10-K

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018

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

Commission File Number: 001-36210

LiqTech International, Inc.

(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 par value	NYSE American

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 (§ 229.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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, 2018, 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 $0.7446 per share on June 30, 2018 was $52,533,852. As of March 29, 2019, there were 73,078,184 shares of common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			Page
PART I
	Item 1	Business	1
	Item 1A	Risk Factors	10
	Item 1B	Unresolved Staff Comments	19
	Item 2	Properties	20
	Item 3	Legal Proceedings	20
	Item 4	Mine Safety Disclosures	20
PART II
	Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
	Item 6	Selected Financial Data	21
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 8	Financial Statements and Supplementary Data	34
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
	Item 9A	Controls and Procedures	56
	Item 9B	Other Information	57
PART III
	Item 10	Directors, Executive Officers and Corporate Governance	57
	Item 11	Executive Compensation	63
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	67
	Item 13	Certain Relationships and Related Transactions, and Director Independence	68
	Item 14	Principal Accountant Fees and Services	68
PART IV
	Item 15	Exhibits and Financial Statement Schedules	69
	Signatures		72

PART I

Forward Looking Statements

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations and market trends and expectations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.  Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Annual 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.   

Item 1. Business

Overview

LiqTech International, Inc. is 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 (DPFs) for the control of soot exhaust particles from diesel engines. 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. 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, 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 conduct operations in the Kingdom of Denmark and the United States. Our Danish operations are located in the Copenhagen area and in Hobro, and our U.S. operations are conducted in White Bear Lake, Minnesota.

Our Products

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

Ceramic Silicon Carbide Membranes for Liquid Filtration

Under the “LiqTech”, “Cometas” and “Provital” brand names, we manufacture and sell ceramic silicon carbide membranes and systems for liquid filtration using our patented silicon carbide technology (sometimes also referred to herein as our “SiC Filters”). Our currently focus is on marine scrubber bleed water, 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 other industrial applications.

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Our SiC Filters have been used in the following applications by our clients:

● Marine scrubber bleed water: We supply water filtration systems for marine scrubber systems that may be employed on marine vessels to reduce sulphur emissions resulting from operating on heavy fuel oil (HFO). To date, more than 100 water treatment systems have been ordered by European and Asian scrubber technology providers. 

● Produced water: Our membranes can be used for the filtration of "produced" water – a byproduct of 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 major international private and public oil and gas companies. We have been awarded a contract by an international oil and gas company to provide and service produced water filters on one of its offshore platforms. Two additional commercial installations have been commissioned with 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.

● Industrial applications: We have delivered complete water treatment systems for certain targeted, aggressive fluids applications, such as the removal of heavy metals for energy providers in Denmark and Finland and the filtering of mining wastewater for a European mining company. 

● Producing clean drinking water: The potential of LiqTech SiC Filters 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 a leading pump producer Grundfos to market a newly developed water treatment unit for ground water.

● Pool and spa water: We have supplied several turnkey water filtration systems for medium to very large public swimming pool installations in Europe. 

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

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

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

Our SiC Filters are manufactured with a silicon carbide ceramic membrane based on a patented technology. We are not aware of other companies that makes both the substrate (honeycomb) and the membrane (the part which accomplishes the filtering) solely from silicon carbide.

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

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

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

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

● Our SiC Filters eliminate the consumption or maintenance of filter cartridges.

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Our SiC Filters offer consistent removal of oil and suspended solids at high throughput rates regardless of feed conditions. Our membranes are ideal for the treatment of scrubber wash water, 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 for fracking, gas condensate, and oil emulsions. We believe our SiC Filters 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, chemically resistant and durable materials with high flux (flow) to increase membrane life and reduce downtime for cleaning. SiC Filters are stronger, harder, longer lasting, more temperature resistant, and recover faster than conventional ceramic or 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 unique advantages such as high flux, total chemical resistance (pH 0-14), long life, and the lowest fouling tendency of any polymeric or ceramic membrane material. Our tubular membranes offer robust and high yield membrane solutions for produced water for the Oil & Gas market and industrial wastewater in removing suspended solids as well as oil droplets and oil-emulsions from solutions. Our dynamic high flux membrane disks are designed for the removal of high suspended solids. The filtration path direction is outside-in, with internal permeation channels that facilitate removal of the solids. A cross-flow effect is generated through the rotation of the discs at high velocities that enables flow cleaning of the filter membrane surface. This principle offers energy savings can exceed 80% compared to conventional cross flow.

For the years ended December 31, 2018 and 2017, we received grants from governmental entities of $431,340 and $458,064, respectively.

For the years ended December 31, 2018 and December 31, 2017, our sales of liquid filters, services and systems were $5,264,663 and $3,529,360, respectively, and accounted for 43% and 31% of our total sales, respectively. 

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Diesel Particulate Filters (DPFs)

We offer diesel particulate filters for exhaust emission control solutions to the verified retrofit and 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 effective 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 DPF Filters can handle higher soot loads than filters that do not use a silicon carbide membrane, which makes them ideal for situations in which engines infrequently reach high enough temperatures to burn off soot. Examples include:

● Garbage trucks;

● Port vehicles;

● Diesel pickup trucks not carrying a full load;

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

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

For the years ended December 31, 2018 and 2017, our sales of DPFs were $6,536,085 and $7,230,416, respectively, and accounted for 53% and 64% of our total sales, respectively.

Kiln Furniture

Kiln furniture refers to all items used in a kiln to support ceramics and 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 way 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, 2018 and December 31, 2017, our kiln furniture revenues were $0 and $125,337, respectively, and accounted for 0% and 1% of our total sales, respectively.

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Our Competitive Strengths

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

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

● Complete systems fabrication: LiqTech provides full fabrication and integration of our membranes into complete filtration systems made from corrosive resistant materials and components. We provide complete in-house engineering capabilities for process design, 3D modelling and controls. The entire specification, engineering, fabrication and commissioning process is delivered by our professional staff of highly-dedicated engineers and craftsmen. We believe that suppling our customers with turnkey solutions built upon our silicon carbide membranes is unique in the market. LiqTech is more than a membrane supplier—we see ourselves as a provider of complete water treatment systems. 

● Broad Application of LiqTech Membranes: Our membranes can be applied in a variety of applications, including: filtration of marine scrubber wash water, processing of industrial waste water and produced water, pre-treatment of drinking water, pre-filtration for reverse osmosis, oil emulsion separation, bacteria removal for aquaculture, commercial swimming pool water treatment and the separation of metals from liquids in industrial processes. 

● Marketing and Manufacturing in Key Markets and Expanding to Other Market: We have production and sales capacity in North America and Europe. We also sell our products through distributors and agents in many other countries such as China, Spain, UK, Korea, France, Italy and Brazil.  We have established customer relations in more than 25 countries. 

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

Our Strategy 

Our strategy is to create stockholder value by leveraging our competitive strengths in silicon carbide filters and membranes by focusing on discrete applications in key end markets. Essential features of our strategy include:

● Continue to maintain and gain new marine industry customers.  We currently provide water filtration systems for scrubber technology providers, ship owners and ship operators.

● Enter new geographic markets and expand existing markets. We plan to continue to manufacture and sell our products from our core operations in Denmark and the United States. We work with distributors, agents and partners to access other important geographic markets.

● Continue to strengthen our position in the DPF market. We believe that we have a strong position in the retrofit market for diesel particulate filter (DPF) systems. We intend to continue our efforts to maintain our market position in this area. Furthermore, we intend to leverage our experience in the OEM market by expanding our presence with new products relating to diesel particulate filter systems.

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● Continue to develop and improve technologies and open new end markets. We intend to continue to develop our ceramic membranes and improve the filtration efficiency for our filtration products. Through continuous research and development, we intend to find new uses for our products and plan to expand into new markets that offer significant opportunity for the Company. One of our key strategies is to develop our membrane applications in partnership with our customers including, for example, the development of the next generation of diesel particulate filters with asymmetric design for the OEM market.

● Continue our focus on the development and sales of standardized systems. We will continue our focus on selling systems based on our unique SIC Filters. We will also combine the ceramic membranes with other technologies to be able to offer our customers complete filtration solutions. We will continue our focus on developing smaller standard systems, like our ground water treatment system and our residential swimming pool system.

Our Industry 

Overview

We primarily serve two industries: the liquid filtration system market and the diesel particle filter (DPF) market. Our goal is to leverage our products and technology into industrial liquid filtration applications that offer significant growth opportunity and to take advantage of favorable market trends.

Liquid Filtration Market

The market for marine water filtration systems is rapidly developing due to new regulations for sulphur and ballast water emissions. Industry experts estimate that 8,000-10,000 ships will install a scrubber water treatment system over the next five to seven years (2018 Market Research Report on Global Marine Scrubber By Players, Type and Applications, Status and Forecast, 2012-2022).  The use of wet scrubbers to clean the exhaust from marine engines that use high sulphur residual oil and diesel fuels may lead to the discharge of high concentrations of harmful compounds in the waters from vessels using such scrubbers. Several trials have been conducted onboard vessels by scrubber suppliers to define the constituent concentrations in wash water discharge. The trials found that scrubber wash water also contains suspended solids, heavy metals, hydrocarbons and polycyclic aromatic hydrocarbons (PAHs). Before the scrubber wash water is discharged, it must be treated to remove solids. LiqTech’s water treatment systems can be used to remove the solids from wet scrubber wash water. The treatment process includes a pre-filtration step followed by a LiqTech SiC membrane filtration. Treated water quality is monitored (NTU, PAH and pH) before discharge.  The Company is globally engaging with scrubber equipment suppliers, ship owner/operators and ship yards. Furthermore, we are presenting the water treatment solutions at marine conferences and trade shows.

In addition to our marine scrubbers, LiqTech offers packaged systems consisting of ceramic SiC and conventional reverse-osmosis (RO) membranes for industrial and municipal customers. We anticipate that global demand will increase for robust and low operating expense products such as ours that are well suited for mobile and modular systems. RO membranes are increasingly being 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 pharmaceuticals production. In addition, many laboratories rely on pure water for which demineralization is an essential step. LiqTech is differentiated by what we believe is our superior SiC membrane technology and by being able to provide a complete water treatment system. According to Lux Research, an industry expert, 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.

We also see a general trend worldwide of increasing demand for higher quality re-injection water in connection with unconventional oil and gas production. In addition, we see tightening water discharge legislation, 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 treatment and filtration technologies. However, our SiC Filters have been shown to mitigate these challenges and we believe the increasing demand represents a favorable market trends for our business.

Water is essential to life on earth, and clean water shortages are expected to affect two-thirds of the human population by 2025 (Worldwildlife). One-third of the human population is living today without clean water, and this is expected to increase to two-thirds of the population by 2025 due to the growing population (United Nations). 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 water filtration is growing rapidly, with more and larger plants being commissioned all over the world.

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Diesel Particulate Filter (DPF) Market

The increase in global regulation of diesel engine exhaust particles is expected to drive growth in the DPF market. We expect jurisdictions in the United States to begin requiring DPF filters. In Europe, for example, 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 gases 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, 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 engine exhaust particles is expected to drive growth in the DPF market.

The Asian markets have shown economic growth and an improved standard of living that has led to increased sales of vehicles in the region. At the same time, the pollution in major cities has reached high PM levels. As a result, we believe that the Chinese government could 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.

Manufacturing

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 are planning to expand our production capacity, primarily through investment in additional equipment for our liquid filtration products.

Raw Materials

The main raw materials that we use in our manufacturing processes are silicon carbide, steel, plastic, 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, management believes that we could obtain satisfactory substitutes for these materials should they become unavailable.

Sales, Marketing and Distribution 

Our products are sold primarily to large industrial customers that use our products for gas and liquid filtration. The Company sells through direct sales people, systems integrators, distributors, agents and partners. 

The Company initially focused on selling its DPF filters to the automotive industry. In 2014, we acquired LiqTech Systems (formerly known as Provital), a Danish filtration systems manufacturing company, which has enabled us to shift our focus to providing complete, modular liquid filtration systems. The Company’s liquid filtration systems business is now rapidly expanding, focusing on the marine industry and other industrial applications in mining, power generation, aquaculture, oil and gas, and other applications within the pool industry, water reclamation and drinking water.

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For the year ended December 31, 2018, our four largest customers accounted for approximately 10%, 9%, 6% and 5%, respectively, of our net sales (approximately 31% in total). For the year ended December 31, 2017, our four largest customers accounted for approximately 16%, 10%, 7% and 5%, respectively, of our net sales (approximately 38% in total). If we are unable to diversify our customer base, our future results will be heavily dependent on these customers. 

