China with the aim of capitalizing on its future market potential.

According to an industry publication (Diesel Particulate Filter – Global Market Outlook (2017-2026)), dated January 16 2019, the global market for new DPF filters manufactured by OEMs is expected to increase approximately 13% per year from 2017 to 2026. Diesel emissions consist of several toxic gases and particles: particulate matter (soot), carbon monoxide, and hydrocarbons. Soot has been linked to a variety of human health problems. Reducing diesel emissions will have both health and social benefits, along with reduced costs.

In response to these health impacts, governments have been implementing legislation to regulate emissions from diesel engines. California implemented the Diesel Risk Reduction Plan, and New York City implemented binding directives for the retrofitting of buses, garbage trucks, and construction machines. In the European Union, Directive EC 715/2007 of June 20, 2007, defines particle count limits for certain cars and light utility vehicles. Also, low emission zones have been implemented locally in various places in Europe, creating a patchwork of regulation.

The Asian markets have shown an improved standard of living due to financial growth, which has led to increased sales of vehicles in the region. At the same time, pollution in major cities has reached high particulate matter levels. As a result, the Chinese government has introduced additional regulations, including new emissions standards, faster than previously anticipated. We also believe the high pollution levels will increase the need to retrofit existing vehicles.

Research and Development

We have eighteen (18) full-time employees that are primarily engaged in research and development activities pertaining to the developing of technology and intellectual property rights related to silicon carbide product forms, applications, and manufacturing processes.

Manufacturing

We currently manufacture our DPF and membrane products in Ballerup, Denmark. We assemble our water treatment systems in Hobro, Denmark, and we manufacture plastic products in our facilities located in Aarhus, Denmark. We plan to expand our production capacity in China and the Middle East, primarily through investment in additional facilities and manufacturing equipment for both membranes and filter products.

Raw Materials

The main raw materials we use in our manufacturing processes are silicon carbide, steel, plastic, platinum, and palladium. We purchase these commodities from various sources generally based upon availability and price.

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Sales, Marketing and Distribution

Our products are sold primarily to large industrial customers for gas and liquid filtration. The Company sells through direct sales, systems integrators, distributors, agents, and partners.

The Company initially focused on selling its DPF filters to the automotive industry. In 2014, we acquired Provital Solutions, a Danish filtration system manufacturing company, which enabled us to shift our focus to providing complete, modular liquid filtration systems. The Company’s liquid filtration systems business is now rapidly expanding, focusing on the marine industry and other industrial applications in mining, power generation, aquaculture, oil and gas, and other applications within the pool industry, water reclamation, and drinking water.

We plan to actively market our existing products to new customers as we increase our production capacity. As of March 2022, we employed eleven (11) full-time salespeople in addition to distribution agents. We promote our products through direct sales to potential customers and marketing activities such as participation in tradeshows and exhibitions, with a heavy focus on digital marketing.

In certain instances, our products are delivered to the end customer through system integrators. These system integrators use our filtration products in larger filtration systems, which eventually are installed in products used by the end customer. Due to legislative regulation, system integrators are often required by end customers to receive approval for their systems, including the components used in such systems, which requires significant time and expenses. As a result, we believe that certain system integrators that use our products will not replace our filters with competitive products unless there are compelling reasons to do so.

Intellectual Property

We have one issued patent in the United States that we co-own with a third party, two issued patents in Denmark, three issued foreign patents (Germany, China, and South Korea) that we co-own with a third party, and one pending European patent application that we co-own with a third party. The United States patent that we co-own is generally effective for 20 years from the filing date (July 8, 2004) of the earliest U.S. or international application to which it claims priority. The scope and duration of each of our foreign patents vary in keeping with local laws. On July 7, 2014, we obtained a new Danish patent application related to our silicon carbide membrane technology.

We also rely on trade secret protection for our confidential and proprietary information. Trade secrets, however, can be difficult to protect. We may not be able to maintain our technology or know-how as trade secrets, and competitors may develop or acquire equally valuable or more valuable technology or know-how related to the manufacture of comparable silicon carbide products. We also seek to protect our confidential and proprietary information, in part, by requiring all employees, consultants, and business partners to execute confidentiality and/or nondisclosure agreements upon the commencement of any employment, consulting arrangement, or engagement with us. These agreements generally require that all confidential and proprietary information developed by the employee, consultant, or business partner, or made known to the employee, consultant, or business partner by us, during the course of the relationship with us and thereafter, be kept confidential and not disclosed to third parties.

We also believe that having distinctive names is an important factor in marketing our products and therefore use trademarks to brand some of our products. As of March 2022, we had one trademark registration in the United States (LiqTech NA) and four trademark registrations in the European Union (AQUA SOLUTION, CoMem, CDPX, and FUTURE FILTRATION).

Government Regulation

We do not believe that we are subject to any special governmental regulations affecting our products in the countries in which we operate. We are subject to numerous health and safety laws and regulations. In the United States, these laws and regulations include the Federal Occupation Safety and Health Act and comparable state legislation. We are also subject to similar requirements in other countries in which we have extensive operations, including Denmark. We actively seek to maintain a safe, healthy and environmentally friendly workplace for all of our employees and other stakeholders.

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Environmental Matters

We are subject to a broad range of environmental laws and regulations that govern, among other things, air emissions, wastewater discharges, and the handling, storage, disposal, and release of waste and hazardous substances. It is our policy to comply with all applicable environmental requirements at each of our facilities. We are subject to similar requirements in Denmark and other European countries. From time to time, we have identified minor environmental compliance issues at our facilities. To date, compliance with environmental matters has not had a material effect upon the Company’s capital expenditures, results of operations, or competitive position.

We believe that, due to the constant focus on the environment, clean air, and clean water standards throughout the world, more stringent regulations in the U.S., Europe and elsewhere around the world are likely as governmental agencies seek to improve standards required for certification of products intended to promote clean air and water. In the event our products fail to meet these changing standards, some or all our products may become obsolete, which could have an adverse effect on our business, operating results, financial condition, and long-term prospects.

Competition

Our products compete with other filters that are made using both ceramic and plastic membranes. Most of our competitors are large industrial companies; however, we believe our patented technology, manufacturing know-how, and trade secrets allow us to produce high-quality products that provide an advantage over many of our competitors, many of which have greater financial, technological, manufacturing and personnel resources. We intend to continue to devote resources to the development of new technologies and the improvement of our products to retain existing customers and acquire new customers.

Employees

At December 31, 2021 we had 120 employees, including 67 in production, 12 in administration, 18 in research and development, 21 in sales and engineering and 2 in executive management.

Certain employees in Denmark are represented by workers’ councils that have collective bargaining agreements. With the exception of such Danish employees, no other employees are members of a labor union or are represented by workers’ councils that have collective bargaining agreements. We believe that we have good relations with our employees.

Corporate Information

We filed our Articles of Incorporation on July 1, 2004 and are incorporated under the laws of the State of Nevada. Our principal executive office is located at Industriparken 22C, 2750 Ballerup, Denmark, and our telephone number is +45 3131 5941. We maintain an Internet website at www.liqtech.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the SEC and are available in print to any stockholder who requests a copy. The information contained in, or accessible from, our website is not a part of this Annual Report.

Additionally, the SEC maintains a website that contains reports, proxy statements, information statements and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov.

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Item 1A. | Risk Factors

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

The COVID-19 pandemic could have a material adverse effect on our business, results of operations and financial condition in the future.

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the outbreak of respiratory illness caused by the novel coronavirus first identified in Wuhan, Hubei Province, China (COVID-19). The COVID-19 pandemic has resulted in authorities worldwide implementing numerous measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, border controls, limitations on business activity, social distancing requirements, quarantines, and shelter-in-place orders. These measures have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide. The impact of the pandemic on our business and operations and our ability to execute our strategic plans remains uncertain and will depend on many unpredictable factors outside of our control, including, without limitation, the extent, trajectory and duration of the pandemic; the development, availability and distribution of vaccines and other effective treatments to treat the COVID-19 virus and any new variants thereof; the emergence of new variants that are more contagious, symptomatic or fatal and the time the medical community requires to respond to such variants; the imposition of and compliance with protective public safety measures; the impact of the pandemic on the global economy; and the related impacts on our development pipeline and demand for our products.

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Since 2020 and throughout 2021, management has initiated several precautionary initiatives across our business in accordance with local regulations and guidelines to mitigate the spread of COVID-19. These precautions have impacted the way we carry out our business, including additional sanitation and cleaning procedures in our production and other facilities, temperature and symptom confirmations, remote working when possible, and implementation of social distancing and staggered worktime requirements for our employees who must work on-site. If we are required to continue such measures for an extended period, it could impact the ability of our employees to collaborate efficiently. In addition, the loss or unavailability of our production staff or other key employees and executives, as a result of sickness of employees or their families or the responsibility of employees to manage family obligations while working from home, could continue to negatively impact our business and operations including our ability to operate or execute our business strategy efficiently. Continued employee telecommuting activity also increases the risk of a security breach of our information technology systems. The changed environment under which we are operating could have an impact on our internal controls over financial reporting.

Moreover, the ongoing impacts of the COVID-19 pandemic could result in interruptions or delays in the operations of regulatory authorities, which may impact review or approval timelines; delays in necessary interactions with other agencies and contractors due to limitations in employee resources or forced furlough of government employees; termination of, or difficulties in procuring or maintaining, arrangements with third parties upon whom we depend such as manufacturers, including contract manufacturing organizations, suppliers and other strategic partners; and disruptions or restrictions on our ability to pursue partnerships and other business transactions.

As a result of the COVID-19 pandemic and the geopolitical unrest and general restrictions on the global supply chain amid increased global trade combined with challenges from the Evergreen blockage of the Suez Canal in 2021, our business continues to be exposed to significant disruptions and delays in the global supply chain.

Since the start of the COVID-19 pandemic in early 2020, there has been an overall decline in new orders, particularly in the shipping industry, due to reduced investment caused by demand disruption and the volatility of oil prices. The effects of a prolonged pandemic could result in a prolonged negative impact on investment in the shipping industry and in other industries. In addition, if COVID-19 impacts the financial position of our customers or any of our collaboration partners, we may have difficulty collecting receivables or milestone payments, and our business and results of operations could be exposed to risks associated with uncollectible accounts or defaults on contractual payment obligations by our collaboration partners. If we are unable to generate sufficient cash from operations due to the impacts of the COVID-19 pandemic or otherwise, we may need to raise additional funds. The duration and severity of any further economic or market impact of the pandemic remains uncertain as exemplified by the rapid increase in the COVID-19 pandemic in late 2021 due to Omicron variant, thus there can be no assurance that it will not have an adverse effect on our liquidity and capital resources, including our ability to access capital markets, in the future, on terms that are favorable to us, or at all.

Historically, we have been dependent on a few major customers for a significant portion of our Company's revenue. Our revenue could decline if we are unable to maintain or develop relationships with additional customers and our results of operations could be adversely affected if any one of these customers is unable to meet their financial obligations to us.

For the year ended December 31, 2021, our four largest customers accounted for approximately 12%, 10%, 9%, and 6% of our net sales (approximately 37% in total). For the year ended December 31, 2020, our four largest customers accounted for approximately 27%, 10%, 8% and 8% of our net sales (approximately 53% in total). If we are unable to diversify our customer base, our future results will be heavily dependent on these customers. Our dependence on a limited number of customers means that the loss of a major customer or any reduction in orders by a major customer would materially reduce our net sales and adversely affect our results of operations. We expect that sales to relatively few customers will continue to account for a significant percentage of our net sales for the foreseeable future; however, these customers or our other customers may not use our products at current levels in the future, if at all. We have no firm, long-term volume commitments from any of our major customers, and we generally enter into individual purchase orders with our customers, in certain cases under master agreements that govern the terms and conditions of the relationship. We have experienced delays or cancellations of orders and fluctuations in order levels from period to period and expect that we will continue to experience such delays, cancellations, and fluctuations in the future. Customer purchase orders may be delayed or cancelled, and order volume levels can be changed with limited or no penalties. We may not be able to replace cancelled, delayed, or reduced purchase orders with new orders. If any one of these customers reduces its demand for our products, it will likely have a material adverse effect on our operations.

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Furthermore, a significant portion of our accounts receivable is concentrated with a few major customers, who may not be able to meet their financial obligations to us. The failure of any such customers to pay amounts owed to us in a timely fashion or at all could have an adverse effect on our results of operations. The Company is also exposed to credit risk on its accounts receivable, and this risk is heightened during periods when economic conditions worsen. The Company's outstanding receivables are not covered by collateral or credit insurance. The Company's exposure to credit and collectability risk on its receivables may also be higher in certain international markets, and its ability to mitigate such risks may be limited. While the Company has procedures to monitor and limit exposure to credit risk on its receivables, there can be no assurance such procedures will effectively limit our credit risk and avoid losses.

We will need to raise additional funds to develop our business, which may adversely affect our future growth.

We expect to finance our anticipated future growth and possibly future strategic acquisitions through public or private equity offerings or debt financings. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, or reduce the scope of, our plans to grow our revenues, to consummate one or more strategic acquisitions, or to scale back our business plans. In addition, we could be forced to reduce or forgo attractive business opportunities. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. In addition, debt financing, if available, may involve restrictive covenants. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates.

Changes in China’s political, social, regulatory, or economic environments may affect our financial performance.

Our financial performance related to the new manufacturing facility in Taicang and the commercial potential in China may be affected by changes in the Chinese political, social, regulatory or economic environments. The role of the Chinese central and local governments in the Chinese economy is significant. Chinese policies toward hazardous materials, environmental controls, air pollution, economic liberalization, laws and policies affecting technology companies, foreign investment, currency exchange rates, taxation structure and other matters could change, resulting in greater restrictions on our ability to do business and operate our manufacturing facility in China. We have observed a growing fluidity and tightening of regulations concerning hazardous materials, other environmental controls and air pollution. The Chinese government could revoke, terminate or suspend our operating licenses for reasons related to environmental control over the use of hazardous materials, air pollution, labor complaints, national security and similar reasons without compensation to us. Further, the central government encourages employees to report possible safety or environmental violations to regulatory agencies, even when there may not be actual violations. Any failure on our part to comply with governmental regulations could result in the loss of our ability to manufacture our products, generate revenue, and cover fixed costs in China.

The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution as evidenced in the new five-year plan.

The Chinese central government is demonstrating strong leadership to improve air quality and reduce environmental pollution as evidenced in the new 14th five-year plan related to 2021-2025. These efforts may impact manufacturing companies through mandatory shutdowns, increased inspections, and regulatory reforms to ensure the Chinese manufacturing industry complies with the overall targets for climate, pollution, and R&D. Furthermore, the timing and impact on demand for environmental solutions required to help achieve the overall climate targets remain uncertain as local, regional and national legislation and government actions may be subject to delays. Consequently, the financial impact from the Taicang manufacturing facility could be negatively impacted by both manufacturing delays or reduced demand given the risk and timing uncertainties related to the new five-year plan including relevant emission legislation, which would frustrate our ability to generate revenue and cover fixed costs.

If China places restrictions on freight and transportation routes and on ports of entry and departure this could result in shipping delays or increased costs for shipping.

If the Chinese government were to place additional restrictions on the transportation of materials and products in and out of China, then our ability to transport our raw materials or products could be limited and result in manufacturing delays or bottlenecks at shipping ports, affecting our ability to deliver products to our customers. During periods of such restrictions, we may increase our stock of critical materials for use during the period that these restrictions are likely to last, which will increase our use of cash and increase our inventory level. Any of these restrictions could materially and adversely impact our results of operations, cash flow, and our financial condition.

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Our international operations are exposed to potential adverse tax consequence in China.

Our international operations create a risk of potential adverse tax consequences. Taxes on income in our future China-based operations are dependent upon acceptance of our operational practices and intercompany transfer pricing by local tax authorities as being on an arm's length basis. Due to inconsistencies among taxing authorities in application of the arm's length standard, transfer pricing challenges by tax authorities could, if successful, materially increase our consolidated income tax expense. We will be subject to tax audits in China, and an audit could result in the assessment of additional income tax against us. This could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made and could result in increases to our overall tax expense in subsequent periods.

Adverse conditions or events affecting the marine transportation industries may have a material adverse effect on our business.

Global health crises, such as a prolonged outbreak of COVID-19, can significantly impact us and our customers and suppliers. For example, the global shipping industries have been negatively impacted by the coronavirus outbreak due to increased travel restrictions and may be further adversely affected by an extended shutdown of various businesses in the impacted regions. In light of this operating environment, shipping companies that carry goods may begin to significantly reduce the number of seaborne vessels or reroute ships as measures to stop the spread of the coronavirus negatively impact the demand for seaborne transport of goods. This, in turn, can adversely affect the demand for our marine scrubbers to these shipping customers if many vessels sit idle or are taken out of service during the outbreak.

Furthermore, the volatility in oil prices caused by demand destruction from economic shutdowns and geopolitical tensions such as those between Russia and Ukraine have created similar volatility in the price of fuel oil used by our marine customers, including low-sulfur fuel oil. A reduction in the price of low-sulfur fuel oil could negatively affect the demand for our marine scrubber systems, which could impact our sales of marine scrubbers and our operating results.

We may be adversely affected by global and regional economic conditions and legislative, regulatory and political developments.

We sell our products around the world, and we expect to continue to derive a substantial portion of sales from outside the U.S. The uncertain macroeconomic environment caused by the prolonged outbreak of COVID-19 may adversely affect our results and could have a negative impact on demand for our products. Customers or suppliers may experience cash flow problems and as a result, may modify, delay or cancel plans to purchase our products, and suppliers may significantly and quickly increase their prices or reduce their output. Additionally, if customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, amounts owed to us. Any inability of current and/or potential customers to purchase our products and/or to pay us for our products may adversely affect our sales, earnings and cash flow. Sales and earnings could also be affected by our ability to manage the risks and uncertainties associated with the application of local legal requirements or the enforceability of laws and contractual obligations, trade protection measures, changes in tax laws, regional political instability, war, terrorist activities, severe or prolonged adverse weather conditions and natural disasters as well as health epidemics or pandemics.

Our success will depend, to a large degree, on the expertise and experience of the members of our management team, the loss of whom could have a material adverse effect on our business.

Our success is, to a large degree, dependent upon the expertise and experience of the management team and its ability to attract and retain qualified personnel who are technically proficient. The loss of the services of one or more of such personnel could have a material adverse effect on our business. Our business may be adversely affected if we are unable to continue to attract and retain such personnel.

We will need to add qualified additional personnel as we expand our business, and we may not be able to employ such persons, which could affect our ability to expand and have a material adverse effect on our business.

In order to expand our product offerings and customer base, we will need to hire additional qualified personnel. We may not be able to identify such persons, and even if we identify them in periods with low unemployment and increased wage inflation, we may not have the funds or ability to employ them, which could have a material adverse effect on our business.

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Future growth of our business depends in part, on the availability of funding for emissions control programs as well as the enforcement of existing emissions-related environmental regulations and further tightening of emission standards worldwide, all of which are beyond our control and the lack of which could negatively affect our future growth.

Future growth of our business depends in part on the availability of funding for emissions control programs, which can be affected by economic as well as political reasons that are beyond our control. If such funding is not available, or delayed, it can negatively affect our future growth prospects. In addition to funding, we also expect that our future business growth will be driven, in part, by the enforcement of existing emissions-related environmental regulations and tightening of emissions standards worldwide, where regulations and standards are frequently contested in litigation. For example, our ability to expand our business in the marine industry is dependent on the effective implementation of IMO 2020, which requires the burning of low-sulfur oil for marine vessels or the inclusion of marine scrubber technology. During the IMO meeting in November 2021, a number of proposals for further mid-term GHG reduction measures were discussed, including market-based measures, to address GHG emissions from shipping, as well as a proposal to establish an International Maritime Research and Development Board; however no immediate regulation was imposed. If existing regulations and emissions standards do not continue to become stricter, are loosened or are not enforced by governmental authorities due to commercial and business pressure, economic conditions or otherwise, it could have a material adverse effect on our business, operating results, financial condition and long-term prospects.

