What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-22 compared with 2023-03-22 · 422 added, 670 removed, 528 unchanged (67% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report  

of Independent Registered Public Accounting Firm (PCAOB ID NO:

Report of Independent Registered Public Accounting Firm (PCAOB ID NO:

Consolidated Balance Sheets at December 31, 2023 and 2022

1 unchanged sentence

Consolidated Statement of Comprehensive Loss for the years ended December 31, 2023 and 2022

Consolidated Statement of Stockholders ’

Equity for the years ended December 31, 2022 and 2021

Consolidated Statement of Stockholders ’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statement of Cash Flows for the years ended December 31, 2023 and 2022

4 unchanged sentences

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

(“the Company”) as of December 31, 2022 and 2021, 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, 2022 and the related notes (collectively referred to as the “financial statements”).

(“the Company”) as of December 31, 2023 and 2022, 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, 2023 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

5 unchanged sentences

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.

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.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

2 unchanged sentences

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. 

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

4 unchanged sentences

Critical Audit Matter Description

As described in Notes 1 and 4 to the consolidated financial statements, the Company uses a standard costing method to value inventory produced. 

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. 

As described in Notes 1 and 4 to the consolidated financial statements, the Company uses a standard costing method to value inventory produced.

In addition to raw materials, labor and energy usage charges, the Company applies production overhead allocations to each item.

3 unchanged sentences

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, including overhead allocations 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 inventory products, including assessing the reasonableness of production times, labor requirement and energy usage utilized.  

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

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

Critical Audit Matter Description

9 unchanged sentences

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 assessing the key terms and conditions of the arrangements and testing the identification, evaluation, and accounting of the performance obligation for conformity with relevant authoritative guidance.

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

Evaluating the reasonableness of the approaches used to determine estimated stand-alone selling price.

Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of management’s conclusions with respect to certain complex revenue arrangements.

/s/ Sadler, Gibb & Associates, LLC

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

March 22, 2023 

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

March 21, 2024

LIQTECH INTERNATIONAL, INC.

3 unchanged sentences

Cash, cash equivalents and restricted cash

$ 16,597,371  

$ 17,489,380  

$ 10,422,181 $ 16,597,371

Accounts receivable, net of allowance for doubtful accounts of $ 134,912 and $ 59,559 at December 31, 2023 and December 31, 2022, respectively

2,310,344  

1,957,579  

3,171,047 2,310,344

Inventories, net of allowance for excess and obsolete inventory of $ 867,458 and $ 663,227 at December 31, 2023 and December 31, 2022, respectively

4,062,001  

5,421,027  

5,267,816 4,062,001

Contract assets

2,253,295  

1,906,510  

2,891,744 2,253,295

Prepaid expenses and other current assets

1,720,902  

1,292,285  

337,391 1,720,902

Assets held for sale

723,872  

Total Current Assets

27,667,785  

28,066,781  

22,090,179 27,667,785

Long-Term Assets:

Property and equipment, net of accumulated depreciation of $ 9,046,499 and $ 7,554,803 at December 31, 2022 and December 31, 2021, respectively  

8,296,807  

8,858,993  

Property and equipment, net of accumulated depreciation of $ 11,828,200 and $ 9,046,499 at December 31, 2023 and December 31, 2022, respectively

9,007,166 8,296,807

Operating lease right-of-use assets

3,271,997  

6,925,807  

4,055,837 3,271,997

Deposits and other assets

450,038  

628,109  

470,349 450,038

Intangible assets, net of accumulated amortization of $ 558,555 and $ 438,250 at December 31, 2023 and December 31, 2022, respectively

212,933  

334,743  

226,095  

240,259  

114,593 212,933

233,723 226,095

Total Long-term Assets

12,457,870  

16,987,911  

$ 40,125,655  

$ 45,054,692  

13,881,668 12,457,870

$ 35,971,847 $ 40,125,655

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

4 unchanged sentences

Accounts payable

$ 1,389,355  

$ 1,646,662  

$ 2,444,653 $ 1,389,355

Accrued expenses

3,087,206  

4,685,665  

3,550,542 3,087,206

Current portion of finance lease obligations

399,198  

373,824  

590,550 399,198

Current portion of operating lease liabilities

561,182  

846,544  

Current portion of convertible note payable

8,400,000  

531,355 561,182

Contract liabilities

649,557  

914,828  

382,647 649,557

Total Current Liabilities

6,086,498  

16,867,523  

7,499,747 6,086,498

Deferred tax liability

154,645  

224,779  

Other liabilities, net of current portion

346,939  

101,059 154,645

Finance lease obligation, net of current portion

2,384,011  

2,499,591  

2,879,932 2,384,011

Operating lease liability, net of current portion

2,710,815  

6,154,064  

Convertible note payable, less current portion

6,186,936  

Senior promissory notes payable, less current portion

5,480,314  

3,527,082 2,710,815

Senior promissory notes payable

4,688,011 5,480,314

Total Long-term liabilities

10,729,785  

15,412,309  

11,196,084 10,729,785

Total Liabilities

16,816,283  

32,279,832  

18,695,831 16,816,283

Stockholders' Equity:

3 unchanged sentences

par value $ 0.001 , 50,000,000 shares authorized 5,727,310 and 5,498,260 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

43,986  

21,285  

Additional paid-in capital

96,936,988  

70,910,902  

Accumulated deficit

98,796,357 96,975,476

Accumulated deficit

( 75,922,180 ) ( 67,351,035 )

1 unchanged sentence

( 5,603,888 ) ( 6,320,567 )

( 4,975,399 )

Total Stockholders' Equity

23,309,372  

12,774,860  

17,276,016 23,309,372

Total Liabilities and Stockholders' Equity

$ 40,125,655  

$ 45,054,692  

$ 35,971,847 $ 40,125,655

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

LIQTECH INTERNATIONAL, INC.

AND SUBSIDIARIES  

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended

$ 15,982,438  

$ 18,273,442  

Cost of Goods Sold

15,415,294  

16,697,296  

567,144  

1,576,146  

Operating Expenses:

Selling expenses

3,669,887  

4,564,188  

General and administrative expenses

5,701,955  

5,836,629  

Research and development expenses

1,835,890  

1,862,653  

Restructuring costs

1,893,166  

Total Operating Expenses

13,100,898  

12,263,470  

Loss from Operations

( 12,533,754 )

( 10,687,324 )

Other Income (Expense)

Interest and other income

384,058  

371,467  

Interest expense

Amortization of discount on convertible note

( 2,389,128 )

Gain on currency transactions

404,162  

668,255  

Gain on on lease termination

147,452  

Gain on sale of fixed assets

Gain (loss) on currency transactions

Gain on lease termination

Gain (loss) on disposal of assets held for sale

Gain on sale of property and equipment

Total Other Expense

( 1,872,763 )

Loss Before Income Taxes

( 14,406,517 )

( 11,189,996 )

Income Tax Benefit

( 14,169,107 )

( 11,126,960 )

Basic and Diluted Loss Per Share

Basic and Diluted Weighted Average Common Shares Outstanding

35,395,466  

21,567,112  

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

3 unchanged sentences

For the Years Ended

Other Comprehensive Loss - Currency Translation, net

Other Comprehensive Income (Loss) - Currency Translation, net

Total Comprehensive Loss

3 unchanged sentences

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2022  

Income (Loss)