We plan to actively market our existing products to new customers as we increase our production capacity. As of March 2019, we had eight (8) 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 legislative regulation, systems integrators are often required by end customers to receive approval of their systems, including the components used in such systems, which requires significant time and expense. As a result, we believe that certain of the systems integrators that use our products will not replace our filters with competitive products unless there is good reason.

Intellectual Property

We have one issued United States patent that we co-own with a third party, two issued Danish patents, three issued foreign patents (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 (July 8, 2004) 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 Danish patent application related to the silicon carbide membrane technology in Denmark.

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.

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 2019, we had one trademark registration in the United States (LiqTech NA) and four trademark registrations in the European Union (AQUA SOLUTION, CoMem, CDPX and FUTURE FILTRATION).

Government Regulation

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

Environmental Matters

We are subject to a broad range of federal, state, local and foreign environmental laws and regulations which govern, among other things, air emissions, wastewater discharges and the handling, storage, disposal and release of waste and hazardous substances. It is our policy to comply with all applicable environmental requirements at each of our facilities. We are also subject to laws such as the Comprehensive Environmental Response, Compensation and Liability Act, which 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 minor 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.

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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 likely 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 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.

Research and Development

We have nine (9) full-time employees spending a majority of their working hours on research and development. For the years ended December 31, 2018 and 2017, we spent $661,014 and $536,848, respectively, on Company-sponsored research and development.

Competition 

Our products compete with other filters that are made using both ceramic and plastic membranes. Most of our competitors are large industrial companies. However, we believe our patented technology allows us to produce high quality, 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 developing new technologies and improving our products in order to maintain our existing customers and to add new customers.

Employees

We have 76 employees, 70 of whom were full-time employees. We have 65 employees at our operations in Denmark, including 9 in research and development, 8 in sales and engineering and 2 in executive management. We also have 11 employees in the United States sales, accounting and production.

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

Corporate Information

We filed our Articles of Incorporation on July 1, 2004 and are incorporated under the laws of the State of Nevada. Our principal executive offices are located at Industriparken 22C, 2750 Ballerup, Denmark, and our telephone number is +45 44986000. We maintain an Internet website at www.liqtech.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the SEC, and are available in print to any stockholder who requests a copy.  The information contained in, or accessible from, our website is not a part of this Annual Report. 

Additionally, the SEC maintains a website that contains reports, proxy statements, information statements and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov.

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Item 1A.   Risk Factors

RISKS RELATED TO 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.

For the year ended December 31, 2018, our four largest customers accounted for approximately 10%, 9%, 6% and 5%, respectively, of our net sales (approximately 31% in total). During the year ended December 31, 2017, our four largest customers accounted for approximately 16%, 10%, 7% and 5%, respectively, of our net sales (approximately 38% 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 likely have a material adverse effect on our operations.

Furthermore, a significant portion of our accounts receivable is concentrated with a few major customers, 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. 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.

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 material adverse effect on our business.

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

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

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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 a past budget crisis in California, funding was not available for a state-funded emissions control project and its start date was pushed back. 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 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. Likewise, our ability to expand our business in the marine industry is dependent on the effective implementation of IMO 2020, which requires the burning of low-sulphur oil for marine vessels. 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 expect 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.

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 material adverse effect on our business.

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

Our 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. 

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Our patent strategy 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.

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 utilize 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 material 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. 

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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, steel, plastic, 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, the raising of tariff rates on, or an increase of non-tariff trade barriers that apply to silicon carbide, steel, plastic, 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.

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We may 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 material 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 material adverse effect on our operations.

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

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

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

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

● The timing and size of customer purchases;

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

● Increases in raw material costs.

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.

Foreign currency fluctuations could adversely impact financial performance.

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 material 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.

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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 material adverse effect on our business or cause us to cease operations.

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

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

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

We will continue to incur significant costs as a result of operating as a public company, and our management may be required to devote substantial time to compliance initiatives which ultimately could have a material 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.

Effective January 1, 2018, we are no longer an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, and as such we may no longer take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, such as exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. This increased burden will further increase our compliance burden.

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As a “smaller reporting company” we are still able to take advantage of certain exceptions available to both emerging growth companies and smaller reporting companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemption from providing a “Compensation Discussion and Analysis” section in our proxy statements; providing only 3 years of business development information; and other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies. 

 We previously 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 allowed 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. We are no longer entitled to this extended transition period, and as a result we may incur additional expenses and our management and other personnel may have to devote additional resources to compliance with such new or revised standards.

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.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.

We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls. In Item 9A, we disclose that with respect to the standards of Sarbanes-Oxley Section 404, the internal controls-standard to which we were subjected to, we reported material weaknesses in our internal controls over financial reporting. For additional information on this item, please see Item 9A. Controls and Procedures.

Although we believe our historical efforts have strengthened our internal control over financial reporting (and we concluded that our financial statements were reliable, notwithstanding the material weakness we reported), we cannot be certain that our revised internal control practices will ensure that we will have or maintain adequate internal control over our financial reporting in future periods. Any failure to have or maintain such internal controls could adversely impact our ability to report our financial results accurately and on a timely basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations.

We may have risks associated with security of our information technology systems.

We make significant efforts to maintain the security and integrity of our information technology systems and data. Despite significant efforts to create security barriers to such systems, it is virtually impossible for us to entirely mitigate this risk. There is a risk of industrial espionage, cyber-attacks, misuse or theft of information or assets, or damage to assets by people who may gain unauthorized access to our facilities, systems, or information. Such cybersecurity breaches, misuse, or other disruptions could lead to the disclosure of confidential information, improper usage and distribution of our intellectual property, theft, manipulation and destruction of private and proprietary data, and production downtimes. Although we actively employ measures to prevent unauthorized access to our information systems, preventing unauthorized use or infringement of our rights is inherently difficult. These events could adversely affect our financial results and any legal action in connection with any such cybersecurity breach could be costly and time-consuming and may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, we must frequently expand our internal information system to meet increasing demand in storage, computing and communication, which may result in increased costs. Our internal information system is expensive to expand and must be highly secure due to the sensitive nature of our customers’ information that we transmit. Building and managing the support necessary for our growth places significant demands on our management and resources. These demands may divert these resources from the continued growth of our business and implementation of our business strategy.

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RISKS RELATED TO OUR COMMON STOCK

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 American 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 American 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 our common stock. 

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The market price of our common stock has been and may continue to be volatile.

The market price of our common stock has been volatile and fluctuates widely in price in response to various factors which are beyond our control. The price of our common stock is not necessarily indicative of our operating performance or long-term business prospects. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. Factors such as the following could cause the market price of our common stock to fluctuate substantially:

• the underlying price of the commodities in the industrial water filtration, marine, oil and gas industries;

• announcements of capital budget changes by a major customer;

• the introduction of new products by our competitors;

• announcements of technology advances by us or our competitors;

• current events affecting the political and economic environment in the United States, Europe or Asia;

• conditions or industry trends, including demand for our products, services and technological advances;

• changes to financial estimates by us or by any securities analysts who might cover our stock;

• additions or departures of our key personnel;

• government regulation of our industry;

• seasonal, economic, or financial conditions;

• our quarterly operating and financial results; or

• litigation or public concern about the safety of our products.

The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly. In particular, the market price of our common stock may be influenced by changes in governmental regulations regarding diesel particles emissions and marine waste water, because demand for our products and services is closely related to those products. The stock market in general experiences, from time to time, extreme price and volume fluctuations. Periodic and/or continuous market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility may be worse if the trading volume of our common stock is low.

Our existing shareholders could experience further dilution if we elect to raise equity capital to meet our liquidity needs or to finance strategic transactions.

As part of our strategy, we may desire to raise capital, issue stock to employees, and or utilize our preferred or common stock to effect strategic business transactions, any of which will likely require that we issue equity (or debt) securities which would result in dilution to our existing stockholders. Although we anticipate attempting to minimize the dilutive impact of any future capital-raising activities or business transactions, we cannot offer any assurance that we will be effectively able to do so.

Future sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline.

If any significant number of our outstanding shares are sold, such sales could have a depressive effect on the market price of our stock. We are unable to predict the effect, if any, that the sale of shares, or the availability of shares for future sale, will have on the market price of the shares prevailing from time to time. Sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could depress prevailing market prices for the shares. Such sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price which we deem appropriate.

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

Rule 12b-2 of the Securities Exchange Act of 1934 ("Exchange Act") defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

●  Had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

● In the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

● In the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available.

As a “smaller reporting 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.

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

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

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Our corporate headquarters are located at Industriparken 22C, 2750 Ballerup, Denmark. We lease approximately 67,000 square feet at our Ballerup location, of which approximately 10,000 square feet is used for office space and 57,000 square feet is used for production. The lease will expire on August 31, 2024. 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 November 30, 2019. Our U.S. operations are located at 1800 - 1808 Buerkle Road White Bear Lake, Minnesota 55110 where we lease approximately an aggregate of 25,700 square feet, of which 6,000 square feet is used for office space and 19,700 square feet is used for production. The lease will expire on March 1, 2021.

Item 3. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. On December 31, 2018, 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 November 20, 2018 a former supplier to Liqtech International AS contacted the Company with a claim of DKK448,500 ($68,800) alleging that a former Agreement from 2016 had not been respected. The Company has contested the claim due to lack of evidence to support the claim. No provision has been made as per December 31, 2018 as the Company does not expect the claim to materialize in any payments to the former supplier.

On February 27, 2019, LiqTech Systems AS was contacted by a former supplier alleging that the Company owed DKK543,905 ($83,400) for services rendered in 2017, The claimant has previously filed a lawsuit to claim payment for the services, which was denied by the Company due to severe errors in the services supplied, and the claim was rejected by the court of law in 2018. Due to the nature of the new claim and the previous ruling from the court of law, no provision has been made as per December 31, 2018.

On December 2017, we reported the following legal proceeding which have been ended in 2018 with the result below.

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 (“Defendant”), the 40% owner of the Venture, 750,000 Euros before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. In 2018 the lawsuit was revoked by the Italian court and the Plaintiff was ordered to pay the cost occurred in connection with the case to the Defendant.

On December 20, 2017, the Company received a demand from a customer for approximately $1,098,678 from the previous installation of a water treatment system. The customer was disputing that the system complied with the contact based on testing inputs to the system outside the parameters of the contract. The Company completed the installation and testing of the system and maintained that it was in compliance with the contract’s requirements. In 2018 the demand was settled between the parties and resulted in a final payment to the Company of EUR380,000 as a full and final settlement of the dispute. The amount was deemed income in Q4 2018. 

Item 4. Mine Safety Disclosures.

Not applicable. 

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

Our common stock is currently quoted on NYSE American under the symbol LIQT. The following table sets forth the high and low bid prices for the common stock for the periods indicated:

2019	High		Low
1st Quarter (through March 19, 2019)	$	2.38	$	0.30

2018	High		Low
4th Quarter	$	1.85	$	1.09
3rd Quarter		1.91		0.65
2nd Quarter		0.81		0.37
1st Quarter		0.69		0.30

2017	High		Low
4th Quarter	$	0.57	$	0.28
3rd Quarter		0.44		0.31
2nd Quarter		0.43		0.26
1st Quarter		0.67		0.36

The above table is based on a report provided by the NYSE American. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not necessarily represent actual transactions.

As of March 24, 2019, we had approximately 3,340 stockholders of record.

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

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

● our earnings and cash flow;

● our capital requirements;

● our financial condition; and

● other factors our Board of Directors deems relevant.

Item 6. Selected Financial Data

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

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

Overview

We are a Nevada corporation, formerly named Blue Moose Media, Inc. In October 2011, we changed our name to LiqTech International, Inc. For more than a decade we have developed and 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.

Acquisition of LiqTech Systems

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 "Shares") of Provital Solutions A/S, a Danish company (now known as LiqTech Systems) from Masu A/S, a Danish company ("MASU") controlled by Sune Mathiesen. In consideration for the 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"). Two-thirds (2/3) of the Payment Shares were held in escrow and subject to achievement of certain milestones. The milestones were not achieved, and such Payment Shares were forfeited and returned to treasury on December 31, 2016.

2018 Developments

On January 9, 2018, we announced that we had received three new orders for the Company´s standardized systems for swimming pool water treatment. The systems will be delivered to three new spas in Australia.

On February 22, 2018, we announced that we had received a $440,000 order for the Company´s Diesel Particulate Filters (DPF) from a Chinese customer. The order is expected to be delivered in the second quarter of 2018.

