LIQTECH INTERNATIONAL INC 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID NO: 3627 ) 34 Consolidated Balance Sheets at December 31, 2023 and 2022 36 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 38 Consolidated Statement of Comprehensive Loss for the years ended December 31, 2023 and 2022 39 Consolidated Statement of Stockholders ’ Equity for the years ended December 31, 2023 and 2022 40 Consolidated Statement of Cash Flows for the years ended December 31, 2023 and 2022 42 Notes to the Consolidated Financial Statements 44 33 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of LiqTech International, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of LiqTech International, Inc. (“the Company”) as of December 31, 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. Explanatory Paragraph Regarding Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Inventory Costing 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. In addition to raw materials, labor and energy usage charges, the Company applies production overhead allocations to each item. 34 Table of Contents We identified the auditing of inventory costing as a critical audit matter because of the significant estimates and assumptions management used in the determination of the standard costing allocation and related overhead allocations. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter was Addressed in the Audit 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 Critical Audit Matter Description As described in Note 1 to the consolidated financial statements, the Company has some contracts with customers that contain multiple performance obligations. For these contracts, management accounts for individual performance obligations separately if they are distinct. As described by management, management exercises judgment and uses estimates in order to (1) determine whether performance obligations are distinct and should be accounted for separately; (2) determine the standalone selling price of each performance obligation; (3) allocate the transaction price among the various performance obligations on a relative standalone selling price basis; and (4) determine whether revenue for each performance obligation should be recognized at a point in time or over time. Revenue recognized in 2023 related to contracts with multiple performance obligations was approximately $7.4 million. We identified the auditing of revenue from contracts with multiple performance obligations as a critical audit matter because there was significant judgments by management in identifying, evaluating and accounting for performance obligations in contracts with multiple performance obligations, which led to significant auditor judgment and effort in performing procedures to evaluate whether contracts with multiple performance obligations were appropriately identified, evaluated and accounted for by management. How the Critical Audit Matter was Addressed in the Audit 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. /s/ Sadler, Gibb & Associates, LLC We have served as the Company’s auditor since 2018. Draper, UT March 21, 2024 35 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of As of December 31, December 31, 2023 2022 Current Assets: Cash, cash equivalents and restricted cash $ 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 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 5,267,816 4,062,001 Contract assets 2,891,744 2,253,295 Prepaid expenses and other current assets 337,391 1,720,902 Assets held for sale - 723,872 Total Current Assets 22,090,179 27,667,785 Long-Term Assets: 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 4,055,837 3,271,997 Deposits and other assets 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 114,593 212,933 Goodwill 233,723 226,095 Total Long-term Assets 13,881,668 12,457,870 Total Assets $ 35,971,847 $ 40,125,655 The accompanying notes are an integral part of these consolidated financial statements. 36 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of As of December 31, December 31, 2023 2022 Current Liabilities: Accounts payable $ 2,444,653 $ 1,389,355 Accrued expenses 3,550,542 3,087,206 Current portion of finance lease obligations 590,550 399,198 Current portion of operating lease liabilities 531,355 561,182 Contract liabilities 382,647 649,557 Total Current Liabilities 7,499,747 6,086,498 Deferred tax liability 101,059 154,645 Finance lease obligation, net of current portion 2,879,932 2,384,011 Operating lease liability, net of current portion 3,527,082 2,710,815 Senior promissory notes payable 4,688,011 5,480,314 Total Long-term liabilities 11,196,084 10,729,785 Total Liabilities 18,695,831 16,816,283 Stockholders' Equity: Preferred stock; par value $ 0.001 , 2,500,000 shares authorized, 0 shares issued and outstanding at December 31, 2022 and December 31, 2021 - - Common stock; 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 5,727 5,498 Additional paid-in capital 98,796,357 96,975,476 Accumulated deficit ( 75,922,180 ) ( 67,351,035 ) Accumulated other comprehensive loss ( 5,603,888 ) ( 6,320,567 ) Total Stockholders' Equity 17,276,016 23,309,372 Total Liabilities and Stockholders' Equity $ 35,971,847 $ 40,125,655 The accompanying notes are an integral part of these consolidated financial statements. 