For the Years Ended December 31, 2023 and 2022

BALANCE, December 31, 2022

21,285,706  

21,285  

70,910,902  

5,498,260 5,498 96,975,476 ( 67,351,035 ) ( 6,320,567 ) 23,309,372

( 4,975,399 )

12,774,860  

Common stock issued in settlement of RSUs

164,523  

Common shares issued for cash at $ 0.50 per share, net of offering cost of $ 1,996,469 , in May 2022

22,535,850  

22,536  

24,430,992  

24,453,528  

212,254 212 ( 212 ) - - -

Fractional shares from individual shareholder round-up following reverse split

16,796 17 ( 17 ) - - -

Warrants issued in connection with Senior Promissory Notes

660,836  

- - 1,193,206 - - 1,193,206

Stock-based compensation

934,423  

Currency translation, net

- - 627,904 - - 627,904

Currency translation, net

- - - - 716,679 716,679

1 unchanged sentence

- - - ( 8,571,145 ) - ( 8,571,145 )

( 14,169,107 )

BALANCE, December 31, 2023

43,986,079  

43,986  

96,936,988  

5,727,310 5,727 98,796,357 ( 75,922,180 ) ( 5,603,888 ) 17,276,016

( 6,320,567 )

23,309,372  

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

2 unchanged sentences

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2022  

Income (Loss)

For the Years Ended December 31, 2023 and 2022

BALANCE, December 31, 2021

21,655,461  

21,655  

69,897,698  

2,660,713 2,661 70,929,526 ( 53,181,928 ) ( 4,975,399 ) 12,774,860

( 3,046,070 )

24,818,315  

Common stock issued in settlement of RSUs

50,245  

Common shares issued for Convertible Note

80,000  

531,649  

531,729  

Exchange of common stock to prefunded warrants

( 500,000 )  

20,566 20 ( 20 ) - - -

Common shares issued for cash at $ 0.50 per share, net of offering cost of $ 1,996,469 , in May 2022

2,816,981 2,817 24,450,711 - - 24,453,528

Warrants issued in connection with Senior Promissory Notes

- - 660,836 - - 660,836

Stock-based compensation

481,105  

Currency translation, net

- - 934,423 - - 934,423

Currency translation, net

- - - - ( 1,345,168 ) ( 1,345,168 )

1 unchanged sentence

- - - ( 14,169,107 ) - ( 14,169,107 )

( 11,126,960 )

BALANCE, December 31, 2022

21,285,706  

21,285  

70,910,902  

5,498,260 5,498 96,975,476 ( 67,351,035 ) ( 6,320,567 ) 23,309,372

( 4,975,399 )

12,774,860  

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

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS   

For the Years Ended

Cash Flows from Operating Activities:

Net Income (Loss)

$ ( 14,169,107 )

$ ( 11,126,960 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:

Adjustments to reconcile net loss to net cash used in operations:

Depreciation and amortization

2,585,881  

2,740,241  

Amortization of discount on convertible notes payable

2,389,128  

835,331  

Stock-based compensation

934,423  

481,105  

Change in deferred tax asset / liability

Loss (Gain) on lease termination

Loss (Gain) on sale of equipment

Change in deferred tax liability

Gain on lease termination

Loss on disposal of assets held for sale

Gain on sale of equipment

Changes in assets and liabilities:

Accounts receivable

971,460  

984,130  

Contract assets

610,476  

Prepaid expenses and other current assets

479,423  

Accounts payable

Accrued expenses

( 1,632,897 )

798,543  

Operating lease liabilities

1 unchanged sentence

Assets held for sale

Total Adjustments

2,370,663  

3,923,117  

Net Cash used in Operating Activities

( 12,039,020 )

( 7,203,843 )

Cash Flows from Investing Activities:

Purchase of property and equipment

( 1,690,621 )

( 1,133,378 )

Proceeds from sale of property and equipment

Net cash paid for acquisition

Net Cash used in Investing Activities

( 1,689,986 )

( 1,450,139 )

Cash Flows from Financing Activities:

Payments on finance lease obligation

77,939  

Proceeds from Sale and Leaseback Agreements

Payments on Convertible Note

( 16,800,000 )

14,283,333  

Proceeds from issuance of common stock and prefunded warrants

24,418,612  

Proceeds from issuance of Senior Promissory Notes

6,000,000  

Net Cash Provided by Financing Activities

13,696,551  

13,902,999  

Effect of foreign currency exchange on cash

( 1,024,086 )

Net Change in Cash, Cash Equivalents and Restricted Cash

4,224,931  

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

17,489,380  

13,264,449  

Cash, Cash Equivalents and Restricted Cash at End of Period

$ 16,597,371  

$ 17,489,380  

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

LIQTECH INTERNATIONAL, INC.

4 unchanged sentences

Cash paid during the period for:

$ 348,575  

$ 635,671  

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  

Debt discount on Senior Promissory Notes

695,749  

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

LIQTECH INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

The consolidated financial statements include the accounts of LiqTech International, Inc.

and its subsidiaries (the “Company”).

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.

and its subsidiaries (the “Company”).

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 Americas, Asia-Pacific, Europe, and Middle-East & Africa.

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 USA Inc., 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 Inc., 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”), incorporated in Delaware on July 1, 2005, a 100 % owned subsidiary of LiqTech USA Inc., engaged in the production, marketing, and sale of ceramic diesel particulate and liquid filters in the United States and Canada.

LiqTech NA 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.

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 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.

(“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 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.

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.

Functional Currency / Foreign currency translation  

--  The functional currency of LiqTech International, Inc.

Reverse Stock Split -- On May 26, 2023, the Company effected a 1 -for- 8 reverse split of its outstanding common stock, $ 0.001 par value (“Common Stock”).

All outstanding Common Stock, warrants, and restricted stock units (“RSUs”) were adjusted to reflect the 1 -for- 8 reverse split, with respective exercise prices of the warrants proportionately increased.

All stock and per share data throughout these consolidated financial statements have been retroactively adjusted to reflect the reverse share split.

The total number of authorized Common Stock was adjusted to reflect the 1 -for- 8 reverse split.

As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.”

Functional Currency / Foreign currency translation -- 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;

and the functional currency of LiqTech Singapore is the Singapore Dollar.

The Company’s reporting currency is the U.S.

The functional currency of LiqTech Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects, and LiqTech Emission Control is the Danish Krone (“DKK”);

and the functional currency of LiqTech China is the Renminbi (“RMB”).

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 period-end exchange rates, equity is translated at historical cost, and all revenue and expenses are translated into U.S.

Dollars at the average exchange rates prevailing during the twelve months ended December 31, 2023 and 2022.

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. 

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.

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

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, 2023, and 2022, the Company held $ 941,361 and $ 1,440,394 , respectively, of restricted cash.

1 unchanged sentence

Accounts held in each U.S.

institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000.

At December 31, 2023 and December 31, 2022, the Company had $ 0 and $ 12,999,271 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. 

The roll-forward of the allowance for doubtful accounts as of December 31, 2022 and December 31, 2021 is as follows: 

Accounts Receivable -- Accounts receivable consist of trade receivables arising from credit sales to customers in the normal course of business.