If we are unable to manage our expected growth, our business may be materially and adversely affected.

We expect to expand our operations by increasing our internal resources, making acquisitions and entering into new markets. The growth of our business could place significant strain on our management, operational and financial resources. To manage our future growth, we could be required to improve existing or implement new operational or financial systems, procedures and controls as well as to expand, train and manage a growing employee base. Our failure to accomplish any of these tasks could materially and adversely affect our business. Even if we are successful in integrating future acquisitions into our existing operations, we may not derive the benefits, such as operational or administrative synergies, that we expected from such acquisitions, which may result in the investment of our capital resources without realizing the expected returns on such investment. We also may not recognize the anticipated benefits of completed dispositions or other divestitures we may pursue in the future.

We face constant changes in governmental standards by which our products are evaluated, and if we cannot meet any such changes, some of our products could become obsolete, which could have a material adverse effect on our business.

We believe that due to the intensifying focus on the environment and clean air and water standards throughout the world, new requirements to adhere to more stringent regulations are possible in the future as governmental agencies seek to promote clean air and water among new product certifications. In the event that our products fail to meet these evolving standards, some or all of our products may become obsolete, which could have an adverse effect on our business, operating results, financial condition and long-term prospects.

Our inability to protect our intellectual property rights could negatively affect our business and results of operations.

Our ability to compete effectively depends in part upon developing, maintaining and/or protecting intellectual property rights relevant to our re-crystallized silicon carbide product forms, applications, and manufacturing processes. We rely principally on a combination of patent protection, trade secrets, confidentiality and non-disclosure agreements, and trusted business relationships to establish, maintain and protect the intellectual property rights relevant to our business. These measures, however, may not be adequate in every given case to permit us to gain or retain any competitive advantage, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. In particular, because silicon carbide is a well-known material (developed over 100 years ago), and there has been extensive research, development and publication related to this material and its wide range of applications, obtaining intellectual property rights to key elements of silicon carbide technology can be challenging. Accordingly, at least some of the technology employed in our manufacture of re-crystallized silicon carbide products is not protected by patents.

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Where we consider it appropriate, we seek patent protection in the United States and other countries on technologies used in, or relating to, our re-crystallized silicon carbide product forms, applications, and manufacturing processes. The issuance of a patent is not conclusive as to its scope, validity, and enforceability. Thus, any patent or patent application which may issue into a patent held by us could be challenged, invalidated or held unenforceable in litigation or proceedings before the U.S. Patent and Trademark Office and/or other patent tribunals or circumvented by others. No consistent policy regarding the breadth of patent claims has emerged to date in the United States, and the landscape could become more uncertain in view of future rule changes by the United States Patent and Trademark Office, the introduction of patent reform legislation and decisions in patent law cases by United States federal courts. The patent landscape outside the United States is even less predictable. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, we may fail to apply for patents on important technologies or product candidates in a timely fashion, if at all, and our existing and future patents may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products or technologies, especially given the long history of silicon carbide development.

Our patent strategy involves complex legal and factual questions. Our ability to maintain and solidify our proprietary technology may depend in part upon our success in obtaining patent rights and enforcing those rights once granted or licensed. We do not know whether any of our pending patent applications will result in the issuance of any patents. Our issued patents and those that may be issued in the future may be challenged, invalidated, rendered unenforceable or circumvented, which could limit our ability to prevent competitors from marketing similar or related products, or shorten the term of patent protection that we may have for our products, processes and enabling technologies. In addition, the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies, duplicate technology developed by us or otherwise possess intellectual property rights that could limit our ability to manufacture our products and operate our business.

We also rely on trade secret protection for our confidential and proprietary information. Trade secrets, however, can be difficult to protect. We may not be able to maintain our technology or know-how as trade secrets, and competitors may develop or acquire equally valuable or more valuable technology or know-how related to the manufacture of comparable silicon carbide products. We also seek to protect our confidential and proprietary information, in part, by requiring all employees, consultants and business partners to execute confidentiality and/or nondisclosure agreements upon the commencement of any employment, consulting arrangement or engagement with us. These agreements generally require that all confidential and proprietary information developed by the employee, consultant, or business partner, or made known to the employee, consultant or business partner by us, during the course of the relationship with us, be kept confidential and not disclosed to third parties. These agreements may be breached and may not provide adequate remedies in the event of breach. To the extent that our employees, consultants, or business partners use intellectual property owned by others in their work for and/or with us, disputes could arise as to the rights in related or resulting technologies, know-how or inventions. Moreover, while we also require customers and vendors to execute agreements containing confidentiality and/or nondisclosure provisions, we may not have obtained such agreements from all of our customers and vendors. In addition, our trade secrets may otherwise become known or be independently discovered by competitors, customers, or vendors. Such customers or vendors may also be subject to laws and regulations that require them to disclose information that we would otherwise seek to keep confidential.

Moreover, others may independently develop and obtain patents covering technologies that are similar or superior to the product forms, applications, or manufacturing processes that we employ. If that happens, we may need to obtain licenses for these technologies and may not be able to obtain licenses on reasonable terms, if at all, which could limit our ability to manufacture our future products and operate our business. In addition, third parties could utilize our intellectual property rights in territories where we do not have intellectual property protection. Such third parties may then try to import products made using our intellectual property rights into the United States or other countries, which could have a material adverse effect on our business.

Our contracts with third parties could negatively affect our intellectual property rights.

To further strengthen our product development efforts, we continue to work closely with customers, the Danish government and other third parties to research and develop advancements in silicon carbide product forms, applications, manufacturing processes and related products and technologies. We have entered into agreements with private third parties and have been awarded a research and development contract with the Danish government to independently and jointly research, design and develop new devices and systems that incorporate our silicon carbide technologies. We expect to enter into similar private agreements and be awarded similar government contracts in the future. In some instances, the research and development activities that we conduct under these contracts may produce intellectual property to which we may not have ownership or exclusive rights and will be unable to protect or monetize. Furthermore, there could be disputes between us and a private third party as to the ownership rights to any inventions that we develop in collaboration with such third party. Any such dispute may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our core business or harm our reputation.

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We could become subject to intellectual property litigation that could be costly, limit or cancel our intellectual property rights, divert time and efforts away from business operations, require us to pay damages and/or otherwise have an adverse material impact on our business.

The success of our business is highly dependent on protecting our intellectual property rights. Unauthorized parties may attempt to copy or otherwise obtain and use our products and/or enabling technologies. Policing the unauthorized use of our intellectual property rights is difficult and expensive, as is enforcing these rights against unauthorized use by others. Identifying unauthorized use of our intellectual property rights is difficult because we may be unable to monitor the processes and/or materials being employed by other parties. The steps we have taken may not prevent unauthorized use of our intellectual property rights, particularly in foreign countries where enforcement of intellectual property rights may be more difficult than in the United States.

Our continued commercial success will also depend in part upon not infringing the patents or violating the intellectual property rights of third parties. We are aware of patents and patent applications generally relating to aspects of our technologies filed by, and issued to, third parties. Nevertheless, we cannot determine with certainty whether such patents or patent applications of other parties may materially affect our ability to conduct our business. There may be existing patents of which we are unaware that we may inadvertently infringe, resulting in claims against us or our customers. In the event that the manufacture, use and/or sale of our products or processes is challenged, or if our product forms or processes conflict with the patent rights of others, third parties could bring legal actions against us or our customers in the United States, Europe or other countries, claiming damages and seeking to enjoin the manufacturing and/or marketing of our products. Additionally, it is not possible to predict with certainty what patent claims may issue from any relevant third-party pending patent applications. Third parties may be able to obtain patents with claims relating to our product forms, applications and/or manufacturing processes which they could attempt to assert against us or our customers.

In either case, litigation may be necessary to enforce, protect or defend our intellectual property rights or to determine the validity and scope of the intellectual property rights of others. Any litigation could be unsuccessful, cause us to incur substantial costs, divert resources and the efforts of our personnel away from daily operations, harm our reputation and/or result in the impairment of our intellectual property rights. In some cases, litigation may be threatened or brought by a patent holding company or other adverse patent owner who has no relevant product revenues and against which our patents may provide little or no deterrence. If we are found to infringe any patents, we could be required to (1) pay substantial monetary damages, including lost profits, reasonable royalties and/or treble damages if an infringement is found to be willful and/or (2) totally discontinue or substantially modify any products or processes that are found to be in violation of another party’s intellectual property rights. If our competitors are able to use our technology without payment to us, our ability to compete effectively could be harmed.

We face competition and technological advances by competitors, which could adversely affect the sales of our products.

The growth of our Company depends in part on maintaining and growing the sales of our current products in existing and new markets, but also in developing new products and technologies. There is significant competition among companies that provide solutions for pollutant emissions from diesel engines and water purification solutions. Several companies market products that compete directly with our products. Other companies offer products that potential customers may consider to be acceptable or superior alternatives to our products and services, including products that are verified by the Environmental Protection Agency or other environmental authorities. We face direct competition from companies with greater financial, technological, manufacturing and personnel resources. Newly developed products could be more effective and cost-efficient than our current or future products.

Failure to obtain adequate supplies of raw materials or failure to obtain raw materials at affordable prices could negatively affect our ability to supply products to our customers and negatively affect our profit margins.

We use silicon carbide, steel, plastic, platinum and palladium in the manufacture of our products. As other industries develop products utilizing silicon carbide, we may not be able to obtain adequate supplies of silicon carbide required for the manufacture of our existing and future products that would prevent us from supplying products to our customers and materially affect our business. Furthermore, any increased demand for, the raising of tariff rates on, or an increase of non-tariff trade barriers that apply to silicon carbide, steel, plastic, platinum, or palladium could increase the price we must pay to obtain it and could adversely affect our profitability, which would have an adverse effect on our financial results.

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We may rely on subcontractors to meet current demand for our products, and we may need to obtain additional manufacturing capacity in order to increase production of our existing products or to produce our proposed new products, the failure of which could have a material adverse effect on our operations.

We may not have sufficient internal manufacturing capacity to meet the current demand for our products, and we may need to rely on subcontractors to enable us to meet this demand. Since we may rely on our subcontractors for a significant amount of our production capacity, the loss of the services of our subcontractors would have a material adverse effect on our business. Our plans for the growth of our business rely upon increasing sales of our existing products and systems and developing and marketing new products. We may not have adequate internal manufacturing facilities to substantially increase production of our products, and obtaining additional manufacturing capacity in-house could require substantial capital expenditures. We may not have the capital resources to obtain or construct new facilities to expand manufacturing capacity and meet increasing demand for our products, which could have a material adverse effect on our operations. Conversely, any significant decrease in demand for our products could create idle plant capacity and an inability to cover fixed costs, which could adversely impact our results of operations and financial condition.

Foreign currency fluctuations could adversely impact financial performance.

Our reporting currency is the United States Dollar ($). Because of our activities in Denmark, the European Continent, China, and other countries, we are exposed to fluctuations in foreign currency rates. Most income and expense related transactions are denominated in other currencies than the reporting currency, and furthermore, a certain portion of the excess cash balances may be held in other currencies than the reporting currency or in bank accounts outside the United States, causing risks of currency fluctuations when translating balances to the official currency rate at the end of the reporting period. We may manage the risk to such exposure by active cash flow management, and in some cases, by entering into foreign currency futures and option contracts; however, we can make no assurance that such actions will be sufficient to offset a material adverse effect on our operations in the future. As of December 31, 2021 and 2020 we have not entered into any derivate contracts to hedge our currency exposure.

Any liability for environmental harm or damages resulting from technical faults or failures of our products could be substantial and could materially adversely affect our business and results of operations.

Customers rely upon our products to meet emissions control standards imposed upon them by the government. Failure of our products to meet such standards could expose us to claims from customers. Our products are also integrated into goods used by consumers, and therefore a malfunction or the inadequate design of our products could result in product liability claims. Any liability for environmental harm or damages resulting from technical faults or failures could be substantial and could materially adversely affect our business and results of operations. In addition, a well-publicized actual or perceived problem could adversely affect the market’s perception of our products, which would materially impact our financial condition and operating results.

We could become liable for damages resulting from our manufacturing activities, which could have a material adverse effect on our business or cause us to cease operations.

The nature of our manufacturing operations exposes us to potential claims and liability for environmental damage, personal injury, loss of life and damage to, or destruction of, property. Our manufacturing operations are subject to numerous laws and regulations that govern environmental protection and human health and safety. These laws and regulations have changed frequently in the past, and it is reasonable to expect additional and more stringent changes in the future. Our manufacturing operations may not comply with future laws and regulations, and we may be required to make significant unanticipated capital and operating expenditures to bring our operations within compliance with such evolving regulations. If we fail to comply with applicable environmental laws and regulations, manufacturing guidelines, and workplace safety requirements, governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits, and private parties may seek damages from us. Under such circumstances, we could be required to curtail or cease operations, conduct site remediation or other corrective action, or pay substantial damage claims for which we may not have sufficient or any insurance coverage for claims.

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A significant portion of our assets and some of our officers and directors may be located outside of the United States; therefore, it may be difficult for an investor to enforce within the United States any judgments obtained against us or such officers and directors.

A significant portion of our assets are located outside of the United States. In addition, the majority of our officers and potentially some of our directors are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for an investor to affect service of process or enforce within the United States any judgments obtained against us or such officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts of other jurisdictions would recognize or enforce judgments of United States courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in other jurisdictions against us or such officers and directors predicated upon the securities laws of the United States or any state thereof.

We have a plan to establish a joint venture in the Middle East and may engage in additional collaborations, joint ventures, or strategic alliances in the future, and we may not realize the benefits of such arrangements.

LiqTech, has signed a joint venture agreement to supply and operate water treatment systems for oil and gas producers in the Middle East with a local company. We expect to deliver technological know-how, design of water treatment systems and components to support potential projects in the Middle East. The joint venture agreement is structured as a jointly owned limited liability company incorporated under the laws in the local country, with LiqTech Water Projects holding 49% of the shares. All profits of the company are to be allocated proportionally to the ownership share, and none of the parties are liable for the company’s liabilities towards third parties. As of year-end 2021, the joint venture was not legally established.

Additionally, from time to time, we may enter into other joint ventures with other entities. Establishment of a joint venture involves significant risks and uncertainties, including (i) our inability to cooperate with our local partner, (ii) our local partner having economic, business, or legal interests or goals that are inconsistent with ours, and (iii) the potential that our local partner may be unable to meet its economic or other obligations, which may require us to fulfill those obligations alone. In any joint venture we engage in, we will rely on our local partner for the implementation of much of any such joint venture operation, and the success of any such operation is thus not entirely within our control. Any failure or perceived failure of a joint venture may have a material impact on our operations and financial condition.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to assess the effectiveness of our internal control over financial reporting and to disclose in our filing if such controls were unable to provide assurance that a material error would be prevented or detected in a timely manner. We have an ongoing program to review the design of our internal controls framework in keeping with changes in business needs, implement necessary changes to our controls design and test the system and process controls necessary to comply with these requirements. If our internal controls over financial reporting are determined to be ineffective, resulting in material weaknesses and/or significant deficiencies; investor perceptions regarding the reliability of our financial statements may be adversely affected, which could cause a decline in the market price of our stock and otherwise negatively affect our liquidity and financial condition.

In Item 9A, we disclose that, with respect to the standards of Sarbanes-Oxley Section 404 and the internal controls standard to which we are subjected, we reported material weaknesses in our internal controls over financial reporting. For additional information on this item, please see Item 9A. Controls and Procedures.

Although we believe our historical efforts have strengthened our internal control over financial reporting (and we concluded that our financial statements were reliable, notwithstanding the material weakness we reported), we cannot be certain that our revised internal control practices will ensure that we will have or maintain adequate internal control over financial reporting in future periods. Any failure to have or maintain such internal controls could adversely impact our ability to report our financial results accurately and on a timely basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations.

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We may have risks associated with security of our information technology systems.

We make significant efforts to maintain the security and integrity of our information technology systems and data. Despite significant efforts to create security barriers to such systems, it is virtually impossible for us to entirely mitigate this risk. There is a risk of industrial espionage, cyber-attacks, misuse or theft of information or assets, or damage to assets by people who may gain unauthorized access to our facilities, systems, or information. Such cybersecurity breaches, misuse, or other disruptions could lead to the disclosure of confidential information; improper usage and distribution of our intellectual property; theft, manipulation, and destruction of private and proprietary data; and production downtimes. Although we actively employ measures to prevent unauthorized access to our information systems, preventing unauthorized use or infringement of our rights is inherently difficult. These events could adversely affect our financial results, and any legal action in connection with any such cybersecurity breach could be costly and time-consuming, may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, we must frequently expand our internal information system to meet increasing demand in storage, computing and communication, which may result in increased costs. Our internal information system is expensive to expand and must be highly secure due to the sensitive nature of our customers’ information that we transmit. Building and managing the support necessary for our growth places significant demands on our management and resources. These demands may divert such resources from the continued growth of our business and implementation of our business strategy.

RISKS RELATED TO OUR COMMON STOCK

Future equity financings or convertible debt would dilute your ownership and could adversely affect your common stock ownership rights in comparison with those of other security holders.

Our board of directors has the power to issue additional shares of common or preferred stock without stockholder approval. In general, stockholders do not have preemptive rights to any common stock issued by us in the future; therefore, stockholders may experience additional dilution of their equity investment if we issue additional shares of common stock in the future, including shares issuable under equity incentive plans, or if we issue securities that are convertible into shares of our common stock.

If additional funds are raised through the issuance of equity or convertible debt securities, the percentage of ownership of our existing stockholders will be reduced, and such newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we issue additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder. In addition, such stock issuances might result in a reduction of the market value of our common stock, which could make our stock unattractive to existing stockholders.

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Provisions in our articles of incorporation and bylaws could discourage a change in control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, thereby adversely affecting existing stockholders.

Our articles of incorporation and bylaws contain provisions that may have the effect of making it more difficult or delaying attempts by others to obtain control of our Company, even when these attempts may be in the best interests of stockholders. For example, our articles of incorporation authorize our Board of Directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of common stock. These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.

There is limited trading volume of our common stock, which could make it difficult for you to liquidate an investment in our common stock in a timely manner.

Since April 16, 2019, our common stock has been traded on Nasdaq Capital Market under the ticker LIQT. Because there is limited volume in our common stock, investors may not be able to liquidate their investments when they desire to do so.

In addition, if we fail to meet the criteria set forth in SEC and Nasdaq Capital Market rules and regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity.

If securities analysts do not publish research or reports about our business or if they downgrade us or our sector, the price of our common stock could decline.

The trading market for our common stock will depend in part on research and reports that industry or financial analysts publish about us or our business. Furthermore, if one or more of the analysts who cover us downgrades us, the industry in which we operate, or the stock of any of our competitors, the price of our common stock may decline. If one or more of these analysts ceases coverage altogether, we could lose visibility, which could also lead to a decline in the price of our common stock.

The market price of our common stock has been and may continue to be volatile.

