liqt20151231

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

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):

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, 2015, 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 $0.82 per share on June 30, 2015 was $18,230,786. As of March 23, 2016, there were 39,532,035 shares of common stock, $0.001 par value per share, outstanding.

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”), together with its direct wholly-owned subsidiary LiqTech Systems A/S (formerly known as Provital Solutions A/S), a Danish limited company, organized under the Danish Act on Limited Companies of the Kingdom of Denmark (“LiqTech Systems”) and LiqTech NA, Inc., a Delaware corporation (“LiqTech Delaware”). Collectively, LiqTech USA, LiqTech Int. DK, LiqTech Systems and LiqTech Delaware are referred to herein as our “Subsidiaries”.

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.

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”, removal of heavy metals in mining and energy applications, pre-filtration for reverse osmosis in drinking water and industrial applications. Our SiC Filters have been used in the following applications by our clients:

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 membranes compared to other pre-filtration systems for reverse osmosis are:

Our 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.

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 silicon carbide, 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 in July 2014 (now LiqTech Systems) is consistent with our long-term growth strategy and strengthens our position in the integrated filtration technologies market. LiqTech Systems 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 LiqTech Systems’ 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 LiqTech Systems’ 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 LiqTech Systems has allowed LiqTech Systems to become a fully integrated, one-stop shop for plug and play filtration systems. We believed the combined company would 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 LiqTech Systems, we have gained validation in the industry by directly expanding our customer base to include existing reputable customers from LiqTech Systems. We plan to continue the research and development, and marketing efforts of LiqTech Systems’ 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, 2015 and 2014, we received grants from governmental entities of $797,008 and $387,744, respectively.

For the years ended December 31, 2015 and December 31, 2014, our sales of liquid filters and services were $10,347,010 and $7,532,528, respectively, and accounted for 65% and 58% of our total sales, respectively.

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:

For the years ended December 31, 2015 and 2014, our sales of diesel particulate filters were $5,081,304 and $6,620,625, respectively, and accounted for 32% and 45% of our total sales, respectively.

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, 2015 and December 31, 2014, our kiln furniture revenues were $384,273 and $408,039, respectively, and accounted for 2% and 3% of our total sales, respectively.

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

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:

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.

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. 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 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.

The Asian market has shown economic growth and an improved standard of living which has led to increased sales of vehicles in the Asia-Oceania region. At the same time, the pollution in major cities has reached high PM levels. As a result, we believe that the Chinese government will introduce additional regulations, including new emissions standards faster than previously anticipated. We also believe the high pollution levels will result in an increase in the need for retrofitting existing vehicles.

We currently manufacture our products in facilities located in Ballerup, Denmark and White Bear Lake, Minnesota and assemble our systems in LiqTech Systems, located in Hobro in Jutland, Denmark. 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.

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.

Our products are sold primarily to large industrial customers that use our products for gas and liquid filtration. Since the start of the Company the automotive industry has been a focus for us and our single largest market. In 2014, we acquired LiqTech Systems, a Danish systems manufacturing company, which has strengthened our focus on the liquid filtration business. This business is now our largest products group focusing on applications within the pool, drinking water, water reclamation, oil and gas, heavy metal removal and aquaculture markets.

For the year ended December 31, 2015, our four largest customers accounted for approximately 24%, 15%, 11% and 6%, respectively, of our net sales (approximately 56% in total). 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). 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. As of March 18, 2016, we had 12 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.

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 18, 2016, we had one issued United States patent that we co-own with a third party, two issued Danish patents, 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. 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.

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 18, 2016, 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).

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.

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.

As of March 18, 2016, we had eight (8) full-time employees spending a majority of their working hours on research and development. For the years ended December 31, 2015 and 2014, we spent $707,844 and $336,065, 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 will disrupt the current technology space.

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.

As of March 18, 2016, we had 92 employees, 86 of whom were full-time employees. We had 80 employees at our operations in Denmark, including 8 in research and development, 12 in sales and engineering and 2 in executive management. We also had 12 employees in the United States, one of whom was in executive management; the others were employed in sales, accounting and production.

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.

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.