These receivables are recorded at the time of sale, net of an allowance for current expected credit losses.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 326, “Financial Instruments – Credit Losses,” the Company estimates expected credit losses based on historical bad debt experience, the aging of accounts receivable, the current creditworthiness of our customers, prevailing economic conditions, and reasonable and supportable forward-looking information.

The roll-forward of the allowance for doubtful accounts as of December 31, 2023 and December 31, 2022 is as follows:

Allowance for doubtful accounts at the beginning of the period

$ 409,076  

$ 498,044  

$ 59,559 $ 409,076

Bad debt expense

82,066 ( 24,534 )

Receivables written off during the periods

( 10,298 ) ( 295,778 )

Effect of currency translation

3,585 ( 29,205 )

Allowance for doubtful accounts at the end of the period

$ 59,559  

$ 409,076  

The receivables written off during the period 2022 mainly relates to legacy marine scrubber contracts and partnerships, renegotiated and terminated amid the COVID disruptions and general slowdown in the marine scrubber market.

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

$ 134,912 $ 59,559

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.

3 unchanged sentences

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

Contracts Assets / Liabilities -- 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.

Contracts Assets / Liabilities -- 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.

12 unchanged sentences

Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell.

Depreciation and amortization of assets ceases upon designation as held for sale.

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.

Depreciation and amortization of assets cease upon designation as held for sale.

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 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, recognized 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.

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.

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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.

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.

Long-lived Assets -- The Company assesses 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 the Company considers 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 its use of the assets.

The Company measures the recoverability of assets that will continue to be used in its operations by comparing the carrying value of the asset grouping to its 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 the Company’s asset usage model and the interchangeable nature of its ceramic filter manufacturing capacity, the Company must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings.

In addition, as the Company makes manufacturing process changes and other factory planning decisions, it must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific filter manufacturing tools and building improvements.

If the Company determines that the useful lives of assets are shorter than it had originally estimated, the Company accelerates the rate of depreciation over the assets’ new, shorter useful lives.

Management has analyzed the impact of the current economic climate on its financial statements as of December 31, 2023, 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, 2023 and 2022, no impairment charge of long-lived assets has been recorded.

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.

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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;

Revenue Recognition -- The Company records revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.” Revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principle, the Company applies the following five -step approach:

( 1 ) identify the contract with the customer;

( 2 ) identify the performance obligations in the contract;

( 3 ) determine the transaction price;

( 4 ) allocate the transaction price to performance obligations in the contract;

and ( 5 ) recognize revenue when or as a performance obligation is satisfied.

The Company sells products throughout the world;

sales by geographical region are as follows for the year ended December 31, 2023 and 2022:

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For the Year Ended December 31

$ 1,073,433  

$ 3,121,797  

3,406,420  

4,658,070  

9,379,337  

10,493,575  

12 % 7 % $ 2,125,460 $ 1,073,433

14 % 21 % 2,506,215 3,406,420

65 % 59 % 11,820,674 9,379,337

Middle East & Africa

2,123,248  

$ 15,982,438  

$ 18,273,442  

The Company’s sales by product line are as follows for the years ended December 31, 2022 and 2021:

9 % 13 % 1,549,303 2,123,248

100 % 100 % $ 18,001,652 $ 15,982,438

The Company’s sales by product line are as follows for the years ended December 31, 2023 and 2022:

% Distribution

For the Year Ended December 31

$ 5,297,286  

$ 7,196,465  

6,844,861  

7,183,868  

3,528,606  

3,615,681  

311,685  

277,428  

$ 15,982,438  

$ 18,273,442  

For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within 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.

42 % 33 % $ 7,705,080 $ 5,297,286

35 % 43 % 6,232,628 6,844,861

21 % 22 % 3,736,529 3,528,606

2 % 2 % 327,415 311,685

100 % 100 % $ 18,001,652 $ 15,982,438

For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within 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 along with 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.

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Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability.

Considering the relatively short time between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.

Considering the relatively short time between revenue recognition and receipt of payment, significant 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.

Standalone selling prices are generally determined based on the prices charged to customers or using an expected cost-plus margin.

System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions specified 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) asserting that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro.

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 Factory Acceptance Test (“FAT”) asserting 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.

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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 filtration systems.

We measure the 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.

We measure the 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, 2022 and December 31, 2021 is: 

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, 2023 and December 31, 2022 is:

Cost incurred

$ 3,860,179  

$ 3,381,994  

$ 3,225,728 $ 3,860,179

Unbilled project deliveries

950,105  

454,158  

229,006  

542,255  

582,557 950,105

329,980 229,006

Other receivables

45,814  

60,158  

92,619 45,814

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Deferred Revenue

$ 1,603,738  

$ 991,682  

( 33,360 ) ( 118,327 )

$ 2,509,097 $ 1,603,738

Distributed as follows:

Contract assets

$ 2,253,295  

$ 1,906,510  

$ 2,891,744 $ 2,253,295

Contract liabilities

$ 1,603,738  

$ 991,682  

Advertising Cost  

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

( 382,647 ) ( 649,557 )

$ 2,509,097 $ 1,603,738

Cost of Sales -- The Company includes product costs (i.e., material, direct labor and overhead costs), shipping and handling expense, production-related depreciation expense and product license agreement expense in cost of sales.

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

Advertising cost is included in sales expenses, and total advertising costs amounted to $ 70,580 and $ 144,043 for the years ended December 31, 2023 and 2022, respectively.

Research and Development Cost  

--  The Company expenses research and development costs for the development of new products as incurred.

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, 2023 and 2022 were $ 1,418,842 and $ 1,835,890 , respectively, of research and development costs.

Income Taxes  

--  The Company accounts for income taxes in accordance with FASB ASC Topic 740:

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.

Loss Contingencies – The Company is 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 warranties, the Company makes judgments with respect to customer claim rates.

At least quarterly, the Company reviews the status of each significant matter, and it may revise its estimates.

These revisions could have a material impact on the Company’s results of operations and financial position.

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.

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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 Awards  

--  During the years presented in the accompanying consolidated financial statements, the Company has granted stock awards.

The Company accounts for stock awards in accordance with the provisions of FASB ASC Topic 718, Compensation –

Stock Compensation.

Stock Awards -- During the years presented in the accompanying consolidated financial statements, the Company has granted stock awards.

The Company accounts for stock awards in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation.

Stock-based compensation costs of $ 627,904 and $ 934,423 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, 2023 and 2022, respectively.

Fair Value of Financial Instruments  

--  The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic 820.

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.

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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:

Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;

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;

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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;

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Actual results could differ from those estimated.

Recent Accounting Pronouncements  – In March 2022, the FASB issued ASU 2022 - 02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326 ):

Financial Instruments –

Credit Losses.

This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs.

The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty.

Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable.

The ASU is effective January 1, 2023, and is required to be applied prospectively, except for the recognition and measurement of TDRs which can be applied on a modified retrospective basis.

We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.

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 was effective for annual reporting periods after January 1, 2022.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020 - 06 Accounting for Convertible Instruments and Contracts in An Entity’s Own Equity.

ASU 2020 - 06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature.

As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features.

Additionally, ASU 2020 - 06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method.

The treasury stock method is no longer available.

