UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014

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

Commission File Number: 000-53769

LiqTech International, Inc.

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code: +4544986000

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.001 par value

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

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☒

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐(Do not check if a smaller reporting company)	Smaller reporting company	☒

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

On June 30, 2014, the aggregate market value of the common stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant based on the closing price of the registrant’s common stock of $1.98 per share on June 30, 2014 was $40,787,727. As of March 25, 2015, there were 39,404,782 shares of common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Table of Contents

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			Page
PART I
	Item 1	Business	1
	Item 1A	Risk Factors	9
	Item 1B	Unresolved Staff Comments	17
	Item 2	Properties	17
	Item 3	Legal Proceedings	17
	Item 4	Mine Safety Disclosures	17
PART II
	Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
	Item 6	Selected Financial Data	18
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 8	Financial Statements and Supplementary Data	30
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
	Item 9A	Controls and Procedures	32
	Item 9B	Other Information	32
PART III
	Item 10	Directors, Executive Officers and Corporate Governance	33
	Item 11	Executive Compensation	37
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
	Item 13	Certain Relationships and Related Transactions, and Director Independence	43
	Item 14	Principal Accountant Fees and Services	43
PART IV
	Item 15	Exhibits and Financial Statement Schedules	44
	Signatures		50

PART I

Item 1.        Business

Overview

We are a clean technology company that provides state-of-the-art technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters. For more than a decade, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in two business areas: ceramic membranes for liquid filtration and diesel particulate filters for the control of soot exhaust particles from diesel engines. We are phasing out the fabrication of kiln furniture for the refractory industry. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies. We market our products from our offices in the United States and Denmark, and through local representatives in Singapore, Germany, France and Brazil. The products are shipped directly to customers from our production facilities in the United States and Denmark.

The terms “LiqTech”, “we”, “our”, “us”, the “Company” or any derivative thereof, as used herein refer to LiqTech International, Inc., a Nevada corporation, together with its direct and indirect wholly-owned subsidiaries, including LiqTech USA, Inc., a Delaware corporation (“LiqTech USA”), which owns all of the outstanding equity interest in LiqTech International A/S, a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Int. DK”) and LiqTech NA, Inc., a Delaware corporation (“LiqTech Delaware”). Collectively, LiqTech USA, LiqTech Int. DK and LiqTech Delaware are referred to herein as our “Subsidiaries”. On August 23, 2012, LiqTech A/S, a Danish limited company (“LiqTech AS”) and former subsidiary of the Company was merged with and into LiqTech Int. DK.

2014 Acquisition

On the July 29, 2014, the Company, through its subsidiary, LiqTech Int. DK, completed the acquisition of all of the issued and outstanding capital stock (the “Provital Shares”) of Provital Solutions A/S, a Danish company (“Provital”) from Masu A/S, a Danish company (“MASU”). In consideration for the Provital Shares, MASU received cash consideration in the sum of DKK12,600,000, that is, approximately USD$2,300,000 (at July 28, 2014), and 4,044,782 shares of the Company’s common stock (the “Payment Shares”). One-third (1/3) of the Payment Shares shall be subject to a lock-up period of six (6) months. The remaining two-thirds (2/3) of the Payment Shares were held in escrow and one-third of the Payment Shares will be released from escrow contingent upon Provital, for the year ending December 31, 2014, achieving (i) gross revenues of not less than DKK65,000,000, that is, approximately $10,618,486 (at December 31, 2014) and EBITDA of DKK6,500,000 that is, approximately $1,061849 (at December 31, 2014) or (ii) EBITDA of not less than DKK10,000,000, that is, approximately $1,633,613(at December 31, 2014)  and gross revenues of not less than DKK50,000,000 , that is, approximately $8,168,066 (at December 31, 2014). Another one-third (1/3) of the Payment Shares will be released from escrow contingent upon Provital, for the year ending December 31, 2015, achieving (i) gross revenues of not less than DKK120,000,000, that is, approximately $19,603,358 (at December 31, 2014) and EBITDA of DKK12,000,000, that is, approximately $1,960,335 (at December 31, 2014) or (ii) EBITDA of not less than DKK16,000,000, that is, approximately $2,613,781 (at December 31, 2014) and gross revenues of not less than DKK80,000,000, that is, approximately $13,068,906 (at December 31, 2014).  

The Provital purchase agreement includes “catch up” provisions that provide that the Payment Shares placed in escrow will be released from escrow if Provital (1) for the years ending December 31, 2014 and December 31, 2015, achieves accumulated gross revenues (i) exceeding DKK185,000,000, that is, approximately USD$30,221,845 (at December 31, 2014) and EBITDA of DKK18,500,000, that is, approximately $3,022,184 (at December 31, 2014) or (ii) EBITDA of not less than DKK26,000,000, that is, approximately $4,247,394 (at December 31, 2014) and gross revenues of not less than DKK130,000,000, that is, approximately $21,236,972 (at December 31, 2014) or (2) for the year ending December 31, 2016, achieves gross revenues exceeding DKK105,000,000, that is, approximately $17,152,939 (at December 31, 2014) and EBITDA of not less than DKK21,000,000, that is, approximately $3,430,588 (at December 31, 2014).

We conduct operations in the Kingdom of Denmark and the United States. Our Danish operations are located in the Copenhagen area and Provital Solutions are located in Hobro in Jutland, Denmark, and our U.S. operations are conducted by LiqTech Delaware located in White Bear Lake, Minnesota. In October and December 2011, we opened sales offices in France and Germany and in January 2012, we opened a sales office in Singapore.

Our Products

We manufacture and sell ceramic membranes and systems for the filtration of liquid and diesel particulate filters for the control of soot exhaust particles from diesel engines.

1

Ceramic Silicon Carbide Membranes for Liquid Filtration

Under the “LiqTech”, “Cometas” and “Provital” brand names, we manufacture and sell ceramic silicon carbide membranes and systems for liquid filtration using our patented silicon carbide technology (“SiC Filters”) that currently focus on hydrocarbon production-derived contaminated water, which we refer to herein as “produced water”, and pre-filtration for reverse osmosis. Our SiC Filters have been used in the following applications by our clients:

● Produced water: Our membranes can be used for the filtration of "produced" water – a byproduct from oil and gas production. The amount of produced water varies between 0.1 to ten times the amount of oil produced. We have performed testing with many of the major international private and public oil and gas companies. We have been awarded a contract by one of the major international oil and gas companies to provide and service produced water filters on one of its offshore platforms. Two additional commercial installations have been commissioned with the LiqTech membranes.

● Pre-filtration of reverse osmosis drinking water: Prior to passing through reverse osmosis membranes to produce drinking or industrial water from sea or surface water, the sea or surface water must be pre-filtered. We have performed successful tests for the pre-filtration of sea and surface water for this purpose with numerous clients, including Arteron in Malaysia, a company producing compact drinking water, Hoimyung Corp in South Korea, a supplier of industrial waste water systems and pretreatment for reverse osmosis, Kemic Water Cleaning in Denmark, a supplier of drinking water equipment, and Puretec in Israel, a producer of reverse osmosis systems.

● Treatment of ballast water: Our liquid filtration membranes can be applied to limit the spreading of non-native species that may be transported in the ballast water of sea-going vessels. We have partnered with Singapore based companies and R&D centers to develop a solution for the ballast water treatment market. A distributor in Japan is in contact with shipyards seeking ballast water filtration systems.

● Industrial applications: Our membranes have performed successful tests in industrial applications for the removal of a variety of substances such as heavy metal (Energy provider, Germany), legionella (HYTEK Italy), manure (Bioffuel Technology, Denmark), pool and spa water (Provital, Denmark) and raw sugar (Al Khaleej Sugar, UAE). We have supplied membranes to these applications and additional membranes are currently in the tendering phase.

● Producing clean drinking water: The potential for the use of LiqTech SiC membranes in drinking water production is diverse and the benefits are numerous. Some examples include: ground water – removal of precipitated salts such as iron and manganese; surface water – removal of organic suspended solids and humic acid; and sea water – pre-filtration before reverse osmosis. We have interred into a cooperation with the leading pump producer Grundfos to market a newly developed water treatment unit for ground water.

● Waste water treatment: Our membranes can be used to remove suspended solids in waste water treatment. Our membranes have performed successful tests for treating waste water with Imtech (Egypt), RIPE (China) and Asia Pacific Water Technologies in South Korea, and we have sold membranes for several commercial installations.

 Our products are based on the following silicon carbide membrane technologies:

● CoMem is a unique patented membrane technology that utilizes a cross-flow structure to handle high concentrations of suspended solids found in produced water from the oil and chemical industry, wastewater from industrial processes and manure filtration; and

● Aqua Solution integrates a dead-end structural design with cutting-edge membrane technology in a solution specifically designed for applications in pre-treatment for reverse osmosis, wastewater treatment and pool and spa filtration.

 Our filters are manufactured with a silicon carbide ceramic membrane based on a patented technology, and we are not aware of any other company that makes both the substrate (honeycomb) and the membrane (the part which accomplishes the filtering) solely from silicon carbide.

The advantages of our SiC membrane compared to other pre-filtration systems for reverse osmosis are:

● Our SiC membrane offers the same water flow as commonly used sand filters which take up to 400 times more space and have pore sizes at least three times bigger than our SiC membrane, and reduces the number of membrane elements and pressure vessels;

● With our SiC membrane, high flow capacities are achieved at very low pressures, which reduces energy costs;

● Our SiC membrane reduces water consumption for sand filter backwash; and

● Our SiC membrane eliminates consumption/maintenance of cartridges.

LiqTech’s SiC membranes offer consistent removal of oil and suspended solids at high throughput rates regardless of feed conditions. The membranes are ideal for treatment of produced water for discharge, re-injection, pre-reverse osmosis (“RO”) as well as polymer flooded streams. We offer on shore and off shore solutions and have extensive experience with produced water streams from fracking, gas condensate, and oil emulsions. We believe our SiC membranes are the best alternative to micro-flotation and walnut shell filters due to their cost savings, reduced installation cost and robustness with reduced downtime. Our chemically inert plug-and-play filter designs are extremely hard and durable materials with high flux (flow) to increase membrane life and reduce downtime for cleaning. SiC membranes are stronger, harder, longer lasting, more temperature resistant, and recover faster than conventional ceramic and polymeric membranes.

2

Our flat sheet membranes (“FSM”) offer low energy consumption, maximum permeation, innovative rack design, and high flux. These membranes are used in drinking water, pre-RO, and industrial wastewater reuse. The FSM carrier and the selective layer are also made of SiC, which gives the product some unique advantages such as high flux, total chemical resistance (pH 0-14), long life, and the lowest fouling tendency of any polymeric and ceramic membrane material. Our tubular membranes offer robust and high yielding membrane solutions for produced water from the Oil & Gas market, and industrial wastewater to remove suspended solids as well as oil droplets and oil-emulsions from solutions. Our dynamic high flux membrane disks are designed for removal of high suspended solids. The filtration format is outside-in, with internal permeation channels that facilitate removal of the solids. The cross flow effect is generated through the rotation of the discs at high velocities which enables flow cleaning of the filter membrane surface. This principle offers energy savings above 80% compared to conventional cross flow.

The strategic acquisition of Provital is consistent with our long-term growth strategy and would strengthen our position in the integrated filtration technologies market. Provital was one of the first in the world to develop filtration solutions based on ceramic membranes whose products result in more efficient, longer lasting systems that save water and demand less maintenance for large public pools and wastewater. The filtration systems are equipped with Provital’s own Intelligent Control System, which allows for local and/or remote control, monitoring and management of every aspect of the system. The system is easy to use and gives the user full control. The control system logs all necessary data and sends daily e-mails/SMS with all the information to a designated operator if required. We believe that Provital’s solution solves many of the problems present in today’s pool industry, including excess water consumption, energy, chemical usage, space and maintenance, and cost efficiency. The acquisition of Provital has allowed LiqTech to become a fully integrated, one-stop shop for plug and play filtration systems. We believe the combined Company will allow LiqTech to significantly accelerate the time to market for LiqTech’s SiC filters and provide us with immediate credibility in the liquid filtration industry, particularly with our SiC filters. By acquiring Provital, we have gained validation in the industry by directly expanding our customer base to include existing reputable customers from Provital. We plan to continue the research and development, and marketing efforts of Provital’s UVC Hybrid Mercury/LED lighting systems for use in large marine and recreational pools.