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 generated net proceeds of approximately $7.1 million and issued to the placement agent and certain of its agents 5 year warrants to purchase 125,575 shares of our common stock with an exercise price equal to $4.06. On October 9, 2013, we conducted a warrant and option exchange whereby we raised $4,051,000 and issued 2,626,000 replacement warrants to purchase 2,626,000 shares of common stock with an exercise price of $2.70 and 75,000 replacement options to purchase 75,000 shares of common stock with an exercise price of $2.70. On July 22, 2014, we conducted an underwritten public offering yielding net proceeds of $10.8 million, of which $2.3 million was used to acquire LiqTech Systems, and we issued to the underwriter a 5-year warrant to purchase 400,000 shares with an exercise price equal to $1.65 per share. As of December 31, 2015, we had net cash balance and restricted cash balances of $1,663,417 and none of the warrants or options issued have been exercised. We have used and intend to continue to use the proceeds from the foregoing offerings and any proceeds from 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 our current locations.

However, we can provide no assurance that the net proceeds from the offerings and any proceeds from 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 subsidiary LiqTech Systems 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 which could have a negative impact on our business.

LiqTech Systems has not operated under a fully 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 LiqTech Systems’ 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.

Our 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 (now LiqTech Systems) included approximately $9.4 million of goodwill. We will be required to evaluate this goodwill for impairment based on the fair value of LiqTech Systems at least once a year. This estimated fair value could change if LiqTech Systems is unable to achieve operating results at the levels that have been forecasted, the market valuation of LiqTech Systems decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by LiqTech Systems. 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.

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, including Sune Mathiesen, our Chief Executive Officer. 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.

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.

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, both of which are beyond our control and the lack of which could negatively affect our future growth.

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 which are beyond our control. 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, which regulations and standards are frequently contested in litigation. For example, the Alliance for California Business recently filed suit against the California Air Resources Board in an effort to cease the California Air Resources Board’s mandate that a DPF be retrofitted on certain older diesel trucks. If existing regulations and emissions 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 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, 2015, we had four customers who accounted for approximately fifty-six (56%) of our total revenues. During the year ended December 31, 2014, we had four customers who accounted for approximately twenty-two (22%) 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 four 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.

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.

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. 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 18, 2016, we had two issued Danish patents, one issued US patent, one German patent, one Chinese patent and one Korean patent. 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.

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.

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 Environmental Protection Agency 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 adequate supplies of raw materials or failure to obtain raw materials at affordable prices could negatively affect our ability to supply products to our customers and negatively affect our profit margins.

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 which would prevent us from supplying products to our customers and materially affect our business. Furthermore, 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, which would have an adverse effect on our financial results.

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 may 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:

Any significant fluctuations in our revenue or results of operations could negatively impact investor confidence and 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.

Our reporting currency is the United States dollar. Because of our activities in Denmark, the European Continent and other countries, 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, however we can make no assurance that such actions will be sufficient to offset a materially adverse effect on our operations in the future.

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 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. 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.

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.

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.

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, which 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.

Approximately 24.7% 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 18, 2016, 9,926,338 shares, or approximately 24.7% of our common stock, inclusive of shares issuable upon the exercise of immediately exercisable options and warrants, were beneficially owned by our officers and directors, including 4,054,782 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 298,000 shares, or 0.8%, of our common stock beneficially owned by Soren Degn, our Chief Financial Officer. As a result, certain officers and, directors, in particular Sune Mathiesen, and Aldo Petersen, 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 equity financings or convertible debt would dilute your ownership and could adversely affect your common stock ownership 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. 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.

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 such 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, which could make our stock unattractive to existing stockholders.

Provisions in our articles 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 articles of incorporation authorize 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 desire to do so.

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.

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:

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.

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:

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.

Our corporate headquarters are located at 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 LiqTech Systems operations are located at Benshøj Industrivej 24, 9500 Hobro, Denmark. We lease approximately 20,699 square feet at our Hobro location, of which approximately 3,550 square feet is used for office space and 17,149 square feet is used for production. The lease will expire on May 31, 2018. Until June 30, 2017, our LiqTech Systems operation has leased additional 6,060 square feet in Hobro, at Bornholmsvej 3C, Denmark, of which all is planned to be used for production and assembling.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Except as set forth below, as of December 31, 2015, 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.