On March 21, 2018, we announced that we had signed a framework agreement with one of the world‘s largest manufacturers of marine scrubbers. The framework agreement has an initial term for 2018 and 2019 and provides that more than 95 systems are estimated to be delivered during the initial term. The framework agreement may be renewed for an additional one-year term at the end of 2019.

On March 27, 2018, we announced that we had won a $1.1 million tender to supply a turn-key water treatment project to a large power plant in Finland. The installation will include pretreatment, ceramic Ultra Filtration systems, membranes and Reverse Osmosis system. 

On April 11, 2018, we announced that we had signed another framework agreement with a large marine scrubber manufacturer. The framework agreement has an initial term for 2018 and 2019 and provides that a minimum of 35 systems are estimated to be delivered during the initial term.

On April 11, 2018, we announced that we had signed a Letter of Intent with one of the world’s largest marine scrubber manufacturers. The Letter of Intent provides that the parties intend to enter into a definitive partnership agreement no later than July 1st, 2018. On July 5, 2018 the Letter of Intent was extended to October 1, 2018 and on this date, we announced that we had signed a framework agreement with the marine scrubber manufacturer to develop a new product for the treatment of Marine Scrubber Wastewater. The new product will offer marine vessels guaranteed compliance with 2020 International Maritime Organization (IMO) regulations to implement a new lower global cap on sulphur emissions from international shipping, while providing attractive returns on capital and operating expenses.

On May 29, 2018 we announced that the we had received a $490,000 order for the Company’s Diesel Particulate Filters (DPF) from a European customer. The order was delivered in the second and third quarters of 2018.

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On November 14, 2018, we gave an update to the market that the Company currently had more than 50 confirmed orders expected to ship in 2019. In addition to the confirmed orders, we expect to deliver a significant number of systems in 2019 under the Framework Agreement announced on October 1, 2018. Further we expect revenue during the first quarter of 2019 to be a Company record, driven by fulfillment of orders from current backlog and the Company therefore expects to be profitable in the first quarter of 2019. In anticipation of growing demand, we have placed new furnaces on order with delivery expected in late 2019. Our current cash position combined with the working capital structure on our existing marine scrubber contracts provide sufficient near-term confidence in our balance sheet.

2019 Developments

On January 14, 2019, we gave an update to the market that we currently have confirmed orders for more than 110 of our standardized water filtration systems. In addition to the confirmed orders, we expect to deliver a significant amount of systems in 2019 under the Framework Agreement announced on October 1, 2018. Positive visibility to order flow delivery affirms expectations for the second quarter of 2019 revenue to surpass the first quarter of 2019, setting another new record for the Company. We remain on track from a manufacturing standpoint to meet all planned deliveries for the first half of 2019. The Company’s cash position at the end of December 2018 was approximately $3.8 million, largely unchanged since the end of June 2018.

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Results of Operations

Results of Operations for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017 

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2018 and 2017 in U.S. dollars, except for percentages.

	For the Year Ending December 31,
													Period to Period Change
	2018			As a % of Sales			2017			As a % of Sales			$			Percent %
Net Sales		12,232,088			100.0	%		11,343,177			100.0	%		888,911			7.8	%
Cost of Goods Sold		11,165,944			91.3			11,136,426			98.2			29,518			0.3
Gross Profit		1,066,144			8.7			206,751			1.8			859,393			415.7
Operating Expenses
Selling expenses		1,703,327			13.9			1,944,989			17.1			(241,662	)		(12.4	)
General and administrative expenses		3,187,311			26.1			2,332,169			20.6			855,142			36.7
Research and development expenses		661,014			5.4			536,848			4.7			124,166			23.1
Total Operating Expenses		5,551,652			45.4			4,814,006			42.4			737,646			15.3
Loss from Operating		(4,485,508	)		(36.7	)		(4,607,255	)		(40.6	)		121,747			2.6
Other Income (Expense)
Interest and other income		28,401			0.2			1,515			0.0			26,886			1,774.7
Interest (expense)		(71,781	)		(0.6	)		(45,888	)		(0.4	)		(25,893	)		56.4
Gain/(Loss) on currency transactions		344,023			2.8			(102,470	)		(0.9	)		446,493			435.7
Gain/(Loss) on sale of fixed assets		4,907			0.0			(24,065	)		(0.2	)		28,972			120.4
Total Other Income (Expense)		305,550			2.5			(170,908	)		(1.5	)		476,458			278.8
Income (loss) Before Income Taxes		(4,179,958	)		(34.2	)		(4,778,163	)		(42.1	)		598,205			12.5
Income Taxes Expense (Benefit)		(365,430	)		(3.0	)		(317,810	)		(2.8	)		(47,620	)		15.0
Net Income (Loss)		(3,814,528	)		(31.2	)		(4,460,353	)		(39.3	)		645,825			14.5

Revenues

Net sales for the year ended December 31, 2018 were $12,232,088 compared to $11,343,177 for the same period in 2017, representing an increase of $888,911, or 7.8%. The increase in sales consist of an increase in sales of liquid filters of $1,735,303, a decrease in sales of DPFs of $694,332, and a decrease in sales of kiln furniture of $125,337 respectively. The increase in demand for our liquid filters and systems is due to starting ramp-up in delivery of water treatment systems for the marine scrubber industry. The decrease in demand for our DPFs is mainly due to the decrease in market activity globally compared to the same period last year. The decrease in demand for our kiln furniture is due to our decision to close down this product line in 2018. 

Gross Profit

Gross profit for the year ended December 31, 2018 was $1,066,144 compared to $206,751 for the same period in 2017, representing an increase of $859,393, or 415.7%. The increase in gross profit is due to the higher sales activity of our liquid filter and systems, where sales are with a higher gross margin. Included in the gross profit is depreciation of $819,070 and $939,500 for the years ended December 31, 2018 and 2017, respectively.

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Expenses

Total operating expenses for the year ended December 31, 2018 were $5,551,652, representing an increase of $737,646 or 15.3%, compared to $4,814,006 for the same period in 2017.

Selling expenses for the year ended December 31, 2018 were $1,703,327 compared to $1,944,989 for the same period in 2017, representing a decrease of $241,662 or 12.4%. This decrease is attributable to a cost reduction in selling expenses in general including a decline in the number of sales employees based on the full focusing on the marine scrubber area compared to the same period in 2017.

General and administrative expenses for the year ended December 31, 2018 were $3,187,311 compared to $2,332,169 for the same period in 2017, representing an increase of $855,142, or 36.7%. This increase is attributable to an increase in the provision for bad debt of approximately $301,000 and general increase in legal expenses, IT expenses and salaries for administrative employees. Included in general and administrative expenses is Non-cash compensation expenses which for the year ended December 31, 2018 were $116,434 compared to $178,944 for the same period in 2017, representing a decrease of $62,510 or 34.9%. This decrease is attributable to decreased non-cash compensation expense for stock options granted to employees. 

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

	2018		2017
Compensation upon vesting of stock options granted to employees	$	15,767	$	70,477
Compensation for common shares issued to the Board of Directors for services		60,000		60,000
Compensation for vesting of restricted stock awards issued to the board of directors		40,667		30,833
Value of warrants issued for services		-		17,634
Total	$	116,434	$	178,944

Research and development expenses for the year ended December 31, 2018 were $661,014 compared to $536,848 for the same period in 2017, representing an increase of $124,166, or 23.1%. This increase is attributable to an increase in the number of employees in the Research and Development area, as the Company focuses on increase development of additional products for the marine industry.

Net Loss

Net loss attributable to the Company for the year ended December 31, 2018 was a loss of $3,814,528 compared to a loss of $4,460,353 for the comparable period in 2017, representing a decrease in loss of $645,825.

This improvement was primarily attributable to increased Net Sales followed by an increase in Gross Profit while the increase in Operating expenses was almost set-off by the increase in Other Income.

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Results of Operations for the Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016 

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2017 and 2016.

	For the Year Ending December 31,
													Period to Period Change
	2017			As a % of Sales			2016			As a % of Sales			$			Percent %
Net Sales		11,343,177			100.0	%		13,906,394			100.0	%		(2,563,217	)		(18.4	)
Cost of Goods Sold		11,136,426			98.2			12,473,965			89.7			(1,337,539	)		(10.7	)
Gross Profit		206,751			1.8			1,432,429			10.3			(1,225,678	)		(85.6	)
Operating Expenses
Selling expenses		1,944,989			17.1			2,164,780			15.6			(219,791	)		(10.2	)
General and administrative expenses		2,153,225			19.0			3,997,304			28.7			(1,844,079	)		(46.1	)
Non-cash compensation expenses		178,944			1.6			435,794			3.1			(256,850	)		(58.9	)
Research and development expenses		536,848			4.7			626,147			4.5			(89,299	)		(14.3	)
Impairment of goodwill		-			-			7,343,208			52.8			(7,343,208	)		(100.0	)
Total Operating Expenses		4,814,006			42.4			14,567,233			104.8			(9,753,227	)		(67.0	)
Loss from Operating		(4,607,255	)		(40.6	)		(13,134,804	)		(94.5	)		8,527,549			(64.9	)
Other Income (Expense)
Interest and other income		1,515			0.0			968			0.0			547			56.5
Interest (expense)		(45,888	)		(0.4	)		(38,945	)		(0.3	)		(6,943	)		17.8
Loss on investments		-			-			(16,621	)		(0.1	)		16,621			(100.0	)
Loss on currency transactions		(102,470	)		(0.9	)		(9,555	)		(0.1	)		(92,915	)		972.4
Loss on sale of fixed assets		(24,065	)		(0.2	)		-			0.0			(24,065	)		-
Total Other Income (Expense)		(170,908	)		(1.5	)		(64,153	)		(0.5	)		(106,755	)		166.4
Income (loss) Before Income Taxes		(4,778,163	)		(42.1	)		(13,198,957	)		(94.9	)		8,420,794			(63.8	)
Income Taxes Expense (Benefit)		(317,810	)		(2.8	)		3,219,677			23.2			(2,901,867	)		(90.1	)
Net Income (Loss)		(4,460,353	)		(39.3	)		(16,418,634	)		(118.1	)		11,958,281			(72.8	)

Revenues

Net sales for the year ended December 31, 2017 were $11,343,177 compared to $13,906,394 for the same period in 2016, representing a decrease of $2,563,217, or 18.4%. The decrease in sales consist of an increase in sales of DPFs of $1,409,623, a decrease in sales of liquid filters of $3,743,655 and a decrease in sales of kiln furniture $229,185 respectively. The increase in demand for our DPFs is mainly due to an increase in market activity in China compared to the same period last year. The decrease in demand for our liquid filters and systems is due significant larger water filtrations systems sales in 2016 compared to 2017 and the delay in marine scrubber systems sales anticipated in 2017 compared to 2016. The decrease in demand for our kiln furniture is due to our decision to close down this product line. 

Gross Profit

 Gross profit for the year ended December 31, 2017 was $206,751 compared to $1,432,429 for the same period in 2016, representing a decrease of $1,225,678, or 85.6%. The decrease in gross profit was due to lower sales activity in general, lower gross margin and due to lower sales activity for our liquid filters and systems, which historically have a higher gross margin, compared to the same period in 2016. Included in the gross profit is depreciation of $939,500 and $1,378,277 for the years ended December 31, 2017 and 2016, respectively.

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Expenses

 Total operating expenses for the year ended December 31, 2017 were $4,814,006, representing a decrease of $9,753,227 or 67.0%, compared to $14,567,233 for the same period in 2016. This decrease in operating expenses is attributable to a decrease in selling expenses of $219,791 or 10.2%, a decrease in general and administrative expenses of $1,844,079 or 46.1%, a decrease in non-cash compensation expenses of $256,850 or 58.9%, a decrease in research and development expenses of $89,299 or 14.3% and a decrease in impairment of goodwill of $7,343,208 compared to the same period in 2016.

Selling expenses for the year ended December 31, 2017 were $1,944,989 compared to $2,164,780 for the same period in 2016, representing a decrease of $219,791 or 10.2%. This decrease is attributable to a cost reduction in selling expenses in general and a centralization of the sales structure for the year ending December 31, 2017 compared to the same period in 2016.

General and administrative expenses for the year ended December 31, 2017 were $2,153,225 compared to $3,997,304 for the same period in 2016, representing a decrease of $1,844,079, or 46.1%. This decrease is attributable to a general cost reduction in general and administrative a decrease in the provision for bad debt of approximately $1.3 million.