We believe tightening government regulation and increasing industry awareness about the need for high quality injection water will contribute to the implementation of membrane technology, since conventional technologies will not be able to meet these demands. 

For the years ended December 31, 2014 and 2013, we received grants from governmental entities of $387,744 and $502,464, respectively.

For the years ended December 31, 2014 and December 31, 2013, our sales of liquid filters and services were $7,532,528 and $5,081,848, respectively, and accounted for 52% and 40% of our total sales, respectively. 

Diesel Particulate Filters

We offer diesel particulate filters (“DPF”) for exhaust emission control solutions to the verified retrofit and the original equipment manufacturer (OEM) market through our direct sales force. DPF sales are generally made to distributors specializing in sales to end users. We use a proprietary “nano washcoat” to provide catalytic coating for anything from diesel particulate filters to catalytic converters. We have developed a robust silicon carbide diesel particulate filter that is especially useful for vehicles that produce a high soot load, and, if properly maintained, should last as long as the vehicle’s engine. Our DPFs are ideal for off-road vehicles because of their strength, chemical non-reactive nature, temperature resilience and thermal conductivity. Our DPF products are sold worldwide, under the LiqTech brand name.

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

● Garbage trucks;

● Port vehicles;

● Diesel pickup trucks not carrying a full load;

● Off-road construction vehicles that idle for long periods of time; and

● Intra-city vehicles that do not reach highway speeds.

Most of our competitors’ DPFs do not use a silicon carbide membrane.

3

For the years ended December 31, 2014 and 2013, our sales of diesel particulate filters were $6,620,625 and $6,932,558, respectively, and accounted for 45% and 54% of our total sales, respectively.

Kiln Furniture

Kiln furniture refers to all items used in a kiln to support ceramics that create additional space to maximize the number of items for each firing. Our high-quality SiC kiln furniture is thinner (allowing more items to be added for each firing), withstands higher heat, lasts longer and reduces the firing time (reducing energy costs) as compared to cordierite, mullite and oxide bonded kiln furniture.

Although we have produced kiln furniture as a means to maximize the efficiency of our manufacturing process and not as one of our primary products, we intend to phase out this commercial product over time.

For the years ended December 31, 2014 and December 31, 2013, our kiln furniture revenues were $408,039 and $811,762, respectively, and accounted for 3% and 6% of our total sales, respectively.

Our Competitive Strengths

 We believe the following strengths position us to increase our revenue and profitability:

● Advantages of Silicon Carbide Membranes: Our diesel exhaust and liquid filtration products utilize silicon carbide membranes which have certain qualities that we believe make our products more desirable than those of our competitors. Unlike filtration products that use aluminum oxide, silicon carbide membranes are chemically inert and temperature resistant. Furthermore, silicon carbide membranes exhibit a high degree of hydrophilicity (tendency of a surface to become wet or to absorb water) which results in unique flux (low energy consumption). Silicon carbide is also highly durable, with hardness second to diamonds, making it conducive in a variety of industrial settings. As a result, we believe that such superior properties make our products desirable in both exhaust emissions control products and liquid filtration products.

● Broad Application of LiqTech Membranes: Our membranes can and have been applied in a variety of applications, including the processing of industrial waste water, produced water and pretreatment of drinking water, prefilters for reverse osmosis, oil emulsion separation, bacteria removal, clearing of wine and beer, and separating metals from liquids used in industrial processes.

● Marketing and Manufacturing in Key Markets and Expanding to Other Market: We have production and sales capacity in North America and Europe. We also sell our products through offices and agents in several key countries such as Singapore, Germany, Korea, France, Italy and Brazil, and we have established customer relations in more than 15 countries.

● Strong and Experienced Management Team: Our management team has significant experience in the clean technology and filtration industries, driving growth through development of new applications and technologies and cultivating relationships with customers.

Our Strategy

Our strategy is to create stockholder value by leveraging our competitive and strengths and focusing on the opportunities in the end-markets we serve. Key features of our strategy include:

● Enter New Geographic Markets and Expand Existing Markets. We plan to continue to manufacture and sell our products out of Denmark and the United States. We intend to continue to develop our organization in Denmark and the United States and we plan to expand our production facilities in the United States to include manufacturing of systems. In October 2011, the Company opened sales offices in France and in January 2012, we opened a sales office in Singapore. In addition to utilizing local representatives, we also intend to establish sales outlets with technical support in other European nations such as Italy, while expanding to other markets such as Asia. We intend to work with agents and partners to access such markets.

● Continue to Strengthen Position in DPF Market. We believe that we have a strong position in the retrofit market for diesel particulate filter systems. We intend to continue our efforts to maintain our strength in this area. Furthermore, we intend to leverage our experience in the OEM market and expand our presence in the OEM market with new products relating to diesel particulate filter systems.

● Continue to Develop and Improve Technologies and Open New End Markets. We intend to continuously develop our ceramic membranes and improve the filtration efficiency for our filtration products. Through continuous development, we intend to find new uses for our products and plan to expand into any new markets that we believe would be appropriate for our Company. One of our key strategies is to develop our membrane applications together with our customers including, for example, the development of the next generation of diesel particulate filters with asymmetric design for the OEM market.

● Continue Our Focus on Selling and on Development New Standard Units. We will continue our focus on selling systems based on our unique SIC membranes. We will also combine the ceramic membranes with other technologies to be able to offer our customers a complete solution. We will continue our focus to develop smaller standard systems, like our ground water treatment unit and our residential swimming pool units. These units will be sold through a network of agents and partnerships.

4

Our Industry

Overview

We primarily serve two industries - the diesel particle filter market and the liquid filtration system market. Our goal is to position ourselves to expand on and leverage our products and technology and to take advantage of the favorable industry trends that we anticipate.

Liquid Filtration Market

Water is essential to life on earth, and clean water shortages are expected to affect two-thirds of the human population by 2025. One-third of the human population is living today with clean water shortcomings and this is expected to increase to two-thirds of the population by 2025 due to the growing population. According to the World Health Organization, approximately 1.6 million children die every year due to unsafe water and the lack of basic sanitation. Due to the growing need for pure water for drinking and industrial purposes, the market for membrane filtration is growing rapidly, with more and larger plants being commissioned all over the world. We also see a general trend worldwide for increasing demand for higher quality re-injection water in connection with unconventional oil and gas production. In addition, we see tightening discharge legislations, increasing water cuts (more water produced per barrel oil) and the introduction of Enhanced Oil Recovery (“EOR”) techniques. The tightening of produced water specifications is a problem for conventional technologies. However, LiqTech SiC membranes have been shown to solve these challenges and we believe represent favorable market trends for our business. According to Pike Research, the annual global investment in desalinization is estimated to reach $16.6 billion by 2016. LiqTech offers packaged systems consisting of ceramic SiC and conventional RO membranes for industrial and municipal customers. As a result, we anticipate that global demand will increase for products such as ours that can be used to provide clean water. The growth is especially pronounced for reverse osmosis membranes. Reverse osmosis membranes are increasingly used for the production of drinking water (desalination of sea water or brackish water), for demineralized water in industrial processes (boiler feed water, microelectronics production), as well as in food processing and pharmaceutical production. In addition, laboratories rely on pure water, for which demineralization is an essential step. According to Pike Research, the annual global investment in desalination is forecasted to reach $16.6 billion by 2016. According to another industry report, the aggregate water volume treated by membranes is expected to grow from 29 billion cubic meters in 2009 to 82 billion cubic meters in 2020. The market for systems that clean up ballast water, used primarily by ships to maintain balance, is forecasted by Frost & Sullivan to increase six fold within the next decade. Ballast water cleaning systems may reach as much as $3.1 billion by 2023, up from $467 million in 2013. The global algae biomass market is worth between e3.5 and e5 billion with a high level of SME (small and medium sized enterprises) participation. Of this total, the health food sector accounts for e1.5 billion and the aquaculture applications account for e0.5 billion. The algae market is expected to growth substantially as improved growth, harvesting and refining processes are developed.

Diesel Particulate Filter Market

The increase in global regulation of diesel particles is expected to drive growth in the DPF market. California continues to tighten regulation encouraging the use of DPF products and we expect other areas of the United States to begin introducing DPF filters. In Europe, cities in Germany are setting requirements for off-road machinery requirements for DPF filters. According to an industry publication, the global market for new DPF filters manufactured by OEMs is expected to increase from approximately 1.7 million units in 2010 to over 9 million units in 2020. Diesel emissions consist of several toxic gasses and particles: particulate matter (soot), carbon monoxide and hydrocarbons. Soot has been linked to a variety of health problems in humans. Abt Associates, for the Clean Air Task Force, estimates that approximately 21,000 people in the U.S. die prematurely each year from breathing diesel soot, 3,000 of those from lung cancer. Another 27,000 heart attacks, 14,500 hospitalizations and 2.4 million lost work days a year are attributable to diesel particulate matter exposures. In 2010, the Organization for Economic Co-operation and Development (OECD) estimated that diesel transport represented 50% of the total ambient air pollution in OECD countries, which equates to over $785 billion in health damages. The Abt Associates report, using EPA science advisory board methodology, estimated that the monetary value of the health damages from diesel-related particulate matter in the U.S. was approximately $139 billion (in 1999 dollars). Reducing diesel emissions will have both health benefits and social benefits to society, along with reduced costs. In response to these health impacts, governments have been implementing legislation to regulate emissions from diesel engines. California implemented the Diesel Risk Reduction Plan, which required the curtailment of diesel particle emissions by 25% by 2010 and a further 15% by 2020. New York City has implemented binding directives for the retrofitting of buses, garbage trucks and construction machines. In the European Union, Directive EC 715/2007 of June 20, 2007 defined particle count limits for certain cars and light utility vehicles. Also, in Europe, low emission zones have been implemented locally, creating a patchwork of regulation. The increase in global regulation of diesel particles is expected to drive growth in the DPF market. According to an industry publication, the global market for new DPF filters manufactured by OEMs is expected to increase from approximately 1.7 million units in 2010 to over 9 million units in 2020.

5

Manufacturing

We currently manufacture our products in facilities located in Ballerup, Denmark and White Bear Lake, Minnesota and assembling our systems in Provital Solutions that are located in Hobro in Jutland, Denmark. The main raw materials that we use in our manufacturing processes are silicon carbide, platinum and palladium. We purchase these commodities from various sources generally based upon availability and price. There is a limited supply of silicon carbide available to us. As other industries develop products utilizing silicon carbide, we may not be able to obtain adequate supplies of silicon carbide required for the manufacture of our existing and planned future water filtration products. Any increased demand for silicon carbide, platinum or palladium could increase the price we must pay to obtain it and could adversely affect our profitability. However, our management believes that we could obtain satisfactory substitutes for these materials should they become unavailable.

We have plans to expand our production capacity in both Denmark and Minnesota, primarily through additional investment in equipment relating to our liquid filtration products, when this becomes necessary.

Sales, Marketing and Distribution

Our products are sold primarily to large industrial customers that use our products for gas and liquid filtration. To date, most of our sales have been in the transportation sector, and we are seeking to broaden our sales into other areas such as produced water in the oil and gas sector, desalination sector and other water purification areas.