On September 9, 2014, Mr. Raffaele Bruno Tronchetti Provera (“Plaintiff”), the 60% owner of LiqTech Italy s.r.l. (the “Venture”), sued LiqTech International A/S, the 40% owner of the Venture (“Defendant”), for an amount of euro 750,000 before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. As of March 18, 2016, the case is in the preliminary stages where the court has appointed an expert in order to verify the quality of the products in order to determine whether there is sufficient evidence to proceed. An evaluation of the outcome will only be possible after the results of the court appointment expert are known. The defendant believes that the claims are without merit and intends to vigorously defend any litigation.

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. The following table sets forth the high and low bid prices for the common stock for the periods indicated:

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 7, 2016, we had approximately 44 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:

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

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.

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 provided state-of-the-art technologies for gas and liquid purification using ceramic silicon carbide filters, particularly highly specialized filters for the control of soot exhaust particles from diesel engines and for liquid filtration. Using nanotechnology, LiqTech develops products using proprietary silicon carbide technology. LiqTech's products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies. In particular, LiqTech Systems A/S (www.provital.dk), the Company's subsidiary, has developed a new standard of water filtration technology to meet the ever increasing demand for higher water quality. By incorporating LiqTech's SiC liquid membrane technology with its longstanding systems design experience and capabilities it offers solutions to the most difficult water pollution problem.

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 with, LiqTech USA becoming a wholly owned subsidiary of Blue Moose (the “Merger”). 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.

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 LiqTech Systems. 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 $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 $9,662,698 (at December 31, 2015) and EBITDA of DKK6,500,000 that is, approximately $966,270 (at December 31, 2015) or (ii) EBITDA of not less than DKK10,000,000, that is, approximately $1,486,569 (at December 31, 2015) and gross revenues of not less than DKK50,000,000 , that is, approximately $7,432,844 (at December 31, 2015). 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 $17,838,826 (at December 31, 2015) and EBITDA of DKK12,000,000, that is, approximately $1,783,883 (at December 31, 2015) or (ii) EBITDA of not less than DKK16,000,000, that is, approximately $2,378,510 (at December 31, 2015) and gross revenues of not less than DKK80,000,000, that is, approximately $11,892,551 (at December 31, 2015).

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 $27,501,524 (at December 31, 2015) and EBITDA of DKK18,500,000, that is, approximately $2,750,152 (at December 31, 2015) or (ii) EBITDA of not less than DKK26,000,000, that is, approximately $3,865,079 (at December 31, 2015) and gross revenues of not less than DKK130,000,000, that is, approximately $19,325,395 (at December 31, 2015) or (2) for the year ending December 31, 2016, achieves gross revenues exceeding DKK105,000,000, that is, approximately $15,608,973 (at December 31, 2015) and EBITDA of not less than DKK21,000,000, that is, approximately $3,121,795 (at December 31, 2015).

On January 6th, 2015, we announced that the Company received a $2.4 million purchase order for a system based on the Company’s SiC membranes which was delivered in September 2015. This order is part of an enhanced oil recovery project and was received from LiqTech´s preferred partner, Nakasawa Mining and Energy Limited.

In addition, we announced that the Company received a $350,000 SiC membrane system order from Yara Marine Technologies, which was 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.

On February 3, 2015, we announced that the Company received a $130,000 SiC membrane order from a European customer.

This was a follow-on order from a customer that first installed a system in the fall of 2014. The membranes was for a German power plant for the removal of heavy metals from a flue gas cleaning process.

On March 2, 2015, we announced that we 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.

On March 10, 2015, we announced that we received a $660,000 purchase order for two systems based on the company’s SiC membranes for the removal of heavy metals for a marine application, which was delivered in September 2015.

On April 14, 2015, we announced the appointment of Dr. Rengarajan Ramesh, a noted expert and international consultant to governments and companies on water related activities, to our Board of Directors.

Dr. Ramesh has consulted for Wasserstein & Co. on water investments since early 2009 and formally joined Wasserstein & Co. in 2010 as a partner. He has over 30 years of global operating, acquisition strategy, business development, and technology experience. Dr. Ramesh currently serves on the board of RWL Water.