The market price of our common stock has been volatile and fluctuates widely in response to various factors that are beyond our control. The price of our common stock is not necessarily indicative of our operating performance or long-term business prospects. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. Factors such as the following could cause the market price of our common stock to fluctuate substantially:

| ● | the underlying price of the commodities that affect our key markets of industrial water filtration, marine, and oil & gas;

| ● | announcements of capital budget changes by major customers;

| ● | the introduction of new products by our competitors;

| ● | announcements of technology advances by us or our competitors;

| ● | current events affecting the political and economic environment in the United States, Europe or Asia;

| ● | conditions or industry trends, including demand for our products, services and technological advances;

| ● | changes to financial estimates by us or by any securities analysts who might cover our stock;

| ● | additions or departures of our key personnel;

| ● | government regulation of our industry;

| ● | seasonal, economic, or financial conditions;

| ● | our quarterly operating and financial results;

| ● | litigation or public concern about the safety of our products; or

| ● | the effect of COVID-19.

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The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly. In particular, the market price of our common stock may be influenced by changes in governmental regulations regarding diesel particle emissions and marine wastewater because demand for our products and services is closely related to those regulations. The stock market in general experiences, from time to time, extreme price and volume fluctuations. Periodic and/or continuous market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility may be worse if the trading volume of our common stock is low.

Future sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline.

If any significant number of our outstanding shares are sold, such sales could have a depressive effect on the market price of our stock. We are unable to predict the effect, if any, that the sale of shares, or the availability of shares for future sale, will have on the market price of the shares prevailing from time to time. Sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could depress prevailing market prices for the shares. Such sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that we deem appropriate.

The Company is considered a “smaller reporting company” and is exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.

As a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”)) we are not required and may not include a Compensation Discussion and Analysis section in our proxy statements; we provide only three years of business information; provide fewer years of selected financial data; and have other “scaled” disclosure requirements that are less comprehensive than issuers that are not “smaller reporting companies,” which could make our stock less attractive to potential investors and could make it more difficult for shareholders to sell their shares.

We have no current plan to pay dividends on our common stock, and investors may lose the entire amount of their investment.

We have no current plans to pay dividends on our common stock; therefore, investors will not receive any funds absent a sale of their shares. We cannot assure investors of a positive return on their investment when they sell their shares, nor can we assure that investors will not lose the entire amount of their investment.

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PUBLIC COMPANY RISK FACTORS

We will continue to incur significant costs as a result of operating as a public company, and our management may be required to devote substantial time to compliance initiatives that ultimately could have a material adverse effect on our financial condition and results of operations.

As a public company, we expect to continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls as well as mandating certain corporate governance practices. Our management and other personnel will continue to devote a substantial amount of time and financial resources to these compliance initiatives.

As a “smaller reporting company” we are still able to take advantage of certain exceptions available to both emerging growth companies and smaller reporting companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemption from providing a “Compensation Discussion and Analysis” section in our proxy statements; providing only three years of business information; and other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies.

If we fail to staff our accounting and finance function adequately or maintain internal control systems adequate to meet the demands that are placed upon us as a public company, we may be unable to report our financial results accurately or in a timely manner and our business and stock price may suffer. The costs of being a public company, as well as diversion of management’s time and attention, may have a material adverse effect on our future business, financial condition and results of operations.

Our actual or perceived failure to adequately protect personal data could adversely affect our business, financial condition, and results of operations.

A wide variety of provincial, state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Further, our legal and regulatory obligations in foreign jurisdictions are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issues rulings that invalidate prior laws or regulations, or to increase penalties significantly. Compliance with these laws and regulations can be costly and can delay or impede the development and offering of new products and services.

For example, the General Data Protection Regulation, which became effective in May 2018, imposes more stringent data protection requirements, and provides for significantly greater penalties for noncompliance, than the European Union laws that previously applied. Additionally, California recently enacted legislation, the California Consumer Privacy Act, which became effective January 1, 2020. We may also be subject to additional obligations relating to personal data by contract that industry standards apply to our practices. Our actual or perceived failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, damage to our reputation, and loss of goodwill, any of which could have a material adverse effect on our operations, financial performance, and business. Further, evolving and changing definitions of personal data and personal information, including the classification of IP addresses, machine identification information, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting business relationships and partnerships that may involve the sharing or uses of data, and may require significant costs, resources, and efforts in order to comply.

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Changes in U.S. Generally Accepted Accounting Principles (“GAAP”) could adversely affect our financial results and may require significant changes to our internal accounting systems and processes.

We prepare our consolidated financial statements in conformity with GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. The FASB periodically issues new accounting standards on a variety of topics. For information regarding new accounting standards, please refer to Note 1, “Description of Business and Significant Accounting Policies – Recent Accounting Pronouncements,” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. These and other such standards generally result in different accounting principles, which may significantly impact our reported results or could result in variability of our financial results.

In preparing our financial statements we make certain assumptions, judgments and estimates that affect amounts reported in our consolidated financial statements, which, if not accurate, may significantly impact our financial results.

We make assumptions, judgments and estimates for a number of items, including the fair value of financial instruments, goodwill, long-lived assets and other intangible assets; the realizability of deferred tax assets; the recognition of revenue and the fair value of stock awards; and others. We also make assumptions, judgments and estimates in determining the accruals for employee-related liabilities, including commissions and variable compensation, and in determining the allowance or provisions for uncertain tax positions, doubtful accounts, excess or obsolete inventory, and legal contingencies. These assumptions, judgments and estimates are drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements. Actual results could differ materially from our estimates, and such differences could significantly impact our financial results.

Our business could be negatively affected as a result of the actions of activist shareholders, and such activism could impact the trading value of our securities.

In recent years, shareholder activists have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in the governance, strategic direction and operations of the Company. Such proposals may disrupt our business and divert the attention of our Board of Directors, management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, interfere with our ability to execute our strategic plan, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. A proxy contest for the election of directors at our annual meeting could also require us to incur significant legal fees and proxy solicitation expenses. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Our business could be negatively impacted the by surge in geopolitical unrest and associated market turmoil negatively impacting both financial markets.

Increased geopolitical tensions and potential prolonged inflationary pressure combined with increased commodity prices and general volatility across financial markets could negatively impact demand for our products and services due to temporary or even permanent reductions in investments across the global transportation, shipping, and energy industries. The relevance and economic benefits of our systems may also be undermined by a delayed introduction or compliance with both environmental and regulatory efforts. Furthermore, potential sanctions imposed on select countries, could adversely affect our supply chain and overall demand, thus reducing our ability to timely source raw materials and deliver finished goods and services to our clients.

Item 1B. | Unresolved Staff Comments

None.

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Item 2. | Properties

Our corporate headquarters are located at Industriparken 22C, 2750 Ballerup, Denmark. We lease approximately 67,000 square feet at our Ballerup location, of which approximately 10,000 square feet is used for office space and 57,000 square feet is used for production. The lease will expire on August 31, 2024. We also conduct operations at Benshøj Industrivej 24, 9500 Hobro, Denmark, where we lease approximately 45,750 square feet, of which approximately 10,750 square feet is used for office space and 35,000 square feet is used for production. The lease will expire on November 30, 2034. Other operations are located at Sindalsvej 38-40, Risskov, Denmark, where we lease approximately 19,500 square feet, of which approximately 2,200 square feet is used for office space and 17,300 square feet is used for production. The leases will expire on August 31, 2024.

On September 23, 2021, LiqTech entered into a Lease Agreement through its wholly-owned subsidiary LiqTech Emission Control A/S, effective September 1, 2021, for a minimum term of eight years, and thereafter renewable upon six months’ notice, with Plainvim (Taicang) Industrial Park Co., Ltd., a company organized under the laws of the Republic of China, pursuant to which LiqTech agreed to lease 91,752 square feet of property located at No. 525, Lingang South Road, Yuewang, Shaxi Town, Taicang City, Jiangsu Province, China. The China property will be used primarily for the production, warehousing and storage of filtration supplies, products, and equipment and for ancillary office purposes.

Item 3. | Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Please reference Note 7 - Agreements, commitments and contingencies for details on such litigation.

Item 4. | Mine Safety Disclosures.

Not applicable.

Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is currently quoted on the Nasdaq Capital Market under the symbol LIQT.

As of December 31, 2021, there were approximately 32 stockholders of record of our common stock as reported by our transfer agent, one of which is Cede & Co., a nominee for Depository Trust Company (“DTC”). All of the shares of common stock held by brokerage firms, banks, and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co. as one stockholder.

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;

| ● | our earnings and cash flow;

| ● | our capital requirements;

| ● | our financial condition; and

| ● | 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.

Item 6. | Selected Financial Data

Not applicable.

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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a Nevada corporation, formerly named Blue Moose Media, Inc. In October 2011, we changed our name to LiqTech International, Inc. For more than two decades we have developed and provided state-of-the-art technologies for gas and liquid purification using silicon carbide ceramic filters, particularly highly specialized filters for the control of soot exhaust particles from diesel engines and for liquid filtration. Using nanotechnology, LiqTech develops products using proprietary silicon carbide technology. LiqTech's products are based on unique silicon carbide membranes that facilitate new applications and improve existing technologies. In particular, the Company has developed a new standard of water filtration technology to meet the ever-increasing demand for higher water quality. 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.

2021 Developments

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.

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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 years ended December 31, 2021 and 2020 in U.S. dollars, except for percentages.

|  | For the Year Ending December 31, |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Period to Period Change |
|  | 2021 |  |  | As a % of Sales |  |  | 2020 |  |  | As a % of Sales |  |  |  | $ |  |  | Percent % |
Revenue |  |  | 18,273,442 |  |  |  | 100.0 | % |  |  | 22,526,201 |  |  |  | 100.0 | % |  |  | (4,252,759 | ) |  |  | (18.9 | )%
Cost of Goods Sold |  |  | 16,697,296 |  |  |  | 91.4 |  |  |  | 20,379,519 |  |  |  | 90.5 |  |  |  | (3,682,223 | ) |  |  | (18.1 | )
Gross Profit |  |  | 1,576,146 |  |  |  | 8.6 |  |  |  | 2,146,882 |  |  |  | 9.5 |  |  |  | (570,536 | ) |  |  | (26.6 | )
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 4,564,188 |  |  |  | 25.0 |  |  |  | 2,918,418 |  |  |  | 13.0 |  |  |  | 1,645,770 |  |  |  | 56.4 |
General and administrative expenses |  |  | 5,836,629 |  |  |  | 31.9 |  |  |  | 6,205,040 |  |  |  | 27.5 |  |  |  | (368,411 | ) |  |  | (5.9 | )
Research and development expenses |  |  | 1,862,653 |  |  |  | 10.2 |  |  |  | 1,278,331 |  |  |  | 5.7 |  |  |  | 584,322 |  |  |  | 45.7 |
Total Operating Expenses |  |  | 12,263,470 |  |  |  | 67.1 |  |  |  | 10,401,789 |  |  |  | 46.2 |  |  |  | 1,861,681 |  |  |  | 17.9 |
Loss from Operations |  |  | (10,687,324 | ) |  |  | (58.5 | ) |  |  | (8,255,107 | ) |  |  | (36.6 | ) |  |  | (2,432,217 | ) |  |  | 29.5 |
Other Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on modification of earn-out liability |  |  |  |  |  |  | 0.0 |  |  |  | 306,073 |  |  |  | 1.4 |  |  |  | (306,077 | ) |  |  | (100.0 | )
Interest and other income |  |  | 371,467 |  |  |  | 2.0 |  |  |  | 139,513 |  |  |  | 0.6 |  |  |  | 231,954 |  |  |  | 166.3 |
Interest expense |  |  | (708,176 | ) |  |  | (3.9 | ) |  |  | (120,903 | ) |  |  | (0.5 | ) |  |  | (587,273 | ) |  |  | 485.7 |
Amortization discount on Convertible Note |  |  | (835,331 | ) |  |  | (4.6 | ) |  |  |  |  |  |  |  |  |  |  | (835,331 | ) |  |  |  |
Fair value adjustment of warrants |  |  |  |  |  |  | 0.0 |  |  |  | (901,250 | ) |  |  | (4.0 | ) |  |  | (901,250 | ) |  |  | (100.0 | )
Gain (Loss) on currency transactions |  |  | 668,225 |  |  |  | 3.7 |  |  |  | (1,469,607 | ) |  |  | (6.5 | ) |  |  | 2,137,862 |  |  |  | (145.5 | )
Gain (Loss) on sale of fixed assets |  |  | 1,113 |  |  |  | 0.0 |  |  |  | 27,772 |  |  |  | 0.1 |  |  |  | 26,659 |  |  |  | 96.0 |
Total Other Income (Expense) |  |  | (502,672 | ) |  |  | (2.8 | ) |  |  | (2,018,398 | ) |  |  | 9.0 |  |  |  | 1,515,726 |  |  |  | (75.1 | )
Loss Before Income Taxes |  |  | (11,189,996 | ) |  |  | (61.2 | ) |  |  | (10,273,505 | ) |  |  | (45.6 | ) |  |  | (916,491 | ) |  |  | 8.9 |
Income Taxes Provision (Benefit) |  |  | (63,036 | ) |  |  | (0.3 | ) |  |  | (465,145 | ) |  |  | (2.1 | ) |  |  | 402,109 |  |  |  | (86.4 | )
Net Income/(Loss) |  |  | (11,126,960 | ) |  |  | (60.9 | ) |  |  | (9,808,360 | ) |  |  | (43.5 | ) |  |  | (1,318,600 | ) |  |  | 13.4 |

Revenues

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 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.

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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

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, 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.

Expenses

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, 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, 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:

|  | 2021 |  |  | 2020 |
Compensation for vesting of restricted stock awards issued to the Board of Directors |  | $ | 197,500 |  |  | $ | 163,224 |
Compensation for vesting of restricted stock awards issued to management |  |  | 283,604 |  |  |  | 180,556 |
Total Non-Cash Compensation |  | $ | 481,105 |  |  | $ | 343,780 |

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 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.

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Other income (expenses)

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) 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.

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Liquidity and Capital Resources

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 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. For that purpose, we maintain a guaranteed credit line of DKK13,000,000 (approximately $2,000,000). The credit line is secured by a cash deposit of $2,000,000.

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Cash Flows

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, 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.

|  | 2021 |  |  | 2020 |
Net Cash Used in Operating Activities |  | $ | (7,203,843 | ) |  | $ | (2,598,865 | )
Net Cash Used in Investing Activities |  |  | (1,450,139 | ) |  |  | (4,008,521 | )
Net Cash Provided by Financing Activities |  |  | 13,902,999 |  |  |  | 7,216,902 |
Net Change in Cash and Cash Equivalents |  |  | 4,224,931 |  |  |  | 3,480,517 |
Cash and Cash Equivalents at End of Period |  | $ | 17,489,380 |  |  | $ | 13,264,449 |

Off-Balance Sheet Arrangements

As of December 31, 2021, we had no off-balance sheet arrangements. We are not aware of any material transactions that are not disclosed in our consolidated financial statements.

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 margin;
| ● | 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 margin 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 margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.

We discuss these policies further below, as well as the estimates and judgments involved.

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Accounts Receivable / Long Term Receivable / Allowance for Doubtful Accounts / Bad Debt

We assess the collectability of accounts receivable and long-term receivable on an ongoing basis and establish an allowance for doubtful accounts when collection is no longer reasonably assured. In establishing the allowance, we consider factors such as known troubled accounts, historical experience, age of receivables, financial and liquidity information that is publicly accessible, and other currently available evidence.

The roll-forward of the allowance for doubtful accounts for the year ended December 31, 2021 and December 31, 2020 was as follows:

|  | 2021 |  |  | 2020 |
Allowance for doubtful accounts at the beginning of the period |  | $ | 498,044 |  |  | $ | 612,434 |
Bad debt expense |  |  | (28,499 | ) |  |  | 320,270 |
Receivables written off during the periods |  |  | (24,415 | ) |  |  | (484,265 | )
Effect of currency translation |  |  | (36,054 | ) |  |  | 49,605 |
Allowance for doubtful accounts at the end of the period |  | $ | 409,076 |  |  | $ | 498,044 |

Goodwill and Definite-life intangible assets

The Company accounts for Goodwill and definite-life intangible assets in accordance with provisions of the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles, Goodwill and Other. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of Topic 350. Impairment losses arising from this impairment test, if any, are included in operating expenses in the period of impairment. Topic 350 requires that definite intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with Topic 360, criteria for recognition of an impairment of Long-Lived Assets.

The Company did not record an impairment charge on goodwill during the years ended December 31, 2021 and 2020, as management's estimated fair value of the reporting unit exceeded its carrying value determined during impairment testing in the fourth quarters of 2021 and 2020.

Long-Lived Assets

We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. We measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. The impairment is measured by comparing the difference between the asset grouping’s carrying value and its fair value.

Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows. Due to our asset usage model and the interchangeable nature of our ceramic filter manufacturing capacity, we must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make manufacturing process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific filter manufacturing tools and building improvements. If we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful lives.

Management has analyzed the impact of the COVID-19 pandemic on its financial statements as of December 31, 2021 and has determined that the changes to its significant judgements and estimates did not have a material impact with respect to goodwill, intangible assets or long-lived assets. During the years ended December 31, 2021 and 2020, no impairment charge of long-lived assets has been recorded.

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Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified retrospective method as of January 1, 2018.

The Company sells products throughout the world; sales by geographical region are as follows:

|  | % Distribution |  |  | For the Year Ended December 31 |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
North America |  |  | 17 | % |  |  | 3 | % |  | $ | 3,121,797 |  |  | $ | 656,032 |
Australia |  |  | 2 | % |  |  | 2 | % |  |  | 401,485 |  |  |  | 524,255 |
Asia |  |  | 23 | % |  |  | 15 | % |  |  | 4,256,585 |  |  |  | 3,372,286 |
Europe |  |  | 58 | % |  |  | 80 | % |  |  | 10,493,574 |  |  |  | 17,973,628 |
|  |  | 100 | % |  |  | 100 | % |  | $ | 18,273,442 |  |  | $ | 22,526,201 |

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

|  | % Distribution |  |  | For the Year Ended December 31 |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Liquid filters and systems |  |  | 39 | % |  |  | 63 | % |  | $ | 7,196,465 |  |  | $ | 14,147,842 |
Diesel particulate filters |  |  | 39 | % |  |  | 22 | % |  |  | 7,183,868 |  |  |  | 5,131,891 |
Plastics components |  |  | 20 | % |  |  | 12 | % |  |  | 3,615,681 |  |  |  | 2,647,366 |
Development projects |  |  | 2 | % |  |  | 3 | % |  |  | 277,428 |  |  |  | 599,102 |
|  |  | 100 | % |  |  | 100 | % |  | $ | 18,273,442 |  |  | $ | 22,526,201 |

For membranes, diesel particulate filters and plastic components, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied, which occurs when control of the product transfers to the customer or when services are rendered by the Company. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer. Revenue for service contracts is recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right for payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Given the insignificant days between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer, which typically occurs upon shipment of the system in accordance with the terms of the contract. In connection with the system sale, it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time of provision of the commissioning services together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e. the first performance obligation), some of the invoicing will still be awaiting commissioning and is therefore recognized as Contract assets.

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Aftermarket sales represent parts, extended warranties, and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.

The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs such as labor and materials. 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 when 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. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.

Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but has not yet been billed. Contract assets are transferred to receivables when the right to consideration is unconditional and billed per the terms of the contractual agreement. Contract liabilities are payments received from customers prior to satisfaction of performance obligations, and these balances are typically related to prepayments for third-party expenses that are incurred shortly after billing. 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 periods ended December 31, 2021 and December 31, 2020 is as follows:

|  | December 31, 2021 |  |  | December 31, 2020 |
Cost incurred |  | $ | 3,381,994 |  |  | $ | 3,997,161 |
Unbilled project deliveries |  |  | 454,158 |  |  |  | 1,015,977 |
VAT |  |  | 542,255 |  |  |  | 446,608 |
Other receivables |  |  | 60,158 |  |  |  | 75,010 |
Prepayments |  |  | (2,947,736 | ) |  |  | (3,112,118 | )
Deferred Revenue |  |  | (499,146 | ) |  |  | (866,680 | )
|  | $ | 991,682 |  |  | $ | 1,555,958 |
Distributed as follows: |  |  |  |  |  |  |  |
Contract assets |  | $ | 1,906,510 |  |  | $ | 2,708,136 |
Contract liabilities |  |  | (914,828 | ) |  |  | (1,152,178 | )
|  | $ | 991,682 |  |  | $ | 1,555,958 |

Income Taxes

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. Significant changes in these estimates may result in an increase or decrease to our tax provision in a subsequent period.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover the deferred tax assets recorded on our consolidated balance sheets. Should there be a change in our ability to recover our deferred tax assets, however, our tax provision would increase in the period in which we determined that the recovery was not likely. Recovery of a portion of our deferred tax assets is impacted by management's plans and methods of allocating research and development costs to the underlying reporting units.

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The calculation of our tax liabilities involves uncertainties in the application of complex tax regulations in Denmark and the United States. When a tax position is determined uncertain, we recognize liabilities based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that a tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. If uncertainties arise, we re-evaluate the tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

Inventory

The valuation of inventory requires us to estimate excess or obsolete inventory as well as inventory that is not of saleable quality. The determination of excess or obsolete inventory requires us to estimate the future demand for our products. 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, 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, competitors’ 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. If the factory production is below the established normal capacity level, a portion of our manufacturing overhead costs would not be included in the cost of inventory, and therefore would be recognized as cost of sales in that period, which would negatively impact our gross profit. We refer to these costs as excess capacity charges. The Company has been operating below capacity, and excess capacity charges have been recognized as cost of sales.

Loss Contingencies

We are subject to various legal and administrative proceedings along with asserted and potential claims, accruals related to product warranties and potential asset impairments (loss contingencies) that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is required if there is at least a reasonable possibility that a loss has been incurred. The outcomes of legal and administrative proceedings and claims, and the estimation of product warranties and asset impairments, are subject to significant uncertainty. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. To estimate the losses associated with repairing and replacing parts in connection with product warranty, we make judgments with respect to customer claim rates. At least quarterly, we review the status of each significant matter, and we may revise our estimates. These revisions could have a material impact on our results of operations and financial position.

Item 7A. | Quantitative and Qualitative Disclosures about Market Risk.

We are not required to provide quantitative and qualitative disclosures about market risk because we are a smaller reporting company.

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Item 8. | Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

| Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 3627) | 36
Consolidated Balance Sheets at December 31, 2021 and 2020 | 38
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 | 40
Consolidated Statement of Comprehensive Loss for the years ended December 31, 2021 and 2020 | 41
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2021 and 2020 | 42
Consolidated Statement of Cash Flows for the years ended December 31, 2021 and 2020 | 44
Notes to the Consolidated Financial Statements | 46

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of LiqTech International, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LiqTech International, Inc. (“the Company”) as of December 31, 2021, and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company incurred a net loss, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventory Costing

As described in Notes 1 and 2 to the consolidated financial statements, the Company uses a standard costing method to value inventory. Management reviews and assesses the standard costing estimates annually or more frequently in the event circumstances indicate a change in cost structure or material variance from actual has occurred. In addition to raw materials and labor, the Company applies a production overhead allocation cost to each item.

We identified the auditing of inventory costing as a critical audit matter because of the significant estimates and assumptions management used in the determination of the standard costing allocation and overhead allocations. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.

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Our audit procedures consisted of the following:

| ● | Obtaining an understanding and testing management’s process for developing the standard costing model and overhead allocations.

| ● | Assessing the accuracy, completeness, and reasonableness of the costs included in the standard costing model and overhead allocation to ensure all costs capitalized were appropriate, complete and proper.

| ● | Evaluating the appropriateness and reasonableness of the assumptions used by management to allocate costs to specific costs, including assessing the reasonableness of production times, labor requirement and energy usage.

| ● | Performing cost testing on raw material inputs purchased by tracing the recorded costs to supporting third party invoices.

Revenue Recognition – Contracts with Multiple Performance Obligations

As described in Note 1 to the consolidated financial statements, the Company has some contracts with customers that contain multiple performance obligations. For these contracts, management accounts for individual performance obligations separately if they are distinct. As described by management, management exercises judgment and uses estimates in order to (1) determine whether performance obligations are distinct and should be accounted for separately; (2) determine the standalone selling price of each performance obligation; (3) allocate the transaction price among the various performance obligations on a relative standalone selling price basis; and (4) determine whether revenue for each performance obligation should be recognized at a point in time or over time. Revenue recognized in 2021 related to contracts with multiple performance obligations was approximately $7.2 million.

We identified the auditing of revenue from contracts with multiple performance obligations as a critical audit matter because there was significant judgments by management in identifying, evaluating and accounting for performance obligations in contracts with multiple performance obligations, which led to significant auditor judgment and effort in performing procedures to evaluate whether contracts with multiple performance obligations were appropriately identified, evaluated and accounted for by management.

Our audit procedures consisted of the following:

| ● | Obtaining an understanding and testing management’s process for identifying, evaluating, and accounting for contracts with multiple performance obligations.

| ● | Examining revenue arrangements on a test basis, including evaluating the terms and conditions of the arrangements and testing the identification, evaluation, and accounting of the performance obligation.

| ● | Performing procedures to test the completeness and accuracy of the data used to determine stand-alone selling price.

| ● | Evaluating the reasonableness of the approach used to determine stand-alone selling price.

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2018.

Draper, UT

March 30, 2022

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|  | As of |  |  | As of |
|  | December 31, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Current Assets: |  |  |  |  |  |  |  |
Cash, cash equivalents and Restricted cash |  | $ | 17,489,380 |  |  | $ | 13,264,449 |
Accounts receivable, net of allowance for doubtful accounts of $409,076 and $498,044 at December 31, 2021 and December 31, 2020, respectively |  |  | 1,957,579 |  |  |  | 3,129,109 |
Inventories, net of allowance for excess and obsolete inventory of $268,470 and $723,949 at December 31, 2021 and December 31, 2020, respectively |  |  | 5,421,027 |  |  |  | 5,522,038 |
Contract assets |  |  | 1,906,510 |  |  |  | 2,708,136 |
Prepaid expenses and other current assets |  |  | 1,292,285 |  |  |  | 1,031,194 |
Total Current Assets |  |  | 28,066,781 |  |  |  | 25,654,926 |
Long-Term Assets: |  |  |  |  |  |  |  |
Property and Equipment, net of accumulated depreciation of $7,554,803 and $8,908,145 at December 31, 2021 and December 31, 2020, respectively |  |  | 8,858,993 |  |  |  | 10,321,511 |
Operating lease right-of-use assets |  |  | 6,925,807 |  |  |  | 4,947,734 |
Deposits and other assets |  |  | 628,109 |  |  |  | 545,673 |
Intangible assets, net of accumulated amortization of $357,231 and $269,441 at December 31, 2021 and December 31, 2020, respectively |  |  | 334,743 |  |  |  | 480,060 |
Goodwill |  |  | 240,259 |  |  |  | 260,233 |
Total Long-term Assets |  |  | 16,987,911 |  |  |  | 16,555,211 |
Total Assets |  | $ | 45,054,692 |  |  | $ | 42,210,137 |

The accompanying notes are an integral part of these consolidated financial statements.

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|  | As of |  |  | As of |
|  | December 31, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,646,662 |  |  | $ | 2,332,151 |
Accrued expenses |  |  | 4,685,665 |  |  |  | 4,909,531 |
Current portion of finance lease obligations |  |  | 373,824 |  |  |  | 394,839 |
Current portion of operating lease liabilities |  |  | 846,544 |  |  |  | 1,026,235 |
Current portion of convertible note payable |  |  | 8,400,000 |  |  |  | - |
Contract liabilities |  |  | 914,828 |  |  |  | 1,152,178 |
Total Current Liabilities |  |  | 16,867,523 |  |  |  | 9,814,934 |
Deferred tax liability |  |  | 224,779 |  |  |  | 305,167 |
Other liabilities, net of current portion |  |  | 346,939 |  |  |  | - |
Finance lease obligation, net of current portion |  |  | 2,499,591 |  |  |  | 3,112,496 |
Operating lease liability, net of current portion |  |  | 6,154,064 |  |  |  | 4,159,225 |
Convertible note payable, less current portion |  |  | 6,186,936 |  |  |  | - |
Total Long-term liabilities |  |  | 15,412,309 |  |  |  | 7,576,888 |
Total Liabilities |  |  | 32,279,832 |  |  |  | 17,391,822 |
Stockholders' Equity: |  |  |  |  |  |  |  |
Preferred stock; par value $0.001, 2,500,000 shares authorized, 0 and 0 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively |  |  | - |  |  |  | - |
Common stock; par value $0.001, 100,000,000 shares authorized 21,285,706 and 21,655,461 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively |  |  | 21,285 |  |  |  | 21,655 |
Additional paid-in capital |  |  | 70,910,902 |  |  |  | 69,897,698 |
Accumulated deficit |  |  | (53,181,928 | ) |  |  | (42,054,968 | )
Accumulated other comprehensive loss |  |  | (4,975,399 | ) |  |  | (3,046,070 | )
Total Stockholders' Equity |  |  | 12,774,860 |  |  |  | 24,818,315 |
Total Liabilities and Stockholders' Equity |  | $ | 45,054,692 |  |  | $ | 42,210,137 |

The accompanying notes are an integral part of these consolidated financial statements.

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|  | For the Years Ended |
|  | December 31, |
|  | 2021 |  |  | 2020 |
Revenue |  | $ | 18,273,442 |  |  | $ | 22,526,201 |
Cost of Goods Sold |  |  | 16,697,296 |  |  |  | 20,379,519 |
Gross Profit |  |  | 1,576,146 |  |  |  | 2,146,682 |
Operating Expenses: |  |  |  |  |  |  |  |
Selling expenses |  |  | 4,564,188 |  |  |  | 2,918,418 |
General and administrative expenses |  |  | 5,836,629 |  |  |  | 6,205,040 |
Research and development expenses |  |  | 1,862,653 |  |  |  | 1,278,331 |
Total Operating Expenses |  |  | 12,263,470 |  |  |  | 10,401,789 |
Loss from Operations |  |  | (10,687,324 | ) |  |  | (8,255,107 | )
Other Income (Expense) |  |  |  |  |  |  |  |
Gain on modification of earn-out liability |  |  | - |  |  |  | 306,077 |
Interest and other income |  |  | 371,467 |  |  |  | 139,513 |
Interest expense |  |  | (708,176 | ) |  |  | (120,903 | )
Amortization of discount on convertible note |  |  | (835,331 | ) |  |  |  |
Fair value adjustment of warrants |  |  | - |  |  |  | (901,250 | )
Gain (Loss) on currency transactions |  |  | 668,225 |  |  |  | (1,469,607 | )
Gain (Loss) on sale of fixed assets |  |  | 1,113 |  |  |  | 27,772 |
Total Other Income (Expense) |  |  | (502,672 | ) |  |  | (2,018,398 | )
Loss Before Income Taxes |  |  | (11,189,996 | ) |  |  | (10,273,505 | )
Income Tax Benefit |  |  | (63,036 | ) |  |  | (465,145 | )
Net Loss |  |  | (11,126,960 | ) |  |  | (9,808,360 | )
Basic and Diluted Loss Per Share |  | $ | (0.52 | ) |  | $ | (0.46 | )
Basic and Diluted Weighted Average Common Shares Outstanding |  |  | 21,567,112 |  |  |  | 21,209,118 |

The accompanying notes are an integral part of these consolidated financial statements.

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

|  | For the Years Ended |
|  | December 31, |
|  | 2021 |  |  | 2020 |
Net Loss |  |  | (11,126,960 | ) |  |  | (9,808,360 | )
Other Comprehensive Income (Loss) - Currency Translation, net |  |  | (1,929,329 | ) |  |  | 3,120,489 |
Total Comprehensive Loss |  | $ | (13,056,289 | ) |  | $ | (6,687,871 | )

The accompanying notes are an integral part of these consolidated financial statements.

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2021 and 2020

|  | Common Stock |  |  | Additional Paid-in |  |  | Accumulated |  |  | Accumulated Other Compre- hensive |  |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Income (Loss) |  |  | TOTAL |
BALANCE, December 31, 2020 |  |  | 21,655,461 |  |  |  | 21,655 |  |  |  | 69,897,698 |  |  |  | (42,054,968 | ) |  |  | (3,046,070 | ) |  |  | 24,818,315 |
Common stock issued in settlement of RSUs |  |  | 50,245 |  |  |  | 50 |  |  |  | (50 | ) |  |  |  |  |  |  |  |  |  |  | - |
Common shares issued for Convertible Note |  |  | 80,000 |  |  |  | 80 |  |  |  | 531,649 |  |  |  |  |  |  |  |  |  |  |  | 531,729 |
Exchange of common stock to prefunded warrants |  |  | (500,000 | ) |  |  | (500 | ) |  |  | 500 |  |  |  |  |  |  |  |  |  |  |  | - |
Stock-based compensation |  |  |  |  |  |  |  |  |  |  | 481,105 |  |  |  |  |  |  |  |  |  |  |  | 481,105 |
Currency translation, net |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,929,329 | ) |  |  | (1,929,329 | )
Net Income for the year ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (11,126,960 | ) |  |  |  |  |  |  | (11,126,960 | )
BALANCE, December 31, 2021 |  |  | 21,285,706 |  |  |  | 21,285 |  |  |  | 70,910,092 |  |  |  | (53,181,928 | ) |  |  | (4,975,399 | ) |  |  | 12,774,860 |

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2020 and 2019

|  | Common Stock |  |  | Additional Paid-in |  |  | Accumulated |  |  | Accumulated Other Compre- hensive |  |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Income (Loss) |  |  | TOTAL |
BALANCE, December 31, 2019 |  |  | 20,547,668 |  |  |  | 20,548 |  |  |  | 61,398,150 |  |  |  | (32,246,608 | ) |  |  | (6,166,559 | ) |  |  | 23,005,531 |
Common shares issued per Board authorization of RSUs for services by the board of directors |  |  | 8,212 |  |  |  | 8 |  |  |  | 44,992 |  |  |  |  |  |  |  |  |  |  |  | 45,000 |
Common shares issued to settle RSUs for services provided by the board of directors |  |  | 8,333 |  |  |  | 8 |  |  |  | (8 | ) |  |  |  |  |  |  |  |  |  |  | - |
Stock-based compensation |  |  |  |  |  |  |  |  |  |  | 298,780 |  |  |  |  |  |  |  |  |  |  |  | 298,780 |
Exercise of stock options |  |  | 6,248 |  |  |  | 6 |  |  |  | 18,494 |  |  |  |  |  |  |  |  |  |  |  | 18,500 |
Common shares issued for cash at $5.00 per share, net of offering cost of $762,875, May 2020 |  |  | 1,085,000 |  |  |  | 1,085 |  |  |  | 4,661,040 |  |  |  |  |  |  |  |  |  |  |  | 4,662,125 |
Prefunded warrants, 515,000, transferred to equity upon modification in August 2020 |  |  |  |  |  |  |  |  |  |  | 3,476,250 |  |  |  |  |  |  |  |  |  |  |  | 3,476,250 |
Currency translation, net |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,120,489 |  |  |  | 3,120,489 |
Net Income for the year ended December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (9,808,360 | ) |  |  |  |  |  |  | (9,808,360 | )
BALANCE, December 31, 2020 |  |  | 21,655,461 |  |  |  | 21,655 |  |  |  | 69,897,698 |  |  |  | (42,054,968 | ) |  |  | (3,046,070 | ) |  |  | 24,818,315 |

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | For the years Ended |
|  | December 31, |
|  | 2021 |  |  | 2020 |
Cash Flows from Operating Activities: |  |  |  |  |  |  |  |
Net Income (Loss) |  | $ | (11,126,960 | ) |  | $ | (9,808,360 | )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 2,740,241 |  |  |  | 2,827,341 |
Amortization of discount on convertible notes payable |  |  | 835,331 |  |  |  | - |
Stock-based compensation |  |  | 481,105 |  |  |  | 343,780 |
Change in fair value of warrant liability |  |  | - |  |  |  | 901,250 |
Gain on modification of earn-out liability |  |  | - |  |  |  | (306,077 | )
Change in deferred tax asset / liability |  |  | (63,036 | ) |  |  | (63,200 | )
Loss (Gain) on sale of equipment |  |  | (1,113 | ) |  |  | (27,772 | )
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 971,460 |  |  |  | 3,143,651 |
Inventory |  |  | (336,651 | ) |  |  | (322,800 | )
Contract assets |  |  | 610,476 |  |  |  | 2,522,275 |
Prepaid expenses and other current assets |  |  | 479,423 |  |  |  | 565 |
Accounts payable |  |  | (532,718 | ) |  |  | (2,006,919 | )
Accrued expenses |  |  | 798,543 |  |  |  | 1,355,846 |
Operating lease liabilities |  |  | (945,808 | ) |  |  | (874,441 | )
Contract liabilities |  |  | (155,291 | ) |  |  | (269,198 | )
Income taxes payable |  |  | - |  |  |  | (14,806 | )
Total Adjustments |  |  | 3,923,117 |  |  |  | 7,209,495 |
Net Cash used in Operating Activities |  |  | (7,203,843 | ) |  |  | (2,598,865 | )
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |
Purchase of property and equipment |  |  | (1,133,378 | ) |  |  | (3,754,166 | )
Proceeds from sale of property and equipment |  |  | 1,113 |  |  |  | 102,416 |
Purchase of other intangible assets |  |  | - |  |  |  | (55,198 | )
Net cash paid for acquisition |  |  | (317,874 | ) |  |  | (301,573 | )
Net Cash used in Investing Activities |  |  | (1,450,139 | ) |  |  | (4,008,521 | )
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |
Payments on finance lease obligation |  |  | (380,334 | ) |  |  | (38,725 | )
Proceeds from convertible notes payable, net |  |  | 14,283,333 |  |  |  | - |
Proceeds from exercise of stock options |  |  | - |  |  |  | 18,500 |
Proceeds from issuance of prefunded warrants |  |  | - |  |  |  | 2,575,000 |
Proceeds from issuance of common stock, net |  |  | - |  |  |  | 4,662,127 |
Net Cash Provided by Financing Activities |  |  | 13,902,999 |  |  |  | 7,216,902 |
Effect of foreign currency exchange on cash |  |  | (1,024,086 | ) |  |  | 2,871,001 |
Net Change in Cash, Cash Equivalents and Restricted Cash |  |  | 4,224,931 |  |  |  | 3,480,517 |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period |  |  | 13,264,449 |  |  |  | 9,783,932 |
Cash, Cash Equivalents and Restricted Cash at End of Period |  | $ | 17,489,380 |  |  | $ | 13,264,449 |

The accompanying notes are an integral part of these consolidated financial statements.

