What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-31 compared with 2021-03-31 · 346 added, 239 removed, 825 unchanged (41% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm  (PCAOB ID 3627 )

Consolidated Balance Sheets at December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 2020 and 2019

Consolidated Statement of Comprehensive Loss for the years ended December 31, 2021 and 2020

Consolidated Statement of Stockholders ’

 Equity for the years ended December 31, 2020 and 2019

Equity for the years ended December 31, 2021 and 2020

Consolidated Statement of Cash Flows for the years ended December 31, 2021 and 2020

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of LiqTech International, Inc.

(“the Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’

(“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

25 unchanged sentences

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 –

11 unchanged sentences

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.

61 unchanged sentences

1,026,235  

Current portion of contingent earn-out liability

Current portion of convertible note payable

8,400,000  

2 unchanged sentences

1,152,178  

Income taxes payable

14,692  

Total Current Liabilities

4 unchanged sentences

305,167  

Other liabilities, net of current portion

346,939  

Finance lease obligation, net of current portion

4 unchanged sentences

4,159,225  

Contingent earn-out, net of current portion

Convertible note payable, less current portion

6,186,936  

6 unchanged sentences

Stockholders' Equity:

Series A Mandatory Convertible Preferred stock;

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

23 unchanged sentences

For the Years Ended

$ 18,273,442  

$ 22,526,201  

Cost of Goods Sold

16,697,296  

20,379,519  

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

Amortization of discount on convertible note

Fair value adjustment of warrants

Gain (Loss) on currency transactions

668,225  

( 1,469,607 )

Gain (Loss) on sale of fixed assets

27,772  

Total Other Income (Expense)

( 2,018,398 )

Loss Before Income Taxes

( 11,189,996 )

( 10,273,505 )

Income Tax Benefit

Net Income (Loss)

Basic Income (Loss) Per Share

Diluted Income (Loss) Per Share

Basic Weighted Average Common Shares Outstanding

Diluted Weighted Average Common Shares Outstanding

( 11,126,960 )

( 9,808,360 )

Basic and Diluted Loss Per Share

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.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Years Ended

Net Income (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.

8 unchanged sentences

69,897,698  

( 32,246,608 )  

( 6,166,559 )  

23,005,531  

Common shares issued per Board authorization of RSUs for services by the board of directors

44,992  

45,000  

Common shares issued to settle RSUs for services provided by the board of directors

Stock based compensation

298,780  

( 42,054,968 )

( 3,046,070 )

24,818,315  

Exercise of stock options

Common stock issued in settlement of RSUs

50,245  

Common shares issued for Convertible Note

80,000  

Common shares issued for cash at $ 5.00 per share, net of offering cost of $ 762,875 , May 2020

531,649  

531,729  

Exchange of common stock to prefunded warrants

( 500,000 )  

Prefunded warrants, 515,000 , transferred to equity upon modification in August 2020

Stock-based compensation

481,105  

1 unchanged sentence

Currency translation, net

3,120,489  

( 1,929,329 )

Net Income for the year ended December 31, 2021

( 9,808,360 )  

( 11,126,960 )

BALANCE, December 31, 2021

2 unchanged sentences

70,910,092  

( 42,054,968 )  

( 3,046,070 )  

( 53,181,928 )

( 4,975,399 )

12,774,860  

14 unchanged sentences

45,000  

112,500  

Common shares issued to settle RSUs for services provided by the board of directors

Stock-based compensation

4 unchanged sentences

18,500  

Common shares issued for cash at $ 5.00 per share, net of offering cost of $ 762,875 , May 2020

1,085,000  

Exercise of warrants

4,661,040  

Common shares issued at $ 7.25 per share, net offering cost of $ 1,548,161 May 2019

4,662,125  

Prefunded warrants, 515,000 , transferred to equity upon modification in August 2020

3,476,250  

1 unchanged sentence

Currency translation, net

Net Income for the year ended December 31, 2019

3,120,489  

Net Income for the year ended December 31, 2020

( 9,808,360 )

BALANCE, December 31, 2020

7 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years Ended

1 unchanged sentence

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

3 unchanged sentences

Accounts receivable

971,460  

3,143,651  

Contract assets

610,476  

2,522,275  

Prepaid expenses and other current assets

479,423  

Accounts payable

( 2,006,919 )

Accrued expenses

Operating lease payments

798,543  

1,355,846  

Operating lease liabilities

Contract liabilities

1 unchanged sentence

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

102,416  

Purchase of other intangible assets

1 unchanged sentence

Net Cash used in Investing Activities

( 1,450,139 )

( 4,008,521 )

Cash Flows from Financing Activities:

Payments on finance lease obligation

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

Loss on Currency Translation

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

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

$ 17,489,380  

$ 13,264,449  

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

LIQTECH INTERNATIONAL, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

For the Years Ended

1 unchanged sentence

Cash paid during the period for:

$ 635,671  

$ 103,953  

$ 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.