For the year ended December 31, 2014, our four largest customers accounted for approximately 10%, 5%, 4% and 3%, respectively, of our net sales (approximately 22% in total). For the year ended December 31, 2013, our four largest customers accounted for approximately 10%, 6%, 5% and 5%, respectively, of our net sales (approximately 26% in total). If we are unable to diversify our customer base, our future results will be heavily dependent on these customers. Our dependence on a limited number of customers means that the loss of a major customer or any reduction in orders by a major customer would materially reduce our net sales and adversely affect our results of operations. We expect that sales to relatively few customers will continue to account for a significant percentage of our net sales for the foreseeable future. However, these customers or our other customers may not use our products at current levels in the future, if at all. We have no firm, long-term volume commitments from any of our major customers and we generally enter into individual purchase orders with our customers, in certain cases under master agreements that govern the terms and conditions of the relationship. We have experienced cancellations of orders and fluctuations in order levels from period-to-period and expect that we will continue to experience such cancellations and fluctuations in the future. Customer purchase orders may be cancelled and order volume levels can be changed, cancelled or delayed with limited or no penalties. We may not be able to replace cancelled, delayed or reduced purchase orders with new orders. If any one of these customers reduces their demand for our products, it will have a material adverse effect on our operations. Furthermore, a significant portion of our account receivables is concentrated with these major customers, some of whom have limited working capital resources who may not be able to meet their financial obligations to us.

We plan to actively market our existing products to new customers as we increase our production capacity. We currently have 21 full time salesmen or distribution agents. We promote our products through direct contact to potential customers and by meeting potential customers in trade fairs and exhibitions.

In certain instances, our products are delivered to the end customer through systems integrators. These systems integrators use our filtration products in larger filtration systems which eventually are installed in products used by the end customer. Due to the regulation surrounding the reasons why many of the end customers use filtration systems, the systems integrators often are required by such end customers to receive approval of their systems, including the components used in such systems, which requires the use of significant time and money. As a result, we believe that certain of the systems integrators that use our products will not replace our filters with competitive products unless there is good reason.

Intellectual Property

Our success depends in part upon our ability to obtain, maintain and protect intellectual property rights that cover our silicon carbide product forms, applications and/or manufacturing processes and specifications and the technology or know-how that enable these product forms, applications, processes and specifications, and to avoid and defend against claims that we infringe upon the intellectual property rights of others and to prevent the unauthorized use of our intellectual property. Silicon carbide is a well-known material which was developed over 100 years ago and thus, extensive research, development and publication on this material exists, making it difficult to obtain intellectual property rights to key elements of silicon carbide technology. Accordingly, at least some of the technology used in the manufacture of our re-crystallized silicon carbide products is not protected by patents. Where we consider it appropriate, we seek to protect our proprietary rights by filing United States and foreign patent applications related to technology, inventions and improvements that we consider patentable and important to the development and conduct of our business. We also rely on trade secrets, trademarks, licensing agreements, confidentiality and nondisclosure agreements, business partnerships and continuing technological innovation to safeguard our intellectual property rights and develop and maintain our competitive advantage.

As of March 25, 2015, we had one issued United States patent that we co-own with a third party, one pending United States patent application, three issued foreign patents (in Germany, China and South Korea) that we co-own with a third party and one pending European patent application which we co-own with a third party. The United States patent that we co-own is generally effective for 20 years from the filing date of the earliest U.S. or international application to which it claims priority. The scope and duration of each of our foreign patents varies in accordance with local law. On July 7, 2014 we obtained a new patent application related to the silicon carbide membrane technology in Denmark. This will be the basis for another filing in the United States in the future. Our patent strategy is generally uncertain and involves complex legal and factual questions. Our ability to maintain and solidify our proprietary technology may depend in part upon our success in obtaining patent rights and enforcing those rights once granted or licensed. We do not know whether any of our pending patent applications will result in the issuance of any patents. Our issued patents and those that may be issued in the future may be challenged, invalidated, rendered unenforceable or circumvented, which could limit our ability to prevent competitors from marketing similar or related products, or shorten the term of patent protection that we may have for our products, processes and enabling technologies. In addition, the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies, duplicate technology developed by us or otherwise possess intellectual property rights that could limit our ability to manufacture our products and operate our business.

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

We also believe that having distinctive names may be an important factor in marketing our products, and therefore use trademarks to brand some of our products. As of March 25, 2015, we had one trademark registration in the United States (LiqTech NA) and four trademark registrations in the European Union (AQUA SOLUTION, CoMem, CDPX and FUTURE FILTRATION).

Government Regulation

We do not believe that we are subject to any special governmental regulations affecting our products in the countries in which we have operations, except that in Minnesota, we are required to comply with the Minnesota Air Pollution standards related to the use of our incinerators located in our Minnesota facilities. We are subject to numerous health and safety laws and regulations. In the United States, these laws and regulations include the Federal Occupation Safety and Health Act and comparable state legislation. We are also subject to similar requirements in other countries in which we have extensive operations, including Denmark, where we are subject to various regulations. These regulations are frequently changing, and it is impossible to predict the effect of such laws and regulations on us in the future. We actively seek to maintain a safe, healthy and environmentally friendly workplace for all of our employees and those who work with us.

Environmental Matters

We are subject to a broad range of federal, state, local and foreign environmental laws and regulations which govern, among other things, air emissions, wastewater discharges and the handling, storage, disposal and release of wastes and hazardous substances. It is our policy to comply with applicable environmental requirements at all of our facilities. We are also subject to laws such as the Comprehensive Environmental Response, Compensation and Liability Act, that may impose liability retroactively and without fault for releases or threatened releases of hazardous substances at on-site or off-site locations. We are subject to similar requirements in Denmark and other European countries. From time to time, we have identified environmental compliance issues at our facilities. To date, compliance with environmental matters has not had a material effect upon the Company’s capital expenditures or competitive position.

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

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

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Research and Development

We currently have seven (7) full-time employees spending a majority of their working hours on research and development. For the years ended December 31, 2014 and 2013, we spent $336,065 and $499,972, respectively, on Company-sponsored research and development.

In 2014, we started the development of a UV LED technology for disinfection of organics in primarily commercial pool and drinking water applications. UV is a known disinfection method, but current technology with mercury lamps has its limitations. With LED technology, it is possible to have instant on/off and thereby apply the correct amount of UV rays for maximum bacteria kill increasing the overall system efficiency. Further, the lifetime of the LED lamps are much higher than mercury lamps and disposal cost at end of life lower and more environmentally friendly. In systems design LED technology provides more flexibility than traditional lamps, which are fixed in length, size and output. We believe that our UV LED development efforts are ahead of traditional industry and will disrupt the current technology space.

In 2011, we entered into a joint development agreement with Aalborg University (“Aalborg”) and The Danish National Advanced Technology Foundation to develop a SiC-based membrane that can perform reverse osmosis. In connection with the agreement, we were approved for a grant of $2 million, and we are entitled to receive additional funding upon reaching certain milestones as provided in the agreement. Pursuant to a related agreement with Aalborg, any intellectual property produced during the project will be owned by Aalborg. However, we retain the right to obtain an exclusive license to this intellectual property, provided the use is related to our business.

Competition

Our products compete with other filters that are made using both ceramic and plastic membranes. Most of our competitors are large industrial companies. However, we believe our patented technology allows us to produce high quality, low cost products that give us an advantage over many of our competitors, many of which have greater financial, technological, manufacturing and personnel resources. We intend to continue to devote resources to improving our products in order to maintain our existing customers and to add new customers.

Employees

As of March 18, 2015, we had 84 employees, 78 of whom were full-time employees. We had 62 employees at our operations in Denmark, including seven in Research and Development, 11 in sales and engineering and 2 in executive management. We also had 20 employees in the United States, one of whom was in executive management; the others were employed in sales, accounting and production. We also had one employee in Singapore and one employee in Germany.

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

Corporate Information

We filed our Articles of Incorporation on July 1, 2004 and are incorporated under the laws of the State of Nevada. Our principal executive offices are located at Industriparken 22C, 2750 Ballerup, Denmark, and our telephone number is +4544986000. We maintain an Internet website at www.liqtech.com. The information contained in, or accessible from, our website is not a part of this report.

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Item 1A.   Risk Factors

RISKS RELATED TO OUR BUSINESS 

We may have insufficient funds to develop our business, which may adversely affect our future growth.

On March 2, 2012, we completed a registered public offering of our common stock whereby we issued and sold 2,511,500 shares at a per share price of $3.25 and generated net proceeds of approximately $7.1 million. We also issued to the placement agent and certain of its agents for $100, warrants to purchase an aggregate of 125,575 shares of our common stock with an exercise price equal to $4.06, which are exercisable for a period of five years commencing after the effective date of the registration statement related to the offering.  

On October 9, 2013 we announced that the warrant and option exchange offer raised $4,051,000, which included the exercise of 100,000 warrants by Aldo Petersen, Chairman of LiqTech, 25,000 stock options by Lasse Andreassen, founder and board member of LiqTech and 50,000 stock options by Soren Degn, CFO of LiqTech, $450,000 was received on September 30, 2013 and $3,601,000 was received in October, 2013. The board noted that the additional capital was an orderly solution to improving the Company's capital structure as well as enhancing our ability to list on the NYSE MKT, which we did in December 2013. In addition, the new capital provided the Company additional flexibility to generate new orders and sustain future growth.

On July 22, 2014, we entered into a purchase agreement with Craig-Hallum Capital Group LLC, or Craig-Hallum, pursuant to which we sold to Craig-Hallum (for resale to the public), 8,000,000 shares of common stock at a price to the public of $1.50 per share. The Company also agreed to issue to the Underwriter, for a price of $50, a warrant to purchase 400,000 shares with an exercise price equal to $1.65 per share (the warrants are immediately exercisable and will remain exercisable for five years after the effective date of the Offering). Net proceeds from the offering were approximately $10.8 million, of which we used approximately $2.3 million for the acquisition of Provital.

We intend to use the remaining net proceeds from the offerings and the exercise of warrants and options for the development and marketing of our products, the engineering, development and testing of our membranes, and the opening of local sales offices in certain countries outside of the U.S. and Denmark. 

However, we can provide no assurance that the net proceeds from the offering and the exercise of warrants and options will be adequate to achieve our long term goals. The continued growth of our business will depend in part upon our ability to continue to develop new products and to make strategic acquisitions. We may not generate sufficient cash flow from our operations to allow us to fund these activities. We may need to sell additional equity or borrow funds in order to develop these growth strategies and our inability to raise the additional capital and/or borrow the funds needed to implement these plans may adversely affect our business and future growth.

Our recently acquired subsidiary Provital may not have in place a system of internal control over financial reporting that is adequate to manage that business effectively as part of a public company.

On July 28, 2014, we completed the acquisition of Provital, a private company that has not previously been subject to financial reporting on the basis of U.S. GAAP, and has not been subject to periodic reporting as a public company. As a smaller private and non-U.S. company, Provital has not operated under afully documented system for accounting and internal control over financial reporting that is required for public companies, and we may need to improve its systems. Establishing, testing and maintaining an effective system of internal control over financial reporting requires significant resources and time commitments on the part of our management and our finance and accounting staff, may require additional staffing and infrastructure investments, and would increase our costs of doing business. Moreover, if we discover aspects of Provital’s internal controls that need improvement, we cannot be certain that our remedial measures will be effective. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could harm our operating results or increase our risk of material weakness or significant deficiencies in internal controls.

The acquisition of Provital included the acquisition of goodwill, which is subject to a periodic impairment analysis, and a significant impairment determination in any future period could have an adverse effect on our results of operations even without a significant loss of revenue or increase in cash expenses attributable to such period.

Our acquisition of Provital included approximately $9.4 million of goodwill. We will be required to evaluate this goodwill for impairment based on the fair value of Provital at least once a year. This estimated fair value could change if Provital is unable to achieve operating results at the levels that have been forecasted, the market valuation of Provital decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by Provital. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge to our results of operations.

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Although we expect that our acquisition of Provital will result in benefits to our business, we may not realize those benefits because of integration difficulties and other challenges. In addition, the loss of any of Provital’s key management or employees could harm our future business prospects.