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | For the Years Ended December 31, |
|  | 2021 |  |  | 2020 |
Supplemental Disclosures of Cash Flow Information: |  |  |  |  |  |  |  |
Cash paid during the period for: |  |  |  |  |  |  |  |
Interest |  | $ | 635,671 |  |  | $ | 103,953 |
Income Taxes |  | $ |  |  |  | $ | 13,726 |
Non-cash financing activities |  |  |  |  |  |  |  |
Original issue discount on convertible note |  |  | 1,800,000 |  |  |  | - |
Convertible Note debt conversion feature |  |  | 3,048,396 |  |  |  | - |
Debt issuance costs on convertible note |  |  | 716,667 |  |  |  | - |
Common Stock issued in conjunction with convertible note financing |  |  | 531,729 |  |  |  | - |

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

The consolidated financial statements include the accounts of LiqTech International, Inc., the “Company” and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this report refer to the Company and its subsidiaries, which are set forth below. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide liquid applications and diesel particulate air filters in the United States, Canada, Europe, Asia and South America. Set forth below is a description of the Company and each of its subsidiaries:

LiqTech International, Inc., a Nevada corporation organized in July 2004, formerly known as Blue Moose Media, Inc.

LiqTech USA, a Delaware corporation and a 100% owned subsidiary of the Company formed in May 2011.

LiqTech Holding A/S (formerly known as LiqTech International A/S), a Danish corporation, incorporated on January 15, 2000 (“LiqTech Holding”), a 100% owned subsidiary of LiqTech USA, handling all joint group activities such as management, marketing, finance, IT etc.

LiqTech NA, Inc. (“LiqTech NA”), incorporated in Delaware on July 1, 2005, a 100% owned subsidiary of LiqTech USA, engaged in the production, marketing and sale of ceramic diesel particulate and liquid filters in the United States and Canada. LiqTech NA has closed operations in January 2021, and all activity in this company has ceased.

LiqTech Water A/S (formerly known as LiqTech Systems A/S), a Danish Corporation (“LiqTech Water”), incorporated on September 1, 2009, engaged in the manufacture of fully automated filtering systems for use within marine applications, municipal pool and spa applications, and other industrial applications within Denmark and international markets.

LiqTech Plastics A/S (formerly known as BS Plastic A/S), a Danish Corporation (“LiqTech Plastics”), acquired on September 1, 2019, engaged in the manufacture of specialized machined and welded plastic parts within Denmark and international markets.

LiqTech Ceramics A/S, a Danish corporation (“LiqTech Ceramics”), incorporated on December 20, 2019, engaged in the development, design, application, marketing and sales of membranes, ceramic diesel particulate and liquid filters, and catalytic converters in Europe, Asia and South America.

LiqTech Water Projects A/S, a Danish corporation (“LiqTech Water Projects”), incorporated on July 28, 2020 that is a dormant company without activity. This company was formed to include the investments for our joint venture in the Middle East.

LiqTech Emission Control A/S, a Danish corporation (“LiqTech Emission Control”), incorporated on March 1, 2021 that is a dormant company without activity. This company was formed to include the investments for our joint venture in China.

LiqTech Environment Technologies (China) Co. Ltd. (“LiqTech China”), incorporated on September 23, 2021, to be engaged in the development, design, application, marketing and sales of ceramic diesel particulate, liquid filters, and catalytic converters in Asia.

LiqTech Germany (“LiqTech Germany”), a 100% owned subsidiary of LiqTech Holding, incorporated in Germany on December 9, 2011. This company is in the process of closing operations, and all activity in this company has ceased.

LiqTech PTE Ltd (“LiqTech Singapore”), a 95% owned subsidiary of LiqTech Holding, incorporated in Singapore on January 19, 2012. This company is in the process of closing operations, and all activity in this company has ceased.

Consolidation -- The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiary. All material intercompany transactions and accounts have been eliminated in the consolidation.

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Reclassification – Certain amounts presented in previously issued financial statements have been reclassified to be consistent with the current period presentation. In the statement of operations and comprehensive loss, the Company has reclassified the prior year comparative amounts of general and administrative expenses and other expenses to be consistent with the current classification.

Functional Currency / Foreign currency translation -- The functional currency of LiqTech International, Inc., and LiqTech USA, Inc. is the U.S. Dollar. The functional currency of LiqTech Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects and LiqTech Emission Control is the Danish Krone (“DKK”); the functional currency of LiqTech China is the Renminbi (“RMB”); the functional currency of LiqTech Germany is the Euro; and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The balance sheet accounts of the foreign subsidiaries are translated into U.S. Dollars at the period-end exchange rates, and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the twelve months ended December 31, 2021 and 2020. Translation gains and losses are deferred and accumulated as a component of other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Significant events -- In March 2020, the World Health Organization declared the outbreak of the 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 initially 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 are required to be present at our production facilities. In addition, many of our employees have been working remotely for select periods in line with recommendations from the government agencies. Throughout 2021 and up until the date of this report, we are maintaining our focus on securing operational continuity despite the infrequent restrictions imposed on our business from various cycles of the pandemic. We strive to protect our employee by maintaining focus on relevant COVID protective measures including, but limited to, maintaining physical distance, cleaning and disinfection of high-touch surfaces, and a general recommendation to our employees to follow government guidelines on vaccination and testing strategy.

We are unable to accurately predict the full impact that COVID-19 will have on our long-term financial condition, results of operations, liquidity and cash flows, and our compliance with the measures implemented to avoid the spread of the virus did have a material adverse impact on our financial results for the fiscal year 2021. 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.

Cash, Cash Equivalents and Restricted Cash -- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of December 31, 2021, and 2020, the Company held $2,125,695 and $1,515,620, respectively, of restricted cash. The restricted cash is held as security by a local financial institution for ensuring a leasing facility and for payment guarantees issued for the benefit of customers in connection with prepayments of sales orders and for warranties after the delivery of sales orders.

Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At December 31, 2021 and December 31, 2020 the Company had $11,346,826 and $0 in excess of the FDIC insured limit, respectively.

Accounts Receivable -- Accounts receivable consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts that reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, age, financial information that is publicly accessible and other currently available evidence.

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The roll-forward of the allowance for doubtful accounts as of December 31, 2021 and December 31, 2020 is as follows:

|  | 2021 |  |  | 2020 |
Allowance for doubtful accounts at the beginning of the period |  | $ | 498,044 |  |  | $ | 612,434 |
Bad debt expense |  |  | (28,499 | ) |  |  | 320,270 |
Receivables written off during the periods |  |  | (24,415 | ) |  |  | (484,265 | )
Effect of currency translation |  |  | (36,054 | ) |  |  | 49,605 |
Allowance for doubtful accounts at the end of the period |  | $ | 409,076 |  |  | $ | 498,044 |

Inventory – Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first-in, first-out method.

For inventory produced, standard costs that approximate actual cost on the FIFO method are used to value inventory. Standard costs are reviewed at least annually by management, or more often in the event that circumstances indicate a change in cost has occurred.

Work in process and finished goods include material, labor, and production overhead costs. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors.

Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts.

Contracts Assets – Contract assets are the Company’s rights to consideration in exchange for goods or services and are recognized when a performance obligation has been satisfied but has not yet been billed. When the Company issues invoices to the customer, and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.

Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit by the customer. Most commonly this invoice is sent to the customer at commissioning of the product or no later than 12 months after the delivery. Further included in Contract Assets are short-term receivables such as VAT and other receivables.

Leases -- The Company has elected to not recognize lease assets and liabilities with an initial term of 12 months or less and to not separate lease and non-lease components. The Company’s accounting for finance leases (formerly called capital lease obligations) remains substantially unchanged. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value. The Company will use the implicit rate when readily determinable. The operating lease ROU asset also included prepaid lease payments and reduced by accrued lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Operating lease cost for lease payments will be recognized on a straight-line basis over the lease term.

Property and Equipment -- Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years.

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Goodwill and Intangible Assets -- The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business, with the residual purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging from one to ten years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of five years.

The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.

Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions.

Revenue Recognition -- On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified retrospective method as of January 1, 2018.

The Company sells products throughout the world; sales by geographical region are as follows for the year ended December 31, 2021 and 2020:

|  | % Distribution |  |  | For the Year Ended December 31 |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
North America |  |  | 17 | % |  |  | 3 | % |  | $ | 3,121,797 |  |  | $ | 656,032 |
Australia |  |  | 2 | % |  |  | 2 | % |  |  | 401,485 |  |  |  | 524,255 |
Asia |  |  | 23 | % |  |  | 15 | % |  |  | 4,256,585 |  |  |  | 3,372,286 |
Europe |  |  | 58 | % |  |  | 80 | % |  |  | 10,493,574 |  |  |  | 17,973,628 |
|  |  | 100 | % |  |  | 100 | % |  | $ | 18,273,442 |  |  | $ | 22,526,201 |

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

|  | % Distribution |  |  | For the Year Ended December 31 |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Liquid filters and systems |  |  | 39 | % |  |  | 63 | % |  | $ | 7,196,465 |  |  | $ | 14,147,842 |
Diesel particulate filters |  |  | 39 | % |  |  | 22 | % |  |  | 7,183,868 |  |  |  | 5,131,891 |
Plastics components |  |  | 20 | % |  |  | 12 | % |  |  | 3,615,681 |  |  |  | 2,647,366 |
Development projects |  |  | 2 | % |  |  | 3 | % |  |  | 277,428 |  |  |  | 599,102 |
|  |  | 100 | % |  |  | 100 | % |  | $ | 18,273,442 |  |  | $ | 22,526,201 |

For membranes, diesel particulate filters and plastic components, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied, which occurs when control of the product transfers to the customer or when services are rendered by the Company. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer. Revenue for service contracts is recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right for payment from the customer. The Company's standard payment terms vary by the type and location of customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Given the insignificant days between revenue recognition and receipt of payment, financing arrangements do not exist between the Company and its customers.

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For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally based on the prices charged to customers or expected cost-plus margin.

System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions stated in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered a second performance obligation and is valued at cost, with the addition of a standard gross margin. This second performance obligation is recognized as revenue at the time of provision of the commissioning services together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e. the first performance obligation), some of the invoicing will still be awaiting commissioning and is therefore recognized as Contract assets.

Aftermarket sales represent parts, extended warranties and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.

The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as labor and materials. 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. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.

The roll-forward of Contract Assets/Liabilities for the year ended December 31, 2021 and December 31, 2020 is:

|  | 2021 |  |  | 2020 |
Cost incurred |  | $ | 3,381,994 |  |  | $ | 3,997,161 |
Unbilled project deliveries |  |  | 454,158 |  |  |  | 1,015,977 |
VAT |  |  | 542,255 |  |  |  | 446,608 |
Other receivables |  |  | 60,158 |  |  |  | 75,010 |
Prepayments |  |  | (2,947,736 | ) |  |  | (3,112,118 | )
Deferred Revenue |  |  | (499,146 | ) |  |  | (866,680 | )
|  | $ | 991,682 |  |  | $ | 1,555,958 |
Distributed as follows: |  |  |  |  |  |  |  |
Contract assets |  | $ | 1,906,510 |  |  | $ | 2,708,136 |
Contract liabilities |  |  | (914,828 | ) |  |  | (1,152,178 | )
|  | $ | 991,682 |  |  | $ | 1,555,958 |

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Advertising Cost -- Costs incurred in connection with advertising of the Company’s products is expensed as incurred. Advertising cost is included in sales expenses, and total advertising costs amounted to $308,880 and $128,826 for the years ended December 31, 2021 and 2020, respectively.

Research and Development Cost -- The Company expenses research and development costs for the development of new products as incurred. Included in operating expense for the years ended December 31, 2021 and 2020 were $1,862,653 and $1,278,331, respectively, of research and development costs.

Income Taxes -- The Company accounts for income taxes in accordance with FASB ASC Topic 740: Accounting for Income Taxes. This statement requires an asset and liability approach for accounting for income taxes.

Income/(Loss) Per Share -- The Company calculates earnings (loss) per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares included in the diluted earnings per share calculation include in-the-money stock options and warrants that have been granted but have not been exercised.

Stock Options and Awards -- During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Stock-based compensation costs of $481,105 and $343,780 have been recognized for the vesting of options and stock awards granted to directors, management and certain key employees for the years ended December 31, 2021 and 2020, respectively.

Warrant Liability -- The Company issued common stock warrants in May 2020 in conjunction with an equity financing. In accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), the fair value of these warrants was initially classified as a liability on the Company’s Consolidated Balance Sheet because, according to the original terms of the warrants, a fundamental transaction could have given rise to an obligation of the Company to pay cash to its warrant holders, which was out of the control of the Company.

Fair Value of Financial Instruments -- The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

| ● | Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
| ● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
| ● | Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable, and accrued expenses approximate their recorded values due to their short-term maturities.

Accounting Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets including accounts receivable; allowance for doubtful accounts; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill and intangible assets; liabilities including contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; warrant liability; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

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Recent Accounting Pronouncements – In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance: The FASB is issuing this Update to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The ASU will be effective for annual reporting periods after December 15, 2021. We are still assessing the impact of ASU 2021-10 on our consolidated financial statements.

On August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods, and early adoption is permitted in annual reporting periods ending after December 15, 2020. We are still assessing the impact of ASU 2020-06 on our consolidated financial statements.

On March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. This ASU is intended to help stakeholders during the global market-wide reference rate transition period and will be in effect for a limited time through December 31, 2022. Adoption is permitted at any time. The Company is currently evaluating the impact on its financial statements.

On March 9, 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU was issued to clarify and improve various financial instruments topics. The guidance has various effective dates but is basically effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The Company adopted ASU 2020-03 effective January 1, 2020 and concluded there was no material impact to the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We will adopt the new standard effective March 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement by removing, modifying and adding certain disclosures. This ASU is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The Company adopted ASU 2018-13 effective January 1, 2020 and concluded there was no material impact to the consolidated financial statements.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Restricted Cash that requires companies, in the Statement of Cash Flows, to explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Consequently, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. For the period ended December 31, 2021, the Company has recorded $2,125,695 as Restricted cash, $15,363,685 as Unrestricted cash, and a total of $17,489,380 as Cash, Cash equivalents and Restricted cash. For the period ended December 31, 2020, the amounts were $1,515,620 in Restricted cash and $11,748,829 in Unrestricted cash.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including subsequently issued ASUs to clarify the implementation guidance in ASU 2016-13. The amendment introduces new guidance for credit losses on financial assets measured at amortized cost, including finance receivables and trade receivables. Under this new model, expected credit losses are based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability, replacing the previous incurred loss model. This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The Company adopted ASU 2016-13 effective January 1, 2020 and concluded there was no material impact to the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

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NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has limited cash and incurred significant recent losses. These factors raise substantial doubt about the ability of the Company to continue as a going concern. There is no assurance that the Company will be successful in raising additional cash through the issuance of debt or equity instruments or return to achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 3 - INVENTORY

Inventory consisted of the following at December 31, 2021 and December 31, 2020:

|  | 2021 |  |  | 2020 |
Furnace parts and supplies |  | $ | 213,224 |  |  | $ | 471,622 |
Raw materials |  |  | 2,144,067 |  |  |  | 1,955,713 |
Work in process |  |  | 1,671,290 |  |  |  | 2,394,481 |
Finished goods and filtration systems |  |  | 1,660,907 |  |  |  | 1,424,171 |
Reserve for excess and obsolescence |  |  | (268,470 | ) |  |  | (723,949 | )
Net Inventory |  | $ | 5,421,027 |  |  | $ | 5,522,038 |

Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movements, expected useful lives, and estimated future demand for the products. The reduction in the reserve for excess and obsolescence reflects the reuse of goods previously classified as obsolete due to shift in demand pattern from external clients.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following on December 31, 2021 and December 31, 2020:

| Useful Life | 2021 |  | 2020 |
Production equipment |  | 3 | - | 10 | $ | 7,425,145 |  | $ | 8,599,728 |
Production equipment - finance lease |  | 3 | - | 10 |  | 3,066,623 |  |  | 4,528,695 |
Lab equipment |  | 3 | - | 10 |  | 117,770 |  |  | 127,560 |
Computer equipment |  | 3 | - | 5 |  | 1,005,223 |  |  | 805,001 |
Vehicles |  | 3 | - | 5 |  | 90,819 |  |  | 115,525 |
Vehicles - finance lease |  | 3 | - | 5 |  | - |  |  | - |
Furniture and fixture |  |  | 5 |  |  | 1,166,071 |  |  | 1,218,386 |
Furniture and fixture - finance lease |  |  | 5 |  |  | 268,208 |  |  | 290,505 |
Leasehold improvements |  | 5 | - | 10 |  | 3,273,940 |  |  | 3,544,256 |
|  |  |  |  |  | 16,413,799 |  |  | 19,229,656 |
Less Accumulated Depreciation |  |  |  |  |  | (7,218,468 | ) |  | (7,518,657 | )
Less Accumulated Depreciation - finance lease |  |  |  |  |  | (336,338 | ) |  | (1,389,488 | )
Net Property and Equipment |  |  |  |  | $ | 8,858,993 |  | $ | 10,321,511 |

Depreciation expense amounted to $1,945,489 and $1,857,111 for the year ended December 31, 2021 and 2020, respectively.

NOTE 5 - LEASES

The Company leases certain vehicles, real property, production equipment and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable operating leases for production and office space in Hobro, Aarhus and Copenhagen, Denmark as well as in Taicang, China and White Bear Lake, Minnesota. As of September 1, 2021 the Company entered a new lease agreement for a 8,524.67 square meter production facility in Taicang, China. The lease term is a minimum of 8 years, and the monthly lease payment is RMB 30 per square meter until August 31, 2025 (RMB 255,740 / $ 40,918) and RMB 33.6 (RMB 286,429 / $ 45,829 ) per square meter from September 1, 2025 until the end of the lease period. The parties have agreed on a 50% discount on the lease payments for the period September 1, 2021 to June 30, 2022. The lease in White Bear Lake expired in February 2021, and due to the closure of the activity in North America, the lease has not been extended.

During the year ended December 31, 2021, cash paid for amounts included for the measurement of operating lease liabilities was $1,057,810, and the Company recorded operating lease expenses included in operating expenses of $1,135,814.

During the year ended December 31, 2021, cash paid for amounts included for the measurement of finance lease liabilities was $470,389, and the Company recorded finance lease expenses included in other income (expenses) of $265,221.

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Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 was as follows:

|  | December 31, 2021 |  |  | December 31, 2020 |
Operating leases: |  |  |  |  |  |  |  |
Operating lease right-of-use assets |  | $ | 6,925,807 |  |  | $ | 4,947,734 |
Operating lease liabilities – current |  | $ | 846,544 |  |  | $ | 1,026,235 |
Operating lease liabilities – long-term |  |  | 6,154,064 |  |  |  | 4,159,225 |
Total operating lease liabilities |  | $ | 7,000,608 |  |  | $ | 5,185,460 |
Finance leases: |  |  |  |  |  |  |  |
Property and equipment, at cost |  | $ | 3,334,830 |  |  | $ | 4,819,201 |
Accumulated depreciation |  |  | (336,337 | ) |  |  | (1,389,488 | )
Property and equipment, net |  | $ | 2,998,494 |  |  | $ | 3,429,713 |
Finance lease liabilities – current |  | $ | 373,824 |  |  | $ | 394,839 |
Finance lease liabilities – long-term |  |  | 2,499,591 |  |  |  | 3,112,496 |
Total finance lease liabilities |  | $ | 2,873,415 |  |  | $ | 3,507,335 |
Weighted average remaining lease term: |  |  |  |  |  |  |  |
Operating leases |  |  | 8.9 |  |  |  | 10.0 |
Finance leases |  |  | 5.9 |  |  |  | 6.9 |
Weighted average discount rate: |  |  |  |  |  |  |  |
Operating leases |  |  | 6.5 | % |  |  | 6.2 | %
Finance leases |  |  | 2.8 | % |  |  | 2.8 | %

Maturities of lease liabilities at December 31, 2021 were as follows:

|  | Operating lease |  |  | Finance lease |
2022 |  | $ | 1,220,960 |  |  | $ | 449,480 |
2023 |  |  | 1,234,435 |  |  |  | 444,777 |
2024 |  |  | 1,083,993 |  |  |  | 445,735 |
2025 |  |  | 794,225 |  |  |  | 442,102 |
2026 |  |  | 818,507 |  |  |  | 404,679 |
Thereafter |  |  | 3,828,035 |  |  |  | 976,221 |
Total payment under lease agreements |  |  | 8,980,155 |  |  |  | 3,162,994 |
Less imputed interest |  |  | (1,979,546 | ) |  |  | (289,579 | )
Total lease liability |  | $ | 7,000,608 |  |  | $ | 2,873,415 |

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NOTE 6 - INTANGIBLE ASSETS

At December 31, 2021 and December 31, 2020, other intangible assets, net of accumulated amortization, consisted of customer relationships acquired in connection with the purchase of BS Plastic A/S and the cost of patent applications for the Company’s products.