For SEC filers, excluding smaller reporting companies, ASU 2020 - 06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

For all other entities, ASU 2020 - 06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company early adopted ASU 2020 - 06 on January 1, 2022, using a modified retrospective approach.

In March 2020, the FASB issued ASU 2020 - 4 Reference Rate Reform (Topic 848 ).

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.

The new standard was effective upon issuance and upon adoption can be applied prospectively to applicable contract modifications made on or before December 31, 2022.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments—Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments.

The amendments in this update, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

As a smaller reporting company, the guidance is effective for our fiscal years beginning after December 15, 2022.

We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.

NOTE 2 –

GOING CONCERN

Recent Accounting Pronouncements -- In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures by requiring;

( 1 ) consistent categories and greater disaggregation of information in the rate reconciliation and ( 2 ) income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted.

These amendments are to be applied prospectively, with retrospective application permitted.

We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures.

In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually.

ASU 2023 - 07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

These amendments are to be applied retrospectively.

We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures.

In August 2023, the FASB issued ASU 2023 - 05, Business Combinations—Joint Venture Formations (Subtopic 805 - 60 ):

Recognition and Initial Measurement, which requires a newly-formed joint venture to apply a new basis of accounting to its contributed net assets, resulting in the joint venture initially measuring its contributed net assets at fair value on the formation date.

ASU 2023 - 05 is effective for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted.

These amendments are to be applied prospectively, with retrospective application permitted for joint ventures formed before the effective date.

We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures.

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 incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements.

There is 

no  assurance that the Company will be successful in executing the proposed cost reductions and profitability improvement measures, thus achieving profitable operations.

The financial statements do 

not  include any adjustments that might result from the outcome of these uncertainties. 

NOTE 3 –

RESTRUCTURING COSTS

There is no assurance that the Company will be successful in executing the proposed cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations.

The financial statements do not include any adjustments that might result from the realization of these uncertainties.

We continue to analyze various alternatives, including potentially obtaining debt or equity financings or other arrangements.

Our future success depends on our ability to raise capital and restore profitability.

We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us.

If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current shareholders may experience dilution.

If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current development programs, cut operating costs, forego future development and other opportunities, or even terminate our operations.

As of December 31, 2023, the Company had cash and cash equivalents of $ 10,422,181 , net working capital of $ 14,590,430 , an accumulated deficit of $ 75,922,180 , and total assets and liabilities of $ 35,971,847 and $ 18,695,831 , respectively.

NOTE 3 – RESTRUCTURING COSTS

During the second quarter of 2022, the Company completed a restructuring program to reduce costs, decrease operating losses and improve cash flow.

Total restructuring and restructuring-related net charges pursuant to this program were $ 1,893,166 , which were recorded separately in the income statement as “restructuring costs”, and allocated as follows:

CEO separation -- On May 10, 2022, the Board of Directors accepted the resignation of Sune Mathiesen as Chief Executive Officer and a director of the Company, effective on May 12, 2022.

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In connection with Mr.

Mathiesen’s resignation, Mr.

Mathiesen and the Company entered into a Separation Agreement and Release (the “Separation Agreement”).

Mathiesen’s resignation, Mr.

Mathiesen and the Company entered into a Separation Agreement and Release (the “Separation Agreement”).

Under the provisions of the Separation Agreement, Mr.

Mathiesen received DKK1,605,000 ($ 228,975 ), which is the equivalent of six months of salary, car allowance and pension contributions, paid in a lump-sum payment, less applicable deductions and withholdings.

Terminated employees –

In the second quarter of 2022, the Company re-aligned its corporate management structure, which involved a reduction in headcount and labor costs of approximately 25 %.

Terminated employees – In the second quarter of 2022, the Company re-aligned its corporate management structure, which involved a reduction in headcount and labor costs of approximately 25 %.

The new organization reflects a focused effort to align key leaders with strategic imperatives, inspire greater accountability and performance management, eliminate silos and layers of middle management, and operate a leaner, more efficient business.

1 unchanged sentence

No provisions were made for the employees working during the notice period.

China close-down –

In the second quarter of 2022, the Company reduced and suspended planned capital investments, including the Company’s program to build a manufacturing and service center in China.

China close-down – In the second quarter of 2022, the Company reduced and suspended planned capital investments, including the Company’s program to build a manufacturing and service center in China.

Pursuant to the suspended plans, the Company terminated and settled agreements with consultants, select project employees, and property development providers, resulting in a net payment of termination and cancellation charges of $ 275,445 .

1 unchanged sentence

As part of the renegotiation, a provision was made during the second quarter of $ 668,606 regarding expected cancellation charges and contractual termination costs.

During the third and fourth quarter the amount of paid cancellation charges exceeded the provision by $ 145,388 , which explains the total amount regarding capex commitments of $ 813,994 .    

Write-downs -- The re-routing of production equipment and machinery to Denmark (originally planned for China), resulted in a write-down of $ 240,576 on legacy installed equipment and machinery that was decommissioned as part of the arrival and implementation of new and more efficient equipment.

Furthermore, review of obsolete inventory and existing product demand resulted in a write-down of $ 175,977 .

The Company’s restructuring costs are as follows for the year ended December 31, 2022, which have all been settled as of December 31, 2022:

The Company’s restructuring costs are as follows for the years ended December 31, 2023 and 2022:

CEO separation

$ 228,975  

$ - $ 228,975

Terminated employees

158,199  

China close-down

275,445  

Capex commitments

813,994  

416,553  

$ 1,893,166  

The following table displays a roll-forward of the restructuring accruals, presented within “accrued expenses”, for the year ended December 31, 2022 and 2021:

Restructuring accruals, January 1

Restructuring costs, net

1,893,166  

Cash payments

$ - $ 1,893,166

Asset impairments

Restructuring accruals, December 31

NOTE 4 - INVENTORY

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Net Inventory

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 increase in the reserve for excess and obsolescence is mainly explained by changes in product and sales mix, due to both market driven and strategic changes implemented during the year, and furthermore new and more conservative processes implemented as part of the ERP implementation.

NOTE 5  

PROPERTY AND EQUIPMENT

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.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following on December 31, 2023 and December 31, 2022:

Production equipment

3 - 10  

$ 8,027,589  

$ 7,425,145  

3 - 10 $ 9,433,581 $ 8,027,589

Production equipment - finance lease

3 - 10  

3,625,558  

3,066,623  

3 - 10 5,182,375 3,625,558

Lab equipment

3 - 10  

118,935  

117,770  

3 - 10 130,909 118,935

Computer equipment

1,070,437  

1,005,223  

26,020  

90,819  

3 - 5 1,141,790 1,070,437

3 - 5 26,897 26,020

Furniture and fixture

1,141,424  

1,166,071  

5 1,474,032 1,141,424

Furniture and fixture - finance lease

252,397  

268,208  

5 260,911 252,397

Leasehold improvements

5 - 10  

3,080,946  

3,273,940  

17,343,306  

16,413,799  

Less Accumulated Depreciation

5 - 10 3,184,871 3,080,946

20,835,366 17,343,306

Less Accumulated Depreciation

( 10,950,622 ) ( 8,501,846 )

Less Accumulated Depreciation - finance lease

( 877,578 ) ( 544,653 )

Net Property and Equipment

$ 8,296,807  

$ 8,858,993  

$ 9,007,166 $ 8,296,807

Depreciation expense amounted to $ 2,472,031 and $ 2,007,112 for the year ended December 31, 2023, and 2022, respectively.