The success of our acquisition of Provital will depend in large part on the ability of management to realize the anticipated benefits from combining the businesses of the company and Provital. To realize these anticipated benefits, the businesses of the Company and Provital must be successfully combined. Management may face significant challenges in consolidating the functions of the company and Provital, integrating the technologies, organizations, procedures, policies and operations, as well as addressing the different business cultures at the two companies, and retaining key personnel. If integration is not successful, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. The integration may also be complex and time consuming and require substantial resources and effort. Our obligation to support Provital with working capital may require us to divert resources from our other businesses. The integration process and other disruptions resulting from the acquisition may disrupt each company’s ongoing businesses and/or adversely affect relationships with employees, regulators and others with whom the companies have businesses or dealings.

We will be dependent upon the existing management team of Provital for the foreseeable future. Following the acquisition of Provital, Sune Mathiesen, Chief Executive Officer of Provital, became Chief Executive Officer of the combined new company and executed an employment agreement with us. If we do not maintain the services of Mr. Mathiesen or lose the services of other key employees of Provital, the future operating results and our ability to effectively integrate Provital into our business may be adversely affected.

Future growth of our business depends in part, on the general availability of funding for emissions control programs, as well as enforcement of existing emissions-related environmental regulations and further tightening of emission standards worldwide.

Future growth of our business depends in part on the general availability of funding for emissions control programs, which can be affected by economic as well as political reasons. For example, in light of the budget crisis in California, funding was not available for a state-funded emissions control project and its start date was pushed back. Another budget proposal put forth by the Obama administration did not include funding for the EPA’s Diesel Emissions Reduction Act program in fiscal 2012. Funding for these types of emissions control projects drives the demand for our diesel particulate filters. If such funding is not available, it can negatively affect our future growth prospects. In addition to funding, we also expect that our future business growth will be driven, in part, by the enforcement of existing emissions-related environmental regulations and tightening of emissions standards worldwide. If such standards do not continue to become stricter, are loosened or are not enforced by governmental authorities due to commercial and business pressure or otherwise, it could have a material adverse effect on our business, operating results, financial condition and long-term prospects.

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

We have expanded, and expect to continue to expand, our operations. The growth of our business and Provital’s business, could place significant strain on our management and operational and financial resources. To manage our future growth, we could be required to improve existing or implement new operational or financial systems, procedures and controls or expand, train and manage a growing employee base. Our failure to accomplish any of these tasks could materially and adversely affect our business.

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

During the year ended December 31, 2014, we had four (4) customers who accounted for approximately twenty-two (22%) of our total revenues. During the year ended December 31, 2013, we had four (4) customers who accounted for approximately twenty-six (26%) of our total revenues. If we are unable to diversify our customer base, our future results will be heavily dependent on these customers. Our dependence on a limited number of customers means that the loss of a major customer or any reduction in orders by a major customer would materially reduce our net sales and adversely affect our results of operations. We expect that sales to relatively few customers will continue to account for a significant percentage of our net sales for the foreseeable future. However, these customers or our other customers may not use our products at current levels in the future, if at all. We have no firm, long-term volume commitments from any of our major customers and we generally enter into individual purchase orders with our customers, in certain cases under master agreements that govern the terms and conditions of the relationship. We have experienced cancellations of orders and fluctuations in order levels from period-to-period and expect that we will continue to experience such cancellations and fluctuations in the future. Customer purchase orders may be cancelled and order volume levels can be changed, cancelled or delayed with limited or no penalties. We may not be able to replace cancelled, delayed or reduced purchase orders with new orders. If any one of these customers reduces their demand for our products, it will have a material adverse effect on our operations.

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

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

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

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

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

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

Our current employees are spending virtually all of their time on our existing products and customers. In order to expand our product offerings and customer base, we will need to hire additional qualified personnel. We may not be able to locate such persons, and even if we locate them, we may not have the funds to employ them, which could have a materially adverse effect on our business.

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

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

Where we consider it appropriate, we seek patent protection in the United States and other countries on technologies used in, or relating to, our re-crystallized silicon carbide product forms, applications and manufacturing processes. As of March 19, 2015, we had one issued United States patent and three issued foreign patents, all of which we co-own with a third party. The issuance of a patent is not conclusive as to its scope, validity and enforceability. Thus, any patent or patent application which may issue into a patent held by us could be challenged, invalidated or held unenforceable in litigation or proceedings before the U.S. Patent and Trademark Office and/or other patent tribunals, or circumvented by others. No consistent policy regarding the breadth of patent claims has emerged to date in the United States and the landscape could become more uncertain in view of future rule changes by the United States Patent and Trademark Office, the introduction of patent reform legislation and decisions in patent law cases by United States federal courts. The patent landscape outside the United States is even less predictable. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, we may fail to apply for patents on important technologies or product candidates in a timely fashion, if at all, and our existing and future patents may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products or technologies, especially given the long history of silicon carbide development. 

As of March 19, 2015, we had one issued Danish patent, one issued US patent and one PCT covering 180 countries. The issuance of patents from these applications involves complex legal and factual questions and, thus, we cannot assure that any of our pending patent applications will result in the issuance of patents to us. The United States Patent and Trademark Office and relevant foreign patent tribunals may deny or require significant narrowing of claims in our pending patent applications. Patents issued as a result of any of our pending patent applications may not cover our enabling technology and/or the products or processes that support our current or future business or afford us with significant commercial protection against others with similar technology. Proceedings before the United States Patent and Trademark Office could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. In addition, our pending patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus foreign patent applications may not be granted even if counterpart United States patents are issued. 

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

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

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

We rely on trade secrets to protect our technology, and our failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

We rely in part on trade secret protection to protect confidential and proprietary information relating to our technology, particularly where we do not believe patent protection is appropriate or obtainable. We continue to develop and refine the manufacturing processes used to produce our re-crystallized silicon carbide products and believe that we have already developed, and will continue to develop, significant know-how related to these processes. Trade secrets however can be difficult to protect. We may not be able to maintain the secrecy of our know-how, and competitors may develop or acquire equally or more valuable know-how related to the manufacture of comparable silicon carbide products. Our strategy for scale-up of commercial production will continue to require us to share confidential and proprietary information with third parties. While we take reasonable efforts to protect our trade secrets, our employees, consultants, contractors or scientific and other advisors, or those of our business partners, may intentionally or inadvertently disclose our confidential and proprietary information to competitors. Any enforcement of claims by us that a third party has obtained and is using our trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than United States courts to protect trade secrets.

We also require all employees, consultants and business partners to execute confidentiality and/or nondisclosure agreements upon the commencement of employment, consulting arrangement or other engagement with us, which agreements generally require that all confidential and proprietary information developed by such employee, consultant or business partner, or made known to such employee, consultant or business partner by us during the course of the relationship with us, be kept confidential and not disclosed to third parties. These agreements generally provide, with respect to employees, that inventions conceived by an individual in the course of rendering services to us will be our exclusive property. Nevertheless, these agreements may not be honored and our confidential and proprietary information may be disclosed, or these agreements may be unenforceable or difficult to enforce. We also require customers and vendors to execute agreements containing confidentiality and/or nondisclosure provisions. However, we may not have obtained such agreements from all of our customers and vendors. Some of our customers may also be subject to laws and regulations that require them to disclose information that we would otherwise seek to keep confidential. Our confidential and proprietary information may be otherwise disclosed without our authorization. For example, third parties might reverse engineer our manufacturing processes, independently develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets. Failure to maintain trade secret protection could enable others to produce competing products and adversely affect our competitive business position.

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

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

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

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

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

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

Failure to obtain required raw materials could affect our ability to supply products to our customers.

We use silicon carbide, platinum and palladium in the manufacture of our products. As other industries develop products utilizing silicon carbide, we may not be able to obtain adequate supplies of silicon carbide required for the manufacture of our existing and planned future water filtration products. Any increased demand for silicon carbide, platinum or palladium could increase the price we must pay to obtain it and could adversely affect our profitability.

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

We may not have sufficient internal manufacturing capacity to meet the current demand for our products, and we may need to rely on subcontractors to enable us to meet this demand. Since we rely on our subcontractors for a significant amount of our production capacity, the loss of the services of our subcontractors would have a material adverse effect on our business. Our plans for the growth of our business rely upon increasing sales of our existing products and systems and developing and marketing new products. We do not have adequate internal manufacturing facilities to substantially increase production of our products and obtaining additional manufacturing capacity in-house will require substantial capital expenditures. We may not be able to locate such additional facilities, and, if located, we may not have the capital resources to obtain or construct them, which could have a materially adverse effect on our operations.

Our results may fluctuate due to certain regulatory, marketing and competitive factors over which we have little or no control.

The factors listed below, some of which we cannot control, may cause our revenue and results of operations to fluctuate significantly:

● Actions taken by regulatory bodies relating to the verification, registration or health effects of our products;

● The extent to which existing and newly developed products obtain market acceptance;

● The timing and size of customer purchases;

● Customer concerns about the stability of our business, which could cause them to seek alternatives to our solutions and products; and

● Increases in raw material costs.

 Foreign currency fluctuations could adversely impact financial performance.

Our reporting currency is the United States dollar. Because of our activities in Denmark, the United Kingdom, the European Continent, Singapore and South Korea, we are exposed to fluctuations in foreign currency rates. We may manage the risk to such exposure by entering into foreign currency futures and option contracts. Foreign currency fluctuations may have a significant effect on our operations in the future.

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

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

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

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

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

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

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

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

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

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

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

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The JOBS Act allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies, which means that our financial statements may not be comparable to companies that comply with public company effective dates, which could make our common stock less attractive to investors.

Since, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

RISKS RELATED TO OUR COMMON STOCK

Approximately 24.3% of our common stock is beneficially owned by our officers and directors, who have the ability to substantially influence the election of directors and other matters submitted to stockholders.

As of March 19, 2015, 9,707,154 shares, or 24.3%, of our common stock, including stock options and warrants, were beneficially owned by our officers and directors, including 4,044,782 shares, or 10.3%, of our common stock beneficially owned by Sune Mathiesen, our Chief Executive Officer, 3,288,541 shares, or 8.3%, of our common stock beneficially owned by Aldo Petersen, our Chairman of the Board and 168,000 shares, or 0.4%, of our common stock beneficially owned by Soren Degn, our Chief Financial Officer. As a result, our officers, directors, Sune Mathiesen, and Aldo Petersen, in particular, are expected to continue to have the ability to significantly influence the election of our Board of Directors and the outcome of all other issues submitted to our stockholders. The interests of these principal stockholders may not always coincide with our interests or the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders. One consequence to this substantial influence or control is that it may be difficult for investors to remove our management. This could also deter unsolicited takeovers, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. 

Future financings could adversely affect common stock ownership interest and rights in comparison with those of other security holders.

Our board of directors has the power to issue additional shares of common or preferred stock without stockholder approval. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage of ownership of our existing stockholders will be reduced, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we issue additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder. In addition, such stock issuances might result in a reduction of the book value of our common stock.

You may experience dilution as a result of future issuances of our securities.

In general, stockholders do not have preemptive rights to any common stock issued by us in the future. Therefore, stockholders may experience additional dilution of their equity investment if we issue additional shares of common stock in the future, including shares issuable under equity incentive plans, or if we issue securities that are convertible into shares of our common stock. 

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

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

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

Since December 2, 2013, our common stock has been traded on NYSE MKT under the symbol LIQT. Because there is limited volume of our common stock, investors may not be able to liquidate their investments when they want.

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

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

The trading market for our common stock will depend in part on research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who cover us downgrades us or the industry in which we operate or the stock of any of our competitors, the price of our common stock will probably decline. If one or more of these analysts ceases coverage altogether, we could lose visibility, which could also lead to a decline in the price of the common stock.

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

Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

● Had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

● In the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

● In the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

As a “smaller reporting company” (in addition to and without regard to our status as an “emerging growth company”) we are not required and may not include a Compensation Discussion and Analysis section in our proxy statements; we provide only 3 years of business development information; provide fewer years of selected financial data; and have other “scaled” disclosure requirements that are less comprehensive than issuers that are not “smaller reporting companies” which could make our stock less attractive to potential investors, which could make it more difficult for you to sell your shares.