Intangible assets consisted of the following at December 31, 2021 and December 31, 2020:

|  | 2021 |  |  | 2020 |
Customer relationships |  | $ | 502,957 |  |  | $ | 544,770 |
Patent cost |  |  | 189,017 |  |  |  | 204,731 |
|  |  | 691,974 |  |  |  | 749,501 |
Less Accumulated amortization |  |  | (357,231 | ) |  |  | (269,441 | )
Intangible assets, net |  | $ | 334,743 |  |  | $ | 480,060 |

Amortization expense amounted to $108,471 and $113,738 for the year ended December 31, 2021 and 2020, respectively.

Expected future amortization expense for the years ended are as follows:

Year ending December 31, |  | Amortization Expenses |
2022 |  |  | 108,471 |
2023 |  |  | 108,471 |
2024 |  |  | 74,940 |
2025 |  |  | 7,880 |
2026 |  |  | 7,880 |
Thereafter |  |  | 27,101 |
|  | $ | 334,743 |

NOTE 7 - LINES OF CREDIT

In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee or a security bond. For that purpose, we have a guaranteed credit line of DKK13,000,000 (approximately $2,000,000). As of December 31, 2021, our bank has issued working guaranties of $643,961 for our customers based on the credit line. The credit line is secured by a cash deposit of $2,000,000.

NOTE 8 – CONVERTIBLE NOTE PAYABLE

On March 24, 2021, we 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 for an aggregate purchase price of $15.0 million upon the satisfaction of the closing conditions set forth in the 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 on 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 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.

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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.

The Note has interest payable quarterly beginning 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 components of the Convertible Note are as follows:

|  | December 31, 2021 |  |  | December 31, 2020 |
Convertible note |  | $ | 16,800,000 |  |  |  | - |
Less: unamortized debt issuance costs |  |  | (2,213,064 | ) |  |  | - |
Convertible note payable |  | $ | 14,586,936 |  |  | $ | - |
Current portion of convertible note payable |  |  | 8,400,000 |  |  |  | - |
Convertible note payable, less current portion |  |  | 6,186,936 |  |  |  | - |
Convertible note payable |  | $ | 14,586,936 |  |  | $ | - |

NOTE 9 - AGREEMENTS, COMMITMENTS AND CONTINGENCIES

Agreements -- LiqTech is planning to establish a joint venture to supply and operate water treatment systems for oil and gas producers in the Middle East. The partner in the joint venture is a local company. LiqTech expects to deliver technological know-how, design of water treatment systems and components to support potential projects in the Middle East. The joint venture will be established in the form of a jointly-owned limited liability company, incorporated under the laws in the local country, and LiqTech holds 49% of the shares. All profits of the company are to be allocated proportionally to the ownership share, and none of the parties are liable for the company’s liabilities towards third parties.

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.

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On February 27, 2019, LiqTech was contacted by a former supplier alleging that the Company owed DKK 543,905 ($89,800) 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 rendered. The claim was settled out of court in which the Company agreed to pay DKK 400,000 ($63,575) for full and final settlement.

LiqTech is as of December 31, 2021 in an arbitration regarding a commercial dispute related to the delivery of Water treatment system installed on a commercial power plant. The parties disagree on whether the supplied equipment functions correctly including the ability to meet the agreed criteria. The dispute additionally concerns the equipment’s down time and the use of additives to run the equipment. The arbitration is pending Statement of Claim and Statement of Response issued by the parties involved. LiqTech is currently disputing the claim in full and has filed a counterclaim regarding unpaid invoices. The claim against LiqTech amounts to DKK 1,671,768 ($254,796) with the addition of interest.

Product Warranties - The Company provides a standard warranty on its systems, generally for a period of one to 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.

Changes in the Company's current and long-term warranty obligations included in accrued expenses on the balance sheet for the fiscal years ended December 31, 2021 and 2020 were as follows:

|  | 2021 |  |  | 2020 |
Balance at January 1, |  | $ | 1,056,613 |  |  | $ | 813,288 |
Warranty costs charged to cost of goods sold |  |  | 177,302 |  |  |  | 348,241 |
Utilization charges against reserve |  |  | (191,068 | ) |  |  | (199,624 | )
Foreign currency effect |  |  | (80,534 | ) |  |  | 94,708 |
Balance at December 31, |  | $ | 962,313 |  |  | $ | 1,056,613 |

NOTE 10 - INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes, which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax position meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Actual results could differ from these estimates.

As of December 31, 2021, the Company had net operating loss carry-forward of approximately $23,172,440 for U.S. federal tax purposes expiring through 2041; approximately $16,039,713 for Danish tax purposes, which do not expire; approximately $472,134 for German tax purposes, which do not expire; approximately $613,426 for Singapore tax purposes, which do not expire and approximately $118,602 for Chinese tax purposes, which expires in 2026.

As of December 31, 2021 and December 31, 2020, the Company established a valuation allowance of $5,364,000 and $5,394,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively; $3,506,000 and $1,682,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control and LiqTech Water Projects, respectively, $132,000 and $143,000 for the tax components of LiqTech Germany, respectively, $104,000 and $113,000 for the tax components of LiqTech Singapore, respectively and $193,000 and $0 for LiqTech China, respectively, as management could not determine that it was more than likely not that sufficient income could be generated by these components to realize the resulting net operating loss carry-forwards and other deferred tax assets of these components. The change in the valuation allowance for the year ended December 31, 2021 was $(30,000), $1,824,000, $(11,000), $(9,000) and $193,000 for the US, Danish, German, Singapore and Chinese components, respectively. The change in the valuation allowance for the year ended December 31, 2020 was $1,549,000, $473,000, $14,000 and $11,000 for the US, Danish, German and Singapore components, respectively.

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The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset and liabilities at December 31, 2021 and December 31, 2020:

|  | 2021 |  |  | 2020 |
Excess of tax over financial accounting |  | $ | 708,825 |  |  | $ | 624,154 |
Vacation accrual |  |  | - |  |  |  | 1,971 |
Reserve for excess and obsolete inventory |  |  | 49,615 |  |  |  | 151,288 |
Accrued expenses |  |  | 4,305 |  |  |  | - |
Accrued interest |  |  | 13,125 |  |  |  | - |
Discount amortization |  |  | 175,420 |  |  |  | - |
Deferred compensation |  |  | 52,500 |  |  |  | 49,556 |
Net operating loss carryover |  |  | 9,959,356 |  |  |  | 7,627,046 |
Excess of book over tax depreciation |  |  | (343,294 | ) |  |  | (610,694 | )
Excess of book over tax work in progress |  |  | (587,469 | ) |  |  | (817,131 | )
Valuation allowance |  |  | (10,257,162 | ) |  |  | (7,331,357 | )
|  | $ | (224,779 | ) |  | $ | (305,167 | )
Distributed as: |  |  |  |  |  |  |  |
Long-term deferred tax asset |  |  | - |  |  |  | - |
Long-term deferred tax liability |  |  | (224,779 | ) |  |  | (305,167 | )
|  | $ | (224,779 | ) |  | $ | (305,167 | )

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the years ended December 31, 2021 and 2020:

|  | 2021 |  |  | 2020 |
Computed tax at expected statutory rate |  | $ | (2,349,899 | ) |  | $ | (2,157,436 | )
State and local income taxes, net of federal benefit |  |  | (1,387 | ) |  |  | (76,055 | )
Non-US income taxed at different rates |  |  | (101,856 | ) |  |  | (35,454 | )
Deferred compensation |  |  | (31,500 | ) |  |  | (52,165 | )
Non-deductible expenses |  |  | 1,565 |  |  |  | 2,243 |
Non-taxable income |  |  | - |  |  |  | (75,562 | )
Change in valuation allowance |  |  | 2,209,294 |  |  |  | 1,918,579 |
Other |  |  | 210,747 |  |  |  | 10,705 |
Income tax expense (benefit) |  | $ | (63,036 | ) |  | $ | (465,145 | )

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2021 and 2020 consisted of the following:

|  | 2021 |  |  | 2020 |
Current income taxes: |  |  |  |  |  |  |  |
Danish |  | $ | - |  |  | $ | (401,945 | )
Federal |  |  | - |  |  |  | - |
State |  |  | - |  |  |  | - |
Current tax (benefit) |  | $ | - |  |  | $ | (401,945 | )
Deferred income taxes: |  |  |  |  |  |  |  |
Book in excess of tax depreciation |  | $ | (309,719 | ) |  | $ | (419,523 | )
Work in progress |  |  | (174,093 | ) |  |  | (44,862 | )
Net operating loss carryover |  |  | (2,667,221 | ) |  |  | (389,616 | )
Valuation allowance |  |  | 2,811,619 |  |  |  | 844,826 |
Deferred compensation |  |  | 31,500 |  |  |  | (52,165 | )
Accrued interest |  |  | 13,125 |  |  |  | - |
Discount amortization |  |  | 175,420 |  |  |  | - |
Accrued vacation |  |  | 4,305 |  |  |  | (16,707 | )
Reserve for obsolete inventory |  |  | 52,028 |  |  |  | 14,847 |
Deferred tax expense (benefit) |  | $ | (63,036 | ) |  | $ | (63,200 | )
Total tax expense (benefit) |  | $ | (63,036 | ) |  | $ | (465,145 | )

Deferred income tax expense / (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income.

The Company files Danish, Chinese, U.S. federal and Minnesota state income tax returns. LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control and LiqTech Water Projects are generally no longer subject to tax examinations for years prior to 2016 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2016 for U.S. federal and state tax returns.

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NOTE 11 - EARNINGS PER SHARE

Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average common shares outstanding during the period. For the periods where there is a net loss, stock options, warrants and Restricted Stock Units have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Consequently, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same.

For the year ended December 31, 2021, the Company had 149,636 stock grants outstanding to issue common stock (“RSUs”). Further, the Company had 1,015,000 prefunded warrants outstanding to issue common stock.

For the year ended December 31, 2020, the Company had 128,299 stock grants outstanding to issue common stock (“RSUs”). Further, the Company had 515,000 prefunded warrants outstanding to issue common stock.

NOTE 12 - STOCKHOLDERS' EQUITY

Common Stock – The Company has 100,000,000 authorized shares of common stock, $0.001 par value. As of December 31, 2021 and 2020, respectively, there were 21,285,706 and 21,655,461 common shares issued and outstanding.

Voting -- Holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.

Dividends -- Subject to the rights and preferences of the holders of any series of preferred stock, if any, which may at the time be outstanding, holders of common stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.

Liquidation Rights -- In the event of any liquidation, dissolution or winding-up of affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of common stock will be entitled to share ratably in the distribution of any of our remaining assets.

Other Matters -- Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption rights or sinking fund provisions with respect to our common stock. All of the issued and outstanding shares of common stock on the date of this Annual Report are validly issued, fully paid and non-assessable.

Preferred Stock -- Our Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, the qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

The Company has 2,500,000 authorized shares of preferred stock, $0.001 par value. As of December 31, 2021 and 2020 there were no preferred shares issued and outstanding.

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Stock Issuances

Since January 1, 2021, the Company has made the following issuances of common stock:

On January 6, 2021, the Company issued 11,218 shares of Common Stock to settle RSUs. The RSUs were valued at $70,000 for services provided by the Board of Directors in 2020. The Company recognized the stock-based compensation of the awards over the requisite service period.

On February 26, 2021, the Company issued 30,694 shares of Common Stock to settle RSUs. The RSUs were valued at $166,667 for services provided by management in 2020. The Company recognized the stock-based compensation of the awards over the requisite service period.

On April 9, 2021, the Company issued 80,000 restricted shares of Common Stock pursuant to the Securities Purchase Agreement executed on March 24, 2021.

On August 17, 2021, the Company entered an exchange agreement with an existing shareholder to exchange an aggregate of 500,000 shares of common stock for prefunded warrants of equivalent value. The prefunded warrants will be exercisable at any time on or after the closing date.

On September 3, 2021, the Company issued 8,333 shares of Common Stock to settle RSUs. The RSUs were valued at $57,500 for services provided by the Board of Directors. The Company recognized the stock-based compensation of the awards over the requisite service period.

For the years ended December 31, 2021 and 2020, the Company has recorded stock-based compensation expense of $481,105 and $343,780, respectively.

Warrants

In connection with the securities purchase agreement entered into in May 2020, we issued a prefunded warrant (“the Warrant”) to purchase an aggregate of 515,000 shares of Common Stock at a purchase price of $5.00 per share. Subject to certain beneficial ownership limitations, the Warrant is immediately exercisable and may be exercised for no additional consideration. The Warrant does not expire. A holder of the Warrant will not have the right to exercise any portion of the Warrant if the holder, together with Affiliates and Attribution Parties (as such terms are defined in the Warrant), would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrant. Upon notice from the holder to the Company, however, the holder may decrease or increase the beneficial ownership limitation (but not above 9.99% of the number of shares of Common Stock outstanding).

On August 17, 2021, the Company entered an exchange agreement with an existing shareholder to exchange an aggregate of 500,000 shares of Common Stock for equivalent shares of a prefunded warrants (the “Exchange Agreement”). The prefunded warrants will be exercisable at an exercise price of $0.001 per share, subject to adjustments as provided under the terms of the prefunded warrants. The prefunded warrants will be exercisable at any time on or after the closing date. The Exchange Agreement contained additional terms typical of exchange agreements including representations and warranties of the parties. In connection with the Exchange Agreement, as of the date of the Exchange Agreement, the Company issued the prefunded warrants to the Shareholders. The exercise price of each prefunded warrant is equal to $0.001 per share, and the prefunded warrants are exercisable on or after August 17, 2021, subject to the limitations on exercise and conditions set forth by the prefunded warrants. The prefunded warrants are subject to customary adjustments in the event of stock splits and dividends, fundamental transactions, and subsequent offerings of rights to purchase stock.

The following is a summary of the periodic changes in warrants outstanding for the year ended December 31, 2021:

|  | 2021 |
Warrants outstanding at January 1 |  |  | 515,000 |
Common stock exchanged to prefunded warrant |  |  | 500,000 |
Exercises and conversions |  |  | - |
Warrants outstanding at December 31 |  |  | 1,015,000 |

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Stock-based Compensation

In 2013, the Company’s Board of Directors adopted a Share Incentive Plan (the “Incentive Plan”). Under the terms and conditions of the Incentive Plan, the Board of Directors is empowered to grant RSUs to officers and directors of the Company. At December 31, 2021, 149,636 RSUs were granted and outstanding under the Incentive Plan. Directors of the Company receive share compensation as follows: (i) an initial grant of 25,000 RSUs of common stock that vest over a three-year period upon appointment to the Board, followed by an annual grant of $35,000 ($70,000 for the Chairman of the Board) in RSUs per annum after full vesting of the initial grant. Further, the Company has granted shares to management for 2021 as part of the Incentive Plan, totaling 52,941 shares that vest over a three-year period.

The Company recognizes compensation costs for RSU grants to Directors and management based on the stock price on the date of the grant.

The Company recognized stock-based compensation expense related to RSU grants of $481,105 and $343,780 for the years ended December 31, 2021 and 2020, respectively. On December 31, 2021, the Company had $529,259 of unrecognized compensation cost related to non-vested stock grants.

A summary of the status of the RSUs outstanding as of December 31, 2021 and changes during the period are presented below:

|  | December 31, 2021 |
|  | Number of units |  |  | Weighted Average Grant-Date Fair value |  |  | Aggregated Intrinsic Value |
Outstanding, December 31, 2020 |  |  | 128,299 |  |  | $ | 5.79 |  |  | $ | 283,541 |
Granted |  |  | 71,582 |  |  |  | 7.51 |  |  |  | - |
Vested and settled with share issuance |  |  | (50,245 | ) |  |  | 5.85 |  |  |  | - |
Forfeited |  |  |  |  |  |  |  |  |  |  | - |
Outstanding, December 31, 2021 |  |  | 149,636 |  |  | $ | 6.59 |  |  |  |  |

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NOTE 13 – SEGMENT REPORTING

The Company operates in three segments: Water, Ceramics and Plastics. Effective as of January 1, 2020, the group structure was changed so that shared group activities were transferred to an individual reporting unit separated from the business units. Costs and assets for these activities were therefore separated during 2020.

Segment information for the business areas is as follows:

|  | For the Year Ended December 31, |
Revenues |  | 2021 |  |  | 2020 |
Water |  | $ | 7,196,465 |  |  | $ | 13,615,904 |
Ceramics |  |  | 7,183,868 |  |  |  | 5,663,830 |
Plastics |  |  | 3,615,681 |  |  |  | 2,647,366 |
Other |  |  | 277,428 |  |  |  | 599,101 |
Total consolidated revenue |  | $ | 18,273,442 |  |  | $ | 22,526,201 |

|  | For the Year Ended December 31, |
Income (Loss) |  | 2021 |  |  | 2020 |
Water |  | $ | (1,411,196 | ) |  | $ | (1,083,578 | )
Ceramics |  |  | (3,330,840 | ) |  |  | (3,532,137 | )
Plastics |  |  | (1,317,293 | ) |  |  | (882,038 | )
Other |  |  | (5,067,631 | ) |  |  | (4,310,607 | )
Total consolidated Income (Loss) |  | $ | (11,126,960 | ) |  | $ | (9,808,360 | )

|  | For the Year Ended December 31, |
Total assets |  | 2021 |  |  | 2020 |
Water |  | $ | 7,767,679 |  |  | $ | 14,033,107 |
Ceramics |  |  | 13,961,057 |  |  |  | 16,734,371 |
Plastics |  |  | 1,645,879 |  |  |  | 2,022,381 |
Other |  |  | 21,680,077 |  |  |  | 9,420,278 |
Total consolidated assets |  | $ | 45,054,692 |  |  | $ | 42,210,137 |

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NOTE 14 - SIGNIFICANT CUSTOMERS / CONCENTRATION

The following table presents customers accounting for 10% or more of the Company’s net sales:

|  | For the Year Ended December 31, |
|  | 2021 |  |  | 2020 |
Customer A |  |  | 12 | % |  |  | - | %
Customer B |  |  | 10 | % |  |  | 10 | %
Customer C |  |  | - | % |  |  | 27 | %

* Zero or less than 10%

The following table presents customers accounting for 10% or more of the Company’s accounts receivable:

|  | December 31, 2021 |  |  | December 31, 2020 |
Customer A |  |  | 16 | % |  |  | - | %
Customer B |  |  | - | % |  |  | 12 | %
Customer D |  |  | 11 | % |  |  | - | %
Customer E |  |  | - | % |  |  | 39 | %
Customer F |  |  | - | % |  |  | 16 | %

As of December 31, 2021, approximately 100% of the Company’s assets were located in Denmark. As of December 31, 2020 approximately 100% of the Company’s assets were located in Denmark.