On June 8, 2015, we announced that we signed a three-year agent agreement with a Chinese company to promote and sell the Company’s DPFs in the Chinese market. At the same time, the Company received a purchase order for $814,000 from a large Chinese OEM and retrofit customer. This order was delivered in July 2015.

On June 15, 2015, we announced that we have signed a framework agreement with the Luxemburg based company APATEQ S.A. The framework agreement is for the delivery of LiqTech´s SiC Ultra Fine filters and housings for use in the oil and gas industry. At the same time, the Company also received a purchase order for $165,000.

On June 17, 2015, we announced that we have received a $6.1 million order for a complete system to remove heavy metals from the waste water from an international mining company. The system is based on the Company´s Ultra Filtration membranes and also includes pre-treatment and a de-watering unit to further reduce the amount of harmful waste water to be handled. Final installation is expected to be completed in the first half of 2016.

On June 18, 2015, we announced that we have received an $830,000 purchase order for two systems based on the company’s SiC membranes. The systems was delivered in 2015.

On September 30, 2015, we announced that we received a $790,000 order from an international mining company. The order is for a newly developed highly chemical resistant composite multi-housing for the Company´s SiC membranes, chemical storage tanks and process equipment. The order is expected to be delivered in the first half of 2016.

On February 22, 2016, we announced that we received an approximately $2.0 million order for a groundwater treatment plant. The order is from the company Synertech for a project in Serbia. LiqTech will deliver engineering and key components for precipitation of arsenic, boron, iron and manganese and a complete Ultra Filtration system based on the Company´s SiC membranes. The order is expected to be delivered in the second quarter of 2016.

On March 3, 2016, we announced that we received a $150,000 order from a new customer in the municipal pool market in France. The order was received by LiqTech´s distributor Lea Technology Group and is the first pool related system order from a French customer.

Results of Operations for the Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2015 and 2014.

Net sales for the year ended December 31, 2015 were $15,812,587 compared to $14,561,192 for the same period in 2014, representing an increase of $1,251,395, or 8.6%. The increase in sales consist of a decrease in sales of DPFs of $1,539,321, an increase in sales of liquid filters of $2,814,482 and a decrease in sales of kiln furniture $23,766, 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 LiqTech Systems A/S. The decrease in demand for our kiln furniture is due to our decision to not focus on this product line anymore.

Gross profit for the year ended December 31, 2015 was $3,214,424 compared to $2,097,243 for same period in 2014, representing an increase of $1,117,181, or 53.3%. The increase in gross profit was due to an increase in sales for the year ended December 31, 2015 compared to the same period in 2014 combined with the acquisition of LiqTech Systems A/S’ higher margin sales and a continuing focus on lowering our production costs. Included in the gross profit is depreciation of $1,437,787 and $1,630,531 for the years ended December 31, 2015 and 2014, respectively.

Total operating expenses for the year ended December 31, 2015 were $6,613,903, representing a decrease of $674,852, or 9.3%, compared to $7,288,755 for the same period in 2014. This decrease in operating expenses is attributable to a decrease in selling and marketing expenses of $638,785 or 19.0%, a decrease in general and administrative expenses of $204,347 or 6.8% and, a decrease in non-cash compensation expenses of $203,498 or 35.5%, is partially offset an increase in research and development expenses of $371,778 or 110.6% compared to the same period in 2014.

Selling expenses for the year ended December 31, 2015 were $2,721,781 compared to $3,360,566 for the same period in 2014, representing a decrease of $638,785 or 19.0%. This decrease is attributable to a cost reduction in selling expenses in general. Furthermore, the increase of USD against EURO and DKK of approximately 20% from period to period has had a decreasing effect on our expenses, because a significant amount of our expenses is in EURO and DKK. This decrease was partially offset by the inclusion of LiqTech Systems in the selling expenses for all the period ending December 31, 2015. LiqTech Systems was part of the consolidated numbers from the date of acquisition on July 29, 2014.

General and administrative expenses for the year ended December 31, 2015 were $2,814,747 compared to $3,019,094 for the same period in 2014, representing a decrease of $204,347, or 6.8%. This decrease is attributable to an increase in general and administrative expenses in general due to the acquisition of Provital Solutions AS offset by the increase of USD against EURO and DKK of approximately 20% from period to period as discussed above in selling expenses resulted in reduced general and administrative expenses for 2015.