$2,007,112 for the year ended December 31, 2022, $ 1,414,514 is allocated as cost of goods sold and $ 592,598 is allocated as operating expenses.

NOTE 6  

Of the $2,472,031 for the year ended December 31, 2023, $ 2,178,993 is allocated to cost of goods sold and $ 293,038 is allocated to operating expenses.

NOTE 6 - 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.

The majority of our operating leases are non-cancelable operating leases for production and office space in Hobro, Aarhus, and Copenhagen, Denmark.

The lease agreements expire on November 30, 2034, August 31, 2024, and August 31, 2028, respectively.

During the second quarter of 2022, the Company terminated the lease agreement for the office and production space in Taicang, China.

During the year ended December 31, 2022, cash paid for amounts included for the measurement of operating lease liabilities was $ 906,373 , and the Company recorded operating lease expenses included in operating expenses of $ 984,236 .

During the year ended December 31, 2022, cash paid for amounts included for the measurement of finance lease liabilities was $ 427,113 , and the Company recorded finance lease expenses included in other income (expenses) of $ 323,081 .

During the year ended December 31, 2023, cash paid for amounts included for the measurement of operating lease liabilities was $ 754,490 , and the Company recorded operating lease expenses of $ 725,337 in operating expenses.

During the year ended December 31, 2023, cash paid for amounts included for the measurement of finance lease liabilities was $ 441,696 , and the Company recorded finance lease expenses of $ 159,766 in other income (expenses).

Supplemental balance sheet information related to leases as of December 31, 2023 and 2022 was as follows:

1 unchanged sentence

Operating lease right-of-use assets

$ 3,271,997  

$ 6,925,807  

Operating lease liabilities –

$ 561,182  

$ 846,544  

Operating lease liabilities –

2,710,815  

6,154,064  

$ 4,055,837 $ 3,271,997

Operating lease liabilities – current

$ 531,355 $ 561,182

Operating lease liabilities – long-term

3,527,082 2,710,815

Total operating lease liabilities

$ 3,271,997  

$ 7,000,608  

$ 4,058,437 $ 3,271,997

Finance leases :

Property and equipment, at cost

$ 3,877,955  

$ 3,334,830  

$ 5,443,287 $ 3,877,955

Accumulated depreciation

( 877,578 ) ( 544,653 )

Property and equipment, net

$ 3,333,302  

$ 2,998,494  

Finance lease liabilities –

$ 399,198  

$ 373,824  

Finance lease liabilities –

2,384,011  

2,499,591  

$ 4,565,709 $ 3,333,302

Finance lease liabilities – current

$ 590,550 $ 399,198

Finance lease liabilities – long-term

2,879,932 2,384,011

Total finance lease liabilities

$ 2,783,209  

$ 2,873,415  

$ 3,470,482 $ 2,783,209

Weighted average remaining lease term:

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Maturities of lease liabilities at December 31, 2023 were as follows:

$ 745,898  

$ 516,175  

604,324  

517,076  

315,007  

513,658  

304,595  

478,441  

304,595  

1,016,291  

2,056,019  

190,659  

$ 785,707 $ 804,044

702,899 800,510

692,137 764,105

692,137 1,320,097

566,381 356,983

1,810,499 130,196

Total payment under lease agreements

4,330,439  

3,232,300  

5,249,760 4,175,935

Less imputed interest

1 unchanged sentence

Total lease liability

$ 3,271,997  

$ 2,783,209  

$ 4,058,437 $ 3,470,482

NOTE 7 - INTANGIBLE ASSETS

At December 31, 2022 and December 31, 2021, 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.

At December 31, 2023 and December 31, 2022, 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, 2023 and December 31, 2022:

Customer relationships

$ 473,308  

$ 502,957  

177,875  

189,017  

651,183  

691,974  

$ 489,273 $ 473,308

183,874 177,875

673,148 651,183

Less Accumulated amortization

( 558,555 ) ( 438,250 )

Intangible assets, net

$ 212,933  

$ 334,743  

Amortization expense amounted to $ 81,019 and $ 108,471 for the year ended December 31, 2022 and 2022, respectively.

$ 114,593 $ 212,933

Amortization expense amounted to $ 105,522 and $ 81,019 for the years ended December 31, 2023 and 2022, respectively.

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

Year ending December 31,

102,077  

70,523  

18,088  

$ 212,933  

NOTE 8 - LINES OF CREDIT

2 unchanged sentences

$ 940,000 ) secured by a cash deposit.

As of December 31, 2022, our bank has issued working guaranties of $ 281,584 to customers against the credit line.

N OTE 9 –

LONG-TERM DEBT

As of December 31, 2023, the Company no longer has any outstanding working guarantees issued to customers against this credit line.

NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following at December 31, 2023 and December 31, 2022:

Accounts payable

Accrued payroll liabilities

Product warranty accrual

Other accrued expenses

NOTE 10 – LONG-TERM DEBT

Convertible Note

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

On March 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor (“Investor”) pursuant to which the Company agreed to issue and sell a $ 15.0 million principal amount senior convertible note (the “Convertible Note”) maturing on October 1, 2023 and 10,000 shares of our Common Stock, $ 0.001 par value (“Common Stock”), for an aggregate purchase price of $ 15.0 million upon the satisfaction of the closing conditions set forth in the Securities Purchase Agreement.

The Closing occurred on April 8, 2021, and the Company issued to the Investor the securities in connection with the closing.

The Note was a senior, unsecured obligation of the Company, payable at 112 % of the principal amount at maturity ( October 1, 2023), or earlier upon redemption or repurchase as set forth in the Note.

The Note was 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 was 100.6749 shares of Common Stock per $1,000 of principal amount of the Note.

The Convertible Note was a senior, unsecured obligation of the Company, payable at 112 % of the principal amount at maturity ( October 1, 2023), or earlier upon redemption or repurchase as set forth in the Convertible Note.

The Convertible Note was convertible into shares of Common Stock pursuant to the terms of the Convertible Note, in part or in whole, from time to time, at the election of the Investor.

The initial conversion rate was 805.3992 shares of Common Stock per $1,000 of principal amount of the Convertible Note.

The conversion rate was subject to anti-dilution adjustments, including for stock dividends, splits, and combinations;

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cash dividends or distributions;

and tender or exchange offers, in each case as further described in and pursuant to the terms of the Note. 

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 was 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.

Beginning on March 1, 2022, the Company paid the first monthly installment of $ 840,000 in cash.

As of June 22, 2022, the Note, including accrued interest and all relevant obligations, was repaid in full, amounting to $ 13,446,875 , allocated between a principal repayment of $ 11,640,000 and contractual repayment premium of $ 1,806,875 .

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  

For the year ended December 31, 2022 and 2021, the Company recognized interest expense of $ 308,958 and $ 547,917 , respectively, and $ 2,213,065 and $ 835,331 , respectively, related to the amortization of debt issuance costs. 

and tender or exchange offers, in each case as further described in and pursuant to the terms of the Convertible Note.