NOTE 15 - SUBSEQUENT EVENTS

On January 3, 2022, the Company issued 18,641 common shares to settle RSUs. The RSUs were valued at $140,000 for services provided by the Board of Directors in 2021. The Company recognized the stock-based compensation of the award over the requisite service period.

On January 3, 2022, the Company issued 48,341 common shares to settle RSUs. The RSUs were valued at $283,605 for services provided by management in 2021. The Company is recognizing the stock-based compensation of the award over the requisite service period.

On March 18, 2022, the Company announced that Sune Mathiesen, Chief Executive Officer, has taken a medical leave of absence. Alexander J. Buehler, who is currently serving as a member of the Board of Directors, has been appointed to serve as Interim Chief Executive Officer, effective immediately. Mr. Buehler has served as a Director of LiqTech since 2017, during which time he has also served as the Audit Committee Chairman.

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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the design and effectiveness of our internal controls over financial reporting and disclosure controls and procedures (pursuant to Rule 13a-15(b) and (c) under the Exchange Act) as of the end of the period covered by this Annual Report. A weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a misstatement of the registrant's financial statements will not be prevented or detected on a timely basis.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2021 were not effective due to material weaknesses in internal controls over financial reporting, described below

Notwithstanding this finding, we concluded that the consolidated financial statements included in this Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. During the year ended December 31, 2021, the Company was not subject to requirements of Section 404(b) of the Sarbanes-Oxley Act. As such, our independent registered public accounting firm was not required to, and thus did not, audit our internal control structure.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

Internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting is defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the audited consolidated financial statements.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the Company's management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the criteria set forth in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commissions (2013).

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2021 were not effective due to material weaknesses in internal controls over financial reporting.

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The implementation of the new ERP system from the beginning of 2020 and through 2021, together with implementation of additional internal control procedures, have strengthened the Company´s internal control environment. From the report received from the Company´s external auditor as a result of the audit of 2019, we have focused on improving controls to address each reported deficiency; however, the prolonged impact of COVID-19 restrictions has slowed the pace of progress significantly.

Management's Remediation Initiatives

In response to the identified material weaknesses, our management, with oversight from the Company’s Audit Committee, has been and will continue to dedicate necessary resources to enhance the Company’s internal control over financial reporting and remediate the identified material weaknesses. As an example of such remediation, the Company in 2021 hired additional employees into the finance department, and we plan to continue to work on remediating the material weaknesses during 2022 by improving competencies and processes. Further, the implementation of the new ERP system has prioritized in addition to other supporting IT programs to help support the controls and processes of the Company, and these investments are an important part of the remediation of the material weaknesses. Lastly, the Company has started the process of redesigning and ensuring documentation of all processes and procedures related to the financial reporting process to ensure the effective design and operation of process-level controls.

While management believes that the steps that we have taken and plan to take will improve the overall system of internal control over financial reporting and will remediate identified material weaknesses, the material weaknesses cannot be considered remediated until the applicable relevant controls operate for a sufficient period of time.

Following identification of the material weakness and prior to filing this Annual Report on Form 10-K, we completed substantive procedures for the year ended December 31, 2021. Based on these procedures, management believes that our consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S. GAAP. Our CEO and CFO have certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-K.

Limitations on the Effectiveness of Internal Controls

An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

While management believes that the steps that we have taken and plan to continue to take will improve the overall system of internal control over financial reporting and will remediate identified material weaknesses, the material weaknesses cannot be considered remediated until the applicable relevant controls operate for a sufficient period of time.

Item 9B. | Other Information

None

Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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Item 10. | Directors, Executive Officers and Corporate Governance

Set forth below is information concerning our directors and senior executive officers as of March 24, 2022.

Name |  | Age |  | Titles
Mark Vernon |  |  | 69 |  | Chairman of the Board
Sune Mathiesen |  |  | 47 |  | Chief Executive Officer, Director
Simon Stadil |  |  | 38 |  | Chief Financial Officer (Principal Financial and Accounting Officer)
Alexander Buehler |  |  | 46 |  | Director, Interim Chief Executive Officer (Principal Executive Officer)
Peyton Boswell |  |  | 51 |  | Director
Rich Meeusen |  |  | 67 |  | Director

According to our bylaws, the number of directors at any one time may not be less than one or more than seven. The maximum number of directors at any one time may be increased by a vote of a majority of the directors then serving.

Our charter provides for the annual election of directors. At each annual meeting of stockholders, our directors will be elected for a one-year term and serve until their respective successors have been elected and qualified. It is anticipated that the Board of Directors will meet at least quarterly.

Executive officers are appointed by and serve at the pleasure of the Board of Directors. A brief biography of each director and executive officer follows:

Mark Vernon. Mr. Vernon has served as a Director of LiqTech International, Inc. since February 26, 2013 and as Chairman of the Board of Directors since July 2, 2018. Mr. Vernon also currently serves as a Director of Neles Oyj, a Finland-based industrial process valve company. Mr. Vernon served nine years as a Director of Senior plc, a UK-based aerospace and industrial engineering business. Mr. Vernon has had a long career in the industrial engineering industry and has wide international business experience. Mr. Vernon previously served as Chief Executive Officer and Director of Spirax-Sarco Engineering plc (London Stock Exchange: SPX), an industrial engineering business for industrial steam systems and peristaltic pumps. He also served previously as Group Vice President of Flowserve’s Flow Control Business, Group Vice President of Durco International and President of Valtek International. Mr. Vernon earned a BSc degree (magna cum laude) from Weber State University.

Sune Mathiesen. Mr. Mathiesen has served as Chief Executive Officer and a Director of LiqTech International since July 29, 2014. Mr. Mathiesen has served as Chief Executive Officer concurrent with LiqTech as a Director of Masu A/S, a Danish company, since February 2013. He previously served as CEO and Director of Provital Solutions A/S. Before that he served as Country Manager of Broen Lab Group and as Country Manager of GPA Flowsystem. Mr. Mathiesen has a distinguished background in executive management, sales and turnarounds. Mr. Mathiesen has been working hands-on with technical products within the valves and fittings industry for the past 20 years. He has a degree in commercial science from Via College in Randers, Denmark.

Alexander Buehler. Mr. Buehler has served as a Director since August 11, 2017 and currently serves as Interim Chief Executive Officer. Mr. Buehler most recently served as the President & CEO of the Brock Group, a leading industrial services provider to multiple industries, including petrochemical, oil & gas refining, power, pharmaceutical, and LNG. Before Brock, Mr. Buehler served as the Executive Vice President of Global Resources for Intertek, a publicly traded company headquartered in London providing quality assurances services across multiple industries. Mr. Buehler previously served as the President and Chief Executive Officer of Energy Maintenance Services and prior to that as Chief Financial Officer of Energy Recovery, Inc. Mr. Buehler also serves on the Board of Energy Recovery and also as Audit Committee Chairman, and he has previously served on the Board of Viscount Systems, also as Audit Committee Chairman. Mr. Buehler previously served in executive leadership positions at Insituform Technologies, Inc., and he worked for five years in the U.S. Army Corps of Engineers. He received a B.S. in Civil Engineering from the United States Military Academy at West Point and an MBA in Finance from the Wharton School at the University of Pennsylvania.

Peyton Boswell. Mr. Boswell has served as a Director since August 11, 2017. Mr. Boswell has served as the Chief Executive Officer of EnterSolar, LLC, a provider of commercial solar photovoltaic solutions, since 2010. Before joining EnterSolar, Mr. Boswell led solar development activities for Fortistar and was the founder of RenewCo V.I., a renewable energy development firm based in the U.S. Virgin Islands. Prior to entering the solar industry, Mr. Boswell was a finance and investment banking professional for 15 years with J.P. Morgan and Bank of America. Mr. Boswell is a Chartered Financial Analyst (CFA) and has earned a BA from Cornell University and holds an MBA from Columbia Business School.

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Richard Meeusen. Mr. Meeusen has served as a Director since August 26, 2020 and currently serves as the Audit and Compensation Committee Chairman. Mr. Meeusen most recently served as President, Chief Executive Officer and Chairman of Badger Meter, Inc., a publicly traded international manufacturer and seller of flow measurement equipment, primarily to the water industry. Mr. Meeusen retired as Chief Executive Officer on December 31, 2018 after serving 17 years as the company’s Chief Executive Officer and, before that, 7 years as its Chief Financial Officer. Prior to Badger Meter, Mr. Meeusen was Chief Financial Officer of Zenith Sintered Products and before that worked for Arthur Andersen & Co as a Senior Manager. In addition to his board service at Badger Meter, Mr. Meeusen serves as a director of Menasha Corporation, a $2 billion privately-held packaging and display equipment company and previously served 8 years on the board of Serigraph Corporation. Mr. Meeusen founded The Water Council in 2007, a 180-member company industry trade group where he still serves as a director. Mr. Meeusen earned an MBA degree from the Kellogg School of Management at Northwestern University.

Simon Stadil. Mr. Stadil has served as Chief Financial Officer of LiqTech International, Inc. since November 15, 2021.

From 2013 to 2021 Mr. Stadil served as the Director of Treasury & Investor Relations of Welltec, Regional CFO Americas and Africa, and most recently as Vice President of Global Finance. Additionally, Mr. Stadil served as Assistant Funding Manager within the Danish renewable & utility company Ørsted, as well as Assistant Vice President within the Nordic Investment Banking Division at Barclays Capital in London. Mr. Stadil holds a MSc. in Business Economics and Finance (Cand.Merc.FIR) from Copenhagen Business School.

Director Expertise

The following is a brief description of the specific experience and qualifications, attributes or skills of each director that led to the conclusion that such person should serve as a director of the Company.

Mr. Vernon’s extensive global experience in the industrial engineering industry provides the Board with valuable insight in the markets the Company serves, as well as proven management and public company Board expertise.

Mr. Buehler’s experience in general management and strategic planning as well as new product development, corporate development, mergers & acquisitions, operations management, manufacturing process optimization, sales management, and back-office administration provides the Board with valuable perspective across all corporate functions and relevant industries. Mr. Buehler has substantial experience in the global water, oil & gas, and manufacturing industries. Mr. Buehler has been determined by our Board to be an Audit Committee Financial Expert.

Mr. Boswell's experience in establishing and growing a successful renewable energy clean tech business and prior experience in investment banking provides the Board with a unique perspective on corporate finance and strategic growth matters. Further, the Board has determined that he qualifies as an Audit Committee Financial Expert.

Mr. Meeusen’s prior experience in finance, operations, marketing and sales along with his leadership experience as a director of a publicly traded company and his long executive management responsibility in the water industry and in developing technology growth business distinguishes him as an integral part of the Company’s Board.

Mr. Mathiesen’s prior experience at leading businesses as the Chief Executive Officer and Chairman of companies in the technical products space distinguishes him as an integral part of the Company’s management team. He is uniquely qualified to provide a perspective on matters involving the continued growth and development of the Company.

Family Relationships

None of our Directors or executive officers is related by blood, marriage or adoption.

Director Independence

Our Board of Directors has determined that Messrs. Vernon, Buehler, Boswell and Meeusen are independent as that term is defined in the listing standards of the NASDAQ. In making these determinations, our Board of Directors has concluded that none of our independent directors has an employment, business, family or other relationship, which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. We expect that our independent directors will meet in executive session (without the participation of executive officers or other non-independent directors) at least two times each year.

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Director Attendance at Board and Stockholder Meetings

The Board of Directors met formally sixteen times during 2021. During 2021, each director attended at least 75% of the meetings of the Board and the committees upon which he serves. We do not have a policy regarding director attendance at our annual meetings of stockholders.

Committees of our Board of Directors

Committee Composition

Our Board of Directors has an Audit Committee, a Compensation Committee, and a Governance and Nominating Committee. The following table sets forth the current membership of each of these committees:

Audit Committee |  | Compensation Committee |  | Governance & Nominating Committee
Richard Meeusen* |  | Richard Meeusen * |  | Mark Vernon *
Mark Vernon |  | Peyton Boswell |  | Richard Meeusen
Peyton Boswell |  | Mark Vernon |  | Peyton Boswell

* Chairman of the committee

Audit Committee

Our Audit Committee consists of Richard Meeusen (Chair), Mark Vernon and Peyton Boswell, each of whom is an independent director as defined in the NASDAQ and SEC rules. Based upon past employment experience in finance and other business experience requiring accounting knowledge and financial sophistication, our Board of Directors has determined that Mr. Buehler is an “Audit Committee Financial Expert” as defined in Item 407(d)(5) of Regulation S-K, and that each member of our Audit Committee is able to read and understand fundamental financial statements. We have implemented a written charter for our Audit Committee that provides that our Audit Committee is responsible for:

| ● | appointing, compensating, retaining, overseeing and terminating our independent auditors and pre-approving all audit and non-audit services permitted to be performed by the independent auditors;
| ● | discussing with management and the independent auditors our annual audited financial statements, our internal control over financial reporting, and related matters;
| ● | reviewing and approving any related party transactions;
| ● | meeting separately, periodically, with management, the internal auditors and the independent auditors;
| ● | annually reviewing and reassessing the adequacy of our Audit Committee charter;
| ● | such other matters that are specifically delegated to our Audit Committee by our Board of Directors from time to time; and
| ● | reporting regularly to the Board of Directors.

During the fiscal year ended December 31, 2021, the Audit Committee met four times.

Report of the Audit Committee of the Board of Directors

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2021 with our management. The Audit Committee has discussed with the Company’s independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (the “PCAOB”). The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Richard Meeusen
Mark Vernon
Peyton Boswell

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Compensation Committee

Our Compensation Committee consists of Richard Meeusen (Chair), Mark Vernon and Peyton Boswell, each of whom is an independent director as defined in the NASDAQ rules, a “non-employee director” under Rule 16b-3 promulgated under the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Code. We have implemented a written charter for our Compensation Committee that provides that our Compensation Committee is responsible for:

| ● | reviewing and making recommendations to our Board of Directors regarding our compensation policies and forms of compensation provided to our directors and officers;
| ● | reviewing and making recommendations to our Board of Directors regarding bonuses for our officers and other employees;
| ● | reviewing and making recommendations to our Board of Directors regarding stock-based compensation for our directors and officers;
| ● | administering our stock option plans in accordance with the terms thereof; and
| ● | such other matters that are specifically delegated to the Compensation Committee by our Board of Directors after the business combination from time to time.

During the fiscal year ended December 31, 2021, the Compensation Committee met three times.

Governance and Nominating Committee

Our Governance and Nominating Committee consists of Mark Vernon (Chair), Peyton Boswell and Richard Meeusen, each of whom is an independent director as defined in the NASDAQ rules. We have implemented a written charter for our Governance and Nominating Committee that provides that our Governance and Nominating Committee is responsible for:

| ● | overseeing the process by which individuals may be nominated to our Board of Directors;
| ● | identifying potential directors and making recommendations as to the size, functions and composition of our Board of Directors and its committees;
| ● | considering nominees proposed by our stockholders;
| ● | establishing and periodically assessing the criteria for the selection of potential directors;
| ● | making recommendations to the Board of Directors on new candidates for Board membership; and
| ● | overseeing corporate governance matters.

In making nominations, the Governance and Nominating Committee intends to submit candidates who have high personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective, in conjunction with the other nominees to the Board of Directors, in collectively serving the long-term interests of the stockholders. In evaluating nominees, the Governance and Nominating Committee intends to take into consideration attributes such as leadership, independence, interpersonal skills, financial acumen, business experiences, industry knowledge, and diversity of viewpoints.

During the fiscal year ended December 31, 2021, the Governance and Nominating Committee met one time.

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Legal Proceedings Involving Officers and Directors

To the knowledge of the Company after reasonable inquiry, no current director or executive officer of the Company during the past ten years, has (i) been convicted in a criminal proceeding (excluding traffic violations or other minor offenses), (ii) been a party to any judicial or administrative proceeding (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws, (iii) filed a petition under federal bankruptcy laws or any state insolvency laws or has had a receiver appointed for the person’s property or (iv) been subject to any judgment, decree or final order enjoining, suspending or otherwise limiting for more than 60 days, the person from engaging in any type of business practice, acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity or engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, (v) been found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated, (vi) been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated, (vii) been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (a) any Federal or State securities or commodities law or regulation, (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, or (viii) been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Code of Ethics

We adopted a code of conduct and ethics on January 1, 2012. The code of ethics has been posted on the Company’s website under the Investor Relations tab.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires a company’s officers and directors, and persons who own more than ten percent (10%) of a registered class of a company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than ten percent (10%) stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us, we believe that all reports under Section 16(a) required to be filed by its officers and directors were timely filed.

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Item 11. | Executive Compensation

Summary Compensation Table

The following table sets forth certain information with respect to compensation for the years ended December 31, 2021 and 2020 earned by or paid to our Chief Executive Officer and our Chief Financial Officers.

Summary Compensation Table

Name and Principal Position | Year |  | Salary ($) (1) |  |  | Bonus ($) |  |  | Stock Awards ($) |  | Option Awards ($) |  | Nonequity Incentive Plan Compensation |  | Nonqualified Deferred Compensation Earnings |  | Other ($) (4) |  |  | Total |
Sune Mathiesen, Chief Executive Officer (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2021 |  | $ | 365,787 |  |  | $ | 100,000 |  |  | $ | 397,587 |  |  |  |  |  |  |  | $ | 36,655 |  |  | $ | 900,029 |
| 2020 |  | $ | 358,875 |  |  | $ | 100,000 |  |  | $ | 350,000 |  |  |  |  |  |  |  | $ | 35,888 |  |  | $ | 844,763 |
Claus Toftegaard, Chief Financial Officer (3) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2021 |  | $ | 253,995 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 25,453 |  |  | $ | 279,448 |
| 2020 |  | $ | 249,162 |  |  |  |  |  |  | $ | 150,000 |  |  |  |  |  |  |  | $ | 24,916 |  |  | $ | 424,078 |
Simon Stadil, Chief Financial Officer (5) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2021 |  | $ | 259,099 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 25,909 |  |  | $ | 285,008 |

(1) | Total salaries for Messrs. Mathiesen and Toftegaard for 2020 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 6.5343, as of December 31, 2020. Total salaries for Messrs. Mathiesen, Toftegaard and Stadil for 2021 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 6.5612, as of December 31, 2021. We do not make any representation that the Danish Krone amounts could have been, or could be, converted into U.S. dollars at such rate on December 31, 2020 or December 31, 2021, or at any other rate.
(2) | Mr. Mathiesen became our Chief Executive Officer in August 2014. Pursuant to his employment agreement, Mr. Mathiesen is entitled to an annual base salary of approximately $365,787 based on the currency exchange rate of $1.00 = DKK 6.5612, as of December 31, 2021.
(3) | Mr. Toftegaard became our Chief Financial Officer in August 2018. Pursuant to his employment agreement, Mr. Toftegaard is entitled to an annual base salary of approximately $253,995 based on the currency exchange rate of $1.00 = DKK 6.5612, as of December 31, 2021. Mr. Toftegaard changed role to Project Director, effective November 23, 2021
(4) | Pursuant to Mr. Mathiesen’s employment agreement, Mr. Mathiesen’s received $36,655 and $35,888 of contributions from the Company to his individual retirement account in 2021 and 2020. Pursuant to Mr. Toftegaard’s employment agreement, Mr. Toftegaard received $25,453 and $24,916 of contributions from the Company to his retirement account in 2021 and 2020.