The Company is considered an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of SOX, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (A) following the fifth anniversary of our first sale of common equity securities pursuant to an effective registration statement, (B) in which we have total annual gross revenue of at least $1.0 billion, or (C) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

For as long as we remain an “emerging growth company” we intend to take advantage of certain exemptions from various reporting requirements until we are no longer an “emerging growth company.” We also qualify as a smaller reporting company, and so long as we remain a smaller reporting company, we benefit from the same exemptions and exclusions as an emerging growth company. In the event that we cease to be an emerging growth company as a result of a lapse of the five year period, but continue to be a smaller reporting company, we would continue to be subject to the exemptions available to smaller reporting companies until such time as we were no longer a smaller reporting company.

After, and if ever, we are no longer an “emerging growth company,” we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with those requirements applicable to companies that are not “emerging growth companies,” including Section 404 of SOX.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile when trading occurs.

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The market price and trading volume of our common stock may be volatile, which may adversely affect its market price.

The market price of our common stock could be subject to significant fluctuations due to factors such as:

● actual or anticipated fluctuations in our financial condition or results of operations;

● the success or failure of our operating strategies and our perceived prospects; realization of any of the risks described in this section; failure to be covered by securities analysts or failure to meet the expectations of securities analysts;

● a decline in the stock prices of peer companies; and

● a discount in the trading multiple of our common stock relative to that of common stock of certain of our peer companies due to perceived risks associated with our smaller size.

As a result, shares of our common stock may trade at prices significantly below the price you paid to acquire them. Furthermore, declines in the price of our common stock may adversely affect our ability to conduct future offerings or to recruit and retain key employees, including our managing directors and other key professional employees.

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

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

Item 1B.    Unresolved Staff Comments

None.

Item 2.       Properties

Our corporate headquarters are located in Industriparken 22C, 2750 Ballerup, Denmark. We lease approximately 55,000 square feet at our Ballerup location, of which approximately 10,000 square feet is used for office space and 45,000 square feet is used for production. The lease will expire on August 31, 2018. Our U.S. operations are located at 1800 - 1810 Buerkle Road White Bear Lake, Minnesota 55110 where we lease approximately an aggregate of 30,000 square feet, of which 6,000 square feet is used for office space and 24,000 square feet is used for production. The lease will expire on February 28, 2017. Our Provital operations are located at Bornholmsvej 3A, 9500 Hobro, Denmark. We lease approximately 12,000 square feet at our Hobro location, of which approximately 2,000 square feet is used for office space and 10,000 square feet is used for assembling. The lease will expire on June 30, 2016. From January 1, 2015 our Provital operation has leased additional 21,872 square feet in Randers, Denmark, of which all is planned to be used for production and assembling.

Item 3.       Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of December 31, 2014, we were not a party to any legal proceeding that we believe would have a material adverse effect on our business, financial condition or operating results.

Our 60% owner of LiqTech Italy has sued LiqTech International A/S for an amount of euro 750,000 due to dissatisfaction with the corporation between him as a 60% owner and CEO of LiqTech Italy and LiqTech International A/S as a 40% owner. We believe that the claim is without merit and we intend to vigorously defend any litigation.

Item 4.       Mine Safety Disclosures.

Not applicable.

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

Our common stock is currently quoted on NYSE MKT under the symbol LIQT. Prior to the Merger, there was not an active market and no trading volume during fiscal year 2010. The following table sets forth the high and low bid prices for the common stock for the periods indicated:

2015	High		Low
1st Quarter (through March 19, 2015)	$	1.17	$	0.67

2014	High		Low
4th Quarter	$	1.70	$	1.00
3rd Quarter		2.08		1.38
2nd Quarter		2.49		1.60
1st Quarter		2.55		1.82

2013	High		Low
4th Quarter	$	2.98	$	2.07
3rd Quarter		3.13		2.44
2nd Quarter		3.44		2.35
1st Quarter		2.42		1.33

2012	High		Low
4th Quarter	$	1.70	$	1.23
3rd Quarter		2.20		1.36
2nd Quarter		3.31		2.21
1st Quarter		4.50		3.13

The above table is based on a report provided by the OTC Markets Group, Inc. until December 2, 2013 and NYSE MKT for the rest of the period. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not necessarily represent actual transactions. 

Based upon information supplied to us by our transfer agent as of March 10, 2015, we had approximately 50 stockholders of record.

We have not declared or paid any dividends and do not intend to declare or pay dividends on our common stock in the foreseeable future. Instead, we generally intend to invest any future earnings in our business. Subject to Nevada law, our Board of Directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of:

● any contractual restrictions limiting our ability to pay dividends that may be applicable at such time;

● our earnings and cash flow;

● our capital requirements;

● our financial condition; and

● other factors our board of directors deems relevant.

Item 6.  Selected Financial Data

We are not required to provide selected financial data disclosures because we are a smaller reporting company.

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

Forward Looking Statements

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

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Overview

We are a Nevada corporation, formerly named Blue Moose Media, Inc. In October, 2011, we changed our name to LiqTech International, Inc. For more than a decade we have developed and manufactured products of re-crystallized silicon carbide. We have been specializing in three business areas: ceramic membranes for liquid filtration, diesel particulate filters for the control of soot exhaust particles from diesel engines and kiln furniture for the refractory industry. We are a cleantech company that provides state-of-the-art technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies.

Reverse Merger Acquisition

On August 24, 2011, pursuant to the Merger Agreement by and among Blue Moose, BMD Sub and LiqTech USA, BMD Sub was merged with and into LiqTech USA and, as a result of the Merger, LiqTech USA became a wholly owned subsidiary of Blue Moose. Pursuant to the Merger, (a) each of the 17,444.75 outstanding shares of the common stock of LiqTech USA was exchanged for 1,000 shares of our common stock, for a total of 17,444,750 shares of our common stock resulting in 21,600,000 shares of our common stock being outstanding immediately following the Merger and (b) warrants to acquire up to 6,500 shares of LiqTech USA’s common stock at a price of $1,500 per share, were by their terms, converted into warrants to acquire up to 6,500,000 shares of our common stock at a price of $1.50 per share.

LiqTech USA owns all of the outstanding equity interests in LiqTech Denmark (On August 23, 2012, LiqTech A/S, a Danish limited company (“LiqTech Denmark”) and former subsidiary of the Company was merged with and into LiqTech Denmark International.), LiqTech Int. DK (formerly known as Cometas) and LiqTech Delaware. In June and July 2011, LiqTech USA entered into agreements to acquire (i) all of the outstanding equity interests in LiqTech Denmark and (ii) all of the outstanding equity interests in LiqTech Int. DK and LiqTech Delaware not owned by LiqTech Denmark, directly from the holders of such equity interests (the “LiqTech Acquisition Agreements”). In exchange for such equity interests, LiqTech USA agreed to pay to such holders in the aggregate (i) $4,637,315 in cash, (ii) promissory notes in the principal amounts of DKK 19,500,000 (which was equal to $3,765,351 based upon the currency exchange rate of $1.00 = DKK 5.1788 as of August 22, 2011) and (iii) 9,308,333 shares of LiqTech USA’s common stock.

Prior to completion of the Merger, LiqTech USA completed a private placement offering of 63 units at $100,000 per unit, each such unit consisting of 40 shares of LiqTech USA’s common stock and 20 warrants to purchase LiqTech USA common stock, and received $4,800,000 in cash and a promissory note for $1,500,000 payable on September 7, 2011. Thereafter, in August 2011, LiqTech USA closed the transactions contemplated by the LiqTech Acquisition Agreements.

As a result of the Merger, Blue Moose changed its management and reconstituted its board of directors. As of the effective time of the Merger, Gordon Tattarsall, the president, the chief financial officer and the sole director of Blue Moose, resigned as president and chief financial officer. As Blue Moose’s sole director, Mr. Tattersall appointed Aldo Petersen as a director of Blue Moose.  The Directors then appointed Lasse Andreassen and Soren Degn as the officers of Blue Moose, and Lasse Andreassen, Paul Burgon, John Nemelka and Michael Sonneland as directors of Blue Moose. However, the other new directors did not take office until September 5, 2011, which is ten days after we filed an Information Statement pursuant to Rule 14f-1 of the Securities and Exchange Act of 1934, as amended, and mailed that statement to our stockholders of record. In addition, Mr. Tattarsall resigned as a director of Blue Moose effective as of September 5, 2011. 

2014 Developments

Closing of underwriting public offering of common stock

On July 28, 2014, we closed our registered underwritten public offering of 8,000,000 shares at a price to public of $1.50 per share, which included all 1,043,478 shares subject to the underwriter’s over-allotment option. Our estimated net proceeds from the offering were approximately $10.8 million, after deducting underwriting discounts and estimated offering expenses. We used the net proceeds of the offering to fund a portion of the purchase price our acquisition of the operations of Provital. Craig-Hallum Capital Group LLC acted as sole managing underwriter of the offering.

On the July 29, 2014, the Company, through its subsidiary, LiqTech Int. DK, completed the acquisition of all of the issued and outstanding capital stock (the “Provital Shares”) of Provital Solutions A/S, a Danish company (“Provital”) from Masu A/S, a Danish company (“MASU”). In consideration for the Provital Shares, MASU received cash consideration in the sum of DKK12,600,000, that is, approximately USD$2,300,000 (at July 28, 2014), and 4,044,782 shares of the Company’s common stock (the “Payment Shares”). One-third (1/3) of the Payment Shares shall be subject to a lock-up period of six (6) months. The remaining two-thirds (2/3) of the Payment Shares shall be held in escrow and one-third of the Payment Shares will be released from escrow contingent upon Provital, for the year ending December 31, 2014, achieving (i) gross revenues of not less than DKK65,000,000, that is, approximately $10,618,486 (at December 31, 2014) and EBITDA of DKK6,500,000 that is, approximately $1,061849 (at December 31, 2014) or (ii) EBITDA of not less than DKK10,000,000 (at December 31, 2014), that is, approximately $1,633,613 and gross revenues of not less than DKK50,000,000 , that is, approximately $8,168,066 (at December 31, 2014). Another one-third (1/3) of the Payment Shares will be released from escrow contingent upon Provital, for the year ending December 31, 2015, achieving (i) gross revenues of not less than DKK120,000,000, that is, approximately $19,603,358 (at December 31, 2014) and EBITDA of DKK12,000,000, that is, approximately $1,960,335 (at December 31, 2014) or (ii) EBITDA of not less than DKK16,000,000, that is, approximately $2,613,781 (at December 31, 2014) and gross revenues of not less than DKK80,000,000, that is, approximately $13,068,906 (at December 31, 2014).

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Additional 2014 Developments

On March 3, 2014, we announced that the Company received a purchase order of approximately USD 300,000 for a prototype system based upon the LiqTech SiC membranes. The algae system will be based on a new development in the membrane technology from LiqTech. The prototype system will be used to concentrate an algae stream as a part of the harvesting process. Preliminary tests have shown that the LiqTech SiC membranes offer a higher throughput, high algae concentration and require less energy compared to other membrane products.

On March 18, 2014, we announced that it has received a new order for Diesel Particulate Filters (“DPF”) for $450,000 from Emigreen B.V. Netherland, a firm that is expert in the emission control of industrial combustion engines.

Environmental regulations are expected to get tougher with more rigorous enforcement in the future and the luxury boat market segment has recognized that it needs to operate in an environmentally friendly way if they wish to call on any port in the world. Generators on luxury-class super-yachts or mega-yachts are driven by efficient diesel engines but they still create an appreciable amount of soot and NOx gasses that are both a pollutant in harbors as well as dangerous to people’s health.

By integrating LiqTech’s DPF products with the generator/engine set, 99.98% of soot particulates can be removed.

On May 14, 2014, we announced the appointment of Michael Barish, a highly regarded investment professional, to our Board of Directors effective May 19, 2014.

Mr. Barish has over 40 years experience in many aspects of the investment industry, including having worked as a security analyst, portfolio manager and investment advisor. Mike brings a wealth of investment, corporate governance and operations expertise to the Board of LiqTech.