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 was required to redeem $ 840,000 of the amounts due under the Convertible 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 $ 14.00 per share.

As of June 22, 2022, the Convertible Note, including accrued interest and all relevant obligations, was repaid in full, amounting to $ 13,446,875 , allocated between a principal repayment of $ 11,640,000 and contractual repayment premium of $ 1,806,875 .

For the year ended December 31, 2023 and 2022, the Company recognized interest expense of $ 0 and $ 308,958 , respectively, and $ 0 and $ 2,213,065 , respectively, related to the amortization of debt issuance costs.

Senior Promissory Notes

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

(together, the "Purchasers"), pursuant to a note and warrant purchase agreement entered into with the Purchasers.

The Notes have a term of 24 months and do not bear interest during this period.

On June 22, 2022, the Company issued and sold Senior Promissory Notes in an aggregate principal amount of $ 6.0 million (the “Notes”) and issued warrants to purchase 531,250 shares of Common Stock to affiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd.

(together, the “Purchasers”), pursuant to a note and warrant purchase agreement entered into with the Purchasers (the “Note and Warrant Purchase Agreement”).

The warrants issued in this transaction have an exercise price of $ 5.20 per share, a term of five years and are exercisable for cash at any time.

The Notes originally had a term of 24 months and do not bear interest during this period.

If the Notes are not repaid on or before the second anniversary of issuance, however, the Notes will thereafter bear interest of 10 % per annum, which will increase by 1 % each month the Notes remain unpaid, up to a maximum of 16 % per annum, payable monthly.

Additionally, as part of the transaction, the Company issued 28,846 warrants to the placement agent.

All of the warrants issued in this transaction have an exercise price of $ 0.65 per share, a term of five years and are exercisable for cash at any time.

The warrants issued in this transaction have an exercise price of $ 5.20 per share, a term of five years and are exercisable for cash at any time.

As a result, the Company recorded an initial debt discount of $ 695,749 , based on the relative fair value of the warrants and Notes issued.

1 unchanged sentence

expected term of 2.5 years, stock price of $ 3.44 , exercise price of $ 5.20 , volatility of 80.8 %, risk-free rate of 3.13 %, and no forfeiture rate.

The debt discount will be accreted according to the effective interest method over the contractual term of the note.

The debt discount will be accreted according to the effective interest method over the contractual term of the Notes.

The warrants qualified for equity classification and were reported within Additional Paid-In Capital.

On October 13, 2023, the Company and the Purchasers entered into an amendment to the Note and Warrant Purchase Agreement (the “Amendment”) and Allonge No.

1 to each of the Notes (collectively, the “Allonges”) effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 ( the “Extension”).

As consideration for the Extension, simultaneously with the entry into the Amendment and Allonges, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $ 5.20 per share, subject to adjustment as provided therein (the “2023 Warrants”).

The 2023 Warrants are exercisable at any time prior to the five -year anniversary of the initial exercise date of September 30, 2023.

The Amendment qualifies as a modification and entitles the Purchasers to registration rights with respect to the shares of Common Stock issuable upon exercise of the 2023 Warrants pursuant to the existing Registration Rights Agreement, dated June 22, 2022, by and between the Company and the Purchasers.

As a result of the amendment, the Company recorded an initial debt discount of $ 1,193,206 , based on fair value of the warrants issued.

The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions:

expected term of 5.0 years, stock price of $ 3.89 , exercise price of $ 5.20 , volatility of 73.66 %, risk-free rate of 4.60 %, and no forfeiture rate.

The debt discount will be accreted according to the effective interest method over the contractual term of the Notes.

The warrants qualified for equity classification and were reported within Additional Paid-In Capital.

The components of notes payable are as follows:

Senior Promissory Notes

$ 6,000,000  

$ 6,000,000 6,000,000

unamortized debt discount

( 1,311,989 ) ( 519,686 )

Senior Promissory Notes payable

$ 5,480,314  

$ 4,688,011 $ 5,480,314

Current portion of Senior Promissory Notes payable

Senior Promissory Notes payable, less current portion

5,480,314  

4,688,011 5,480,314

Senior Promissory Notes payable

$ 5,480,314  

$ 4,688,011 $ 5,480,314

For the year ended December 31, 2023, and 2022, the Company recognized interest expense of $ 0 and $ 0 , respectively, and $ 400,903 and $ 176,063 , respectively, related to the amortization of the debt discount.

NOTE 10 -  

AGREEMENTS, COMMITMENTS AND CONTINGENCIES

NOTE 11 - AGREEMENTS, COMMITMENTS AND CONTINGENCIES

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.

In 2022 The Company was in dialogue with a former client regarding marine waste-water treatment systems delivered in 2019, related to a potential warranty claim due to corrosion on certain parts and components, with a total estimated remediation cost of $ 1.5 million.

The Company disputed the claim in full, resulting in a settlement agreement signed in the fourth quarter with expected remediation work in 2023.

 The cost of any remediation work is expected to be covered in the warranty accrual amount.

In November 2022, the Company entered into a commercial settlement agreement regarding marine wastewater treatment systems delivered in 2019 and associated, potential warranty claims related to alleged corrosion on certain parts and components.

The Company disputed the claim in full, subsequently reaching an amicable settlement agreement with the customer to conduct remediation work in 2023.

The cost of any remediation work is shared between the two parties.

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

7 unchanged sentences

Balance at January 1,

$ 962,313  

$ 1,056,613  

$ 898,072 $ 962,313

Warranty costs charged to cost of goods sold

86,256  

177,302  

115,401 86,256

Utilization charges against reserve

( 408,234 ) ( 93,653 )

Foreign currency effect

23,861 ( 56,844 )

Balance at December 31,

$ 898,072  

$ 962,313  

NOTE 11 -  

$ 629,100 $ 898,072

The utilization charges against the reserve for the ended December 31, 2023 relate to the commercial settlement agreement as described over under “Contingencies”.

NOTE 12 - 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%.

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, 2023, the Company had net operating loss carry-forwards of approximately $ 29,136,593 for U.S.

federal tax purposes, expiring through 2041;

approximately $ 20,352,624 for Danish tax purposes, which do not expire;

approximately $ 444,303 for German tax purposes, which do not expire;

approximately $ 577,266 for Singapore tax purposes, which do not expire;

federal tax purposes, expiring through 2041; approximately $ 21,482,164 for Danish tax purposes, which do not expire;

and approximately $ 1,914,858 for Chinese tax purposes, which expires in 2027.

2 unchanged sentences

$ 6,303,000 and $ 5,226,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control, and LiqTech Water Projects, respectively;

$ 124,000 and $ 132,000 for the tax components of LiqTech Germany, respectively;

$ 98,000 and $ 104,000 for the tax components of LiqTech Singapore, respectively;

and $ 479,000 and $ 488,000 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, 2022 was $ 1,146,000 , $ 1,720,000 , $( 8,000 ), $( 6,000 ), and $ 295,000 for the US, Danish, German, Singaporean, and Chinese components, respectively.

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, Singaporean, and Chinese components, respectively.

The change in the valuation allowance for the year ended December 31, 2023 was $ 590,000 , $ 1,077,000 , and $ 9,000 for the US, Danish, and Chinese components, respectively.