37 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2023 2022 Revenue $ 18,001,652 $ 15,982,438 Cost of Goods Sold 15,226,176 15,415,294 Gross Profit 2,775,476 567,144 Operating Expenses: Selling expenses 4,298,905 3,669,887 General and administrative expenses 4,856,779 5,701,955 Research and development expenses 1,418,842 1,835,890 Restructuring costs - 1,893,166 Total Operating Expenses 10,574,526 13,100,898 Loss from Operations ( 7,799,050 ) ( 12,533,754 ) Other Income (Expense) Interest and other income 366,365 384,058 Interest expense ( 151,670 ) ( 419,942 ) Amortization of discount on convertible note ( 400,903 ) ( 2,389,128 ) Gain (loss) on currency transactions ( 359,960 ) 404,162 Gain on lease termination - 147,452 Gain (loss) on disposal of assets held for sale ( 439,388 ) - Gain on sale of property and equipment 7,254 635 Total Other Expense ( 978,302 ) ( 1,872,763 ) Loss Before Income Taxes ( 8,777,352 ) ( 14,406,517 ) Income Tax Benefit ( 206,207 ) ( 237,410 ) Net Loss ( 8,571,145 ) ( 14,169,107 ) Basic and Diluted Loss Per Share $ ( 1.51 ) $ ( 3.20 ) Basic and Diluted Weighted Average Common Shares Outstanding 5,688,281 4,424,433 The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Years Ended December 31, 2023 2022 Net Loss ( 8,571,145 ) ( 14,169,107 ) Other Comprehensive Income (Loss) - Currency Translation, net 716,679 ( 1,345,168 ) Total Comprehensive Loss $ ( 7,854,466 ) $ ( 15,514,275 ) The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2023 and 2022 Common Stock Additional Paid-in Accumulated Accumulated Other Compre- hensive Income Shares Amount Capital Deficit (Loss) TOTAL BALANCE, December 31, 2022 5,498,260 5,498 96,975,476 ( 67,351,035 ) ( 6,320,567 ) 23,309,372 Common stock issued in settlement of RSUs 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 - - 1,193,206 - - 1,193,206 Stock-based compensation - - 627,904 - - 627,904 Currency translation, net - - - - 716,679 716,679 Net Loss for the year ended December 31, 2023 - - - ( 8,571,145 ) - ( 8,571,145 ) BALANCE, December 31, 2023 5,727,310 5,727 98,796,357 ( 75,922,180 ) ( 5,603,888 ) 17,276,016 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2023 and 2022 Common Stock Additional Paid-in Accumulated Accumulated Other Compre- hensive Income Shares Amount Capital Deficit (Loss) TOTAL BALANCE, December 31, 2021 2,660,713 2,661 70,929,526 ( 53,181,928 ) ( 4,975,399 ) 12,774,860 Common stock issued in settlement of RSUs 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 - - 934,423 - - 934,423 Currency translation, net - - - - ( 1,345,168 ) ( 1,345,168 ) Net Loss for the year ended December 31, 2022 - - - ( 14,169,107 ) - ( 14,169,107 ) BALANCE, December 31, 2022 5,498,260 5,498 96,975,476 ( 67,351,035 ) ( 6,320,567 ) 23,309,372 The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2023 2022 Cash Flows from Operating Activities: Net Loss $ ( 8,571,145 ) $ ( 14,169,107 ) Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization 3,140,779 2,585,881 Amortization of discount on convertible notes payable 400,903 2,389,128 Stock-based compensation 627,904 934,423 Change in deferred tax liability ( 57,539 ) (55,994 ) Gain on lease termination - ( 147,452 ) Loss on disposal of assets held for sale 439,388 - Gain on sale of equipment ( 7,254 ) ( 635 ) Changes in assets and liabilities: Accounts receivable ( 765,956 ) ( 460,837 ) Inventory ( 1,045,838 ) 984,130 Contract assets ( 825,974 ) ( 460,743 ) Prepaid expenses and other current assets 1,403,707 ( 354,307 ) Accounts payable 990,538 ( 158,797 ) Accrued expenses 639,309 ( 1,632,897 ) Operating lease liabilities ( 562,948 ) ( 544,391 ) Contract liabilities ( 282,614 ) ( 234,873 ) Assets held for sale 292,822 ( 712,549 ) Net Cash used in Operating Activities ( 4,183,918 ) ( 12,039,020 ) Cash Flows from Investing Activities: Purchase of property and equipment ( 2,893,290 ) ( 1,690,621 ) Proceeds from sale of property and equipment 7,254 635 Net Cash used in Investing Activities ( 2,886,036 ) ( 1,689,986 ) Cash Flows from Financing Activities: Payments on finance lease obligation ( 435,343 ) 77,939 Proceeds from Sale and Leaseback Agreements 1,015,988 - Payments on Convertible Note - ( 16,800,000 ) 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 580,645 13,696,551 Effect of foreign currency exchange on cash 314,119 ( 859,554 ) Net Change in Cash, Cash Equivalents and Restricted Cash ( 6,175,190 ) ( 892,009 ) Cash, Cash Equivalents and Restricted Cash at Beginning of Period 16,597,371 17,489,380 Cash, Cash Equivalents and Restricted Cash at End of Period $ 10,422,181 $ 16,597,371 The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2023 2022 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 178,872 $ 348,575 Income Taxes - - Non-cash financing activities Debt discount on Senior Promissory Notes 1,193,206 695,749 The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 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 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. This company was formed to include the investments for our joint venture in the Middle East. LiqTech Emission Control A/S, a Danish corporation (“LiqTech Emission Control”), incorporated on March 1, 2021, that is a dormant company without activity. This company was formed to include the investments for our joint venture in China. LiqTech Environment Technologies (China) Co. Ltd. (“LiqTech China”), incorporated on September 23, 2021, to be engaged in the development, design, application, marketing, and sales of ceramic diesel particulate, liquid filters, and catalytic converters in Asia. 