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 ) 33 Consolidated Balance Sheets at December 31, 2024 and 2023 35 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 37 Consolidated Statement of Comprehensive Loss for the years ended December 31, 2024 and 2023 38 Consolidated Statement of Stockholders ’ Equity for the years ended December 31, 2024 and 2023 39 Consolidated Statement of Cash Flows for the years ended December 31, 2024 and 2023 41 Notes to the Consolidated Financial Statements 43 32 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, 2024, and 2023, 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, 2024 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, 2024, and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. 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 2 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. 33 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 2024 related to contracts with multiple performance obligations was approximately $3.6 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 28, 2025 34 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2024 2023 Assets Current Assets: Cash and restricted cash $ 10,868,728 $ 10,422,181 Accounts receivable, net 2,396,056 3,171,047 Inventories, net 5,541,192 5,267,816 Contract assets 1,666,698 2,891,744 Prepaid expenses and other current assets 168,443 337,391 Total Current Assets 20,641,117 22,090,179 Non-Current Assets: Property and equipment, net 6,618,822 9,007,166 Operating lease right-of-use assets 4,450,822 4,055,837 Deposits and other assets 456,658 470,349 Intangible assets, net 39,367 114,593 Goodwill 220,693 233,723 Total Non-Current Assets 11,786,362 13,881,668 Total Assets $ 32,427,479 $ 35,971,847 The accompanying notes are an integral part of these consolidated financial statements. 35 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2024 2023 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 1,300,966 $ 2,444,653 Accrued expenses 2,491,479 3,550,542 Current portion of finance lease liabilities 458,347 590,550 Current portion of operating lease liabilities 544,197 531,355 Contract liabilities 109,319 382,647 Total Current Liabilities 4,904,308 7,499,747 Non-Current Liabilities: Deferred tax liability 57,960 101,059 Finance lease liabilities, net of current portion 1,600,931 2,879,932 Operating lease liabilities, net of current portion 3,906,625 3,527,082 Notes payable, net 5,303,563 4,688,011 Total Non-Current Liabilities 10,869,079 11,196,084 Total Liabilities 15,773,387 18,695,831 Stockholders' Equity: Preferred stock; par value $ 0.001 , 2,500,000 shares authorized, 0 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively - - Common stock; par value $ 0.001 , 50,000,000 shares authorized and 9,475,443 and 5,727,310 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively 9,475 5,727 Additional paid-in capital 109,274,166 98,796,357 Accumulated deficit ( 86,267,438 ) ( 75,922,180 ) Accumulated other comprehensive loss ( 6,362,111 ) ( 5,603,888 ) Total Stockholders' Equity 16,654,092 17,276,016 Total Liabilities and Stockholders' Equity $ 32,427,479 $ 35,971,847 The accompanying notes are an integral part of these consolidated financial statements. 36 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2024 2023 Revenue $ 14,604,618 $ 18,001,652 Cost of goods sold 14,353,713 15,226,176 Gross Profit 250,905 2,775,476 Operating Expenses: Selling expenses 2,725,239 4,298,905 General and administrative expenses 5,661,455 4,856,779 Research and development expenses 1,352,060 1,418,842 Total Operating Expenses 9,738,754 10,574,526 Loss from Operations ( 9,487,849 ) ( 7,799,050 ) Other Income (Expense): Interest and other income 178,834 366,365 Interest expense ( 167,556 ) ( 151,670 ) Amortization of debt discount ( 615,552 ) ( 400,903 ) Gain (loss) on foreign currency transactions 164,310 ( 359,960 ) Gain (loss) on disposal of property and equipment ( 456,282 ) 7,254 Loss on assets held for sale - ( 439,388 ) Total Other Expense ( 896,246 ) ( 978,302 ) Loss Before Income Taxes ( 10,384,095 ) ( 8,777,352 ) Income tax benefit ( 38,837 ) ( 206,207 ) Net Loss $ ( 10,345,258 ) $ ( 8,571,145 ) Loss Per Common Share – Basic and Diluted $ ( 1.64 ) $ ( 1.51 ) Weighted-Average Common Shares Outstanding – Basic and Diluted 6,310,379 5,688,281 The accompanying notes are an integral part of these consolidated financial statements. 