Mr. Barish founded Cambiar Investors, an investment advisory firm, and served as President and Chief Investment Officer until 2001. Mike then co-founded Lazarus Investment Partners, a private investment partnership, serving as a portfolio manager until 2009. Mr. Barish currently pursues personal investments in both public and private companies.

Mr. Barish currently serves as a director of AeroGrow International Inc. and Zero E Technologies, LLC. Previously, he served as a director of Guaranty National Insurance Company, a publicly held property and casualty insurance company.

On May 22, 2014, we announced the development of a small and compact Flat Sheet Membrane filtration unit for pre-Reverse Osmosis and drinking water purposes, in cooperation with Time Solution.

The unit combines LiqTech’s advanced Silicon Carbide Ultra Filtration technology with a robust and simple design enabling it to run without the use of power and requiring minimal operations skills. The first prototypes were finalized in December 2013 and have been operating successfully cleaning rain and tap water prior to Reverse Osmosis ever since.

On June 16, 2014, we announced that the Company received a $275,000 order from a Middle East customer to be delivered this year. The end-user placed the order to confirm the benefits of the LiqTech SiC membrane technology for various upstream Produced Water applications.

On July 9, 2014, we announced that the Company received a $200,000 SiC membrane order from a European customer to be delivered in 2014. The membranes will be installed at a German power plant to remove heavy metals from a flue gas cleaning process. LiqTech and the end-user have developed a solution around the SiC membranes that reduces the environmental impact from coal and biomass fired power plants.

On July 29, 2014, we announced that effective that date, Mr. Finn Helmer stepped down as Chief Executive Officer of LiqTech. The Board announced that Mr. Sune Mathiesen, then Chief Executive Officer of Provital Solutions A/S (“Provital”), was appointed Chief Executive Officer and a Director of LiqTech. Mr. Mathiesen assumed these positions on July 30, 2014.

Mr. Mathiesen came to the Company through LiqTech’s recent acquisition of Provital; his long experience in executive management, technical sales and turnarounds will greatly benefit LiqTech. The Board seeks to shift the emphasis of the Company towards strategically marketing its products and filtration solutions in order to accelerate revenue growth of the combined LiqTech/Provital business.

Mr. Mathiesen acquired the Provital business several years ago, taking it from the product development stage to a profitable and fast growing business. Sune’s leadership helped Provital develop and successfully market a unique range of small footprint, cost-effective filtration solutions to the swimming pool and large water park markets. Prior to Provital, Mr. Mathiesen worked as a country manager for Broen A/S, a Danish industrial flow control business.

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On July 31, 2014, we announced that the Company received a $350,000 Silicon Carbide (SiC) membrane system order from a Danish customer to be delivered in 2014. The system will be installed at a Danish fish farm to filter sea water for its recirculated aquaculture system.

The Danish fish farm will apply LiqTech’s SiC based membrane system to create a bio-secure facility and to prevent disease to spread from the sea water to the closed aquaculture system. LiqTech’s system together with Provital’s UV system will provide water quality ideal for the aquaculture plant.

On October 14, 2014, we announced that the Company received a $200,000 SiC membrane system order from a Danish customer to be delivered in 2014. The membrane system will be installed at a Danish power plant to remove heavy metals from a heat recovery process. This sale represents LiqTech’s first commercial system sold to the energy industry as a joint supply effort by LiqTech and Provital, our recently acquired subsidiary.

On November 6, 2014, we announced that our recently acquired subsidiary, Provital Solutions A/S, has developed a new LED-based Deep UV water disinfection system. We believe our system is the first large scale LED-based UV water disinfection system in the market. The UV system features long lifetime, instant on-off, application targeted wavelengths and low power consumption. The UV system will be available from Q1 2015 in sizes from 2” to 6”. Larger diameters will be available from Q2 2015.

2015 Developments

On January 6th, 2015, we announced that the Company has received a USD $2.4 million purchase order for a system based on the Company’s SiC membranes which is expected to be delivered in the second quarter 2015. This order is part of an enhanced oil recovery (EOR) project and was received from LiqTech´s preferred partner, Nakasawa Mining and Energy Limited. This order represents LiqTech’s largest order in the Company’s history.

In addition, we announced that the Company received a USD $350,000 SiC membrane system order from Yara Marine Technologies to be delivered in 2015. The product solution is based on LiqTech know-how acquired in the on-shore power industry for the treatment of wet scrubber wastewater containing heavy metals. New marine regulations related to reducing sulphur oxide emissions became effective January 2015. In order to comply with these new regulations, ship owners have to either burn a more expensive low sulphur fuel oil or to clean the exhaust from heavy fuel oil combustion engines. Yara Marine Technologies (previously Green Tech Marine) has many years of experience offering high performance exhaust treatment technologies for the marine industry.

On February 3, 2015, we announced that the Company received a $130,000 SiC membrane order from a European customer to be delivered in the 2^nd quarter of 2015.

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This is a follow-on order from a customer that first installed a system in the fall of 2014. The installation is for a German power plant for the removal of heavy metals from a flue gas cleaning process. This new order will be installed at another German power plant.

On March 2, 2015, we announced that we have received the first pilot order for a newly developed in-well situated ground water treatment system from the leading pump producer, Grundfos. The pilot unit will be installed at Taarnby Forsyning in Denmark. 

Results of Operations

Results of Operations for the Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2014 and 2013.

													Period to period change
	2014			As a % of Sales			2013			As a % of Sales			$			Percent %
Net Sales		14,561,192			100.0			12,826,168			100.0			1,735,024			13.5
Cost of Goods Sold		12,463,949			85.6			11,514,463			89.8			949,486			8.2
Gross Profit		2,097,243			14.4			1,311,705			10.2			785,538			59.9
Operating Expenses
Selling and Marketing		3,360,566			23.1			2,650,000			20.7			710,566			26.8
General and Administrative		3,019,094			20.7			3,064,610			23.9			(45,516	)		(1.5	)
Non-cash compensation		573,029			3.9			1,316,826			10.3			(743,797	)		(56.5	)
Research and Development		336,066			2.3			499,972			3.9			(163,906	)		(32.8	)
Total Operating Expenses		7,288,755			50.1			7,531,408			58.7			(242,653	)		(3.2	)
Income (loss) from Operating		(5,191,512	)		(35.7	)		(6,219,703	)		(48.5	)		1,028,191			(16.5	)
Interest (Expense)		(53,379	)		(0.4	)		(50,945	)		(0.4	)		(2,434	)		4.8
Loss on Investments		(815	)		(0.0	)		(199,811	)		(1.6	)		198,996			(99.6	)
Gain on Currency Transactions		450,147			3.1			7,638			0.1			442,509			5793.5
Other income		10,511			(0.0	)		4,671			0.0			5,840			125.0
Total Other Income (Expense)		406,464			2.8			(238,447	)		(1.9	)		644,911			(270.5	)
Income Before Income Taxes		(4,785,048	)		(32.9	)		(6,458,150	)		(50.4	)		1,672,102			(25.9	)
Income Taxes Expense (Income)		(1,702,551	)		(11.7	)		(1,611,561	)		(12.6	)		(90,990	)		5.6
Net Income		(3,082,497	)		(21.2	)		(4,846,589	)		(37.8	)		1,764,092			(36.4	)
Less net income attributable to the non-controlled interest in subsidiaries		(16,429	)		(0.1	)		(19,112	)		(0.1	)		2,683			(14.0	)
Net Income attributable to LiqTech		(3,066,068	)		(21.1	)		(4,827,477	)		(37.6	)		1,761,409			(36.5	)

Revenues

Net sales for the year ended December 31, 2014 were $14,561,192 compared to $12,826,168 for the same period in 2013, representing an increase of $1,735,024, or 13.5%. The increase in sales consist of a decrease in sales of DPFs of $311,933, an increase in sales of liquid filters of $2,450,680 and a decrease in sales of kiln furniture $403,723, respectively. The decrease in demand for our DPFs is mainly due to a lack of new low emissions zone activity in both Europe and United States. The increase in demand for our liquid filters and systems is due to an increase in worldwide sales of those products and the acquisition of Provital Solutions A/S. The decrease in demand for our kiln furniture is due to a decision of not focusing on this product line anymore.

Gross Profit

Gross profit for the year ended December 31, 2014 was $2,097,243 compared to $1,311,705 for same period in 2013, representing an increase of $785,538, or 59.9%. The increase in gross profit was due to an increase in sales for the year ended December 31, 2014 compared to the same period in 2013 combined with the acquisition of Provital Solutions A/S’ higher margin sales and a continuing focus on lowering our production costs. Included in the gross profit is depreciation of $1,630,531 and $1,689,523 for the years ended December 31, 2014 and 2013, respectively.

Expenses

 Total operating expenses for the year ended December 31, 2014 were $7,288,755, representing a decrease of $242,653, or 3.2%, compared to $7,531,408 for the same period in 2013. This decrease in operating expenses is attributable to an increase in selling and marketing expenses of $710,566 or 26.8%, a decrease in general and administrative expenses of $45,529 or 1.5%, a decrease in non-cash compensation expenses of $743,784 or 56.5% and an decrease in research and development expenses of $163,906 or 32.8% compared to the same period in 2013.

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 Selling expenses for the year ended December 31, 2014 were $3,360,566 compared to $2,650,000 for the same period in 2013, representing an increase of $710,566 or 26.8%. This increase is attributable to an increase in costs in general, the increase in investment in our sales resources, investments in new market opportunities and the acquisition of Provital Solutions A/S. While we believe that increased investment in sales may produce attractive returns for the Company, profitability from such investments will likely take several fiscal quarters to be realized.

General and administrative expenses for the year ended December 31, 2014 were $3,019,094 compared to $3,064,610 for the same period in 2013, representing a decrease of $45,516, or 1.5%. This decrease is mainly attributable to the fact that during the year ended December 31, 2013, the Company had a one-time expense of approx. $675,000 related to being a U.S. public company. This decrease is partly offset against an increase in expenses related to the acquisition of Provital Solutions A/S.

Non-cash compensation expenses for the year ended December 31, 2014 were $573,029 compared to $1,316,826 for the same period in 2013, representing a decrease of $743,797 or 56.5%. This decrease is attributable to decreased non-cash compensation expense for options, shares and warrants for services performed granted to directors, employees and management.

The following is a summary of our non-cash compensation:

	2014		2013
Compensation upon vesting of stock options granted to employees and the board of directors	$	34,295	$	391,960
Compensation for vesting of restricted stock awards issued to the board of directors		479,334		426,666
Value of stock granted for services		-		320,000
Value of warrants issued for services		59,400		178,200
Total	$	573,029	$	1,316,826

Research and development expenses for the year ended December 31, 2014 were $336,066 compared to $499,972 for the same period in 2013, representing a decrease of $163,906, or 32.8%. This decrease is attributable to decreased research and development expenditures for the year ending December 31, 2014 compared to the same period in 2013.

Net Income

Net income attributable to the Company for the year ended December 31, 2014 was a loss of $3,066,068 compared to a loss of $4,827,477 for the comparable period in 2013, representing an improvement of $1,761,409. This increase was primarily attributable to an increase of $785,538 in our gross profit, a decrease in operating expenses of $242,653, an increase in total other income of $644,911 and an increase in income tax benefit of $90,990. The largest contributor to the decrease in operating expenses was a decrease in non-cash compensation of $743,797 or 56.5% primarily due to increasing use of non-cash compensation for service provided and issuing stock options.

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Results of Operations for the Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2013 and 2012.