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. 44 Table of Contents 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. is the U.S. Dollar. The functional currency of LiqTech Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects, and LiqTech Emission Control is the Danish Krone (“DKK”); 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, 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’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred. 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. The restricted cash is held as security by a local financial institution for ensuring a leasing facility and for payment guarantees issued for the benefit of customers in connection with prepayments of sales orders and for warranties after the delivery of sales orders. Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At December 31, 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 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: 2023 2022 Allowance for doubtful accounts at the beginning of the period $ 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 $ 134,912 $ 59,559 45 Table of Contents Inventory -- Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on the first -in, first -out method. For inventory produced, standard costs that approximate actual cost on the FIFO method are used to value inventory. Standard costs are reviewed at least annually by management or more often in the event that circumstances indicate a change in cost has occurred. Work in process and finished goods include material, labor, and production overhead costs. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors. Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand 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. When the Company issues invoices to the customer, and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement. Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the unit by the customer. Most commonly, this invoice is sent to the customer at commissioning of the product or no later than 12 months after delivery. Further included in Contract Assets are short-term receivables such as VAT and other receivables. Assets Held for Sale -- Assets are classified as held for sale when all of the following criteria for a plan of sale have been met: ( 1 ) management, having the authority to approve the action, commits to a plan to sell the assets; ( 2 ) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; ( 3 ) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; ( 4 ) the sale of the assets is probable and is expected to be completed within one year; ( 5 ) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and ( 6 ) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets are classified as held for sale on the balance sheet. 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 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. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years. 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. 46 Table of Contents 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. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital. Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging from one to ten years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods of five years. The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future. Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions. 47 Table of Contents 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: % Distribution For the Year Ended December 31 2023 2022 2023 2022 Americas 12 % 7 % $ 2,125,460 $ 1,073,433 Asia-Pacific 14 % 21 % 2,506,215 3,406,420 Europe 65 % 59 % 11,820,674 9,379,337 Middle East & Africa 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 2023 2022 2023 2022 Water 42 % 33 % $ 7,705,080 $ 5,297,286 Ceramics 35 % 43 % 6,232,628 6,844,861 Plastics 21 % 22 % 3,736,529 3,528,606 Corporate 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. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right to receive payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Considering the relatively short time between revenue recognition and receipt of payment, significant financing components do not exist between the Company and its customers. 