37 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Year Ended December 31, 2024 2023 Net Loss $ ( 10,345,258 ) $ ( 8,571,145 ) Loss on foreign currency translation adjustments ( 758,223 ) 716,679 Other Comprehensive Loss $ ( 11,103,481 ) $ ( 7,854,466 ) The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2024, and 2023 Accumulated Other Additional Compre- Common Stock Paid-in Accumulated hensive Shares Amount Capital Deficit Loss TOTAL Balance, December 31, 2023 5,727,310 $ 5,727 $ 98,796,357 $ ( 75,922,180 ) $ ( 5,603,888 ) $ 17,276,016 Common stock issued in settlement of RSUs 148,002 148 ( 148 ) - - - Tax withholdings paid related to stock-based compensation ( 29,998 ) ( 30 ) ( 104,910 ) - - ( 104,940 ) Issuance of common shares, warrants and prefunded warrants in connection with a private offering 3,630,129 3,630 9,918,433 - - 9,922,063 Stock-based compensation - - 664,434 - - 664,434 Currency translation, net - - - - ( 758,223 ) ( 758,223 ) Net Loss for the year ended December 31, 2024 - - - ( 10,345,258 ) - ( 10,345,258 ) Balance, December 31, 2024 9,475,443 $ 9,475 $ 109,274,166 $ ( 86,267,438 ) $ ( 6,362,111 ) $ 16,654,092 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, 2024, and 2023 Accumulated Other Additional Compre- Common Stock Paid-in Accumulated hensive 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 Foreign currency translation adjustments - - - - 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 STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2024 2023 Cash Flows from Operating Activities: Net loss $ ( 10,345,258 ) $ ( 8,571,145 ) Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization 2,160,837 2,575,286 Amortization of debt discount 615,552 400,903 Stock-based compensation 664,434 627,904 Amortization of right-of-use assets 574,403 565,493 Deferred taxes ( 38,837 ) ( 57,539 ) Loss on disposal of assets held for sale - 439,388 (Gain) loss on disposal of property and equipment 456,282 ( 7,254 ) Changes in assets and liabilities: Accounts receivable 620,116 ( 765,956 ) Inventories ( 587,806 ) ( 1,045,838 ) Contract assets 1,102,791 ( 825,974 ) Prepaid expenses and other current assets 40,598 1,403,707 Accounts payable ( 1,050,406 ) 990,538 Accrued expenses ( 908,607 ) 639,309 Operating lease liabilities ( 576,948 ) ( 562,948 ) Contract liabilities ( 261,223 ) ( 282,614 ) Assets held for sale - 292,822 Net Cash used in Operating Activities ( 7,534,072 ) ( 4,183,918 ) Cash Flows from Investing Activities: Purchase of property and equipment ( 1,367,729 ) ( 2,893,290 ) Proceeds from the disposal of property and equipment 943,693 7,254 Net Cash used in Investing Activities ( 424,036 ) ( 2,886,036 ) Cash Flows from Financing Activities: Repayments of finance lease liabilities ( 1,428,763 ) ( 435,343 ) Proceeds from sale and leaseback agreement - 1,015,988 Proceeds from issuance of common stock and prefunded warrants 9,922,063 - Net Cash provided by Financing Activities 8,493,300 580,645 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 88,645 ) 314,119 Net Change in Cash, Cash Equivalents, and Restricted Cash 446,547 ( 6,175,190 ) Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 10,422,181 16,597,371 Cash, Cash Equivalents, and Restricted Cash at End of Period $ 10,868,728 $ 10,422,181 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 Year Ended December 31, 2024 2023 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 160,926 $ 178,872 Cash paid for income taxes - - Non-Cash Financing Activities Financed purchases of property and equipment $ 166,443 $ 1,196,206 The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Contents LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Organization 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, and others. 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. LiqTech Emission Control A/S, a Danish corporation (“LiqTech Emission Control”), incorporated on March 1, 2021, that is a dormant company without activity. Nantong JiTRI LiqTech Green Energy Technology Co., Ltd., a Chinese corporation (“LiqTech JiTRI”), incorporated on December 6, 2024, as a joint venture in which the Company holds a 90 % ownership stake. The company is focused on developing and commercializing systems for marine water treatment market in China. Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Principles of 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. 43 Table of Contents Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and judgments include revenue recognition, allowance for estimated credit losses, reserves for excess and obsolete inventories, impairment evaluations of long-lived assets and goodwill, fair value measurements of warrants and stock-based compensation, and assessments of contingent liabilities. Foreign Currency 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 JiTRI 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, 2024, and 2023 . 