3 unchanged sentences

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:

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.

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(“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.

2 unchanged sentences

LiqTech Water Projects A/S, a Danish corporation (“LiqTech Water Projects”), incorporated on July 28, 2020 that is a dormant company without activity.

The Company is formed to include the investments in the Joint Venture in the Middle East.

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.

(“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.

The Company is in the process of closing operations as all activity in the company has ceased.

LiqTech PTE Ltd (“LiqTech Sing”), a 95 % owned subsidiary of LiqTech Holding, incorporated in Singapore on January 19, 2012.

The Company is in the process of closing operations as all activity in the company has ceased.

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 and its wholly owned subsidiaries and its majority owned subsidiary.

--  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.

Reclassification  – Certain amounts presented in previous issued financial statements have been reclassified to be consistent with the presentation in the current period.

In the statement of operations and comprehensive income (loss), the Company has reclassified the prior year comparative amounts of general and administrative expenses (increased by $ 184,772 ) and other expenses (decreased by $ 184,772 ) to be consistent with the current classification.

Further, contingent earn-out liability of $ 330,164 has been reclassified to accrued expenses considering an amendment to the original earn-out agreement from 2019 has changed the contingent liability to a fixed-amount liability.

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., LiqTech USA, Inc.

and LiqTech NA is the U.S.

The Functional Currency of LiqTech Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics and LiqTech Water Projects is the Danish Krone (“DKK”);

--  The functional currency of LiqTech International, Inc., and LiqTech USA, Inc.

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;

6 unchanged sentences

Translation gains and losses are deferred and accumulated as a component of other comprehensive income (loss) in stockholders’

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 novel coronavirus (“COVID- 19”

--  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, we elected to temporarily introduce two shifts at our production facilities to minimize the risk of infection and to implement health and safety actions recommended by government and health officials to better protect our employees who are required to be present at our production facilities.

In addition, most of our employees were working remotely during the shutdown.

Since the beginning of May, the businesses in Denmark have been re-opening as the effect of COVID- 19 has largely been contained and the number of infections and fatalities decreased significantly.

We now again see, however, the number of infections and fatalities increase, and tightening restrictions are again introduced in many countries.

Since the start of September, we have re-introduced limitations on the number of employees working directly in our production sites, and all employees who can work from home are encouraged to do so.

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 due to uncertainties, 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 2020.

We have taken precautionary measures to reduce and/or defer operating expenses and preserve liquidity.

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

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

Notwithstanding the reduction in our manufacturing levels, based on our current rate of production, we believe that we will be able to fulfill most, if not all, of our existing delivery obligations in 2020.

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 our business may be adversely impacted as a result of the pandemic’s global economic impact.

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

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  

2 unchanged sentences

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.

The Company had no balances held in a financial institution in the United States in excess of federally insured amounts on December 31, 2020 and December 31, 2019.

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 receivables consist of trade receivables arising in the normal course of business.

--  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. 

The roll-forward of the allowance for doubtful accounts for the year ended December 31, 2020 and December 31, 2019 is as follows: 

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

Allowance for doubtful accounts at the beginning of the period

3 unchanged sentences

320,270  

25,044  

Receivables written off during the periods

8 unchanged sentences

Work in process and finished goods include material, labor, and production overhead costs.

The Company adjusts the value of its inventory to the extent that management determines that the cost cannot be recovered due to obsolescence or other factors.

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 is recognized when a performance obligation has been satisfied but has not yet been billed.

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.

4 unchanged sentences

Leases  

--  In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016 - 02, Leases (“Topic 842”

), which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.

Subsequent ASUs were issued to provide additional guidance.

On January 1, 2019, the Company adopted Topic 842 using the optional transition method of adoption, under which the new standards were applied prospectively rather than restating the prior periods presented.

The Company elected the package of practical expedients permitted, which, among other things, allowed the Company to carry forward the historical lease classification.