Non-cash compensation expenses for the year ended December 31, 2017 were $178,944 compared to $435,794 for the same period in 2016, representing a decrease of $256,850 or 58.9%. This decrease is attributable to decreased non-cash compensation expense for stock options granted to employees and warrants issued for services offset by an increase in non-cash compensation expense for stock awards issued to the board of directors. 

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

	2017		2016
Compensation upon vesting of stock options granted to employees	$	70,477	$	307,493
Compensation for vesting of restricted stock awards issued to the board of directors		90,833		77,667
Value of warrants issued for services		17,634		50,634
Total	$	178,944	$	435,794

Research and development expenses for the year ended December 31, 2017 were $536,848 compared to $626,147 for the same period in 2016, representing a decrease of $89,299, or 14.3%. This decrease is attributable to decreased research and development expenditures for the period ended December 31, 2017 compared to the same period in 2016 as the Company focuses on the marine scrubber industry.

Impairment of goodwill for the year ended December 31, 2017 was $0 compared to $7,343,208 for the same period in 2016, representing a decrease of $7,343,208. The Company recorded an impairment charge on goodwill, during the year ended December 31, 2016, as managements estimated fair value of the reporting unit did not exceeded the carrying value during 2016 fourth quarter testing.

Net Loss

Net loss attributable to the Company for the year ended December 31, 2017 was a loss of $4,460,353 compared to a loss of $16,418,634 for the comparable period in 2016, representing a decrease in loss of $11,958,281.

This improvement was primarily attributable to a decrease in operating expenses of $9,753,227, a decrease in tax expenses of $2,901,867 offset by a decrease in our gross profit of $1,225,678. The largest contributor to the decrease in operating expenses was the impairment write down of $7,343,208, which the Company made in 2016.

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Liquidity and Capital Resources

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern.

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, 2018, we had cash of $3,776,111 and working capital of $6,753,593, and at December 31, 2017, we had cash of 2,486,199 and working capital of $4,659,877. At December 31, 2018, our working capital had increased by $2,093,716, compared to December 31, 2017. Total current assets were $11,373,206 and $9,427,697 at December 31, 2018 and at December 31, 2017, respectively, and total current liabilities were $4,619,613 and $4,767,820 at December 31, 2018 and at December 31, 2017, respectively.

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guarantee credit line of DKK 94,620 (approximately $14,514 at December 31, 2018) with a bank, subject to certain base limitations. 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.

We believe that the cash on hand and positive cash flows generated from operations will provide adequate resources to meet our operating commitments and interest payments for at least the next 12 months from the date of this report.

Cash Flows

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

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, 2018 was $3,914,174, representing an increase of $598,812 compared to cash used by operating activities of $3,315,362 for the year ended December 31, 2017. The increase in cash used by operating activities for the year ended December 31, 2018 was mainly due to the net loss before tax of $4,179,958, increase in accounts receivables of $999,099, increase in prepaid expenses of $184,009, decrease in accrued expenses of $692,550 and off-set by a decrease in inventory of $22,427, a decrease in accounts payable of $347,249 and an increase in long-term contracts of $75,315.

The net loss and the variations in working capital were all due to increase in activities.

Net cash used in investing activities was $170,890 for the year ended December 31, 2018, as compared to net cash used in investing activities of $123,673 for the year ended December 31, 2017. Cash used in investing activities increased $47,217 for the year ended December 31, 2018, compared to the year ended December 31, 2017. This increase was due to a period over period increase of $41,199 in the purchase of property and equipment.

Cash provided by financing activities was $6,017,280 for the year ended December 31, 2018, as compared to cash provided by financing activities of $4,104,700 for the year ended December 31, 2017. This change of $1,912,580 in cash provided by financing activities for the year ended December 31, 2018, compared to the year ended December 31, 2017, was mainly due to cash received in connection with a registered public offering on April 16, 2018 that generated net proceeds of $5,865,077, which was greater than proceeds received from private placements in May and November of 2017.

28

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

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, 2017 was $3,315,362 representing a decrease of $3,731,156 compared to cash provided by operating activities of $415,794 for the year ended December 31, 2016. The $3,731,156 decrease in cash provided by operating activities for the year ended December 31, 2017 was mainly due to decreases in account payable of $487,458, a net loss of $4,460,353 and increase in accounts receivables of $241,256, offset by a decrease in inventory of $564,359, an increase in accrued expenses of $80,797, and an increase in long-term contracts of $353,070.

The decreases in accounts payable, the net loss, the increase in accounts receivables, the decrease in inventory, the increase in accrued expenses and the increase in long-term contracts were all due to normal variations in the ordinary course of business.

Cash used in investing activities was $123,673 for the year ended December 31, 2017, as compared to cash used in investing activities of $373,740 for the year ended December 31, 2016. Cash used in investing activities decreased of $250,067 for the year ended December 31, 2017, compared to the year ended December 31, 2016. This decrease was due to a period over period decrease of $236,067 in the purchase of property and proceeds from sale of property and equipment of $14,001 in 2017.

Cash provided by financing activities was $4,101,700 for the year ended December 31, 2017, as compared to cash used by financing activities of $202,619 for the year ended December 31, 2016. This change of $4,307,319 in cash provided by financing activities for the year ended December 31, 2017, compared to the year ended December 31, 2016, was mainly due to cash received in connection with the private placement on May 19, 2017 where the Company raised $1,825,000 issuing 7,300,000 shares of common stock and cash received in connection with the private placement in November 2017 where the Company raised $2,641,004 issuing 2,200,837 shares of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock automatically converted into 8,803,348 common shares on May 14, 2018.

Off Balance Sheet Arrangements

As of December 31, 2018, 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. The office leases expire in February 2021 and in August 2024, respectively. 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, 2018 are as follows:

Year ending December 31,	Lease Payments
2019		712,250
2020		578,997
2021		402,584
2022		350,249
Thereafter		560,977
Total Minimum Lease Payments	$	2,605,057

The Increase in the future minimum lease payments as of December 31, 2018, as compared to December 31, 2017 is due to the extension of the lease for our headquarters, which expired in August of 2018 and was extended until August of 2024.

29

Significant Accounting Policies and Critical Accounting Estimates

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

● The assessment of revenue recognition, which impacts revenue and cost of sales;

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

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

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

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

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

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

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

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

The roll forward of the allowance for doubtful accounts for the year ended December 31, 2018 and December 31, 2017 was as follows:

	2018			2017
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the periods		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

Goodwill and Definite-life intangible assets

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

Goodwill

Goodwill is evaluated for impairment annually in the fourth quarter of the Company’s fiscal year, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. The Company recorded an impairment charge of $0 on goodwill, during the years ended December 31, 2018 and 2017, as management's estimated fair value of the reporting unit did not exceed the carrying value during 2018 or 2017 fourth quarter testing.

30

Long-Lived Assets

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

Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows. Due to our asset usage model and the interchangeable nature of our ceramic filter manufacturing capacity, we must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make manufacturing process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific filter manufacturing tools and building improvements. If we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful lives. During the years ended December 31, 2018 and 2017, no impairment charge of long-lived assets has been recorded. 

Revenue Recognition and Sales Incentives

On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified-retrospective method as of January 1, 2018. The new revenue standard did not have a material impact on revenue recognition. The Company does not expect the impact of the adoption of the new standard to be material to net income on an ongoing basis.

For membrane and DPF product sale, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied which occurs when control of the membrane, DPF or services are transferred to the customer. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer.  Revenue for service contracts are recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise for the right to payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-Payments received prior to satisfaction of performance obligations are recorded as a customer deposit liability. Given the insignificant days between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer upon shipment of the system based on the terms of the contract. For the majority of Systems, the Company transfers control and recognizes revenue when products are shipped to the customer according to the terms of the contract or purchase order. In connection with the system it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from the production facility in Hobro. As part of the delivery performance, the customer is normally offered a commissioning (a final assembly and configuration at a place designated by the customer) and this commission is therefore considered a second delivery performance and is valued at cost, based on the contractual performance given a standard gross margin rate. This second performance delivery is recognized as revenue at the time of delivery of the commissioning together with the cost incurred. Part of the invoicing to the customer is also contributed to the commissioning and at transfer of the control of the system, i.e. the first performance obligation, some of the invoicing will still be awaiting the commissioning and is therefore recognized as Other receivable while the revenue related to the commissioning is recognized as Deferred Income.

31

Aftermarket sales represent part sales, extended warranty and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer or services are provided. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract, which reflects the costs to perform under these contracts, which corresponds with, and thereby depicts the transfer of control to the customer. For invoicing to customers where the transfer of control has not occurred (prepayments), the invoiced amount is recognized as Contract assets / Contracts liabilities.

The Company has received long-term contracts for grants from government entities for development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our Balance Sheets as contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our Balance Sheets as contract liabilities.

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

Income Taxes

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

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

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

32

Inventory

The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory. As of December 31, 2018, we had total furnace parts and supplies of $596,806, raw materials of $1,659,827, work-in-process inventory of $1,691,175, total finished goods inventory of $1,596,042 and a reserve for obsolescence of $1,111,794. 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. The Company has been operating below capacity and excess capacity charges had been recognized as cost of sales.

Loss Contingencies

We are subject to various legal and administrative proceedings and asserted and potential claims, accruals related to product warranties and potential asset impairments (loss contingencies) that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is required if there is at least a reasonable possibility that a loss has been incurred. The outcomes of legal and administrative proceedings and claims, and the estimation of product warranties and asset impairments, are subject to significant uncertainty. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. With respect to estimating the losses associated with repairing and replacing parts in connection with product warranty, we make judgments with respect to customer claim rates. Current warranty estimates are immaterial for accrual or further disclosure. At least quarterly, we review the status of each significant matter, and we may revise our estimates. These revisions could have a material impact on our results of operations and financial position. 

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

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

33

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm	35
Consolidated Balance Sheets at December 31, 2018 and 2017	37
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017	39
Consolidated Statement of Other Comprehensive Income for the years ended December 31, 2018 and 2017	40
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2018 and 2017	41
Consolidated Statement of Cash Flows for the years ended December 31, 2018 and 2017	42
Notes to the Consolidated Financial Statements	44

34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of LiqTech International, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of LiqTech International, Inc. (“the Company”) as of December 31, 2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audit provides a reasonable basis for our opinion. 

/s/ Sadler, Gibb & Associates, LLC

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

Salt Lake City, UT

March 29, 2019 

35

4397 SOUTH ALBRIGHT DRIVE, SALT LAKE CITY, UTAH 84124

(801) 277-2763 PHONE 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

LIQTECH INTERNATIONAL INC. AND SUBSIDIARIES

Industriparken 22C, DK

2750 Ballerup, Denmark

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LIQTECH INTERNATIONAL INC. and subsidiaries (“the Company”) as of December 31, 2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2017 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal security laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our Audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Gregory & Associates, LLC.

We have served as the Company’s auditor since 2011 through July 2018.