Non-cash compensation expenses for the year ended December 31, 2015 were $369,531 compared to $573,029 for the same period in 2014, representing a decrease of $203,498 or 35.5%. This decrease is primarily attributable to decreased non-cash compensation expense for restricted stocks and warrants for services performed granted to directors and consultants offset by stock compensation expense for options granted to employees.

Research and development expenses for the year ended December 31, 2015 were $707,844 compared to $336,066 for the same period in 2014, representing an increase of $371,778, or 110.6%. This increase is attributable to increased research and development expenditures for the period ended December 31, 2015 compared to the same period in 2014 due to investing in new products, and the inclusion of LiqTech Systems for the entire period ending December 31, 2015. LiqTech Systems was included in the consolidated numbers from the date of acquisition on July 29, 2014.

Net income attributable to the Company for the year ended December 31, 2015 was a loss of $2,209,857 compared to a loss of $3,066,068 for the comparable period in 2014, representing an improvement of $856,211. This increase was primarily attributable to an increase of $1,117,181 in our gross profit, a decrease in operating expenses of $674,852, an increase in total other income of $1,792,033 and an decrease in income tax benefit of $1,004,765. The largest contributor to the decrease in operating expenses was a decrease in selling expenses of $638,785 or 19.0%.

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.

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 an increase in sales of liquid filters of $2,450,680, partially offset by a decrease in sales of DPFs of $311,933 and a decrease in sales of kiln furniture $403,723. 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 LiqTech Systems A/S. The decrease in demand for our kiln furniture is due to our decision to not focuse on this product line anymore.

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 LiqTech Systems 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.

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 a decrease in general and administrative expenses of $45,529 or 1.5%, partially offset by an increase in selling and marketing expenses of $710,566 or 26.8% and a decrease in non-cash compensation expenses of $743,784 or 56.5% and a decrease in research and development expenses of $163,906 or 32.8% compared to the same period in 2013.

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 LiqTech Systems 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 was mainly attributable to the fact that during the year ended December 31, 2013, the Company had a one-time expense of approximately $675,000 related to being a U.S. public company. This decrease was partly offset against an increase in expenses related to the acquisition of LiqTech Systems 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.

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 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.

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 the filing date, the Company did not have any available lines of credit with any lender. At December 31, 2015, we had cash and restricted cash of $1,663,417 and working capital of $7,642,313 and at December 31, 2014, we had cash and restricted cash of $6,072,631 and working capital of $10,570,409. At December 31, 2015, our working capital decreased by $2,928,096, compared to December 31, 2014. Total current assets were $12,983,004 and $14,662,319 at December 31, 2015 and at December 31, 2014, respectively, and total current liabilities were $5,340,690 and $4,091,910 at December 31, 2015 and at December 31, 2014, respectively.

On July 28, 2014, we closed our 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. The net proceeds from the offering were $10.8 million, after deducting underwriting discounts and estimated offering expenses. The Company used the net proceeds of the offering to fund a portion of the purchase price for its previously announced acquisition of the operations of LiqTech Systems A/S. LiqTech intends to use the net proceeds from this offering to pay transaction expenses, and for other general corporate purposes.

LiqTech Systems had previously a DKK 2,000,000 (approximately $300,000 at September 30, 2015) 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. The line was cancelled June 12, 2015.

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 previously had a guarantee credit line of DKK 473,100 (approximately $69,000 at December 31, 2015) with a bank, subject to certain base limitations. As of December 31, 2015, we had DKK473,100 (approximately $69,000) in working guarantee against the line. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by certain assets of LiqTech Systems such as receivables, inventory and equipment.

In general, lines of credit in Denmark are due on demand. Our line of credit with the bank was cancelled June 12 2015.

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 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, 2015 was $2,090,964, representing a decrease of $3,642,710 compared to cash used by operating activities of $5,733,674 for the year ended December 31, 2014. The $3,642,710 decrease in cash used by operating activities for the year ended December 31, 2015 was mainly due to decreases in accounts receivable of $1,280,537 and long term contracts of $1,171,325 offset by increases of $1,118,143 in accounts payable and $24,671 in accrued expenses and the improvement in the net loss, after taking into account the assets and liabilities acquired in the acquisition of LiqTech Systems AS.