The Company made the accounting policy elections 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 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 were 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 was used in determining the present value.

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 was reduced by accrued lease payments.

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.

The impact of adoption on the Company’s consolidated balance sheet was the recognition of a ROU asset of $ 2.1 million and an operating lease liability of $ 2.1 million primarily for office space leases.

The Company’s adoption of Topic 842 did not materially impact its results of operation.

Property and Equipment  

15 unchanged sentences

The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches.

Forecast 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,”

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

The Company sells products throughout the world;

sales by geographical region are as follows for the year ended December 31, 2021 and 2020:

% Distribution

For the Year Ended December 31

United States and Canada

North America

$ 3,121,797  

9 unchanged sentences

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

For the Year Ended

% Distribution

For the Year Ended December 31

Liquid filters and systems

1 unchanged sentence

$ 14,147,842  

Ceramic diesel particulate

Diesel particulate filters

7,183,868  

5,131,891  

Plastics components

3,615,681  

11 unchanged sentences

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.

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 components do not exist between the Company and its customers.

Given the insignificant days between revenue recognition and receipt of payment, financing arrangements 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.

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.

16 unchanged sentences

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 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 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 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 year ended December 31, 2020 and December 31, 2019 is as follows: 

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

Cost incurred

20 unchanged sentences

( 1,152,178 )

( 1,421,376 )

$ 991,682  

2 unchanged sentences

--  Costs incurred in connection with advertising of the Company’s products is expensed as incurred.

Advertising cost are included in sales expenses and total advertising costs amounted to $ 96,977 and $ 117,404 for the years ended December 31, 2020 and 2019, respectively.

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  

20 unchanged sentences

), 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.

On August 12, 2020, the terms of the prefunded warrant were amended and the potential obligation of the Company to pay cash to its warrant holders were removed.

From the date of the execution of the amended warrant, it qualifies as an equity instrument and the liability measured at fair value on August 12, 2020 of $ 3,476,250 has been reclassified to the Company´s Equity.

Corresponding changes in the fair value measurement of the warrants are recognized in earnings on the Company’s Consolidated Statement of Operations in each subsequent period.

Fair Value of Financial Instruments  

7 unchanged sentences

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, accrued expenses approximate their recorded values due to their short-term maturities.

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  

9 unchanged sentences

Actual results could differ from those estimated.

Recent Accounting Pronouncements  

--  In March 2020, the FASB issued ASU 2020 - 04,  Reference Rate Reform (Topic 848 ):

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.

7 unchanged sentences

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 condensed consolidated financial statements.

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 ):

7 unchanged sentences

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 condensed consolidated financial statements.

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.

9 unchanged sentences

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 condensed 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. 

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.

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

16 unchanged sentences

$ 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.  

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 -  

2 unchanged sentences

Production equipment

3 - 10  

$ 8,599,728  

$ 10,228,216  

Production equipment - finance lease  

3 - 10  

4,528,695  

1,113,412  

Production equipment - finance lease

Lab equipment

3 - 10  

127,560  

99,831  

Computer equipment

805,001  

484,943  

115,525  

143,373  

Vehicles - finance lease  

50,815  

Vehicles - finance lease

Furniture and fixture

1,218,386  

1,202,155  

Furniture and fixture - finance lease  

290,505  

198,045  

Furniture and fixture - finance lease

Leasehold improvements

5 - 10  

3,544,256  

2,121,157  

19,229,656  

15,641,947  

Less Accumulated Depreciation

( 7,518,657 )

( 9,659,850 )

Less Accumulated Depreciation - finance lease  

( 1,389,488 )  

( 1,156,145 )

Less Accumulated Depreciation - finance lease

Net Property and Equipment

$ 10,321,511  

$ 4,825,952  

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

NOTE 4  

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 White Bear Lake, Minnesota.

The lease in White Bear Lake will expire in February 2021 and due to the closure of the activity in North America, the lease has not been extended.

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, 2020, cash paid for amounts included for the measurement of finance lease liabilities was $ 43,770 , and the Company recorded operating lease expenses included in other income (expenses) of $ 114,792 .

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 .

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

18 unchanged sentences

( 1,389,488 )

( 1,156,145 )

Property and equipment, net

1 unchanged sentence

$ 3,429,713  

Finance lease liabilities - current

Finance lease liabilities –

$ 373,824  

34 unchanged sentences

NOTE 6 - INTANGIBLE ASSETS

At December 31, 2020 and December 31, 2019, other intangible assets, net of accumulated amortization, consisted of customer relationships acquired in connection with the purchase of LiqTech Plastics A/S and patents on the Company’s products.