The change in the valuation allowance for the year ended December 31, 2022 was $ 1,146,000 , $ 1,720,000 , and $ 295,000 for the US, Danish, and Chinese components, respectively.

The temporary differences, tax credits and carry-forwards gave rise to the following deferred tax assets and liabilities at December 31, 2023 and December 31, 2022:

Excess of tax over financial accounting

$ 973,859  

$ 708,825  

$ 1,454,389 $ 973,859

Reserve for excess and obsolete inventory

145,910  

49,615  

Accrued expenses

190,841 145,910

Accrued interest

13,125  

Discount amortization

640,163  

175,420  

724,353 640,163

Deferred compensation

52,500  

Net operating loss carryover

11,057,361  

9,959,356  

11,580,458 11,057,361

Excess of book over tax depreciation

Excess of book over tax work in progress

Valuation allowance

( 359,917 ) ( 272,243 )

Excess of book over tax work in progress

190,196 ( 253,930 )

Valuation allowance

( 13,881,379 ) ( 12,445,765 )

5 unchanged sentences

$ ( 101,059 ) $ ( 154,645 )

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, 2022 and 2021:

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, 2023 and 2022:

Computed tax at expected statutory rate

$ ( 1,843,244 ) $ ( 3,025,369 )

$ ( 2,349,899 )

State and local income taxes, net of federal benefit

( 1,177 ) ( 1,532 )

Non-US income taxed at different rates

( 44,279 ) ( 138,596 )

Deferred compensation

52,500  

Non-deductible expenses

1 unchanged sentence

Change in valuation allowance

3,035,205  

2,209,294  

210,747  

1,755,013 3,035,205

( 77,919 ) ( 161,826 )

Income tax expense (benefit)

7 unchanged sentences

$ ( 386,673 ) $ ( 346,154 )

$ ( 309,719 )

Work in progress

Net operating loss carryover

( 442,964 ) ( 294,233 )

Net operating loss carryover

( 402,448 ) ( 2,041,211 )

Valuation allowance

2,319,705  

2,811,619  

1,128,197 2,319,705

Deferred compensation

31,500  

Accrued interest

13,125  

Discount amortization

464,744  

175,420  

84,190 464,744

Accrued vacation

Reserve for obsolete inventory

52,028  

( 37,841 ) ( 88,915

Deferred tax expense (benefit)

$ ( 57,539 ) $ ( 55,994 )

Total tax expense (benefit)

$ ( 206,207 ) $ ( 237,410 )

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.

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 2017 for their Danish tax returns.

LiqTech NA is generally no longer subject to tax examinations for years prior to 2017 for U.S.

federal and state tax returns. 

NOTE 12 -  

EARNINGS PER SHARE

federal and state tax returns.

NOTE 13 - 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.

2 unchanged sentences

For the year ended December 31, 2023, the Company had outstanding balances of 314,461 RSUs, 3,390,008 prefunded warrants, and 1,091,346 warrants, all exercisable for shares of Common Stock.

For the year ended December 31, 2021, the Company had outstanding balances of 149,636 RSUs and 1,015,000 prefunded warrants outstanding to issue common stock.

For the year ended December 31, 2022, the Company had outstanding balances of 301,111 RSUs, 3,930,008 prefunded warrants, and 560,096 warrants, all exercisable for shares of Common Stock.

NOTE 14 - STOCKHOLDERS' EQUITY

Common Stock -- The Company has 100,000,000 authorized shares of common stock, $ 0.001 par value.

As of December 31, 2022 and 2021, respectively, there were 

43,986,079 and 21,285,706 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.  

Common Stock - The Company has 50,000,000 authorized shares of common stock, $ 0.001 par value.

As of December 31, 2023 and 2022, respectively, there were 5,727,310 and 5,498,260 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.

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.

1 unchanged sentence

As of December 31, 2023 and 2022, there were no preferred shares issued and outstanding.

Stock Issuances  

January 1, 2022, the Company has made the following issuances of Common Stock: 

On January 3, 2022, the Company issued 18,641 shares of Common Stock to settle RSUs for services provided by the Board of Directors in 2021.

On January 3, 2022, the Company issued 48,341 shares of Common Stock to settle RSUs for services provided by management in 2021.

On May 17, 2022, the Company issued 15,635,850 shares of Common Stock as part of the $ 23,000,000 public offering of common stock and 30,425,000 prefunded warrants to fund working capital, general corporate purposes, and partial repayment of its Senior Convertible Note.

On May 19, 2022, the Company exercised in full the option to issue 6,900,000 shares of Common Stock as part of the overallotment of $ 3,450,000 , resulting in the closing of its previously announced public offering of $ 26,450,000 to fund working capital, general corporate purposes, and partial repayment of its Senior Convertible Note.

Total transaction costs related to the combined public offering of $26,450,000 amounted to $ 1,996,469 .

On August 25, 2022, the Company issued 8,333 shares of Common Stock to settle RSUs for services provided by the Board of Directors. 

On November 29, 2022, the Company issued 9,208 shares of Common Stock to settle RSUs for services provided by management in 2022.

On December 30, 2022, the Company issued 80,000 shares of Common Stock to settle RSUs as per the terms outlined in the Separation Agreement.

Warrants  

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 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 and as of the date of the Exchange Agreement, the Company issued the prefunded warrants to the shareholder, and the prefunded warrants are exercisable on August 17, 2021, subject to the limitations on exercise and conditions set forth by the prefunded warrants.

The prefunded warrants became subject to customary adjustments in the event of stock splits and dividends, fundamental transactions, and subsequent offerings of rights to purchase stock.

On May 17, 2022, the Company entered a warrant purchase agreement with existing shareholders to purchase 30,425,000 shares of common stock at an offering price of $ 0.499 per prefunded warrant, which represents the offering price of $ 0.50 per share of the Company’s common stock less the $ 0.001 per share exercise price for each pre-funded warrant, for total gross proceeds of approximately $ 15,182,075 as part of the Company’s public offering of common stock and pre-funded warrants totaling $23,000,000 before underwriting discounts, commissions, and offering expenses payable by the Company.

Reversed Stock Split - On May 26, 2023, the Company effected a 1 -for- 8 reverse split of its outstanding Common Stock, $ 0.001 par value (“Common Stock”).

All outstanding Common Stock, warrants, and RSUs were adjusted to reflect the 1 -for- 8 reverse split, with respective exercise prices of the warrants proportionately increased.

All stock and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split.

The total number of authorized Common Stock was adjusted to reflect the 1 -for- 8 reverse split.

As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.”

Stock Issuances

Since January 1, 2023, the Company has made the following issuances of Common Stock:

On January 3, 2023, the Company issued 2,340 shares of Common Stock to settle RSUs.

The RSUs were valued at $ 110,254 for services provided by the Board of Directors in 2022.

The Company recognized the stock-based compensation of the award over the requisite service period during the year ended December 31, 2022.

On January 3, 2023, the Company issued 158,330 shares of Common Stock to settle RSUs.

The RSUs were valued at $ 674,164 for services provided by management in 2022.

The Company recognized the stock-based compensation of the award over the requisite service period during the year ended December 31, 2022.

On May, 2023, the Company issued 16,796 shares of Common Stock for individual shareholder round-ups in connection with the 1 -for- 8 reverse split of its outstanding Common Stock.