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

Cash used in investing activities was $592,656 for the year ended December 31, 2015, as compared to cash used in investing activities of $2,331,116 for the year ended December 31, 2014. Cash used in investing activities decreased of $1,738,460 for the year ended December 31, 2015, compared to the year ended December 31, 2014. This decrease was primarily due to the $1,874,684 net cash used to purchase LiqTech Systems AS in 2014 offset by a period over period increase of $119,846 in the purchase of property and equipment.

Cash used by financing activities was $223,072 for the year ended December 31, 2015, as compared to cash provided by financing activities of $10,451,991 for the year ended December 31, 2014. This change of $10,675,163 in cash provided by financing activities in 2015, compared to 2014, was primarily due to the public offering of 8,000,000 shares at a price to public of $1.50 per share in 2014.

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 LiqTech Systems 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 LiqTech Systems 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.

As of December 31, 2015, 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, May 2018, 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, 2015 are as follows:

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:

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.

The roll forward of the allowance for doubtful accounts for the year ended December 31, 2015 and December 31, 2014 was as follows:

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 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, 2015 as the estimated fair value of the reporting unit exceed the carrying value.

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, 2015 and 2014, no impairment charge of long-lived assets has been recorded.

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.

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.

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.

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, 2015, we had total furnace parts and supplies of $466,538, raw material of $1,498,406, work-in-process inventory of $1,770,070, total finished goods inventory of $1,788,160 and reserve for obsolescence of $606,504. 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.

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.

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

We have audited the accompanying consolidated balance sheets of LiqTech International, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, other comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2015 and 2014. 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, 2015 and 2014. 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, 2015 and 2014. 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, 2015 and 2014 and the results of their operations and their cash flows for the years ended December 31, 2015, and 2014, in conformity with generally accepted accounting principles in the United States.

	As of		As of
	December 31,		December 31,
	2015		2014
Current Assets:
Cash	$	1,370,591	$	5,853,752
Restricted cash balances		292,826		218,879
Accounts receivable, net		3,191,858		1,992,206
Other receivables		505,945		344,331
Cost in excess of billing		2,519,321		1,172,658
Inventories		4,916,671		4,914,866
Prepaid expenses		13,670		55,990
Current deferred tax asset		172,122		109,637

Total Current Assets		12,983,004		14,662,319

Property and Equipment, net accumulated depreciation:		3,538,694		4,524,386

Other Assets:
Investments at costs		21,838		6,085
Long term deferred tax asset		3,684,497		3,496,459
Goodwill		7,582,749		8,460,512
Other intangible assets		10,386		16,708
Deposits		252,378		259,070

Total Other Assets		11,551,848		12,238,834

Total Assets	$	28,073,546	$	31,425,539

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

	As of			As of
	December 31,			December 31,
	2015			2014
Current Liabilities:
Current portion of capital lease obligations	$	150,157		$	170,187
Accounts payable		3,455,085			2,336,942
Accrued expenses		1,441,840			1,439,735
Billing in excess of cost		175,338			-
Accrued income taxes payable		570			570
Deferred revenue / customers deposits		117,700			144,476

Total Current Liabilities		5,340,690			4,091,910

Long-term capital lease obligations, less current portion		165,572			368,614
Total Long-Term Liabilities:		165,572			368,614

Total Liabilities		5,506,262			4,460,524

Commitment and Contingencies See Note 10		-			-

Stockholders' Equity:
Common stock; par value $0,001, 100,000,000 shares authorized, 39,532,035 and 39,404,782 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively		39,532			39,405
Additional paid-in capital		36,087,808			35,632,410
Accumulated deficit		(7,592,709	)		(5,382,852	)
Deferred compensation		(590,742	)		(504,748	)
Other comprehensive income, net		(5,376,605	)		(2,835,917	)
Non-controlled interest in subsidiaries		-			16,717

Total Stockholders' Equity		22,567,284			26,965,015

Total Liabilities and Stockholders' Equity	$	28,073,546		$	31,425,539

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

	For the Years Ended
	December 31,
	2015			2014
Net Sales	$	15,812,587		$	14,561,192