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:

Customer relationships

$ 502,957  

$ 544,770  

189,017  

204,731  

691,974  

749,501  

Less Accumulated amortization

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,

108,471  

74,940  

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 security bond.

For that purpose, we have a guarantee credit line of DKK10,000,000 (approximately $ 1,650,000 ).

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 .

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

N OTE 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.

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:

Convertible note

$ 16,800,000  

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 Water Projects has entered into a joint venture agreement to supply and operate water treatment systems for oil and gas producers in the Middle East.

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 Water Projects 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 Water Projects holds 49 % of the shares.

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.

401 (K) Profit Sharing Plan  -- LiqTech NA has a 401 (k) profit sharing plan and trust covering certain eligible employees.

The amount LiqTech NA contributes is discretionary.

For the years ended December 31, 2020 and 2019, matching contributions were expensed and totaled $ 13,514 and $ 10,283 , respectively.

Contingencies -- From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

On November 20, 2018 a former supplier to Liqtech Ceramics contacted the Company with a claim of DKK 448,500 ($ 68,800 ) alleging that an agreement from 2016 had not been respected.

The Company contested the claim but in December 2020 the court ruled in favor of the supplier and LiqTech was sentenced to pay amounts totaling DKK 587,000 ($ 96,900 ) which was expensed in 2020.

The amount was paid in January 2021.

On February 27, 2019, LiqTech Water 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, and the claim was rejected by a court of law in 2018.

Due to the nature of the claim and the previous ruling from the court of law, no provision has been made as of December 31, 2020.

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.

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Utilization charges against reserve

Release of accrual related to expired warranties

Foreign currency effect

( 80,534 )  

94,708  

Balance at December 31,

11 unchanged sentences

approximately $ 472,134 for German tax purposes, which do not expire;

and approximately $ 664,423 for Singapore 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;

$ 1,682,000 and $ 1,209,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics and LiqTech Water Projects, respectively, $ 143,000 and $ 129,000 for the tax components of LiqTech Germany and $ 113,000 and $ 102,000 for the tax components of LiqTech Singapore 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, 2020 was $ 1,549,000 , $ 473,000 , $ 14,000 and $ 11,000 for the US, Danish, German and Singapore components, 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.

2 unchanged sentences

$ 708,825  

$ 624,154  

Vacation accrual

2 unchanged sentences

151,288  

Business tax credit carryover

Accrued expenses

Accrued interest

13,125  

Discount amortization

175,420  

Deferred compensation

19 unchanged sentences

$ ( 2,349,899 )

$ ( 2,157,436 )

State and local income taxes, net of federal benefit

Non-US income taxed at different rates

( 35,454 )  

Deferred compensation

1 unchanged sentence

Non-taxable income

Valuation allowance

Change in valuation allowance

2,209,294  

1,918,579  

210,747  

10,705  

Income tax expense (benefit)

$ ( 465,145 )

$ ( 297,252 )

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

1 unchanged sentence

$ ( 401,945 )

$ ( 311,189 )

Current tax (benefit)

$ ( 401,945 )

$ ( 311,189 )

Deferred income taxes:

1 unchanged sentence

$ ( 309,719 )

Allowance for doubtful accounts

$ ( 419,523 )

Work in progress

848,000  

Net operating loss carryover

( 2,667,221 )

Valuation allowance

2,811,619  

844,826  

Deferred compensation

31,500  

Accrued interest

13,125  

Discount amortization

175,420  

Accrued vacation

3 unchanged sentences

Deferred tax expense (benefit)

$ 13,937  

Total tax expense (benefit)

$ ( 465,145 )

$ ( 297,252 )

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

The Company files Danish, U.S.

The Company files Danish, Chinese, U.S.

federal and Minnesota state income tax returns.

LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics and LiqTech Water Projects are generally no longer subject to tax examinations for years prior to 2015 for their Danish 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.

7 unchanged sentences

Further, the Company had 1,015,000 prefunded warrants outstanding to issue common stock.

For the year ended December 31, 2019, the Company had 125,293 RSUs outstanding.

Further, the Company had 25,000 options outstanding to purchase common stock at $ 2.96 per share.