48 Table of Contents 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 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 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. This second performance obligation is recognized as revenue at the time of the commissioning services being rendered together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e., the first performance obligation), this portion is recognized as Contract liabilities. Aftermarket sales represent parts, extended warranties, and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract. The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water 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. 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, 2023 and December 31, 2022 is: 2023 2022 Cost incurred $ 3,225,728 $ 3,860,179 Unbilled project deliveries 582,557 950,105 VAT 329,980 229,006 Other receivables 92,619 45,814 Prepayments ( 1,688,427 ) ( 3,363,039 ) Deferred Revenue ( 33,360 ) ( 118,327 ) $ 2,509,097 $ 1,603,738 Distributed as follows: Contract assets $ 2,891,744 $ 2,253,295 Contract liabilities ( 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. 49 Table of Contents 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. 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: Accounting for Income Taxes. This statement requires an asset and liability approach for accounting for income taxes. 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. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares included in the diluted earnings per share calculation include in-the-money stock options and warrants that have been granted but have not been exercised. Stock 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. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three -tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: ● Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; ● Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and ● Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable, and accrued expenses approximate their recorded values due to their short-term maturities. Accounting Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, including accounts receivable; allowance for doubtful accounts; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill and intangible assets; liabilities including contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; warrant liability; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. 50 Table of Contents 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, 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. As previously announced, Mr. Mathiesen had been on a medical leave of absence since March 17, 2022. In connection with Mr. 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. 51 Table of Contents 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. Provisions for salary obligations to employees amounted to $ 158,199 , reflecting the costs related to select employees released from duties with immediate effect. 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. 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 . Capex commitments -- As part of efforts to balance future investments with expected demands and cash flow, the Company commenced the renegotiation of all material Capex commitments during the quarter, with the ambition to reduce, cancel, or delay deliveries under the contracts, which initially amounted to approximately $ 10,300,000 . 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 years ended December 31, 2023 and 2022: December 31, 2023 December 31, 2022 CEO separation $ - $ 228,975 Terminated employees - 158,199 China close-down - 275,445 Capex commitments - 813,994 Write-downs - 416,553 $ - $ 1,893,166 NOTE 4 - INVENTORY Inventory consisted of the following at December 31, 2023 and December 31, 2022: 2023 2022 Furnace parts and supplies $ 55,177 $ 66,495 Raw materials 3,301,526 2,474,227 Work in process 1,271,458 982,973 Finished goods and filtration systems 1,507,113 1,201,533 Reserve for excess and obsolescence ( 867,458 ) ( 663,227 ) Net Inventory $ 5,267,816 $ 4,062,001 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. 52 Table of Contents NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following on December 31, 2023 and December 31, 2022: Useful Life 2023 2022 Production equipment 3 - 10 $ 9,433,581 $ 8,027,589 Production equipment - finance lease 3 - 10 5,182,375 3,625,558 Lab equipment 3 - 10 130,909 118,935 Computer equipment 3 - 5 1,141,790 1,070,437 Vehicles 3 - 5 26,897 26,020 Furniture and fixture 5 1,474,032 1,141,424 Furniture and fixture - finance lease 5 260,911 252,397 Leasehold improvements 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 $ 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. 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 lease agreements expire on November 30, 2034, August 31, 2024, and August 31, 2028, respectively. 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). 