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, 2024 , and 2023 , the Company held $ 0 and $ 941,361 , 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, 2024, and December 31, 2023 , the Company had $ 4,414,510 and $ 0 in excess of the FDIC insured limit, respectively. Accounts Receivable and Current Expected Credit Losses 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 FASB 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 customers, prevailing economic conditions, and reasonable and supportable forward-looking information. Accounts receivable balances are written off when they are determined to be uncollectible. The roll-forward of the allowance for current expected credit losses as of December 31, 2024, and 2023 were as follows: December 31, December 31, 2024 2023 Allowance for current expected credit losses at the beginning of the period $ 134,912 $ 59,559 Bad debt expense 578,423 82,066 Receivables written off during the periods ( 49,577 ) ( 10,298 ) Effect of exchange rate changes ( 26,202 ) 3,585 Allowance for current expected credit losses at the end of the period $ 637,556 $ 134,912 44 Table of Contents Inventories Inventories directly purchased is carried at the lower of cost or net realizable value, as determined on the first -in, first -out (“FIFO”) method. For inventories produced, standard costs that approximate actual cost on the FIFO method are used to value inventories. Standard costs are reviewed at least annually by management or more often if 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 inventories to the extent management determines that the cost cannot be recovered due to obsolescence or other factors. Inventory valuation adjustments for excess and obsolete inventories are calculated based on current inventories levels, movement, expected useful lives, and estimated future demand for our products. 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 uses the implicit rate when determinable. The operating lease ROU asset also included prepaid lease payments, 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. 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, 2024 , 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, 2024, and 2023 , no impairment charges for long-lived assets were recorded. 45 Table of Contents 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 as of December 31 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. During the years ended December 31, 2024, and 2023 , no impairment charge for goodwill was recorded. Revenue Recognition The Company records revenue in accordance with FASB 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 for the year ended December 31, 2024, and 2023 were as follows: % Distribution For the Year Ended December 31 2024 2023 2024 2023 Americas 18 % 12 % $ 2,693,002 $ 2,125,460 Asia-Pacific 5 % 14 % 645,044 2,506,215 Europe 71 % 65 % 10,440,040 11,820,674 Middle East & Africa 6 % 9 % 826,532 1,549,303 Totals 100 % 100 % $ 14,604,618 $ 18,001,652 The Company’s sales by product line for the years ended December 31, 2024, and 2023 were as follows: % Distribution For the Year Ended December 31 2024 2023 2024 2023 Water 38 % 42 % $ 5,538,741 $ 7,705,080 Ceramics 39 % 35 % 5,634,973 6,232,628 Plastics 23 % 21 % 3,381,408 3,736,529 Corporate 0 % 2 % 49,496 327,415 Totals 100 % 100 % $ 14,604,618 $ 18,001,652 46 Table of Contents 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. 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. 47 Table of Contents Contracts Assets and Contract 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. The roll-forward of contract assets and liabilities for the year ended December 31, 2024, and 2023 were as follows: December 31, December 31, 2024 2023 Cost incurred $ 2,512,901 $ 3,225,728 Unbilled project deliveries 51,442 582,557 VAT 93,961 329,980 Other receivables 20,972 92,619 Prepayments ( 1,121,897 ) ( 1,688,427 ) Deferred Revenue - ( 33,360 ) $ 1,557,379 $ 2,509,097 Distributed as follows: Contract assets $ 1,666,698 $ 2,891,744 Contract liabilities ( 109,319 ) ( 382,647 ) $ 1,557,379 $ 2,509,097 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 Costs Costs incurred in connection with advertising of the Company’s products are expensed as incurred. Advertising costs are included in selling expenses, and total advertising costs amounted to $ 56,037 and $ 70,580 for the years ended December 31, 2024, and 2023 , 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, 2024, and 2023 were $ 1,352,060 and $ 1,418,842 , respectively, of research and development costs. 48 Table of Contents Income Taxes Income taxes are accounted for under the asset and liability method in accordance with ASC 740, “ Income Taxes .” Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and establish a valuation allowance if, based on the weight of available evidence, it believes it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not the position will be sustainable upon examination by the taxing authority, including resolution of any related appeals or litigation processes. This evaluation is based on all available evidence and assumes that the tax authorities have full knowledge of all relevant information concerning the tax position. The tax benefit recognized is measured as the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense. 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. Loss Per Share The Company calculates 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 Based Compensation Stock-based awards granted to qualified employees, non-employee directors, and consultants are measured at fair value at the grant date and recognized as an expense in accordance with ASC Topic 718, “ Share-Based Payments .” For service-based awards, stock-based compensation is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. The fair value of our stock options is estimated using a Black-Scholes option valuation model. Restricted stock awards are valued based on the closing stock price on the date of grant. The Company has elected to recognize forfeitures as they occur. Warrant Liabilities The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants in accordance with ASC 480, “ Distinguishing Liabilities from Equity ,” and ASC 815 - 40, “ Contracts in Entity ’ s Own Equity .” This assessment, which requires the use of professional judgment, considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815 - 40, including whether the warrants are indexed to the Company’s own shares and whether the events where holders of the warrants could potentially require net cash settlement are within the Company’s control, among other conditions for equity classification. Warrant liabilities are recognized at fair value, with changes in fair value recognized in the consolidated statement of operations each period. 49 Table of Contents 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 Measurement ”. 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 and cash equivalents, restricted cash, accounts receivable, other receivables, prepaid expenses, accounts payable, and accrued expenses approximate their recorded values due to their short-term maturities. Recently Adopted Accounting Pronouncements 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. The Company adopted ASU 2023 - 07 retrospectively on December 31, 2024. See Note 12 for further details. Recently Issued 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. The Company is currently evaluating the impact this standard will have on its consolidated financial statements. In November 2024, the FASB issued ASU 2024 - 03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220 - 40 ) , which requires additional disclosures around specific expense categories in the notes to the financial statements. The additional annual disclosures are effective for our year ending December 31, 2027, and the additional interim disclosures are effective in 2028. These disclosures will be applied prospectively. The Company is currently evaluating the impact this standard will have on its consolidated financial statements. 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. The Company is currently evaluating the impact this standard will have on its consolidated financial statements. The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to its financial statements. 50 Table of Contents NOTE 2 - INVENTORIES Inventories consisted of the following on December 31, 2024, and 2023 : December 31, December 31, 2024 2023 Furnace parts and supplies $ - $ 55,177 Raw materials 2,734,781 3,301,526 Work in process 2,435,280 1,271,458 Finished goods and filtration systems 1,580,255 1,507,113 Reserve for obsolescence ( 1,209,124 ) ( 867,458 ) Total inventories, net $ 5,541,192 $ 5,267,816 Inventory valuation adjustments for excess and obsolete inventories are calculated based on current inventory levels, movements, expected useful lives, and estimated future demand for the products. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following on December 31, 2024, and 2023 : Useful life December 31, December 31, (Years) 2024 2023 Production equipment 3 - 10 $ 9,553,545 $ 9,433,581 Production equipment - finance lease 3 - 10 3,675,935 5,182,375 Lab equipment 3 - 10 123,611 130,909 Computer equipment 3 - 5 1,103,623 1,141,790 Computer equipment - finance lease 3 - 5 80,518 - Vehicles 3 - 5 21,067 26,897 Furniture and fixture 5 1,378,252 1,474,032 Furniture and fixture - finance lease 5 326,411 260,911 Leasehold improvements 5 - 10 3,007,321 3,184,871 19,270,283 20,835,366 Less accumulated depreciation ( 11,494,435 ) ( 10,950,622 ) Less accumulated depreciation - finance lease ( 1,157,026 ) ( 877,578 ) Net Property and Equipment $ 6,618,822 $ 9,007,166 Depreciation expense amounted to $ 2,089,478 and $ 2,472,031 for the year ended December 31, 2024 , and 2023 , respectively. Of the $2,089,478 for the year ended December 31, 2024 , $ 1,830,553 is allocated to cost of goods sold and $ 258,925 is allocated to operating expenses. NOTE 4 - 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 ( two facilities) and Copenhagen, Denmark. The lease agreements expire on April 30, 2034, November 30, 2034, and August 31, 2028, respectively (for the two facilities in Hobro and the office space in Copenhagen, in that order) . During the year ended December 31, 2024 , cash paid for amounts included for the measurement of operating lease liabilities was $ 853,566 , and the Company recorded operating lease expenses of $ 851,110 in operating expenses. During the year ended December 31, 2024 , cash paid for amounts included for the measurement of finance lease liabilities was $ 1,378,297 , and the Company recorded finance lease expenses of $ 154,598 in other expenses. 51 Table of Contents Supplemental balance sheet information related to leases as of December 31, 2024, and 2023 were as follows: December 31, December 31, 2024 2023 Operating leases: Operating lease right-of-use assets $ 4,450,822 $ 4,055,837 Operating lease liabilities – current $ 544,197 $ 531,355 Operating lease liabilities – long-term 3,906,625 3,527,082 Total operating lease liabilities $ 4,450,822 $ 4,058,437 Finance leases: Property and equipment, at cost $ 4,082,864 $ 5,443,287 Accumulated depreciation ( 1,157,025 ) ( 877,578 ) Property and equipment , net $ 2,925,839 $ 4,565,709 Finance lease liabilities – current $ 458,347 $ 590,550 Finance lease liabilities – long-term 1,600,931 2,879,932 Total finance lease liabilities $ 2,059,278 $ 3,470,482 Weighted average remaining lease term: Operating leases 8.1 8.3 Finance leases 3.1 4.3 Weighted average discount rate: Operating leases 6.8 % 6.7 % Finance leases 5.5 % 6.0 % Maturities of lease liabilities at December 31, 2024 were as follows: Operating Finance Leases Leases 2025 $ 828,986 $ 562,072 2026 818,823 544,452 2027 818,823 506,462 2028 700,078 613,474 2029 462,587 76,893 Thereafter 2,128,429 57,288 Total payment under lease agreements 5,757,726 2,360,641 Less imputed interest ( 1,306,904 ) ( 301,363 ) Total lease liabilities $ 4,450,822 $ 2,059,278 52 Table of Contents NOTE 5 - INTANGIBLE ASSETS On December 31, 2024, and 2023 , 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, 2024, and 2023 : 2024 2023 Customer relationships $ 461,997 $ 489,273 Patent cost 173,624 183,874 635,621 673,147 Less accumulated amortization ( 596,254 ) ( 558,554 ) Intangible assets, net $ 39,367 $ 114,593 Amortization expense amounted to $ 71,359 and $ 105,522 for the years ended December 31, 2024, and 2023 , respectively. Expected future amortization expense for the next five years consists of the following as of December 31, 2024 : Amortization Year ending December 31, Expenses 2025 7,238 2026 7,238 2027 7,238 2028 7,238 2029 7,238 Thereafter 3,177 $ 39,367 NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at December 31, 2024, and 2023 : December 31, December 31, 2024 2023 Accounts payable $ 1,300,966 $ 2,444,653 Accrued payroll liabilities 746,938 1,223,712 Product warranty accrual 621,031 629,100 Other accrued expenses 1,123,510 1,697,730 Total accounts payable and accrued expenses $ 3,792,445 $ 5,995,195 53 Table of Contents NOTE 7 - LONG-TERM DEBT 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 did 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 would 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. 54 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, December 31, 2024 2023 Senior promissory notes $ 6,000,000 $ 6,000,000 Less: unamortized debt discount ( 696,437 ) ( 1,311,989 ) Total senior promissory notes payable, net $ 5,303,563 $ 4,688,011 Current portion of senior promissory notes payable - - Senior promissory notes payable, less current portion 5,303,563 4,688,011 Total senior promissory notes payable, net $ 5,303,563 $ 4,688,011 For the years ended December 31, 2024 , and 2023 , the Company recognized amortization of debt discount of $ 615,552 and $ 400,903 , respectively. NOTE 8 - 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. 