Cost of Goods Sold		12,598,163			12,463,949

Gross Profit		3,214,424			2,097,243

Operating Expenses:
Selling expenses		2,721,781			3,360,566
General and administrative expenses		2,814,747			3,019,094
Non-cash compensation expenses		369,531			573,029
Research and development expenses		707,844			336,066

Total Operating Expense		6,613,903			7,288,755

Loss from Operations		(3,399,479	)		(5,191,512	)

Other Income
Interest and other Income		98,171			10,511
Interest expense		(51,232	)		(53,379	)
Gain (Loss) on investments		7,253			(815	)
Gain on currency transactions		459,279			450,147

Total Other Income		513,471			406,464

Loss Before Income Taxes		(2,886,008	)		(4,785,048	)

Income Tax Benefit		(697,786	)		(1,702,551	)

Net Loss		(2,188,222	)		(3,082,497	)

Less Net Income (Loss) Attributable To Non-Controlled Interests in Subsidiaries		21,635			(16,429	)

Net Loss Attributable To LiqTech	$	(2,209,857	)	$	(3,066,068	)

Basic Loss Per Share	$	(0.06	)	$	(0.09	)

Weighted Average Common Shares Outstanding		39,486,941			32,398,941

Diluted Loss Per Share	$	(0.06	)	$	(0.09	)

Weighted Average Common Shares Outstanding Assuming Dilution		39,486,941			32,398,941

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

	For the Years Ended
	December 31,
	2015			2014

Net Loss		(2,188,222	)		(3,082,497	)

Currency Translation, Net of Taxes		(2,540,688	)		(2,543,352	)

Other Comprehensive Loss	$	(4,728,910	)	$	(5,625,849	)

Comprehensive Income (Loss) Attributable To Non-controlling Interest in Subsidiaries		-			(2,628	)

Comprehensive Loss Attributable To LiqTech International Inc.	$	(4,728,910	)	$	(5,623,221	)

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

											Other						Non-
					Additional						Compre-			Deferred			controlled
	Common Stock				Paid-in			Retained			hensive			Compen-			Interest in
	Shares		Amount		Capital			Earnings			Income			sation			Subsidiaries
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
						,
Common shares issued in connection with acquisition at $1.50 per share, July 2014		4,044,782		4,045		6,063,127

Common shares issued at $1.58 each for services provided and to be provided by the board of directors		100,000		100		157,900									(158,000	)

Exercised of warrants and stock options at $1.50		47,500		48		71,203

Forfeiture of Stock Based Compensation						(563,459	)								563,459

Deferred compensation on shares issued to the board of directors, employers and services						474,786									(474,786	)

Stock based compensation expenses recognized for the year ended December 31, 2014															573,029

Currency translation, net												(2,543,352	)					(7,842	)

Net Income for the year ended December 31, 2014									(3,066,068	)

BALANCE, December 31, 2014		39,404,782	$	39,405	$	35,632,410		$	(5,382,852	)	$	(2,835,917	)	$	(504,748	)	$	16,717

Common shares issued at $0.75 each for services provided and to be provided by the board of directors		100,000		100		74,900									(75,000	)

Common shares issued at $0.74 each for services provided and to be provided by the board of directors		27,253		27		20,140									(20,167	)

Deferred compensation on shares issued to the board of directors, employees and services						391,546									(391,546	)

Forfeiture of Stock Based Compensation						(31,188	)								31,188

Stock based compensation expenses recognized for the year ended December 31, 2015															369,531

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)

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

			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	29
	Item 8	Financial Statements and Supplementary Data	29
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
	Item 9A	Controls and Procedures	30
	Item 9B	Other Information	31
PART III
	Item 10	Directors, Executive Officers and Corporate Governance	31
	Item 11	Executive Compensation	36
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
	Item 13	Certain Relationships and Related Transactions, and Director Independence	41
	Item 14	Principal Accountant Fees and Services	42
PART IV
	Item 15	Exhibits and Financial Statement Schedules	42
	Signatures		49

	●	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 Synertech in Serbia, a supplier of drinking water, Arteron in Malaysia, a company producing compact drinking water solutions, Hoimyung Corp in South Korea, a supplier of industrial waste water systems and pretreatment for reverse osmosis.