On June 26, 2023, the Company issued 24,500 shares of Common Stock to settle RSUs.

The RSUs were valued at $ 73,500 for services provided by the Board of Directors in 2023.

The Company recognized the stock-based compensation of the award over the requisite service period during the period ended June 30, 2023.

On August 25, 2023, the Company issued 1,042 shares of Common Stock to settle RSUs.

The RSUs were valued at $ 57,500 for services provided by the Board of Directors in 2023.

The Company recognized the stock-based compensation of the award over the requisite service period during the period ended September 30, 2023.

On September 12, 2023, the Company issued 26,042 shares of Common Stock to settle RSUs.

The RSUs were valued at $ 116,667 for services provided by management in the last 12 months.

The Company recognized the stock-based compensation of the award over the requisite service period during the period ended September 30, 2023.

On May 17, 2022, the Company entered a warrant purchase agreement with existing stockholders to purchase 3,803,133 shares of Common Stock at an offering price of $ 3.992 per prefunded warrant, which represents the offering price of $ 4.00 per share of the Company’s Common Stock less the $ 0.008 per share exercise price for each pre-funded warrant.

The warrants represented gross proceeds of approximately $ 15,182,075 as part of the Company’s public offering of Common Stock and pre-funded warrants totaling $23,000,000 before underwriting discounts, commissions, and offering expenses payable by the Company.

On June 22, 2022, the Company completed a private placement of Senior Notes in an aggregate principal amount of $ 6,000,000 and warrants to purchase 531,250 shares of Common Stock of the Company to affiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd.

(together, the "Purchasers"), pursuant to a note and warrant purchase agreement.

(together, the "Purchasers"), pursuant to a note and warrant purchase agreement (the “Note and Warrant Purchase Agreement”).

Additionally, as part of the transaction, the Company issued 28,846 warrants to the placement agent.

All warrants issued in this transaction have an exercise price of $ 0.65 per share, a term of five years, and are exercisable for cash at any time. 

All warrants issued in this transaction have an exercise price of $ 5.20 per share, a term of five years, and are exercisable for cash at any time.

On October 13, 2023, the Company entered into an amendment to the Note and Warrant Purchase Agreement effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 ( the “Extension”).

As consideration for the Extension, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $ 5.20 per share.

The warrants are exercisable at any time prior to the five -year anniversary of the initial exercise date of September 30, 2023.

The following is a summary of the periodic changes in warrants outstanding for the years ended December 31, 2023 and 2022:

Warrants outstanding at January 1

1,015,000  

515,000  

4,490,104 126,875

Warrants issued in connection with public offering and private placement

34,905,000  

531,250 4,363,229

Common stock exchanged to prefunded warrant

500,000  

Warrants outstanding at December 31

35,920,000  

1,015,000  

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, 2022, 1,387,347 RSUs were granted and outstanding under the Incentive Plan.

Directors of the Company receive share compensation as follows: 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 $ 36,750 ($ 73,500 for the Chairman of the Board) in RSUs per annum after full vesting of the initial grant.

Further, the Company has granted shares of Common Stock in the third quarter to management as part of the Incentive Plan, totaling 625,000 shares related to the onboarding of the new Chief Executive Officer, which vest over a three -year period.

In 2022, The Company’s Board of Directors adopted an Equity Incentive Plan (the “2022 Incentive Plan”).

Under the terms and conditions of the 2022 Incentive Plan, the Board of Directors is empowered to grant RSUs to officers and directors of the Company. At December 31, 2022, 1,021,545 RSUs were granted and outstanding under the Incentive Plan.

5,021,354 4,490,104

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, directors, and consultants of the Company.

At December 31, 2023, 113,357 RSUs were granted and outstanding under the Incentive Plan.

Directors of the Company receive share compensation consisting of annual grants of $ 36,750 ($ 73,500 for the Chairman of the Board) in RSUs per annum with one -year vesting.

In 2022, the Company’s Board of Directors adopted an Equity Incentive Plan (the “2022 Incentive Plan”).

Under the terms and conditions of the 2022 Incentive Plan, the Board of Directors is empowered to grant RSUs to officers and directors of the Company.

At December 31, 2023, 201,104 RSUs were granted and outstanding under the 2022 Incentive Plan.

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 $ 934,423 and $ 481,105 for the years ended December 31, 2022 and 2021, respectively.

The Company recognized stock-based compensation expense related to RSU grants of $ 627,904 and $ 934,423 for the years ended December 31, 2023 and 2022, respectively.

On December 31, 2023, the Company had $ 688,990 of unrecognized compensation cost related to non-vested stock grants.

2 unchanged sentences

Outstanding, December 31, 2022

149,636  

$ 6.59  

2,574,871  

301,111 $ 4.80 $ -

225,604 3.00 -

Vested and settled with share issuance

( 212,254 ) ( 4.86 ) -

Outstanding, December 31, 2023

2,408,892  

$ 0.63  

NOTE 14 –

SEGMENT REPORTING

314,461 $ 3.46 $ -

NOTE 15 – SEGMENT REPORTING

The Company operates in three segments:

4 unchanged sentences

For the Year Ended December 31,

$ 5,297,286  

$ 7,196,465  

6,844,861  

7,183,868  

3,528,606  

3,615,681  

311,685  

277,428  

$ 7,705,080 $ 5,297,286

6,232,628 6,844,861

3,736,529 3,528,606

327,415 311,685

Total consolidated revenue

$ 15,982,438  

$ 18,273,442  

$ 18,001,652 $ 15,982,438

For the Year Ended December 31,

3 unchanged sentences

( 4,533,206 ) ( 7,652,867 )

Total consolidated Loss

$ ( 8,571,145 ) $ ( 14,169,107 )

For the Year Ended December 31,

$ 9,432,991 $ 7,781,211

14,550,872 13,808,529

Total consolidated Loss

759,745 1,099,019

11,228,239 17,436,896

For the Year Ended December 31,

$ 7,781,211  

$ 7,767,679  

13,808,529  

13,961,057  

1,099,019  

1,645,879  

17,436,896  

21,680,077  

Total consolidated assets

$ 40,125,655  

$ 45,054,692  

NOTE 15 -  

SIGNIFICANT CUSTOMERS / CONCENTRATION

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

$ 35,971,847 $ 40,125,655

NOTE 16 - 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,

* Zero or less than 10%

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

As of December 31, 2022, approximately 65 % of the Company’s assets were located in Denmark, 33 % were located in the U.S., and 2 % were located in China.

As of December 31, 2021, approximately 61 % of the Company’s assets were located in Denmark, 26 % were located in the U.S., and 13 % were located in China.

NOTE 16 -  

SUBSEQUENT EVENTS

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

As of December 31, 2023, approximately 98 % of the Company’s assets were located in Denmark, 0 % were located in the U.S., and 2 % were located in China.

As of December 31, 2022, approximately 65 % of the Company’s assets were located in Denmark, 33 % were located in the U.S., and 2 % were located in China.

NOTE 17 - SUBSEQUENT EVENTS

On January 3, 2024, the Company issued 24,500 common shares to settle RSUs.

4 unchanged sentences

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

On January 10, 2024, Simon Stadil tendered his resignation as Chief Financial Officer of the Company, effective as of April 10, 2024.

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