March 23, 2018

Salt Lake City, Utah

36

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of		As of
	December 31,		December 31,
	2018		2017
Current Assets:
Cash	$	3,776,111	$	2,486,199
Accounts receivable, net		1,308,122		1,124,842
Other receivables		1,098,796		636,539
Contract assets		624,275		490,100
Inventories, net		4,432,055		4,661,866
Prepaid expenses		133,847		28,151
Total Current Assets		11,373,206		9,427,697
Property and Equipment, net		1,431,649		1,959,205
Other Assets:
Investments at costs		5,714		6,001
Other intangible assets		748		3,349
Deposits		347,932		283,686
Total Other Assets		354,394		293,036
Total Assets	$	13,159,249	$	11,679,938

(Continued)

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

37

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of			As of
	December 31,			December 31,
	2018			2017
Current Liabilities:
Current portion of capital lease obligations	$	13,789		$	26,186
Accounts payable		2,122,479			1,775,230
Accrued expenses		1,868,229			1,725,566
Contract liabilities		516,335			306,845
Deferred revenue / customers deposits		98,781			933,994
Total Current Liabilities		4,619,613			4,767,821
Total Liabilities		4,619,613			4,767,821
Commitment and Contingencies (See Note 8)
Stockholders' Equity:
Series A Mandatory Convertible Preferred stock; par value $0.001, 10,000,000 shares authorized, 0 and 2,200,837 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		-			2,201
Common stock; par value $0.001, 100,000,000 shares authorized 72,915,547 and 44,229,264 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		72,916			44,430
Additional paid-in capital		46,521,299			40,457,907
Accumulated deficit		(32,286,224	)		(28,471,696	)
Deferred compensation		(23,499	)		(79,933	)
Accumulated other comprehensive loss		(5,744,856	)		(5,040,792	)
Total Stockholders' Equity		8,539,636			6,912,117
Total Liabilities and Stockholders' Equity	$	13,159,249		$	11,679,938

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

38

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2018			2017
Net Sales	$	12,232,088		$	11,343,177
Cost of Goods Sold		11,165,944			11,136,426
Gross Profit		1,066,144			206,751
Operating Expenses:
Selling expenses		1,703,327			1,944,989
General and administrative expenses		3,187,311			2,332,169
Research and development expenses		661,014			536,848
Total Operating Expense		5,551,652			4,814,006
Loss from Operations		(4,485,508	)		(4,607,255	)
Other Income (Expense)
Interest and other income		28,401			1,515
Interest expense		(71,781	)		(45,888	)
Gain (loss) on currency transactions		344,023			(102,470	)
Gain (loss) on sale of fixed assets		4,907			(24,065	)
Total Other Income (Expense)		305,550			(170,908	)
Loss Before Income Taxes		(4,179,958	)		(4,778,163	)
Income Tax Expense (Benefit)		(365,430	)		(317,810	)
Net Loss		(3,814,528	)		(4,460,353	)
Basic and Diluted Loss Per Share	$	(0.06	)	$	(0.11	)
Weighted Average Common Shares Outstanding		63,843,634			41,595,856

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

39

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	For the Years Ended
	December 31,
	2018			2017
Net Loss		(3,814,528	)		(4,460,353	)
Other Comprehensive Income (loss) - Currency Translation, Net		(704,064	)		650,509
Total Comprehensive Loss	$	(4,518,592	)	$	(3,809,844	)

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

40

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2018 and 2017

																	Accumulated Other
											Additional			Retained			Compre-			Deferred
	Preferred Stock						Common Stock				Paid-in			accumulated			hensive			Compen-
	Shares			Amount			Shares		Amount		Capital			Deficit			Income/(Loss)			sation
BALANCE, December 31, 2016		-			-			36,835,514		36,836		36,084,117			(24,011,343	)		(5,691,301	)		(148,561	)
Common shares issued for cash at $0.25 per share, net of offering cost of $65,000, May 2017								7,300,000		7,300		1,752,700
Mandatory Convertible Preferred shares issued for cash at $1.20 per share, net of offering cost of $127,736, November 2017, Convertible into 8,803,348 common shares		2,200,837			2,201							2,511,067
Common shares issued at $0.64 per share for services provided and to be provided by the board of directors								93,750		94		59,906									(60,000	)
Common shares issued at $0.35 per share for services provided and to be provided by the board of directors								200,000		200		69,800									(70,000	)
Forfeiture of Stock Based Compensation												(19,683	)								19,684
Stock based compensation expenses recognized for the year ended December 31, 2017																					178,944
Currency translation, net																		650,509
Net Loss for the year ended December 31, 2017															(4,460,353	)
BALANCE, December 31, 2017		2,200,837			2,201			44,429,264		44,430		40,457,907			(28,471,696	)		(5,040,792	)		(79,933	)
Common shares issued at $0.34 per share, net offering cost of $747,423 April 2018								19,448,529		19,449		5,845,628
Conversion of mandatory preferred stock issued in November 2017 into 4 common shares per preferred stock		(2,200,837	)		(2,201	)		8,803,348		8,803		(6,602	)
Common shares issued at $1.01 per share for services provided and to be provided by the board of directors								59,406		59		59,941
Stock based compensation expenses recognized for the year ended December 31, 2018																					56,434
Exercising of stock options								175,000		175		164,425
Currency translation, net																		(704,064	)
Net Loss for the year ended December 31, 2018															(3,814,528	)
BALANCE, December 31, 2018		-			-			72,915,547		72,916		46,521,299			(32,286,224	)		(5,744,856	)		(23,499	)

41

LiqTech International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	For the years Ended
	December 31,
	2018			2017
Cash Flows from Operating Activities:
Net Loss	$	(3,814,528	)	$	(4,460,353	)
Adjustments to reconcile net (loss) to net cash provided (used) by operations:
Depreciation and amortization		648,734			939,500
Non-cash compensation		116,434			178,944
Bad debt expense		353,562			(102,189	)
Reserve for obsolete inventory		207,384			(206,155	)
Gain on sale of equipment		(4,907	)		24,065
Changes in assets and liabilities:
Accounts receivable		(999,099	)		(241,256	)
Contracts assets		(134,175	)		-
Inventory		32,241			564,359
Prepaid expenses		(184,009	)		41,314
Accounts payable		347,249			(487,458	)
Accrued expenses		(692,550	)		80,797
Contract liabilities		209,490			353,070
Total Adjustments		(99,646	)		1,144,991
Net Cash used in Operating Activities		(3,914,174	)		(3,315,362	)
Cash Flows from Investing Activities:
Purchase of property and equipment		(178,872	)		(137,674	)
Proceeds from sale/recovery of property and equipment		7,982			14,001
Net Cash used in Investing Activities		(170,890	)		(123,673	)
Cash Flows from Financing Activities:
Net payments on capital lease obligation		(12,397	)		(113,639	)
Payments on loans payable		-			(54,929	)
Proceeds from issuance of mandatory convertible preferred stock		-			2,641,004
Payment of stock offering costs		(747,423	)		(192,736	)
Proceeds from issuance of common stock		6,777,100			1,825,000
Net Cash Provided by Financing Activities		6,017,280			4,104,700
Loss on Currency Translation		(642,304	)		611,884
Change in Cash and Cash Equivalents		1,289,912			1,277,549
Cash and Cash Equivalents at Beginning of Period		2,486,199			1,208,650
Cash and Cash Equivalents at End of Period	$	3,776,111		$	2,486,199

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

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LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

	For the Years Ended December 31,
	2018		2017
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	44,604	$	45,888
Income Taxes	$	570	$	580

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

The consolidated financial statements include the accounts of LiqTech International, Inc. (“Parent”) and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this Annual report refer to Parent and its subsidiaries, which are set forth below. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide liquid and diesel particulate air filters in United States, Canada, Europe, Asia and South America. Set forth below is a description of Parent and each of its subsidiaries:

LiqTech International, Inc., a Nevada corporation organized in July 2004, formerly known as Blue Moose Media, Inc.

LiqTech USA, a Delaware corporation and a wholly-owned subsidiary of Parent formed in May 2011.

LiqTech International AS, a Danish corporation, incorporated on January 15, 2000 (“LiqTech Int. DK”), a 100% owned subsidiary of LiqTech USA, engages in development, design, application, marketing and sales of membranes on ceramic diesel particulate and liquid filters and catalytic converters in Europe, Asia and South America.

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

LiqTech Systems AS, a Danish Corporation ("LiqTech Systems") (Formerly Provital Solutions A/S) was incorporated on September 1, 2009 and engages in the manufacture of fully automated filtering systems for application within the pool and spa markets, marine applications, and a number of industrial applications within Denmark and international markets.

LiqTech Germany (“LiqTech Germany”) a 100% owned subsidiary of LiqTech Int. DK, incorporated in Germany on December 9, 2011, engages in marketing and sale of liquid filters in Germany. The Company is in the process of closing operations, which is expected to be completed during 2019.

LiqTech PTE Ltd, (“LiqTech Sing”) a 95% owned subsidiary of LiqTech Int. DK, incorporated in Singapore on January 19, 2012, engages in marketing and sale of liquid filters in Singapore and other countries in the area. The Company is in the process of closing operations, which is expected to be completed during 2019.

Consolidation -- The consolidated financial statements include the accounts and operations of the Company. The non-controlling interests in the net assets of the subsidiaries are recorded in equity. The non-controlling interests of the results of operations of the subsidiaries are included in the results of operations and recorded as the non-controlling interest in subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.

Functional Currency / Foreign currency translation -- The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The Functional Currency of LiqTech Int. DK and LiqTech Systems AS is the Danish Krone (“DKK”), the functional currency of LiqTech Germany is the Euro and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is U.S. Dollar for the purpose of these consolidated financial statements. The foreign subsidiaries balance sheet accounts are translated into U.S. Dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the years ended December 31, 2018 and 2017. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Reclassification – Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had no impact on total financial position, net income, or stockholder’s equity.

Cash, Cash Equivalents and Restricted Cash -- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company had no balances held in a financial institution in the United States in excess of federally insured amounts at December 31, 2018 and December 31, 2017.

44

Accounts Receivable -- Accounts receivables consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts which reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. 

The roll forward of the allowance for doubtful accounts for the year ended December 31, 2018 and December 31, 2017 is as follows:

	2018			2017
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the periods		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

Inventory -- Inventory is carried at the lower of cost or market, as determined on the first-in, first-out method.

Property and Equipment -- Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years (See Note 3).

Long-Term Investments -- Investments in non-consolidated companies are included in long-term investments in the consolidated balance sheet and are accounted for under the cost method and equity method. For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts based on information requested from these privately held companies. Generally, this information may be more limited, may not be as timely as and may be less accurate than information available from publicly traded companies. Assessing each investment's carrying value requires significant judgment by management. If it is determined that there is an-other-than-temporary decline in the fair value of a non-public equity security, we write-down the investment to its fair value and record the related write-down as an investment loss in the consolidated statement of operations.

Long Lived Assets – The Company evaluates its long-lived assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the asset.

Revenue Recognition and Sales Incentives -- On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified-retrospective method as of January 1, 2018. The new revenue standard did not have a material impact on revenue recognition. The Company does not expect the impact of the adoption of the new standard to be material to net income on an ongoing basis.

For membrane and DPF product sale, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied which occurs when control of the membrane, DPF or services are transferred to the customer. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer.  Revenue for service contracts are recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise for the right to payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Pre-Payments received prior to satisfaction of performance obligations are recorded as a customer deposit liability. Given the insignificant days between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers.

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For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer upon shipment of the system based on the terms of the contract. For the majority of Systems, the Company transfers control and recognizes revenue when products are shipped to the customer according to the terms of the contract or purchase order. In connection with the system it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from the production facility in Hobro. As part of the delivery performance, the customer is normally offered a commissioning (a final assembly and configuration at a place designated by the customer) and this commission is therefore considered a second delivery performance and is valued at cost, based on the contractual performance given a standard gross margin rate. This second performance delivery is recognized as revenue at the time of delivery of the commissioning together with the cost incurred. Part of the invoicing to the customer is also contributed to the commissioning and at transfer of the control of the system, i.e. the first performance obligation, some of the invoicing will still be awaiting the commissioning and is therefore recognized as Other receivable while the revenue related to the commissioning is recognized as Deferred Income.

Aftermarket sales represent part sales, extended warranty and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer or services are provided. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract, which reflects the costs to perform under these contracts, which corresponds with, and thereby depicts the transfer of control to the customer. For invoicing to customers where the transfer of control has not occurred (prepayments), the invoiced amount is recognized as Contract assets / Contracts liabilities.

The Company has received long-term contracts for grants from government entities for development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our Balance Sheets as contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our Balance Sheets as contract liabilities.

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. 

Advertising Cost -- Costs incurred in connection with advertising of the Company’s products is expensed as incurred. Such costs amounted to $38,951 and $16,350, for the years ended December 31, 2018 and 2017, respectively.

Research and Development Cost -- The Company expenses research and development costs for the development of new products as incurred. Included in operating expense for the years ended December 31, 2018 and 2017 were $661,014, and $536,848, respectively, of research and development costs.

Income Taxes -- The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes. This statement requires an asset and liability approach for accounting for income taxes.

Loss Per Share -- The Company calculates loss per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares included in the diluted earnings per share calculation include in-the-money stock options and warrants that have been granted but have not been exercised.

Stock Options and Awards -- The Companies have granted stock options to certain key employees. See Note 11. During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Non-cash compensation costs of $56,434 and $178,944 have been recognized for the vesting of options and stock awards granted to employees.

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Fair Value of Financial Instruments -- The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

● Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

● Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

● Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their short-term maturities.

Accounting Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets allowance for doubtful accounts receivable, contract assets, reserve for obsolete inventory, depreciation and impairment of property plant and equipment and contract liabilities commitment and contingencies, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

Recent Accounting Pronouncements -- On February 25, 2016, the FASB issued ASU 2016-02, "Leases," which makes many changes to accounting for leases. The standard will be effective for public companies with interim and annual periods beginning after December 15, 2018. One of the most notable changes is many of the leases that are currently accounted for as operating leases will have to be capitalized and accounted for similarly to how capital leases are currently accounted for, unless certain criteria are met. We have evaluated the impact this standard will have on our lease accounting. The standard is requiring us to capitalize a right of use asset and lease liability equal to the present value of the future minimum lease payments disclosed in Note 7. The evaluation concludes that the impact of this standard is not considered material.   