													Period to period change
	2013			As a % of Sales			2012			As a % of Sales			$			Percent %
Net Sales		12,826,168			100.0			16,921,838			100.0			(4,095,670	)		(24.2	)
Cost of Goods Sold		11,514,463			89.8			14,217,713			84.0			(2,703,250	)		(19.0	)
Gross Profit		1,311,705			10.2			2,704,125			16.0			(1,392,420	)		(51.5	)
Operating Expenses
Selling and Marketing		2,650,000			20.7			2,434,541			14.4			215,459			8.9
General and Administrative		3,064,610			23.9			3,301,164			19.5			(236,554	)		(7.2	)
Non-Cash Compensation		1,316,826			10.3			120,494			0.7			1,196,332			992.9
Research and Development		499,972			3.9			742,009			4.4			(242,037	)		(32.6	)
Total Operating Expenses		7,531,408			58.7			6,598,208			39.0			933,200			14.1
Income (Loss) from Operating		(6,219,703	)		(48.5	)		(3,894,083	)		(23.0	)		(2,325,620	)		59.7
Interest (Expense)		(50,945	)		(0.4	)		(148,611	)		(0.9	)		97,666			(65.7	)
(Loss) on Investments		(199,811	)		(1.6	)		(102,612	)		(0.6	)		(97,199	)		94.7
Gain (Loss) on Currency Transactions		7,638			0.1			48,145			0.3			(40,507	)		(84.1	)
Other income		4,671			(0.0	)		157,743			0.0			(153,072	)		(97.0	)
Total Other Income (Expense)		(238,447	)		(1.9	)		(45,335	)		(0.3	)		(193,112	)		426.0
Income Before Income Taxes		(6,458,150	)		(50.4	)		(3,939,418	)		(23.3	)		(2,518,732	)		63.9
Income Taxes Expense (Benefit)		(1,611,561	)		(12.6	)		(1,165,528	)		(6.9	)		(446,033	)		38.3
Net Income		(4,846,589	)		(37.8	)		(2,773,890	)		(16.4	)		(2,072,699	)		74.7
Less net income attributable to the non-controlled interest in subsidiaries		(19,112	)		(0.1	)		-			0.0			(19,112	)		-
Net Income attributable to LiqTech		(4,827,477	)		(37.6	)		(2,773,890	)		(16.4	)		(2,053,587	)		74.0

Revenues

Net sales for the year ended December 31, 2013 were $12,826,168 compared to $16,921,838 for the same period in 2012, representing a decrease of $4,095,670, or 24.2%. The decrease in sales consist of a decrease in sales of DPFs of $5,249,186 and an increase in sales of liquid filters and kiln furniture of $889,785 and $263,731, respectively. The decrease in demand for our DPFs is mainly due to a postponement in use of mandates in the U.S. market and the lack of new low emissions zone activity in Europe. The increase in demand for our liquid filters and kiln furniture is due to an increase in worldwide sales of those products.

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Gross Profit

Gross profit for the year ended December 31, 2013 was $1,311,705 compared to $2,704,125 for same period in 2012, representing a decrease of $1,392,420, or 51.5%. The decrease in gross profit was due to a decrease in sales for the year ended December 31, 2013 compared to the same period in 2012 and an increase in the level of fixed production costs compared to the lower 2013 sales. Included in the gross profit is depreciation of $1,689,523 and $1,515,863 for the years ended December 31, 2013 and 2012, respectively.

Expenses

 Total operating expenses for the year ended December 31, 2013 were $7,531,408, representing an increase of $933,200, or 14.1%, compared to $6,598,208 for the same period in 2012. This increase in operating expenses is attributable to an increase in selling and marketing expenses of $215,459 or 8.9%, a decrease in general and administrative expenses of $236,554 or 7.2%, an increase in non-cash compensation expenses of $1,196,332 or 992.9% and an decrease in research and development expenses of $242,037 or 32.6% compared to the same period in 2012.

 Selling expenses for the year ended December 31, 2013 were $2,650,000 compared to $2,434,541 for the same period in 2012, representing an increase of $215,459 or 8.9%. This increase is attributable to an increase in costs in general, the increase in investment in our sales resources and investment in new market opportunities. While we believe that increased investment in sales may produce attractive returns for the Company, profitability from such investments will likely take several fiscal quarters to be realized.

General and administrative expenses for the year ended December 31, 2013 were $3,064,610 compared to $3,301,164 for the same period in 2012, representing a decrease of $236,554, or 7.2%. This decrease is mainly attributable to the fact that during the year ended December 31, 2013, the Company only added an additional $72,548 to its bad debt reserve compared to $1,078,365 for the same period in 2012, a decrease of $1,005,817. This decrease was partly offset against an increase in expenses related to being a U.S. public company. Approx. $675,000 of those expenses were one-time expense.

Non-cash compensation expenses for the year ended December 31, 2013 were $1,316,826 compared to $120,494 for the same period in 2012, representing an increase of $1,196,332 or 992.9%. This increase is attributable to increased non-cash compensation expense for options, share and warrants for services performed granted to directors, employees and management.

The following is a summary of our non-cash compensation:

	2013		2012
Compensation upon vesting of stock options granted to employees and the board of directors	$	391,960	$	120,494
Compensation for vesting of restricted stock awards issued to the board of directors		426,666		-
Value of stock granted for services		320,000		-
Value of warrants issued for services		178,200		-
Total	$	1,316,826	$	120,494

Research and development expenses for the year ended December 31, 2013 were $499,972 compared to $742,009 for the same period in 2012, representing a decrease of $242,037, or 32.6%. This decrease is attributable to decreased research and development expenditures for the year ending December 31, 2013 compared to the same period in 2012.

Net Income

Net income attributable to the Company for the year ended December 31, 2013 was a loss of $4,827,477 compared to a loss of $2,773,890 for the comparable period in 2012, representing a decrease of $2,053,587. This decrease was primarily attributable to a decrease of $1,392,420 in our gross profit, a decrease in total other income of $193,112 and an increase in operating expenses of $933,200. This was partly offset by an increase of $446,033 in income tax benefit. The largest contributor to the increase in operating expenses was an increase in non-cash compensation of $1,196,332 or 992.9% primarily due to increasing use of non-cash compensation for service provided and issuing stock options.

Liquidity and Capital Resources

We have historically satisfied our capital and liquidity requirements through offerings of equity instruments, internally generated cash from operations and our available lines of credit. At December 31, 2014, we had cash and restricted cash of $6,072,631 and working capital of $10,570,409 and at December 31, 2013, we had cash of $4,884,275 and working capital of $7,692,669. At December 31, 2014, our working capital increased by $2,877,740. Total current assets were $14,662,319 and $12,239,110 at December 31, 2014 and 2013, respectively, and total current liabilities were $4,091,910 and $4,546,441 at December 31, 2014 and 2013, respectively.    

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On July 28, 2014, we closed its registered firm commitment underwritten public offering of 8,000,000 shares at a price to public of $1.50 per share, which included all 1,043,478 shares subject to the underwriter’s over-allotment option. LiqTech estimates net proceeds from the offering to be approximately $10.8 million, after deducting underwriting discounts and estimated offering expenses. The Company intends to use the net proceeds of the offering to fund a portion of the purchase price for its previously announced acquisition of the operations of Provital Solutions A/S. LiqTech intends to use the net proceeds from this offering to pay transaction expenses, and for other general corporate purposes.

Provital Solutions AS has a DKK 2,000,000 (approximately $327,000 at December 31, 2014) standby line of credit with a bank, subject to certain borrowing base limitations. Outstanding borrowings are due on demand. Interest is calculated based on a variable interest rate and is payable quarterly. As of December 31, 2014, the interest on this line of credit was at 3.50%. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is also secured by certain of Provital Solutions AS’ assets like receivables, inventory, equipment etc. There was $0 outstanding as of December 31, 2014. At December 31, 2014, there was approximately $327,000 available under this credit line. In general, lines of credit in Denmark are due on demand. We do not believe that any of our lines of credit will be called, but if they were called, we believe that we could refinance with other lenders in Denmark with similar terms.

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a credit line of DKK 5,000,000 (approximately $817,000 at December 31, 2014) with a bank, subject to certain base limitations. As of December 31, 2014, we had DKK1,379,574 (approximately $225,000) in working guarantee against the line.

We believe that our cash flow and other potential sources of funds will be sufficient to fund our anticipated working capital needs and capital spending requirements for the foreseeable future. However, if we were to incur any unanticipated expenditures or the negative trend of our operating cash flow does continue, such circumstances could put a substantial burden on our cash resources.

We may also need additional funds for possible future strategic acquisitions of businesses, products or technologies complementary to our business. If additional funds are required, we may raise such funds from time to time through public or private sales of equity or debt securities. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition and results of operations. Additional equity financing may be dilutive to holders of our common stock, and debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate our business.

Cash Flows

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Cash provided (used) by operating activities is net income (losses) adjusted for certain non-cash items and changes in assets and liabilities. Cash used by operating activities for the year ended December 31, 2014 was $5,733,674, representing an increase of $3,592,320 compared to cash used by operating activities of $2,141,354 for the year ended December 31, 2013. The $3,592,230 increase in cash used by operating activities for the year ended December 31, 2014 was mainly due to  decreases in accounts payable of $2,682,139 and accrued expenses of $2,152,657 partially offset by a decreases of $877,457 in accounts receivable and $712,273 in inventory and the improvement in the net loss, after taking into account the assets and liabilities acquired in the acquisition of Provital Solutions AS.

The decrease in inventory, the decrease in accounts payable, and the decrease in accrued expenses were all due to normal variations in the ordinary course of business.

Cash used in investing activities was $2,331,170 for the year ended December 31, 2014, as compared to cash used in investing activities of $648,495 for the year ended December 31, 2013. Cash used in investing activities increased for the year ended December 31, 2014, compared to the year ended December 31, 2013. This increase was primarily due to the $1,874,684 net cash used to purchase Provital Solutions AS offset by a period over period decrease of $172,473 in the purchase of property and equipment.

Cash provided by financing activities was $10,451,991 for the year ended December 31, 2014, as compared to cash provided by financing activities of $3,675,180 for the year ended December 31, 2013. This change of $6,776,811 in cash provided by financing activities in 2014, compared to 2013, was primarily due to the public offering of 8,000,000 shares at a price to public of $1.50 per share.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Cash provided (used) by operating activities is net income (losses) adjusted for certain non-cash items and changes in assets and liabilities. Cash used by operating activities for the year ended December 31, 2013 was $2,141,354, representing an increase of $1,663,277 compared to cash used by operating activities of $478,077 for the year ended December 31, 2012. The $1,663,277 increase in cash used by operating activities for the year ended December 31, 2013 was mainly due to the net loss of $4,846,589, the increases of $434,838 in inventory and a decrease of $702,269 in accounts payable, partially offset by a decrease of $698,827 in accounts receivable and an increase in accrued expenses of $1,626,532.

The increase in inventory, the decrease in accounts receivable, the increase in accrued expenses and the decrease in accounts payable were all due to normal variations in the ordinary course of business. 

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Cash used in investing activities was $648,495 for the year ended December 31, 2013, as compared to cash used in investing activities of $1,743,151 for the year ended December 31, 2012. Cash used in investing activities decreased for the year ended December 31, 2013, compared to the year ended December 31, 2012 and this decrease was primarily due to a decrease of $861,770 in the purchase of equipment and a decrease of $231,180 in purchase of long-term investments.

Cash provided by financing activities was $3,675,180 for the year ended December 31, 2013, as compared to cash provided by financing activities of $5,001,650 for the year ended December 31, 2012. This change of $1,326,470 in cash provided by financing activities in 2012, compared to 2013, was primarily due to cash received in connection with the stock offering during the first quarter 2012, when the Company issued 2,511,500 new shares of common stock at $3.25 per share, partly offset against a special offer to warrant and option holders at October 9, 2013 where the Company raised $4,051,500, net of offering cost of $206,030. 

Off Balance Sheet Arrangements

As of December 31, 2014, we had no off-balance sheet arrangements other than normal operating leases. We are not aware of any material transactions which are not disclosed in our consolidated financial statements.

Operating Leases -- The Company leases office and production facilities under operating lease agreements expiring in August 2018, March 2017, February 2017, June 2017, December 2016 and June 2016. In some of these lease agreements, the Company has the right to extend.