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, 2024, and 2023 were as follows: December 31, December 31, 2024 2023 Balance at January 1 $ 629,100 $ 898,072 Warranty costs charged to cost of goods sold 100,726 115,401 Utilization charges against reserve ( 72,736 ) ( 408,234 ) Foreign currency effect ( 36,059 ) 23,861 Balance at the end of the period $ 621,031 $ 629,100 55 Table of Contents NOTE 9 - INCOME TAXES As of December 31, 2024 , the Company had net operating loss carry-forwards of approximately $ 30,953,048 for U.S. federal tax purposes, expiring through 2041, and approximately $ 28,209,222 for Danish tax purposes, which do not expire. As of December 31, 2024, and December 31, 2023 , the Company established a valuation allowance of $ 7,611,000 and $ 7,100,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively; $ 7,795,000 and $ 6,303,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control, and LiqTech Water Projects, respectively; and $ 0 and $ 479,000 for LiqTech China, respectively, as management could not determine that it was more likely than 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, 2024 , was an increase of $ 511,000 for the US component, an increase of $ 1,492,000 for the Danish component, and a decrease of $ 479,000 for the Chinese component. The change in the valuation allowance for the year ended December 31, 2023 , was an increase of $ 590,000 , $ 1,077,000 , and $ 9,000 for the US, Danish, and Chinese components, respectively. 56 Table of Contents The temporary differences, tax credits, and carry-forwards gave rise to the following deferred tax assets and liabilities at December 31, 2024, and 2023 : 2024 2023 Excess of tax over financial accounting $ 1,588,748 $ 1,454,389 Reserve for excess and obsolete inventories 266,007 190,841 Discount amortization 853,619 724,353 Net operating loss carryover 12,963,223 11,580,458 Excess of book over tax depreciation ( 323,115 ) ( 359,917 ) Excess of book over tax work in progress - 190,196 Valuation allowance ( 15,406,442 ) ( 13,881,379 ) $ ( 57,960 ) $ ( 101,059 ) Distributed as: Long-term deferred tax asset - - Long-term deferred tax liability ( 57,960 ) ( 101,059 ) $ ( 57,960 ) $ ( 101,059 ) 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, 2024, and 2023 : 2024 2023 Computed tax at expected statutory rate $ ( 2,177,319 ) $ ( 1,843,244 ) State and local income taxes, net of federal benefit - ( 1,177 ) Non-US income taxed at different rates ( 80,280 ) ( 44,279 ) Non-deductible expenses 1,259 5,399 Change in valuation allowance 1,996,655 1,755,013 Other 220,848 ( 77,919 ) Income tax benefit $ ( 38,837 ) $ ( 206,207 ) The components of income tax benefit from continuing operations for the years ended December 31, 2024, and 2023 consisted of the following: 2024 2023 Current income taxes: Danish $ - $ ( 148,668 ) Federal - - State - - Current tax (benefit) $ - $ - Deferred income taxes: Book in excess of tax depreciation ( 156,342 ) ( 386,673 ) Work in progress - ( 442,964 ) Net operating loss carryover ( 2,387,047 ) ( 402,448 ) Valuation allowance 2,477,718 1,128,197 Discount amortization 129,266 84,190 Reserve for obsolete inventories ( 102,432 ) ( 37,841 ) Deferred tax benefit $ ( 38,837 ) $ ( 57,539 ) Total tax benefit $ ( 38,837 ) $ ( 206,207 ) Deferred income tax benefit results primarily from the reversal of temporary timing differences between tax and financial statement income. 57 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 10 - LOSS PER SHARE Basic and diluted net loss per common share is determined by dividing net loss by the weighted average common shares outstanding during the year. For the years where there is a net loss, stock options, warrants, and restricted stock units (“RSUs”) 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, 2024 , the Company had outstanding balances of 357,903 RSUs, 5,299,879 prefunded warrants, and 6,091,346 warrants, all exercisable for shares of Common Stock. For the year ended December 31, 2023 , the Company had outstanding balances of 314,461 RSUs, 3,930,008 prefunded warrants, and 1,091,346 warrants, all exercisable for shares of Common Stock. NOTE 11 - STOCKHOLDERS' EQUITY Common Stock - The Company has 50,000,000 authorized shares of common stock, $ 0.001 par value. As of December 31, 2024, and 2023 , there were 9,475,443 and 5,727,310 common shares issued and outstanding, respectively. 