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”). ASU 2018-07 provides for improvements to nonemployee share-based payment accounting by expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The awards will be measured at grant date, consistent with accounting for employee share-based payment awards. The measurement date has been redefined as the date at which the grantor and grantee reach a mutual understanding of the key terms and conditions of the award. The requirement to reassess classification of equity-classified awards upon vesting has been eliminated.

Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements. 

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NOTE 2 - INVENTORY

Inventory consisted of the following at December 31, 2018 and December 31, 2017:

	2018			2017
Furnace parts and supplies	$	596,806		$	400,589
Raw materials		1,659,826			1,260,209
Work in process		1,691,175			2,123,418
Finished goods and filtration systems		1,596,042			2,297,743
Reserve for obsolescence		(1,111,794	)		(1,420,093	)
Net Inventory	$	4,432,055		$	4,661,866

A portion of the inventory, $4,011,203, is held as part of a collateral on a line of credit and guarantees with financial institutions. See Note 6.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2018 and December 31, 2017:

	Useful Life			2018			2017
Production equipment	3	-	10	$	9,614,189		$	10,114,398
Lab equipment	3	-	10		82,930			87,094
Computer equipment	3	-	5		204,807			204,553
Vehicles	3	-	5		71,711			75,312
Furniture and fixture		5			111,417			106,047
Leasehold improvements		10			1,037,678			1,076,731
					11,122,732			11,664,135
Less Accumulated Depreciation					(9,691,083	)		(9,704,930	)
Net Property and Equipment				$	1,431,649		$	1,959,205

Depreciation expense amounted to $819,070 and $937,235, for the year ended December 31, 2018 and 2017, respectively. A portion of the property and equipment is held as collateral on a line of credit and guarantees with financial institutions. See Note 6.

NOTE 4 – INVESTMENTS AT COST

The following tables summarize Level 1, 2 and 3 financial assets and financial (liabilities) by their classification in the Statement of Financial Position:

As of December 31, 2018	Level 1		Level 2		Level 3
Investments		-		-		5,714
Total		-		-		5,714

As of December 31, 2017	Level 1		Level 2		Level 3
Investments		-		-		6,001
Total		-		-		6,001

At December 31, 2018, and December 31, 2017, our total investments of $5,714 and $6,001 respectively, consisted of an investment of EUR 5,000 in LEA Technology in France to strengthen our sales channels in the French market.

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NOTE 5 - DEFINITE-LIFE INTANGIBLE ASSETS

At December 31, 2018 and December 31, 2017, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products of $748 and $3,349, respectively. The patents are recorded at cost and amortized over ten years. Amortization expense for the years ended December 31, 2018 and 2017 was $2,519 and $2,265, respectively. Expected future amortization expense for the years ended are as follows:

Year ending December 31,	Amortization Expenses
2019		748
Thereafter		-
	$	748

NOTE 6 - LINES OF CREDIT

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guarantee line of DKK 94,620 (approximately $14,514 at December 31, 2018) with a bank, subject to certain base limitations. As of December 31, 2018, we had DKK 94,620 (approximately $14,514) 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. The Company has no other available lines of credit.

NOTE 7 - LEASES

Operating Leases -- The Company leases office and production facilities under operating lease agreements expiring within 12 months, in February 2021 and in August 2024 respectively. 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, 2018 are as follows:

Year ending December 31,	Lease Payments
2019		712,250
2020		578,997
2021		402,584
2022		350,249
Thereafter		560,977
Total Minimum Lease Payments	$	2,605,057

Lease expense charged to operations was $642,546 and $651,032, for the year ended December 31, 2018, and 2017.

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Capital Leases -- The Company leases equipment on various variable rate capital leases currently calling for monthly payments of approximately $2,093 expiring through July 2019.

Included in property and equipment, at December 31, 2018 and December 31, 2017, the Company had recorded equipment on capital lease at $1,182,778 and $1,328,672, respectively, with related accumulated depreciation of $1,169,272 and $1,301,870, respectively. During the years ended December 31, 2018 and 2017, depreciation expense for equipment on capital lease amounted to $11,180, and $39,623, respectively, and has been included in depreciation expense. During the years ended December 31, 2018 and 2017, interest expense on a capital lease obligation amounted to $5,021 and $6,290, respectively.

Future minimum capital lease payments are as follows for the years ended December 31:

Year ending December 31,	Lease Payments
2019		14,654
Thereafter		-
Total minimum lease payments		14,654
Less amount representing interest		(865	)
Present value of minimum lease payments		13,789
Less Current Portion		(13,789	)
	$	-

NOTE 8 - AGREEMENTS, COMMITMENTS AND CONTINGENCIES

401(K) Profit Sharing Plan -- LiqTech NA has a 401(k)-profit sharing plan and trust covering certain eligible employees. The amount LiqTech NA contributes is discretionary. For the year ending December 31, 2018 and 2017, matching contributions were expensed and totaled $11,691 and $11,347, respectively.

Contingencies -- From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

On November 20, 2018 a former supplier to Liqtech International AS contacted the Company with a claim of DKK448,500 ($68,800) alleging that a former Agreement from 2016 had not been respected. The Company has contested the claim due to lack of evidence to support the claim. No provision has been made as per December 31, 2018 as the Company does not expect the claim to materialize in any payments to the former supplier.

On February 27, 2019, LiqTech Systems AS was contacted by a former supplier alleging that the Company owed DKK543,905 ($83,400) for services rendered in 2017, The claimant has previously filed a lawsuit to claim payment for the services, which was denied by the Company due to severe errors in the services supplied, and the claim was rejected by the court of law in 2018. Due to the nature of the new claim and the previous ruling from the court of law, no provision has been made as per December 31, 2018.

 

On December 2017, we reported the following legal proceeding which have been ended in 2018 with the result below.

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 (“Defendant”), the 40% owner of the Venture, 750,000 Euros before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. In 2018 the lawsuit was revoked by the Italian court and the Plaintiff was ordered to pay the cost occurred in connection with the case to the Defendant.

On December 20, 2017, the Company received a demand from a customer for approximately $1,098,678 from the previous installation of a water treatment system. The customer was disputing that the system complied with the contact based on testing inputs to the system outside the parameters of the contract. The Company completed the installation and testing of the system and maintained that it was in compliance with the contract’s requirements. In 2018 the demand was settled between the parties and resulted in a final payment to the Company of EUR380,000 as a full and final settlement of the dispute. The amount was deemed income in Q4 2018.

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guarantee line of DKK 94,620 (approximately $14,514 at December 31, 2018) with a bank, subject to certain base limitations. As of December 31, 2018, we had DKK 94,620 (approximately $14,514) 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. The Company has no other available lines of credit.

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NOTE 9 - INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes; which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carry forwards. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax position meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%, Actual results could differ from these estimates.

As of December 31, 2018, the Company had net operating loss carryovers of approximately $15,749,964 for U.S. federal tax purposes expiring through 2037; approximately $7,454,447 for Danish tax purposes, which do not expire; approximately $475,161 for German tax purposes, which do not expire and approximately $617,359 for Singapore tax purposes which do not expire.

As of December 31, 2018 and December 31, 2017, the Company established a valuation allowance of $3,293,000 and $2,833,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively, $1,892,000 and $1,850,000 for the tax components of LiqTech International AS and LiqTech Systems, respectively, $132,000 and $139,000 for the tax component of LiqTech Germany and $105,000 and $110,000 for the tax component of LiqTech Singapore as management could not determine that it was more than likely not that sufficient income could be generated by these components to realize the resulting net operating loss carry forwards and other deferred tax assets of these components. The change in the valuation allowance for the year ended December 31, 2018 was $460,000, $42,000, $(7,000) and $(5,000) for the US, Danish, German and Singapore components. The change in the valuation allowance for the year ended December 31, 2017 was $(709,000), $755,000, $17,000 and $13,000 for the US, Danish, German and Singapore components.

The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset (liabilities) at December 31, 2018 and December 31, 2017:

	2018			2017
Vacation accrual	$	3,814		$	2,900
Allowance for doubtful accounts		734			743
Reserve for obsolete inventory		241,624			305,425
Business tax credit carryover		-			30,935
Deferred Compensation		24,451			16,787
Net operating loss carryover		5,184,992			4,646,434
Excess of book over tax depreciation		(33,182	)		(71,116	)
Valuation allowance		(5,422,432	)		(4,932,108	)
Long term deferred tax asset	$	-		$	-

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the years ended December 31, 2018 and 2017: 

	2018			2017
Computed tax at expected statutory rate	$	(877,791	)	$	(1,624,575	)
State and local income taxes, net of federal benefit		(9	)		(4,350	)
Non-US income taxed at different rates		(15,535	)		256,207
Effect of change in corporate tax rate		321,925			994,336	)
Non-deductible expenses		14,580			4,664
Valuation allowance		193,584			75,156
Other		(2,184	)		(19,248	)
Income tax expense (benefit)	$	(365,430	)	$	(317,810	)

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The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2018 and 2017 consisted of the following:

	2018			2017
Current income tax expense:
Danish	$	(365,430	)	$	(317,810	)
Federal		-			-
State		-			-
Current tax (benefit)	$	(365,430	)	$	(317,810	)
Book in excess of tax depreciation	$	(40,231	)	$	(225,111	)
Allowance for doubful accounts		-			459
Net operating loss carryover		(729,928	)		260,540
Valuation allowance		704,876			75,156
Deferred compensation		13,127			(8,287	)
Accrued vacation		(949	)		2,550
Reserve for obsolete inventory		53,105			(105,307	)
Deferred tax expense (benefit)	$	-		$	-
Total tax expense (benefit)	$	(365,430	)	$	(317,810	)

Deferred income tax expense / (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income. 

The Company files Danish and U.S. federal and Minnesota state income tax returns. LiqTech International AS and LiqTech Systems AS are generally no longer subject to tax examinations for years prior to 2014 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2014 for U.S. federal and U.S. states tax returns. 

NOTE 10 - EARNINGS PER SHARE

The following data shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potential dilutive common stock for the year ended December 31, 2018 and 2017:

	For the Year Ended December 31
	2018			2017
Net Loss attributable to LiqTech International Inc.	$	(3,814,528	)	$	(4,460,353	)
Weighted average number of common shares used in basic earnings per share		63,843,634			41,595,856
Effect of dilutive securities, stock options and warrants		-			-
Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share		63,843,634			41,595,856

For the year ended December 31, 2018, the Company had 280,000 options outstanding to purchase common stock at $0.74 per share and 400,000 warrants outstanding to purchase common stock at $1.65 per share, which were not included in the loss per share computation because their effect would be anti-dilutive.

For the year ended December 31, 2017, the Company had 455,000 options outstanding to purchase common stock at $0.74 to $1.01 per share and 400,000 warrants outstanding to purchase common stock at $1.65 per share, which were not included in the loss per share computation because their effect would be anti-dilutive. The Company previously had outstanding 2,200,837shares of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock automatically converted into 8,803,348 common shares on May 14, 2018. The 2,200,837 Mandatory Convertible Preferred shares have not been included in the calculation of loss per share for the year ended December 31, 2017 as their effect would be anti-dilutive.

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NOTE 11 - STOCKHOLDERS' EQUITY

Common Stock -- 100,000,000 authorized shares of common stock, $0.001 par value. As of December 31, 2018 and 2017, respectively, there were 72,915,547 and 44,229,264 common shares issued and outstanding.      

Voting -- Holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors. 

Dividends -- Subject to the rights and preferences of the holders of any series of preferred stock, if any, which may at the time be outstanding, holders of common stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.  

Liquidation Rights -- In the event of any liquidation, dissolution or winding-up of affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of common stock will be entitled to share ratably in the distribution of any of our remaining assets.  

Other Matters -- Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption rights or sinking fund provisions with respect to our common stock. All of the issued and outstanding shares of common stock on the date of this Annual report are validly issued, fully paid and non-assessable.

Preferred Stock -- Our Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, the qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

The Company has 10,000,000 authorized Preferred stock, $0.001 par value. As of December 31, 2018, and 2017 respectively, there were 0 and 2,200,837 mandatory convertible preferred shares issued and outstanding.

Stock Issuances 

On January 2, 2018, the Company issued 59,406 shares of restricted stock valued at $60,000 for services provided by the Board of Directors. The Company recognized the non-cash compensation during the period ending December 31, 2018. The shares vested immediately.