53 Table of Contents Supplemental balance sheet information related to leases as of December 31, 2023 and 2022 was as follows: December 31, 2023 December 31, 2022 Operating leases : Operating lease right-of-use assets $ 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 $ 4,058,437 $ 3,271,997 Finance leases : Property and equipment, at cost $ 5,443,287 $ 3,877,955 Accumulated depreciation ( 877,578 ) ( 544,653 ) Property and equipment, net $ 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 $ 3,470,482 $ 2,783,209 Weighted average remaining lease term: Operating leases 8.3 9.6 Finance leases 4.3 5.4 Weighted average discount rate: Operating leases 6.7 % 6.2 % Finance leases 6.0 % 2.8 % Maturities of lease liabilities at December 31, 2023 were as follows: Operating lease Finance lease 2024 $ 785,707 $ 804,044 2025 702,899 800,510 2026 692,137 764,105 2027 692,137 1,320,097 2028 566,381 356,983 Thereafter 1,810,499 130,196 Total payment under lease agreements 5,249,760 4,175,935 Less imputed interest ( 1,191,323 ) ( 705,453 ) Total lease liability $ 4,058,437 $ 3,470,482 54 Table of Contents NOTE 7 - INTANGIBLE ASSETS 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: 2023 2022 Customer relationships $ 489,273 $ 473,308 Patent cost 183,874 177,875 673,148 651,183 Less Accumulated amortization ( 558,555 ) ( 438,250 ) Intangible assets, net $ 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, Amortization Expenses 2024 72,902 2025 7,665 2026 7,665 2027 7,665 2028 7,665 Thereafter 11,031 $ 114,593 NOTE 8 - LINES OF CREDIT In connection with certain orders, the Company provides to customers a working guarantee, prepayment guarantee, or security bond. For that purpose, the Company has a guaranteed credit line of EUR 850,000 (approx. $ 940,000 ) secured by a cash deposit. 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: December 31, 2023 December 31, 2022 Accounts payable $ 2,444,653 $ 1,389,355 Accrued payroll liabilities 1,223,712 510,727 Product warranty accrual 629,100 898,072 Other accrued expenses 1,697,730 1,678,407 Total $ 5,995,195 $ 4,476,561 NOTE 10 – LONG-TERM DEBT Convertible Note 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. 55 Table of Contents 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; issuances of options, warrants, or similar rights; spin-offs and distributions of property; cash dividends or distributions; and tender or exchange offers, in each case as further described in and pursuant to the terms of the 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 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. 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. The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions: 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 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. 56 Table of Contents 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: December 31, 2023 December 31, 2022 Senior Promissory Notes $ 6,000,000 6,000,000 Less: unamortized debt discount ( 1,311,989 ) ( 519,686 ) Senior Promissory Notes payable $ 4,688,011 $ 5,480,314 Current portion of Senior Promissory Notes payable - - Senior Promissory Notes payable, less current portion 4,688,011 5,480,314 Senior Promissory Notes payable $ 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 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 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. The Company estimates the costs that may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized. In addition, the Company sells an extended warranty for certain systems, which generally provides a warranty for up to four years from the date of commissioning. The specific terms and conditions of the warranties vary depending upon the product sold and the country in which the Company does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts, as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and the cost per claim. Changes in the Company's current and long-term warranty obligations included in accrued expenses on the balance sheet for the fiscal years ended December 31, 2023 and 2022 were as follows: 2023 2022 Balance at January 1, $ 898,072 $ 962,313 Warranty costs charged to cost of goods sold 115,401 86,256 Utilization charges against reserve ( 408,234 ) ( 93,653 ) Foreign currency effect 23,861 ( 56,844 ) Balance at December 31, $ 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”. 57 Table of Contents 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%. 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 $ 21,482,164 for Danish tax purposes, which do not expire; and approximately $ 1,914,858 for Chinese tax purposes, which expires in 2027. As of December 31, 2023 and December 31, 2022, the Company established a valuation allowance of $ 7,100,000 and $ 6,510,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively; $ 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; 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, 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. 