The following data shows the amounts used in computing earnings per share, the effect on income and the weighted average number of shares of potential dilutive common stock for the years ended December 31, 2020 and 2019:

For the Year Ended December 31

Net Income/(Loss) attributable to LiqTech International Inc.

$ ( 9,808,360 )

$ 39,616  

Weighted average number of common shares used in basic earnings per share

21,209,118  

19,652,277  

Effect of dilutive securities, stock options, warrants, and RSUs

15,475  

Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share

21,209,118  

19,667,752  

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

10 unchanged sentences

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 Preferred stock, $ 0.001 par value.

As of December 31, 2020 and 2019 there were no mandatory convertible preferred shares issued and outstanding.

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.

Stock Issuances  

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

On January 15, 2020, the Company issued 8,212 common shares per Board authorization valued at $ 45,000 for services provided by the Board of Directors.

The Company recognized the stock-based compensation of the shares over the requisite service period.

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

On June 6, 2020, the Company issued 8,333 common shares to settle RSUs.

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 award over the requisite service period.

On July 8 and August 18, 2020, the Company issued a total of 6,248 shares in connection with employees exercising stock options granted under the 2015 Stock Options Plan (the "2015 Plan").

The shares were issued at a share price of $ 2.96 and generated net proceeds of $ 18,500 .

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.  

5 unchanged sentences

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:

Warrants outstanding at January 1

Prefunded warrants issued in May 2020

515,000  

Common stock exchanged to prefunded warrant

500,000  

Exercises and conversions

1 unchanged sentence

1,015,000  

On August 12, 2020 the Warrant was amended.

In the Warrant pre-amendment, the warrant holder could request that the Company should repay the value of the unexercised portion of the Warrant upon the occurrence of a fundamental transaction.

The Warrant, as amended, required the fundamental transaction to be approved by the Board of Directors before any repayment could take place.

This amendment changed the classification of the Warrant from a liability to equity, and the following is a summary of the periodic changes in the fair value during the year ended December 31, 2020:

Base value of warrants, 515,000 warrants at $5

$ 2,575,000  

Fair value adjustment

901,250  

Balance at August 12, 2020 reclassified to equity

$ 3,476,250  

Stock-based Compensation  

17 unchanged sentences

$ 6.59  

$ 250,183  

Stock Options  

In August 2015, the Company’s Board of Directors adopted a Stock Option Plan (the “Plan”).

Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, officers, and directors of the Company. At December 31, 2020, no options were granted and outstanding under the Plan. 

The Company recognizes compensation costs for stock option awards to employees based on their grant-date fair value.

The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model.

NOTE 13 –

SEGMENT REPORTING

The Company operates in 3 main segments, Water, Ceramics and Plastics.

With effect from January 1, 2020, the group structure was changed as shared group activities was transferred to an individual reporting unit separated from the business units.

Costs and assets for these activities were therefore separated in the fiscal year 2020 while they in 2019 was included in primarily Water and Ceramics.

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:

14 unchanged sentences

$ ( 1,411,196 )

$ 1,713,150  

$ ( 1,083,578 )

49,440  

( 3,330,840 )

( 3,532,137 )

( 1,317,293 )

( 5,067,631 )

( 4,310,607 )

Total consolidated Income (Loss)

$ ( 11,126,960 )

$ 39,616  

$ ( 9,808,360 )

For the Year Ended December 31,

15 unchanged sentences

* Zero or less than 10%

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

As of December 31, 2020, approximately 100 % and 0 % of the Company’s assets were located in Denmark and the United States, respectively. As of December 31, 2019, approximately 91 % and 9 % of the Company’s assets were located in Denmark and the United States, respectively.

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

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 -  

3 unchanged sentences

The Company recognized the stock-based compensation of the award over the requisite service period.

On February 26, 2021, the Company issued 30,694 common shares to settle RSUs.

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 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor pursuant to which the Company agreed to issue and sell a $ 15,000,000 principal amount Senior Convertible Note due 2023 and an aggregate of 80,000 shares of common stock, par value $ 0.001 per share, for an aggregate purchase price of $ 15,000,000 million upon the satisfaction of the closing conditions set forth in the Purchase Agreement.

On March 18, 2022, the Company announced that Sune Mathiesen, Chief Executive Officer, has taken a medical leave of absence. 

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. 

Buehler has served as a Director of LiqTech since 2017, during which time he has also served as the Audit Committee Chairman.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data