On April 16, 2018, the Company completed a registered public offering of its common stock. At closing, the Company issued 19,448,529 shares of common stock at a per share price of $0.34 and generated net proceeds of $5,865,077.  

On November 22, 2017, the Company completed a private placement of 2,200,837 shares of mandatory convertible preferred stock (1 to 4 conversion rate) or 8,803,348 shares of common stock at a per share price of $1.20 per preferred share for aggregate proceeds of $2,641,004, net of offering costs of $127,736. On May 17, 2018, 2,200,837 mandatory convertible preferred shares of Series A Convertible Preferred Stock were converted into 4 common shares per share, or 8,803,348 common shares.

On October 16, 2018 the Company issued 130,000 shares in connection with employees exercising shares in relation to the stock option plan entered in 2015. The shares were issued at a share price of $1.01 and generated net proceeds of $131,300.

On September 19 and November 27, 2018, the Company issued a total of 45,000 shares in connection with employees exercising shares in relation to the stock option plan entered in 2015. The shares were issued at a share price of $0.74 and generated net proceeds of $33,300.

As of December 31, 2018 and 2017, the Company has recorded non-cash compensation expense of $100,667 and $90,833 relating to the awards, respectively.   

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Common Stock Purchase Warrants 

A summary of the status of the warrants outstanding at December 31, 2018 is presented below:

		Warrants Outstanding						Warrants Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	1.65		400,000		0.57	$	1.65		400,000	$	1.65
Total			400,000		0.57	$	1.65		400,000	$	1.65

At December 31, 2018 and 2017, the Company had zero non-vested warrants. We have recorded non-cash compensation expense of $0 and $17,634 for the year ended December 31, 2018 and 2017 related to the warrants issued.

The exercise price of the warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions of the outstanding shares of common stock and combinations of the outstanding shares of common stock. For so long as the warrants remain outstanding, we are required to keep reserved from our authorized and unissued shares of common stock a sufficient number of shares to provide for the issuance of the shares underlying the warrants.

Stock Options 

In August 2015, the Company’s Board of Directors adopted a Stock Option Plan (the “Plan”). Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, officers, and directors of the Company. At December 31, 2018, 280,000 options were granted and outstanding under the Plan. 

The Company recognizes compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company recognized stock-based compensation expense related to the options of $15,767 and $70,477 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018, the Company had approximately $0 of unrecognized compensation cost related to non-vested options expected to be recognized through August 13, 2020.

A summary of the status of the options outstanding under the Company’s stock option plans at December 31, 2018 is presented below: 

		Options Outstanding						Options Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.74		280,000		1.62	$	0.74		280,000	$	0.74
Total			280,000		1.62	$	0.74		280,000	$	0.74

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A summary of the status of the options at December 31, 2018, and changes during the period is presented below:

	December 31, 2018
	Shares			Weighted Average Exercise Price		Average Remaining Life		Weighted Average Intrinsic Value
Outstanding at beginning of period		455,000		$	0.82		5.15	$	-
Granted		-			-		-		-
Exercised		(175,000	)		-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at end of period		280,000		$	0.34		1.62	$	-
Vested and expected to vest		280,000		$	0.34		1.62	$	-
Exercisable end of period		280,000		$	0.34		1.62	$	-

At December 31, 2018, the Company had zero non-vested options.

NOTE 12 - SIGNIFICANT CUSTOMERS / CONCENTRATION

For the year ended December 31, 2018, our four largest customers accounted for approximately 10%, 9%, 6% and 5%, respectively, of our net sales (approximately 31% in total). For the year ended December 31, 2017, our four largest customers accounted for approximately 16%, 10%, 7% and 5%, respectively, of our net sales (approximately 38% in total).

The Company sells products throughout the world; sales by geographical region are as follows for the year ended December 31, 2018 and 2017:

	For the Year Ended December 31
	2018		2017
United States and Canada	$	922,245	$	1,115,447
Australia		597,214		640,322
South America		49,861		89,438
Asia		1,369,735		1,608,822
Europe		9,293,033		7,889,148
	$	12,232,088	$	11,343,177

The Company’s sales by product line are as follows for the year ended December 31, 2018 and 2017:

	For the Year Ended December 31
	2018		2017
Ceramic diesel particulate	$	6,536,085	$	7,230,416
Liquid filters and systems		5,264,663		3,529,360
Development projects		431,340		458,064
Kiln furniture		-		125,337
	$	12,232,088	$	11,343,177

As of December 31, 2018, approximately 91% and 9% of the Company’s assets were located in Denmark and the United States, respectively. As of December 31, 2017, approximately 87% and 13% of the Company’s assets were located in Denmark and the United States, respectively.

NOTE 13 - SUBSEQUENT EVENT

The Company’s management reviewed material events through March 29, 2019. 

 On February 25, 2019, the Company issued a total of 146,405 shares of restricted stock valued at $82,595 for services provided by the Board of Directors. The Company recognized the non-cash compensation during the period ending December 31, 2018. The shares vested immediately.

On February 25, 2019, the Company issued 36,232 shares of restricted stock valued at $75,000 as a bonus related to the employment agreement with the CEO, Mr. Sune Mathiesen.

On January 16, January 22, February 4 and February 14, 2019 respectively, the Company issued a total of 180,000 shares in connection with employees exercising shares in relation to the stock option plan entered in 2015. The shares were issued at a share price of $0.74 and generated net proceeds of $133,200.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the design and effectiveness of our internal controls over financial reporting and disclosure controls and procedures (pursuant to Rule 13a-15(b) and (c) under the Exchange Act) as of the end of the period covered by this Annual Report. A weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a misstatement of the registrant's financial statements will not be prevented or detected on a timely basis. Based on this evaluation, Management concluded that due to the limited number of employees in the finance department, our disclosure controls and procedures were not effective as of such date due to minor weaknesses that were identified.

During 2018 we have hired additional employees to the finance department and we plan to continue remedy this lack of effectiveness during 2019 in connection with hiring additional employees in the finance department and implementing procedures to minimize the identified weaknesses. Further a planned investment in a new EPR-system to support the controls and processes of the Company will ensure that identified weaknesses will be detected on a timely basis to ensure proper a reliable financial reporting.

Notwithstanding this finding, we concluded that the consolidated financial statements included in this Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. During the year ended December 31, 2018 and 2017, the Company was not subject to requirements of Section 404(b) of the Sarbanes-Oxley Act. As such, our independent registered public accounting firm was not required to, and thus did not, audit our internal control structure.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination thereof, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the Company's management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commissions (2013). Based upon this assessment, the Company's management concluded that our internal control over financial reporting were not effective as of December 31, 2018. We did not maintain effective controls over our day-to-day transaction processing, including non-routine transactions and period-end financial reporting processes. Specifically, we identified material weaknesses related to (i) Revenue recognition, (ii) Sufficient documentation of review- and analytical-processes, (iii) Structuring of duties, controls, and permission within financial systems. (iv) Segregation of duties, and (vi) Cash disbursements. In response to the identified weakness, our management, with oversight from the Company’s Audit Committee, will dedicate necessary resources to enhance the Company’s internal control over financial reporting and remediate the identified weakness. We believe that such an emphasis, together with continued oversight of our processes and systems, will help create an increasingly strong, compliant, and thorough system of controls, which we expect will play an increasingly important role in our long-term growth.

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Limitations on the Effectiveness of Internal Controls

An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by Management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to an exemption by the SEC, which permits the Company to provide only management’s report in this Annual report. 

Item 9B. Other Information

 None

Item 10. Directors, Executive Officers and Corporate Governance

Set forth below is information concerning our directors and senior executive officers as of March 29, 2019.

Name	Age	Titles
Mark Vernon	66	Chairman of the Board
Sune Mathiesen	44	Chief Executive Officer (Principal Executive Officer), Director
Claus Toftegaard	53	Chief Financial Officer (Principal Financial and Accounting Officer)
Alexander J. Buehler	43	Director
Peyton Boswell	48	Director
Peter Leifland	64	Director

According to our bylaws, the number of directors at any one time may not be less than one or more than seven. The maximum number of directors at any one time may be increased by a vote of a majority of the directors then serving.

Our charter provides for the annual election of directors. At each annual meeting of stockholders, our directors will be elected for a one-year term and serve until their respective successors have been elected and qualified. It is anticipated that the Board of Directors will meet at least quarterly.

Executive officers are appointed by and serve at the pleasure of the Board of Directors. A brief biography of each director and executive officer follows:

Mark Vernon. Mr. Vernon was appointed chairman of the board on July 2, 2018 and has served as a Director of LiqTech International, Inc. since February 26, 2013. Mr. Vernon currently serves as a Director of Senior plc, a UK-based aerospace and industrial engineering business, following his appointment in May 2011. Mr. Vernon has had a distinguished career in the industrial engineering industry, with wide international business experience. In January 2014, Mr. Vernon retired as Chief Executive Officer and Director of Spirax-Sarco Engineering plc (London Stock Exchange: SPX), a designer and supplier of industrial steam systems and peristaltic pumping, after serving on the Spirax Board since 2006. He also served previously as Group Vice-president of Flowserve’s Flow Control Business Unit, Group Vice-president of Durco International and President of Valtek International. Mr. Vernon earned a BSc degree (magna cum laude) from Weber State University.

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Sune Mathiesen. Mr. Mathiesen was appointed as Chief Executive Officer and a Director of LiqTech International on July 29, 2014. Mr. Mathiesen has served as Chief Executive Officer and as a Director of Masu A/S, a Danish company since February 2013. He has served as CEO and Director of the Board of Provital Solutions A/S since March 2012. Before that he served as Country Manager of Broen Lab Group since August 2010 and before that as Country Manager of GPA Flowsystem since February 2000. Mr. Mathiesen has a solid background in executive management, sales and turn-arounds. Mr. Mathiesen has been working hands-on with technical products within the valves and fittings industry for the past 16 years. He has a degree in commercial science from Via College in Randers, Denmark.

Claus Toftegaard. Mr. Toftegaard has served as Chief Financial Officer of LiqTech International, Inc. since August 2018. From 2014 to 2018 he was Chief Financial Officer of Gabriel Holding A/S, a publicly traded fabric supply company in Denmark, and its Financial Manager from June of 2011 until his appointment as Chief Financial Officer. From 2006 to 2011 Mr. Toftegaard served as the CFO of RTX A/S, a publicly traded wireless solutions company in Denmark and from 2000 to 2006 he was Financial Manager of Glenco A/S / Siemens Technology Services A/S, an electrical infrastructure technology company in Denmark. Mr. Toftegaard also previously worked as an auditor at Ernst and Young in Denmark for U.S. GAAP reporting. Mr. Toftegaard holds a MSc. in Business Economics and Auditing from Aalborg University.

Alexander J. Buehler. Mr. Buehler serves as the EVP of Global Resources for Intertek, a publicly-traded company headquartered in London providing quality assurances services across multiple industries. Prior to joining Intertek in September of 2017, he served as President and CEO of Energy Maintenance Services (EMS), a provider of integrity maintenance services for major oil & gas companies throughout North America. From 2011 to 2014, Mr. Buehler served as Chief Financial Officer of Energy Recovery, Inc., a publicly traded provider of energy recovery products to the water, oil & gas, and chemical industries. Mr. Buehler previously served in executive leadership positions at Insituform Technologies, Inc., and worked for five years in the U.S. Army Corps of Engineers. He received a B.S. in Civil Engineering from the United States Military Academy at West Point and an MBA in Finance from the Wharton School at the University of Pennsylvania. 

Peyton Boswell. Mr. Boswell has served as Managing Director of EnterSolar, LLC, a provider of commercial solar photovoltaic solutions, since September of 2010. Before joining EnterSolar, Mr. Boswell led solar development activities for Fortistar, and was the founder of RenewCo V.I., a renewable energy development firm based in the U.S. Virgin Islands. Prior to entering the solar industry, Peyton was a finance and investment banking professional for 15 years with J.P. Morgan and Bank of America, primarily focused on private equity transactions, M&A advisory services, and the coverage of corporate clients across a range of industry groups. Mr. Boswell is a Chartered Financial Analyst (CFA) and has a NABCEP Technical Sales Certification. He earned a BA from Cornell University and holds an MBA from Columbia Business School.