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, 2024, and 2023 , there were no preferred shares issued and outstanding. Stock Issuances Since January 1, 2024 , the Company has made the following issuances of Common Stock: 58 Table of Contents On January 3, 2024 , 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 year ended December 31, 2023 . On January 3, 2024 , the Company issued 85,528 shares of Common Stock to settle RSUs. The RSUs were valued at $ 289,672 for services provided by management in 2023 . The Company recognized the stock-based compensation of the award over the requisite service period during the year ended December 31, 2023 . In connection with the issuance, 29,998 shares of Common Stock, with a total value of $ 104,940 , were retired to settle tax withholdings associated with stock-based compensation. On June 24, 2024 , the Company issued 11,932 shares of Common Stock to settle RSUs. The RSUs were valued at $ 36,750 for services provided by the Board of Directors from 2023 to 2024 . The Company recognized the stock-based compensation of the award over the requisite service period from 2023 to 2024 . On September 12, 2024 , 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, 2024 . On September 27, 2024 , the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to issue and sell an aggregate of 3,630,129 shares of Common Stock, 1,369,871 pre-funded warrants to purchase shares of Common Stock, and warrants to purchase up to an aggregate of 5,000,000 shares of Common Stock, for gross proceeds of up to $ 10 million. The combined purchase price of one share of Common Stock and one accompanying warrant to purchase one share of Common Stock is $ 2.00 . The combined purchase price of one pre-funded warrant and one accompanying warrant to purchase one share of Common Stock under the Purchase Agreement is $ 1.999 . The Company agreed to issue the Common Stock, warrants, and pre-funded warrants in two tranches: (i) a first tranche comprised of 29,227 shares of Common Stock, 555,302 pre-funded warrants, and warrants to purchase an aggregate of 584,529 shares of Common Stock (collectively, the “First Tranche Securities”); and (ii) a second tranche comprised of 3,600,902 shares of Common Stock, 814,569 pre-funded warrants, and warrants to purchase an aggregate of 4,415,471 shares of Common Stock (collectively, the “Second Tranche Securities”). On September 27, 2024 , in connection with the closing of the first tranche, the Company sold and issued the First Tranche Securities for gross proceeds of approximately $ 1.2 million. On November 12, 2024 , in connection with the closing of the second tranche, the Company sold and issued the Second Tranche Securities for gross proceeds of approximately $ 8.8 million. 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. 59 Table of Contents On September 27, 2024 ( as described under Stock Issuances), the Company closed on a securities purchase agreement with certain purchasers, pursuant to which the Company agreed to issue and sell to such purchasers warrants for the purchase of 584,529 shares of Common Stock at an exercise price of $ 2.00 per common share and prefunded warrants for the purchase of 555,302 shares of Common Stock at an exercise price of $ 0.001 per common share. On November 12, 2024 ( as described under Stock Issuances), the Company closed on a securities purchase agreement with certain purchasers, pursuant to which the Company agreed to issue and sell to such purchasers warrants for the purchase of 4,415,471 shares of Common Stock at an exercise price of $ 2.00 per common share and prefunded warrants for the purchase of 814,569 shares of Common Stock at an exercise price of $ 0.001 per common share. The following is a summary of the periodic changes in warrants outstanding for the years ended December 31, 2024, and 2023 : 2024 2023 Outstanding, December 31 5,021,354 4,490,104 Warrants issued in connection with public offering and private placement 6,369,871 531,250 Exercises and conversions - - Outstanding, December 31 11,391,225 5,021,354 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, 2024 , 26,040 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, 2024 , 331,863 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 $ 664,434 and $ 627,904 for the years ended December 31, 2024, and 2023 , respectively. On December 31, 2024 , the Company had $ 616,234 of unrecognized compensation cost related to non-vested stock grants. A summary of the status of the RSUs as of December 31, 2024 , and changes during the period are presented below: December 31, 2024 Weighted Average Aggregated Number of Grant-Date Intrinsic units Fair value Value Outstanding, December 31, 2023 314,461 $ 3.46 $ - Granted 311,154 3.20 - Vested and settled with share issuance ( 148,002 ) ( 3.49 ) - Forfeited ( 119,710 ) ( 3.38 ) - Outstanding, December 31, 2024 357,903 $ 3.25 $ - 60 Table of Contents NOTE 12 – SEGMENT REPORTING The Company operates in three segments: Water, Ceramics, and Plastics. The Company’s reportable segment