58 Table of Contents 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: 2023 2022 Excess of tax over financial accounting $ 1,454,389 $ 973,859 Reserve for excess and obsolete inventory 190,841 145,910 Accrued interest - - Discount amortization 724,353 640,163 Deferred compensation - - Net operating loss carryover 11,580,458 11,057,361 Excess of book over tax depreciation ( 359,917 ) ( 272,243 ) Excess of book over tax work in progress 190,196 ( 253,930 ) Valuation allowance ( 13,881,379 ) ( 12,445,765 ) $ ( 101,059 ) $ ( 154,645 ) Distributed as: Long-term deferred tax asset - - Long-term deferred tax liability ( 101,059 ) ( 154,645 ) $ ( 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, 2023 and 2022: 2023 2022 Computed tax at expected statutory rate $ ( 1,843,244 ) $ ( 3,025,369 ) 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 5,399 2,749 Non-taxable income - ( 541 ) Change in valuation allowance 1,755,013 3,035,205 Other ( 77,919 ) ( 161,826 ) Income tax expense (benefit) $ ( 206,207 ) $ ( 237,410 ) The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2023 and 2022 consisted of the following: 2023 2022 Current income taxes: Danish $ ( 148,668 ) $ ( 181,417 ) Federal - - State - - Current tax (benefit) $ - $ - Deferred income taxes: Book in excess of tax depreciation $ ( 386,673 ) $ ( 346,154 ) Work in progress ( 442,964 ) ( 294,233 ) Net operating loss carryover ( 402,448 ) ( 2,041,211 ) Valuation allowance 1,128,197 2,319,705 Deferred compensation - ( 52,500 ) Accrued interest - ( 13,125 ) Discount amortization 84,190 464,744 Accrued vacation - ( 4,305 ) Reserve for obsolete inventory ( 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. 59 Table of Contents The Company files Danish, Chinese, U.S. federal and Minnesota state income tax returns. LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control, and LiqTech Water Projects are generally no longer subject to tax examinations for years prior to 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 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. For the periods where there is a net loss, stock options, warrants, and Restricted Stock Units have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Consequently, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same. For the year ended December 31, 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, 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 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. The issuance of preferred stock may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The Company has 2,500,000 authorized shares of preferred stock, $ 0.001 par value. As of December 31, 2023 and 2022, there were no preferred shares issued and outstanding. 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.” 60 Table of Contents 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. Warrants 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 (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 $ 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: 2023 2022 Warrants outstanding at January 1 4,490,104 126,875 Warrants issued in connection with public offering and private placement 531,250 4,363,229 Common stock exchanged to prefunded warrant - - Warrants outstanding at December 31 5,021,354 4,490,104 61 Table of Contents 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 $ 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. A summary of the status of the RSUs as of December 31, 2023 and changes during the period are presented below: December 31, 2023 Number of units Weighted Average Grant-Date Fair value Aggregated Intrinsic Value Outstanding, December 31, 2022 301,111 $ 4.80 $ - Granted 225,604 3.00 - Vested and settled with share issuance ( 212,254 ) ( 4.86 ) - Outstanding, December 31, 2023 314,461 $ 3.46 $ - 62 Table of Contents NOTE 15 – SEGMENT REPORTING The Company operates in three segments: Water, Ceramics, and Plastics. Effective as of January 1, 2020, the group structure was changed so that shared group activities were transferred to an individual reporting unit separated from the business units. Costs and assets for these activities were therefore separated during 2020. Segment information for the business areas is as follows: For the Year Ended December 31, Revenues 2023 2022 Water $ 7,705,080 $ 5,297,286 Ceramics 6,232,628 6,844,861 Plastics 3,736,529 3,528,606 Other 327,415 311,685 Total consolidated revenue $ 18,001,652 $ 15,982,438 For the Year Ended December 31, Loss 2023 2022 Water $ ( 736,148 ) $ ( 1,072,530 ) Ceramics ( 2,640,894 ) ( 4,648,768 ) Plastics ( 660,896 ) ( 794,942 ) Other ( 4,533,206 ) ( 7,652,867 ) Total consolidated Loss $ ( 8,571,145 ) $ ( 14,169,107 ) For the Year Ended December 31, Total assets 2023 2022 Water $ 9,432,991 $ 7,781,211 Ceramics 14,550,872 13,808,529 Plastics 759,745 1,099,019 Other 11,228,239 17,436,896 Total consolidated assets $ 35,971,847 $ 40,125,655 63 Table of Contents 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, 2023 2022 Customer A - % 13 % * Zero or less than 10% The following table presents customers accounting for 10% or more of the Company’s accounts receivable: December 31, 2023 December 31, 2022 Customer B 22 % 17 % Customer C 13 % - % Customer D - % 20 % Customer E - % 10 % 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. The RSUs were valued at $ 73,500 for services provided by the Board of Directors in 2023. The Company is recognizing the stock-based compensation of the award over the requisite service period. On January 3, 2024, the Company issued 55,530 common shares to settle RSUs. The RSUs were valued at $ 181,142 for services provided by management in 2023. 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. 64 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.