The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2014 are as follows:

Year ending December 31,	Lease Payments
2015	$	727,621
2016		701,853
2017		467,408
2018		278,262
2019		-
Thereafter		-
Total Minimum Lease Payments	$	2,175,144

Significant Accounting Policies and Critical Accounting Estimates

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:

● the assessment of collectability of accounts receivable, which impacts operating expenses when and if we record bad debt or adjust the allowance for doubtful accounts;

● the assessment of recoverability of long-lived assets, which impacts gross margin or operating expenses when and if we record asset impairments or accelerate their depreciation;

● the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes;

● the valuation of inventory, which impacts gross margin; and

● the recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.

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

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

We assess the collectability of accounts receivable and long term receivable on an ongoing basis and establish an allowance for doubtful accounts when collection is no longer reasonably assured. In establishing the allowance, factors we consider include known troubled accounts, historical experience, age, and other currently available evidence.

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The roll forward of the allowance for doubtful accounts for the year ended December 31, 2014 and December 31, 2013 was as follows:

	2014			2013
Allowance for doubtful accounts at the beginning of the period	$	608,356		$	1,243,500
Bad debt expense		216,919			72,548
Amount of receivables written off		(42,117	)		(770,738	)
Acquired subsidiary		951,354			-
Effect of currency translation		(80,222	)		63,046
Allowance for doubtful accounts at the end of the period	$	1,654,290		$	608,356

Goodwill and Definite-life intangible assets

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

Goodwill

Goodwill is evaluated for impairment annually in the fourth quarter of the Company’s fiscal year, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. The company recorded no impairment charge on goodwill, during the year ended December 31, 2014 as the estimated fair value of the reporting unit exceed the carrying value.

Long-Lived Assets

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

Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows. Due to our asset usage model and the interchangeable nature of our ceramic filter manufacturing capacity, we must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make manufacturing process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific filter manufacturing tools and building improvements. If we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful lives. During the years ended December 31, 2013 and 2012, no impairment charge of long-lived assets has been recorded.

Revenue Recognition and Sales Incentives

The Company's accounts for revenue recognition in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), FASB ASC 605 Revenue Recognition. The Company recognizes revenue when rights and risk of ownership have passed to the customer, when there is persuasive evidence of an arrangement, product has been shipped or delivered to the customer, the price and terms are finalized, and collections of resulting receivable is reasonably assured. Products are primarily shipped FOB shipping point at which time title passes to the customer. In some instances the Company uses common carriers for the delivery of products. In these arrangements, sales are recognized upon delivery to the customer. The Company's revenue arrangements with its customers often include early payment discounts and such sales incentives are recorded against sales.

The Company has received various grants from government entities for development and use of silicon carbide membranes in various water filtration and treatment applications. Revenues from grants are recognized on the percentage-of-completion method, measured by the percentage of project costs incurred to date to estimated total project costs for each grant multiplied by the grant income on a project by project basis. This method is used because management considers costs incurred to be the best available measure of progress on contracts in process.

28

Project costs of the grants include all direct material and labor costs and those indirect costs related to the project. Project costs are capitalized and accreted into cost of sales based on the percentage of the project completed. Should a loss be estimated on an incomplete project it would be recorded in the period in which such a loss is determined. Changes in estimated profitability of a project are recognized in the period in which the revisions are determined. The aggregate of costs incurred and income recognized on incomplete projects are recorded as costs in excess of billings and are shown as a current asset. The aggregate of billings in excess of related costs incurred and income recognized on projects is shown as a current liability.

In Denmark, Value Added Tax (“VAT”) of 25% of the invoice amount is collected in respect of the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the authorities.

Income Taxes

We must make estimates and judgments in determining the provision for taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes in these estimates may result in an increase or decrease to our tax provision in a subsequent period.

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

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

Inventory

The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory. As of December 31, 2014, we had total furnace parts and supplies of $507,849, raw material of $1,501,050, work-in-process inventory of $1,326,840, total finished goods inventory of $2,028,225 and reserve for obsolescence of $449,098. The estimated future demand is included in the development of our short-term manufacturing plans to enable consistency between inventory valuation and build decisions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of the customer base, acceptance of the product by the customer and the various environmental authorities, competitor’s products, as well as an assessment of the selling price in relation to the product cost. If our demand forecast for specific products is greater than actual demand, and we fail to reduce manufacturing output accordingly, we could be required to write off inventory, which would negatively impact our gross margin.

In order to determine what costs can be included in the valuation of inventory, we must determine normal capacity at our manufacturing and assembly and test facilities, based on historical production, compared to total available capacity. If the factory production is below the established normal capacity level, a portion of our manufacturing overhead costs would not be included in the cost of inventory, and therefore would be recognized as cost of sales in that period, which would negatively impact our gross margin. We refer to these costs as excess capacity charges. Over the past two years we have experienced no excess capacity charges. We have had to outsource the firing of products to meet demand.

Loss Contingencies

We are subject to various legal and administrative proceedings and 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. With respect to estimating the losses associated with repairing and replacing parts in connection with product warranty, we make judgments with respect to customer claim rates. Current warranty estimates are immaterial for accrual or further disclosure. At least quarterly, we review the status of each significant matter, and we may revise our estimates. These revisions could have a material impact on our results of operations and financial position.

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

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

Item 8.       Financial Statements and Supplementary Data.

30

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm	F1
Consolidated Balance Sheets at December 31, 2014 and 2013	F2
Consolidated Statements of Operations for the years ended December 31, 2014 and 2013	F4
Consolidated Statement of Other Comprehensive Income for the years ended December 31, 2014 and 2013	F5
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2014 and 2013	F6
Consolidated Statement of Cash Flows for the years ended December 31, 2014 and 2013	F7
Notes to the Consolidated Financial Statements	F9

31

4397 SOUTH ALBRIGHT DRIVE, SALT LAKE CITY, UTAH 84124

(801) 277-2763 PHONE • (801) 277-6509 FAX

Board of Directors

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

Industriparken 22C, DK

2750 Ballerup, Denmark

We have audited the accompanying consolidated balance sheets of LiqTech International, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, other comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2014 and 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, and audit of its internal controls over financial reporting for the year ended December 31, 2014 and 2013. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting for the year ended December 31, 2014 and 2013. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 In our opinion, based on our audit, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of LiqTech International, Inc. and subsidiaries as of December 31, 2014 and 2013 and the results of their operations and their cash flows for the years ended December 31, 2014, and 2013, in conformity with generally accepted accounting principles in the United States.

/s/ Gregory & Associates, LLC

Salt Lake City, Utah 

March 25, 2015

F-1

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of		As of
	December 31,		December 31,
	2014		2013
Current Assets:
Cash	$	5,853,752	$	4,884,275
Restricted cash balances		218,879		-
Accounts receivable, net		1,992,206		2,341,070
Other receivables		344,331		231,998
Cost in excess of billing		1,172,658		406,997
Inventories		4,914,866		4,258,606
Prepaid expenses		55,990		12,021
Current deferred tax asset		109,637		104,143
Total Current Assets		14,662,319		12,239,110
Property and Equipment, net accumulated depreciation		4,524,386		5,829,404
Other Assets:
Investments at costs		6,085		6,882
Long term deferred tax asset		3,496,459		1,863,349
Goodwill		8,460,512		-
Other intangible assets		16,708		24,687
Deposits		259,070		271,916
Total Other Assets		12,238,834		2,166,834
Total Assets	$	31,425,539	$	20,235,348

(Continued)

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

F-2

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of			As of
	December 31,			December 31,
	2014			2013
Current Liabilities:
Current portion of capital lease obligations	$	170,187		$	208,419
Accounts payable		2,336,942			1,586,962
Accrued expenses		1,439,735			1,440,522
Billing in excess of cost		-			96,104
Accrued income taxes payable		570			2,000
Deferred revenue / customers deposits		144,476			1,212,434
Total Current Liabilities		4,091,910			4,546,441
Long-term capital lease obligations, less current portion		368,614			554,360
Total Long-Term Liabilities		368,614			554,360
Total Liabilities		4,460,524			5,100,801
Commitment and Contingencies See Note 10		-			-
Stockholders' Equity:
Common stock; par value $0,001, 100,000,000 shares authorized, 39,404,782 and 27,212,500 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively		39,405			27,213
Additional paid-in capital		35,632,410			18,700,574
Accumulated deficit		(5,382,852	)		(2,316,784	)
Deferred compensation		(504,748	)		(1,008,450	)
Other comprehensive income, net		(2,835,917	)		(292,565	)
Non-controlled interest in subsidiaries		16,717			24,559
Total Stockholders' Equity		26,965,015			15,134,547
Total Liabilities and Stockholders' Equity	$	31,425,539		$	20,235,348

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

F-3

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2014			2013
Net Sales	$	14,561,192		$	12,826,168
Cost of Goods Sold		12,463,949			11,514,463
Gross Profit		2,097,243			1,311,705
Operating Expenses:
Selling expenses		3,360,566			2,650,000
General and administrative expenses		3,019,094			3,064,610
Non-cash compensation expenses		573,029			1,316,826
Research and development expenses		336,066			499,972
Total Operating Expense		7,288,755			7,531,408
Loss from Operations		(5,191,512	)		(6,219,703	)
Other Income (Expense)
Interest expense		(53,379	)		(50,945	)
Loss on investments		(815	)		(199,811	)
Gain on currency transactions		450,147			7,638
Other Income (Expense)		10,511			4,671
Total Other Income (Expense)		406,464			(238,447	)
Loss Before Income Taxes		(4,785,048	)		(6,458,150	)
Income Tax Benefit		(1,702,551	)		(1,611,561	)
Net Loss		(3,082,497	)		(4,846,589	)
Less Net Loss Attributable To Non-Controlled Interests in Subsidiaries		(16,429	)		(19,112	)
Net Loss Attributable To LiqTech	$	(3,066,068	)	$	(4,827,477	)
Basic Loss Per Share	$	(0.09	)	$	(0.19	)
Weighted Average Common Shares Outstanding		32,398,941			24,989,262
Diluted Loss Per Share	$	(0.09	)	$	(0.19	)
Weighted Average Common Shares Outstanding Assuming Dilution		32,398,941			24,989,262

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

F-4

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

	For the Years Ended
	December 31,
	2014			2013
Net Loss		(3,082,497	)		(4,846,589	)
Currency Translation, Net of Taxes		(2,543,352	)		250,241
Other Comprehensive Loss	$	(5,625,849	)	$	(4,596,348	)
Comprehensive Income (Loss) Attributable To Non-controlling Interest in Subsidiaries		(2,628	)		1,294
Comprehensive Loss Attributable To LiqTech International Inc.	$	(5,623,221	)	$	(4,597,642	)

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

F-5

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2014 and 2013

					Additional					Other Compre-			Deferred			Non- controlled
	Common Stock				Paid-in		Retained			hensive			Compen-			Interest in
	Shares		Amount		Capital		Earnings			Income			sation			Subsidiaries
BALANCE, December 31, 2012		24,111,500	$	24,112	$	12,658,405	$	2,510,693		$	(542,806	)	$	(125,477	)	$	28,434
Common shares issued at $3.20 each for services provided and to be provided by the board of directors		300,000		300		959,700								(960,000	)
Common shares issued at $3.20 per share for services rendered		100,000		100		319,900								(320,000	)
Exercised of warrants and stock options at $1.50 with issuance of replacement warrant and options October 2013, net of offering cost of $206,030		2,701,000		2,701		3,842,769
Deferred compensation on shares issued to the board of directors, employees and services						919,800								(919,800	)
Stock based compensation expenses recognized for the year ended December 31, 2013														1,316,827
Currency translation, net											250,241						(3,875	)
Net Loss for the year ended December 31, 2013								(4,827,477	)
BALANCE, December 31, 2013		27,212,500	$	27,213	$	18,700,574	$	(2,316,784	)	$	(292,565	)	$	(1,008,450	)	$	24,559
Common shares issued for cash at $1.50 per share, net of offering cost of $1,263,721, July 2014		8,000,000		8,000		10,728,279
						,