(5) | Mr. Stadil became our Chief Financial Officer in November 2021. Pursuant to his employment agreement, Mr. Stadil is entitled to an annual base salary of approximately $259,099 based on the currency exchange rate of $1.00 = DKK 6.5612, as of December 31, 2021.

Employment Arrangements

During the year ended December 31, 2021, we had employment agreements with Messrs. Mathiesen and Toftegaard. A description of each agreement is set forth below.

Mathiesen Agreement

Effective July 30, 2014 the Company’s Board of Directors appointed Mr. Sune Mathiesen to serve as Chief Executive Officer of the Company and as a Director of the Company pursuant to a Director Contract, dated July 15, 2014 (updated on October 15, 2018), by and between Mr. Mathiesen and LiqTech Holding (the “Director Agreement”). The Director Agreement provided as of December 31, 2021 for an annual base salary set at DKK 2,400,000 (or approximately $365,787 based on the currency exchange rate of $1 = DKK 6.5612 as of December 31, 2021) and an annual cash bonus of 100% - 150% of the Director’s annual salary if certain performance targets are met, as determined annually by the Company’s Compensation Committee. Mr. Mathiesen is entitled to five weeks of vacation, home internet service, a company car or equivalent taxable allowance, a LiqTech Holding mobile phone, a LiqTech Holding laptop and reimbursement of LiqTech Holding-related travel expenses. LiqTech Holding may terminate the Mathiesen Agreement upon not less than twelve months prior notice, and Mr. Mathiesen may terminate the Mathiesen Agreement with twelve months prior notice.

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Toftegaard Agreement

On August 15, 2018 Mr. Claus Toftegaard was appointed Chief Financial Officer of the Company. Pursuant to the terms of a CFO Contract, in consideration for his services, Mr. Toftegaard shall receive an annual base salary of DKK 1,666,512 (or approximately $253,995 based on the currency exchange rate of $1 = DKK 6.5612 as of December 31, 2021). Mr. Toftegaard is entitled to six weeks of vacation, home internet service, a company car, a LiqTech Holding mobile phone, a LiqTech Holding laptop and reimbursement of LiqTech Holding-related travel expenses. LiqTech Holding may terminate the Toftegaard Agreement upon not less than five months prior notice and Mr. Toftegaard may terminate with five months prior notice.

Stadil Agreement

On November 23, 2021, Mr. Simon Stadil was appointed to serve as Chief Financial officer of the company. Pursuant to the terms of his executive services contract, in consideration for his services, Mr. Stadil will receive a base salary of DKK 1,700,000 (or approximately $260,000 based on the currency exchange rate of $1 = DKK 6.5612 as of December 31, 2021) and be eligible for a discretionary annual performance bonus of up to approximately $128,000. Also in connection with his appointment, Mr. Stadil will receive restricted stock unit awards with an aggregate grant date fair value of approximately $128,000. Mr. Stadil is entitled to six weeks of vacation, home internet service, a company car, a mobile phone, laptop and reimbursement of travel expenses. LiqTech may terminate the Stadil Agreement upon not less than five months prior notice and Mr. Stadil may terminate the Stadil Agreement with three months prior notice.

Outstanding Equity Awards at Last Fiscal Year End

The following table sets forth all outstanding equity awards held by named executive officers as of December 31, 2021.

|  | Option Awards |  |  | Stock Awards |
Name |  | Number of Securities Underlying Unexercised Exercisable (#) |  |  | Number of Securities Underlying Unexercised Unexercisable (#) |  |  | Equity Incentive Plan Awards: No. of Securities Underlying Unexercised Unearned Options |  |  | Option Exercise Price |  |  | Option Expiration Date |  |  | Number of Shares or Units of Stock That Have Not Vested |  |  | Market Value of Shares or Units of Stock That Have Not Vested |  |  | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested |  |  | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested |
Sune Mathiesen, CEO |  |  | - |  |  |  | - |  |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 95,912 |  |  | $ | 548,619 |  |  |  | - |  |  |  | - |
Claus Toftegaard, CFO |  |  | - |  |  |  | - |  |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 18,416 |  |  | $ | 105,340 |  |  |  | - |  |  |  | - |
Simon Stadil, CFO |  |  | - |  |  |  | - |  |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

Compensation of Directors

For 2021 the Chairman of the Board was entitled to an annual fee of $60,000; each non-executive director was entitled to $30,000 for services on the Board of Directors; the Audit Committee Chairman was paid an additional annual fee of $10,000 per year, the Compensation Committee Chairman was paid an additional annual fee of $6,000 (however, when Mr. Vernon has served as the Chairman of the Compensation Committee after being appointed Chairman of the Board, he was not paid this additional fee). The Chairman of the Board also receives an automatic annual stock grant in the amount of $70,000 on January 2 each year. Each qualifying non-executive director would receive an automatic annual stock grant on January 2 of each year in the amount of $35,000 commencing the first year after full vesting of their initial 25,000 share stock grant that vests over a three-year period. The Company, has not entered any agreements with the Directors of any special compensation in relation to retirement, resignation, change of control or other kinds of events that might lead to the Director leaving the Board of LiqTech International, Inc.

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The following table provides information regarding compensation that was earned or paid to the individuals who served as non-employee directors during the year ended December 31, 2021.

Name |  | Fees earned or paid in cash (1)($) |  |  | Stock Awards (2)($) |  |  | Option awards (2) |  |  | Non-equity incentive plan compensation |  |  | Non-qualified deferred compensation earnings |  |  | All other compensation |  |  | Total |
Mark Vernon |  |  | 60,000 |  |  |  | 70,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 130,000 |
Alexander Buehler |  |  | 40,000 |  |  |  | 35,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 75,000 |
Peyton Boswell |  |  | 30,000 |  |  |  | 35,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 65,000 |
Richard Meeusen |  |  | 30,000 |  |  |  | 0 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 30,000 |

(1) | Our independent directors are entitled to cash compensation of $30,000 per year, the chairman of our Board is entitled to additional $30,000 per year, the chairman of our Audit Committee is entitled to additional $10,000 per year and the chairman of our Compensation Committee is entitled to additional $6,000 per year.
(2) | These amounts represent the aggregate grant date fair value for stock awards granted in 2021, computed in accordance with FASB ASC Topic 718. As such, these amounts do not correspond to the compensation actually realized by each director for the period.
| The Company issued in January 2021 11,218 shares of restricted stock valued at $70,000 for services provided and to be provided by Mr. Vernon. Mr. Vernon shall provide general work as member of the Board of Directors and other services, which are mutually agreeable by both parties on an ad hoc basis.
| The Company issued in September 2021 8,333 shares of restricted stock valued at $57,500 for services provided and to be provided by Mr. Meeusen. Mr. Meeusen shall provide general work as member of the Board of Directors and other services, which are mutually agreeable by both parties on an ad hoc basis

Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of March 24, 2022, certain information regarding the beneficial ownership of our common stock, the only class of capital stock we have currently outstanding, of (i) each director and “named executive officers” (as defined in the section titled “Executive Compensation — Summary Compensation Table”) individually, (ii) our Chief Financial officer, (iii) all directors and executive officers as a group, and (iv) each person known to us who is known to be the beneficial owner of more than 5% of our common stock. In accordance with the rules of the SEC, “beneficial ownership” includes voting or investment power with respect to securities. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

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Name of Beneficial Owner(1) |  | Shares of Common Stock Beneficially Owned (2) |  |  | Percentage of Common Stock Beneficially Owned (3) |
Directors and NEOs |  |  |  |  |  |  |  |
Sune Mathiesen (4) |  |  | 389,096 |  |  |  | 1.8 | %
Mark Vernon |  |  | 210,511 |  |  |  | * |
Alexander Buehler |  |  | 25,000 |  |  |  | * |
Peyton Boswell |  |  | 52,500 |  |  |  | * |
Richard Meeusen |  |  | 11,333 |  |  |  | * |
Simon Stadil |  |  | 0 |  |  |  | * |
All executive officers and directors as a group (7 persons) |  |  | 688,440 |  |  |  | 3.2 | %
5% Shareholders: |  |  |  |  |  |  |  |
Laurence W. Lytton |  |  | 2,209,974 |  |  |  | 10.4 | %
Bleichroeder LP |  |  | 2,175,948 |  |  |  | 10.2 | %
AWM Investment Company, Inc. |  |  | 1,978,444 |  |  |  | 9.3 | %
Clear Harbour Asset Management |  |  | 1,564,501 |  |  |  | 7.4 | %

* Less than one percent.

| (1) | Unless otherwise indicated, the address for each person listed above is: c/o LiqTech Holding A/S, Industriparken 22C, DK-2750 Ballerup, Denmark.
| (2) | Under the rules and regulations of the SEC, beneficial ownership includes (i) shares actually owned, (ii) shares underlying preferred stock, options and warrants that are currently exercisable and (iii) shares underlying options and warrants that are exercisable within 60 days of March 24, 2022. All shares beneficially owned by a particular person under clauses (ii) and (iii) of the previous sentence are deemed to be outstanding for the purpose of computing the percentage ownership of that person but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
| (3) | Based on 21,352,688 shares issued and outstanding as of March 24, 2022.
| (4) | These shares are partly owned by Masu A/S, a Danish entity. Mr. Mathiesen controls the voting and disposition of the shares owned by Masu A/S

We know of no arrangements, including pledges, by or among any of the forgoing persons, the operation of which could result in a change of control of us.

The following table provides information, as of December 31, 2021, regarding the number of shares of Company common stock that may be issued from outstanding stock options.

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Plan Category |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  |  | Weighted average exercise price of outstanding options, warrants and rights |  |  | Number of securities remaining available for future issuance under equity compensation plans |  |
Equity compensation plans approved by security holders: |  |  | - |  |  |  | - |  |  |  | - |  |
Equity compensation plans not approved by security holders |  |  | - |  |  | $ | - |  |  |  | 1,987,113 | (1) |
Total |  |  | - |  |  |  |  |  |  |  | 1,987,113 | (1) |

(1) On August 21, 2013, the Company’s Board of Directors adopted the 2013 LiqTech International, Inc. Share Incentive Plan (the “2013 Plan”). The 2013 Plan authorized awards that equal to 10% of the total outstanding shares of Common Stock on an as-converted basis as of August 21, 2013, (612,788 shares of Common Stock), plus an increase of that number of shares of Common Stock to be added on each of the third, sixth and ninth anniversary of the 2013 Plan’s effectiveness. Accordingly, on August 21, 2019, 2,054,767 shares of Common Stock became authorized under the 2013 Plan. Pursuant to the terms of 2013 Plan, if any award thereunder terminates, expires, or lapses for any reason, any shares subject to such award shall again be available for the grant of an Award pursuant to the 2013 Plan. The number of securities remaining available for future issuance accounts for 149,636 shares of Common Stock issued as “Restricted Share Units,” which were not forfeited prior to vesting.

Item 13. | Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

The following discussion relates to types of transactions involving the Company and any of our executive officers, directors, director nominees or five percent stockholders, each of whom we refer to as a "related party." For purposes of this discussion, a "related-party transaction" is a transaction, arrangement, or relationship:

| ● | in which we participate;

| ● | that involves an amount in excess of the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and

| ● | in which a related party has a direct or indirect material interest.

From January 1, 2022 through the date of this Annual Report on Form 10-K, there have been no related-party transactions, except for the executive officer and director compensation arrangements described in the section "Executive Compensation" and as described below.

Policies and Procedures for Related Party Transactions

Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of such persons’ immediate family members or affiliates, in which the amount involved exceeds $120,000, or 1% of the average of our total assets at year-end for the last two completed fiscal years, must first be presented to our audit committee for review, consideration and approval. All of our directors, executive officers and employees will be required to report to our audit committee any such related party transaction. In approving or rejecting the proposed agreement, our audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a director’s independence. Our audit committee will approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our audit committee determines in the good faith exercise of its discretion.

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Item 14. | Principal Accountant Fees and Services

Audit and Audit-Related Fees

The aggregate fees billed or expected to be billed by our independent auditors for the audit of our annual consolidated financial statements for the year ended December 31, 2021 and 2020 and for the review of our quarterly financial statements were $164,000 and $152,500, respectively. Our auditors did not provide any tax compliance, planning services, audit-related services, or other services for the Company other than those described above.

Audit Committee Pre-approval

The policy of the Audit Committee is to pre-approve all audit and non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The Audit Committee has delegated pre-approval authority to certain committee members when expedition of services is necessary. The independent accountants and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent accountants in accordance with this pre-approval delegation, and the fees for the services performed to date. The Audit Committee approved all of the services described above in this Item 14 in advance during the fiscal year ended December 31, 2021.

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Item 15. | Exhibits and Financial Statement Schedules

(a) Financial Statements and Schedules

The financial statements are set forth under Item 8 of this Annual Report. The following financial statement schedule for the years ended December 31, 2021 and December 31, 2020 is included in this Annual Report on Form 10-K:

a. Valuation and Qualifying Accounts for the years ended December 31, 2021 and December 31, 2020.

|  | 2021 |  |  | 2020 |
Bad debt expense |  |  | (28,499 | ) |  |  | 320,270 |
Reserve for obsolete inventory |  |  | 162,651 |  |  |  | 266,021 |

|  | Balance Beginning of Year |  |  | Charges to Costs and Expenses |  |  | Deductions (1) |  |  | Balance End of Year |
Year Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for inventory obsolescence |  | $ | 723,949 |  |  | $ | 162,651 |  |  | $ | (618,129 | ) |  | $ | 268,470 |
Allowance for doubtful accounts |  |  | 498,044 |  |  |  | (28,499 | ) |  |  | (60,469 | ) |  |  | 409,076 |
Totals |  | $ | 1,221,993 |  |  | $ | 134,152 |  |  | $ | (678,598 | ) |  | $ | 677,546 |
Year Ended December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for inventory obsolescence |  | $ | 665,308 |  |  | $ | 266,021 |  |  | $ | (207,380 | ) |  | $ | 723,949 |
Allowance for doubtful accounts |  |  | 612,434 |  |  |  | 320,270 |  |  |  | (434,660 | ) |  |  | 498,044 |
Totals |  | $ | 1,277,742 |  |  | $ | 586,291 |  |  | $ | (642,040 | ) |  | $ | 1,221,993 |

|  | 2021 |  |  | 2020 |
Allowance for doubtful accounts at the beginning of the period |  | $ | 498,044 |  |  | $ | 612,434 |
Bad debt expense |  |  | (28,499 | ) |  |  | 320,270 |
Receivables written off during the periods |  |  | (24,415 | ) |  |  | (484,265 | )
Effect of currency translation |  |  | (36,054 | ) |  |  | 49,605 |
Allowance for doubtful accounts at the end of the period |  | $ | 409,076 |  |  | $ | 498,044 |

(1) Includes write-offs, the impact of foreign currency exchange rates.

Schedules other than that listed above are omitted because the conditions requiring their filing do not exist or because the required information is provided in the Consolidated Financial Statements, including the Notes thereto. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

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(b) Exhibits

Exhibit No. |  | Description |  | Location
3.1 |  | Articles of Incorporation, as amended as of May 21, 2021 |  | Filed herewith
3.2 |  | Amended and Restated Bylaws |  | Incorporated by reference to Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012
4.1 |  | Form of Pre-Funded Warrant |  | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the SEC on June 2, 2020
4.2 |  | Form of Amendment to Pre-Funded Warrant |  | Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 9, 2020
4.3 |  | Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of LiqTech International, Inc. |  | Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 14, 2017
4.4 |  | Description of our Common Stock |  | Incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K as filed with the SEC on March 30, 2020
4.5 |  | Form of Pre-Funded Common Stock Purchase Warrant |  | Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K as filed with the SEC on August 20, 2021
10.1 |  | Lease Agreement for Industriparken 22C, 2750 Ballerup, Denmark |  | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K/A as filed with the SEC on November 15, 2011 (translated in English)
10.2* |  | Director Contract, dated October 15, 2018, by and between LiqTech International A/S and Sune Mathiesen |  | Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K as filed with the SEC on April 1, 2019

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10.3 |  | Form of Securities Purchase Agreement, by and among the Company and the purchasers named therein |  | Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed with the SEC on June 2, 2020
10.4 |  | Form of Registration Rights Agreement, by and among the Company and the investors named therein |  | Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K as filed with the SEC on June 2, 2020
10.5 |  | Lease Contract for Benshoej Industrivej 24, 9500 Hobro |  | Incorporated by reference to the Company’s Form 8-K as filed with the SEC on December 5, 2019
10.6 |  | Securities Purchase Agreement, by and among the Company and HT Investments MA, LC |  | Incorporated by reference to the Company’s Form 8-K as filed with the SEC on March 30, 2021
10.7 |  | Form of Senior Convertible Note due 2023 |  | Incorporated by reference to the Company’s Form 8-K as filed with the SEC on March 30, 2021
10.8 |  | Form of Exchange Agreement |  | Incorporated by reference to the Company’s Form 8-K as filed with the SEC on August 20, 2021
10.9 |  | Lease Agreement for the China Premises |  | Incorporated by reference to the Company’s Form 8-K as filed with the SEC on September 28, 2021
10.10* |  | Executive Services Agreement by and between LiqTech Holding A/S and Simon Stadil |  | Incorporated by reference to the Company’s Form 8-K as filed with the SEC on November 30, 2021
10.11* |  | LiqTech International, Inc. 2013 Share Incentive Plan |  | Incorporated by reference to the Company’s Form S-8 as filed with the SEC on January 27, 2014
10.12* |  | Interim CEO Agreement by and between LiqTech International Inc. and Alexander J. Buehler |  | Incorporated by reference to the Company’s Form 8-K/A as filed with the SEC on March 28, 2022
21.1 |  | List of Subsidiaries |  | Filed herewith
23.1 |  | Consent of Sadler, Gibb |  | Filed herewith
31.1 |  | Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith
31.2 |  | Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith
32.1 |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002 |  | Furnished herewith
32.2 |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002 |  | Furnished herewith
101. INS |  | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |  | Provided herewith
101. CAL |  | Inline XBRL Taxonomy Extension Calculation Link base Document |  | Provided herewith
101. DEF |  | Inline XBRL Taxonomy Extension Definition Link base Document |  | Provided herewith
101. LAB |  | Inline XBRL Taxonomy Label Link base Document |  | Provided herewith
101. PRE |  | Inline XBRL Extension Presentation Link base Document |  | Provided herewith
101. SCH |  | Inline XBRL Taxonomy Extension Scheme Document |  | Provided herewith
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |  | Provided herewith

* Indicates a management contract or compensatory plan or arrangement.

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Item 16. | Form 10-K Summary

Not Applicable.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| LIQTECH INTERNATIONAL, INC. |
Date: March 30, 2022 |  |  |
| By: | /s/ Alexander Buehler |
|  | Alexander Buehler Interim Chief Executive Officer, Principal Executive Officer and Director |

In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the dates indicated.

Signatures |  | Title |  | Date
/s/ Mark Vernon |  | Chairman of the Board of Directors |  | March 30, 2022
Mark Vernon |  |  |  |
/s/ Simon Stadil |  | Chief Financial Officer, Principal Financial and Accounting Officer |  | March 30, 2022
Simon Stadil |  |  |  |
/s/ Alexander Buehler |  | Interim Chief Executive Officer, Principal Executive Officer and Director |  | March 30, 2022
Alexander Buehler |  |  |  |
/s/ Peyton Boswell |  | Director |  | March 30, 2022
Peyton Boswell |  |  |  |
/s/ Richard Meeusen |  | Director |  | March 30, 2022
Richard Meeusen |  |  |  |

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