	●	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), specific heavy metals for European mining company, 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 entered into a cooperation agreement 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 (South Korea), and we have sold membranes for several commercial installations.

	●	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 SiC membranes offer 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 membranes, and reduce the number of membrane elements and pressure vessels;

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

	●	Our SiC membranes reduce water consumption for sand filter backwash; and

	●	Our SiC membranes eliminate consumption/maintenance of cartridges.

	●	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.

	●	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 China, Spain, UK, Germany, Korea, France, Italy and Brazil, and we have established customer relations in more than 25 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.

2016		High				Low
1st Quarter (through March 21, 2016)		$	1.01			$	0.73

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

													Period to period change
	2015			As a % of Sales			2014			As a % of Sales				$		Percent %
Net Sales		15,812,587			100	%		14,561,192			100	%		1,251,395			8.6
Cost of Goods Sold		12,598,163			79.7			12,463,949			85.6			134,214			1.1
Gross Profit		3,214,424			20.3			2,097,243			14.4			1,117,181			53.3
Operating Expenses
Selling and Marketing		2,721,781			17.2			3,360,566			23.1			(638,785	)		(19.0	)
General and Administrative		2,814,747			17.8			3,019,094			20.7			(204,347	)		(6.8	)
Non-cash compensation		369,531			2.3			573,029			3.9			(203,498	)		(35.5	)
Research and Development		707,844			4.5			336,066			2.3			371,778			110.6
Total Operating Expenses		6,613,903			41.8			7,288,755			50.1			(674,852	)		(9.3	)

Loss from Operating		(3,399,479	)		(21.5	)		(5,191,512	)		(35.7	)		1,792,033			(34.5	)
Interest and Other Income		98,171			0.6			10,511			0.1			87,660			834.0
Interest (Expense)		(51,232	)		(0.3	)		(53,379	)		(0.4	)		2,147			(4.0	)
Gain (Loss) on Investments		7,253			0.0			(815	)		(0.0	)		8,068			(989.9	)
Gain on Currency Transactions		459,279			2.9			450,147			3.1			9,132			2.0

Total Other Income		513,471			3.2			406,464			2.8			107,007			26.3

Loss Before Income Taxes		(2,886,008	)		(18.3	)		(4,785,048	)		(32.9	)		1,899,040			(39.7	)
Income Taxes Expense (Income)		(697,786	)		(4.4	)		(1,702,551	)		(11.7	)		1,004,765			(59.0	)

Net Loss		(2,188,222	)		(13.8	)		(3,082,497	)		(21.2	)		894,275			(29.0	)
Less net income attributable to the non-controlled interest in subsidiaries		21,635			0.1			-16,429			(0.1	)		38,064			(231.7	)
Net Loss attributable to LiqTech		(2,209,857	)		(14.0	)		(3,066,068	)		(21.1	)		856,211			(27.9	)

	2015		2014
Compensation upon vesting of stock options granted to employees	$	154,745	$	34,295
Compensation for vesting of restricted stock awards issued to the board of directors		204,500		479,334
Value of warrants issued for services		10,286		59,400
Total	$	369,531	$	573,029

													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	)

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	)

	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

Year ending December 31,	Lease Payments
2016		715,965
2017		516,949
2018		294,853
Thereafter		-
Total Minimum Lease Payments	$	1,527,767

	●	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.

	2015			2014
Allowance for doubtful accounts at the beginning of the period	$	1,654,290		$	608,356
Bad debt expense		80,729			216,919
Amount of receivables written off		(398,083	)		(42,117	)
Acquired subsidiary		-			951,354
Effect of currency translation		(249,065	)		(80,222	)
Allowance for doubtful accounts at the end of the period	$	1,087,871		$	1,654,290

	Page
Reports of Independent Registered Public Accounting Firm	F1

Consolidated Balance Sheets at December 31, 2015 and 2014	F2

Consolidated Statements of Operations for the years ended December 31, 2015 and 2014	F4

Consolidated Statement of Other Comprehensive Income for the years ended December 31, 2015 and 2014	F5

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2015 and 2014	F6

Consolidated Statement of Cash Flows for the years ended December 31, 2015 and 2014	F7

Notes to the Consolidated Financial Statements	F9