information for the years ended December 31, 2024, and 2023 were as follows: For the Year Ended December 31, Revenues 2024 2023 Water $ 5,538,741 $ 7,705,080 Ceramics 5,634,973 6,232,628 Plastics 3,381,408 3,736,529 Corporate 49,496 327,415 Total revenues $ 14,604,618 $ 18,001,652 For the Year Ended December 31, Net loss 2024 2023 Water $ ( 2,149,224 ) $ ( 736,148 ) Ceramics ( 3,322,800 ) ( 2,640,895 ) Plastics ( 1,304,295 ) ( 660,896 ) Corporate ( 3,568,939 ) ( 4,533,206 ) Total net loss ( 10,345,258 ) ( 8,571,145 ) As of December 31, December 31, Total assets 2024 2023 Water $ 8,235,726 $ 9,432,991 Ceramics 10,679,025 14,550,872 Plastics 1,670,644 759,745 Corporate 11,842,084 11,228,239 Total assets $ 32,427,479 $ 35,971,847 61 Table of Contents NOTE 13 - SIGNIFICANT CUSTOMERS / CONCENTRATION The Company did not have any customers accounting for 10% or more of net sales in the reported periods. As a result, there is no significant customer concentration that would materially impact the Company's financial position or results of operations. The following table presents customers accounting for 10% or more of the Company’s accounts receivable: December 31, December 31, 2024 2023 Customer A 20 % 22 % Customer B * % 13 % * Zero or less than 10% As of December 31, 2024 , approximately 86 % of the Company’s assets were located in Denmark, 14 % were located in the U.S., and 0 % were located in China. 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. NOTE 14 - SUBSEQUENT EVENTS On January 1, 2025 , the Company issued 30,704 common shares to settle RSUs. The RSUs were valued at $ 81,886 for services provided by the senior leadership team and key employees in 2024 . The Company is recognizing the stock-based compensation of the award over the requisite service period. On January 3, 2025 , the Company issued 52,350 common shares to settle RSUs. The RSUs were valued at $ 183,750 for services provided by the Board of Directors in 2024 . The Company is recognizing the stock-based compensation of the award over the requisite service period. On January 3, 2025 , the Company issued 47,527 common shares to settle RSUs. The RSUs were valued at $ 151,649 for services provided by management in 2024 . The Company is recognizing the stock-based compensation of the award over the requisite service period. On January 31, 2025 , the Company announced the appointment of David Kowalczyk as its new Chief Financial Officer and Chief Operating Officer ("CFOO"), effective March 1, 2025. In connection with this appointment, Phillip Massie Price, the Company’s Interim Chief Financial Officer, and the Company mutually agreed that Mr. Price will step down as Interim CFO effective March 1, 2025. Mr. Price will continue to serve as the Company’s principal financial officer until April 30, 2025, after which he will depart from the Company. Mr. Kowalczyk is an experienced finance executive with over 20 years of professional experience across multiple industries and ownership structures. He holds a Bachelor of Science in Economics and Business Administration, a Master of Science in Accounting and Auditing, and a Master of Science in Finance and Investments from Copenhagen Business School. He also has extensive experience in technology and R&D-driven companies. On March 26, 2025, the Company entered into a Second Amendment to the Note and Warrant Purchase Agreement originally dated June 22, 2022, with the holders of the Company’s senior promissory notes. In connection with the Second Amendment, the parties executed Allonge No. 2 to each of the existing amended notes, resulting in an extension of the maturity date from January 1, 2026 to May 1, 2027. Additionally, beginning on January 1, 2026, the notes will bear interest at a rate of 10 % per annum, payable semi-annually. In the event of a default or if the notes are not repaid on or before the new maturity date, the interest rate increases to 13 % per annum, with a monthly 1 % step-up up to a cap of 16 % per annum, payable monthly. Accrued interest (excluding default interest) may be paid in cash or in shares of common stock, at the Company’s election, subject to certain limitations. As part of the transaction, the Company and the noteholders also agreed to amend and restate the related warrants, reducing the exercise price from $ 5.20 to $ 2.00 per share and extending the expiration date to December 31, 2029. The Company evaluated the Second Amendment under ASC 855 and concluded that it represents a non-recognized subsequent event. While it does not impact the financial statements as of December 31, 2024, it is disclosed herein due to its significance. 62 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.