Peter Leifland. Mr. Leifland most recently served as Executive Vice President and member of Group Management of the Alfa Laval Group. Mr. Leifland served as President of the Alfa Laval marine division during the years 2011-2018 and previously was legal counsel and held operational sales roles in many regions around the world between 1985 and 2011 for the Alfa Laval Group. Prior to joining the Alfa Laval Group, Mr. Leifland worked as a lawyer in Stockholm. Mr. Leifland served on the Board of Cision AB during the years 2005-2011, a publicly-traded company that specializes in communications management. Mr. Leifland holds a graduate degree from Brussels University in Belgium and a Bachelor of Law degree from Lund University in Sweden.

Director Expertise

The following is a brief description of the specific experience and qualifications, attributes or skills of each director that led to the conclusion that such person should serve as a director of the Company.

Mr. Vernon’s extensive global experience in the industrial engineering industry, particularly in North and South America, provides the Board with valuable insight in the markets the Company serves, as well as proven management and Board expertise.

Mr. Buehler’s experience in general management and strategic planning as well as new product development, corporate development, operations management, manufacturing process optimization, sales management, and back-office administration.   Mr. Buehler has substantial experience in the global water, oil & gas, and manufacturing industries and was critical in several acquisitions. Mr. Buehler has been determined by our Board to be an Audit Committee Financial Expert. 

Mr. Boswell's experience in establishing and growing a successful renewable energy clean tech business and prior experience in investment banking provides the Board with a unique perspective on corporate finance and strategic growth matters. Further, the Board has determined that he qualifies as an Audit Committee Financial Expert.

Mr. Leifland’s prior experience operational sales, his experience as a lawyer and his leadership as a director of a publicly traded company distinguishes him as an integral part of the Company’s Board.

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Mr. Mathiesen’s prior experience at leading businesses as the Chief Executive Officer and Chairman of companies in the technical products space distinguish him as an integral part of the Company’s management team. He is uniquely qualified to provide a perspective on matters involving the continued growth and development of the Company.

Family Relationships

None of our Directors or executive officers is related by blood, marriage or adoption.

Director Independence

Our Board of Directors has determined that Messrs. Vernon, Buehler, Boswell and Leifland are independent as that term is defined in the listing standards of the NYSE. In making these determinations, our Board of Directors has concluded that none of our independent directors has an employment, business, family or other relationship, which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Mr. Mathiesen is not considered independent under these rules because Mr. Mathiesen has influence as a significant stockholder and as the Chief Executive Officer of the Company. We expect that our independent directors will meet in executive session (without the participation of executive officers or other non-independent directors) at least two times each year.

Director Attendance at Board and Stockholder Meetings

The board of directors met formally twelve times during 2018. During 2018, each director attended at least 75% of the meetings of the board and the committees upon which he serves.

We do not have a policy regarding director attendance at our annual meetings of stockholders. Mr. Sune Mathiesen attended our annual meeting of stockholders held on December 7, 2018.

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Committees of our Board of Directors

Committee Composition

Our Board of Directors has an Audit Committee, a Compensation Committee, and a Governance Committee. The following table sets forth the current membership of each of these committees: 

Audit Committee	Compensation Committee	Governance Committee
Alexander J. Buehler *	Mark Vernon *	Mark Vernon *
Mark Vernon	Alexander J. Buehler	Alexander J. Buehler
Peyton Boswell	Peyton Boswell	Peyton Boswell
* Chairman of the committee

Audit Committee

Our Audit Committee consists of Alexander J. Buehler (Chair), Mark Vernon and Peyton Boswell each of whom is an independent director as defined in the NYSE rules and SEC rules. Based upon past employment experience in finance and other business experience requiring accounting knowledge and financial sophistication, our Board of Directors has determined that Mr. Buehler is an “Audit Committee Financial Expert” as defined in Item 407(d)(5) of Regulation S-K, and that each member of our Audit Committee is able to read and understand fundamental financial statements. We have implemented a written charter for our Audit Committee that provides that our Audit Committee is responsible for:

● appointing, compensating, retaining, overseeing and terminating our independent auditors and pre-approving all audit and non-audit services permitted to be performed by the independent auditors;

● discussing with management and the independent auditors our annual audited financial statements, our internal control over financial reporting, and related matters;

● reviewing and approving any related party transactions;

● meeting separately, periodically, with management, the internal auditors and the independent auditors;

● annually reviewing and reassessing the adequacy of our Audit Committee charter;

● such other matters that are specifically delegated to our Audit Committee by our Board of Directors from time to time; and

● reporting regularly to the Board of Directors.

During the fiscal year ended December 31, 2018, the Audit Committee met four times.

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Compensation Committee

Our Compensation Committee consists of Mark Vernon (Chair), Alexander J. Buehler and Peyton Boswell, each of whom is an independent director as defined in the NYSE rules, a “non-employee director” under Rule 16b-3 promulgated under the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Code. We have implemented a written charter for our Compensation Committee that provides that our Compensation Committee is responsible for:

● reviewing and making recommendations to our Board of Directors regarding our compensation policies and forms of compensation provided to our directors and officers;

● reviewing and making recommendations to our Board of Directors regarding bonuses for our officers and other employees;

● reviewing and making recommendations to our Board of Directors regarding stock-based compensation for our directors and officers;

● administering our stock option plans in accordance with the terms thereof; and

● such other matters that are specifically delegated to the Compensation Committee by our Board of Directors after the business combination from time to time.

During the fiscal year ended December 31, 2018, the Compensation Committee met two times.  

Governance Committee

Our Governance Committee consists of Mark Vernon (Chair), Alexander J. Buehler and Peyton Boswell, each of whom is an independent director as defined in the NYSE rules. We have implemented a written charter for our Governance Committee that provides that our Governance Committee is responsible for:

● overseeing the process by which individuals may be nominated to our Board of Directors;

● identifying potential directors and making recommendations as to the size, functions and composition of our Board of Directors and its committees;

● considering nominees proposed by our stockholders;

● establishing and periodically assessing the criteria for the selection of potential directors;

● making recommendations to the Board of Directors on new candidates for Board membership; and

● overseeing corporate governance matters.

In making nominations, the Governance Committee intends to submit candidates who have high personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective, in conjunction with the other nominees to the Board of Directors, in collectively serving the long-term interests of the stockholders. In evaluating nominees, the Governance Committee intends to take into consideration attributes such as leadership, independence, interpersonal skills, financial acumen, business experiences, industry knowledge, and diversity of viewpoints.

During the fiscal year ended December 31, 2018, the Governance Committee met two times. 

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Legal Proceedings Involving Officers and Directors

To the knowledge of the Company after reasonable inquiry, no current director or executive officer of the Company during the past ten years, has (i) been convicted in a criminal proceeding (excluding traffic violations or other minor offenses), (ii) been a party to any judicial or administrative proceeding (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws, (iii) filed a petition under federal bankruptcy laws or any state insolvency laws or has had a receiver appointed for the person’s property or (iv) been subject to any judgment, decree or final order enjoining, suspending or otherwise limiting for more than 60 days, the person from engaging in any type of business practice, acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity or engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, (v) been found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated, (vi) been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated, (vii) been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (a) any Federal or State securities or commodities law or regulation, (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, or (viii) been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Code of Ethics

We adopted a code of conduct and ethics on January 1, 2012. The code of ethics has been posted on the Company’s website at https://liqtech.com/wp-content/uploads/2017/01/Code_of_Conduct_and_Ethics.pdf.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires a company’s officers and directors, and persons who own more than ten percent (10%) of a registered class of a company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than ten percent (10%) stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. 

To our knowledge, based solely on a review of the copies of such reports furnished to us, we believe that all reports under Section 16(a) required to be filed by its officers and directors were timely filed. Norman H. Pessin, Sandra F. Pessin and Brian Pessin, who are greater than ten percent (10%) beneficial owners, have not filed all reports required under Section 16(a).  

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Item 11. Executive Compensation

Summary Compensation Table

The following table sets forth certain information with respect to compensation for the years ended December 31, 2018 and 2017 earned by or paid to our Chief Executive Officer and our two most highly compensated executive officers, other than our Chief Executive Officer, whose total compensation exceeded $100,000 (the “named executive officers”).

Summary Compensation Table

Name and Principal Position	Year	Salary ($) (1)		Bonus ($)		Stock Awards ($)	Option Awards ($)		Nonequity Incentive Plan Compensation		Nonqualified Deferred Compensation Earnings		Other ($) (5)		Total
Sune Mathiesen, Chief Executive Officer (2)
	2018	$	264,595	$	75,000								$	26,459	$	366,054
	2017		275,559		50,868			-		-		-		24,086		350,513
	2016		216,099					-		-		-		21,268		237,267
Claus Toftegaard, Chief Financial Officer (3)
	2018	$	66,669	$	10,000			-		-		-	$	6,667	$	83,336
Soren Degn, Chief Financial Officer (4)
	2018	$	-		-			-		-		-	$	131,788	$	131,788
	2017		172,913		-			-		-		-		103,775		276,688
	2016		216,146		-			-		-		-		17,440		233,586

(1)	Total salaries for Messrs. Mathiesen and Degn for 2016 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 7.0528, as of December 31, 2016. Total salaries for Messrs. Mathiesen and Degn for 2017 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 6.2077, as of December 31, 2017. Total salaries for Messrs. Mathiesen, Degn and Toftegaard for 2018 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 6.5194, as of December 31, 2018. We do not make any representation that the Danish Krone amounts could have been, or could be, converted into U.S. dollars at such rate on December 31, 2016, December 31, 2017 or December 31, 2018, or at any other rate.
(2)	Mr. Mathiesen became our Chief Executive Officer in August 2014. Pursuant to his employment agreement, Mr. Mathiesen is entitled to an annual base salary of approximately $276,099 based on the currency exchange rate of $1.00 = DKK 6.5194, as of December 31, 2018.
(3)	Mr. Toftegaard became our Chief Financial Officer in August 2018. Pursuant to his employment agreement, Mr. Toftegaard is entitled to an annual base salary of approximately $165,659 based on the currency exchange rate of $1.00 = DKK 6.5194, as of December 31, 2018.
(4)	Mr. Degn became our Chief Financial Officer in August 2011. Pursuant to his consultancy agreement, Mr. Degn was entitled to an estimated annual base fee of approximately $189,435 based on the currency exchange rate of $1.00 = DKK 6.5194, as of December 31, 2018. Mr. Degn retired from his position on August 14, 2018.
(5)	Pursuant to Mr. Mathiesen’s employment agreement, Mr. Mathiesen’s received $26,459, $24,086 and $21,268 of contributions from the Company to his individual retirement account in 2018, 2017 and 2016. Pursuant to Mr. Toftegaard’s employment agreement, Mr. Toftegaard received $6,667 of contributions from the Company to his individual retirement account in 2018. Pursuant to Mr. Degn’s employment agreement, Mr. Degn received $11,240 and $17,440 of contributions from the Company to his individual retirement account in 2017 and 2016. Mr. Degn received a consultancy fee of $131,788 in 2018 and $92,535 in 2017 for his service as a CFO of the Company.

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Employment Arrangements 

During the year ended December 31, 2018, we had employment agreements with Messrs. Mathiesen, Toftegaard, and a consulting agreement with Mr. Degn, which has been terminated. A description of each agreement is set forth below.

Mathiesen Agreement

Effective July 30, 2014 the Company’s Board of Directors appointed Mr. Sune Mathiesen to serve as Chief Executive Officer of the Company and as a Director of the Company pursuant to a Director Contract, dated July 15, 2014, by and between Mr. Mathiesen and LiqTech Int. DK (the “Director Agreement”). The Director Agreement provided for an annual base salary initially set at DKK 1,500,000 (or approximately $245,042 based on the currency exchange rate of $1 = DKK 6.1214 as of December 31, 2014) and a yearly bonus of 5% of the average gross profit for LiqTech Int. DK and LiqTech Systems A/S for any sales (revenue) ≥130,000,000 DKK per year, and provided that the Company and Mr. Mathiesen could adjust the compensation in August of each year. In 2017, Mr. Mathiesen was paid $275,559, and pursuant to negotiations as provided under the Director Contract, on October 15, 2018, Mr. Mathiesen and LiqTech Int. DK revised Mr. Mathiesen’s Director Agreement (the Director Agreement, as amended, the “Mathiesen Agreement”) to provide that Mr. Mathiesen shall receive an annual base salary initially set at DKK 1,800,000 (or approximately $276,099 based on the currency exchange rate of $1 = DKK 6.5194 as of December 31, 2018). Further, he is eligible to receive a discretionary yearly cash bonus of 100%-150% of his annual salary if certain performance targets are met and an additional bonus if the Company’s EBITDA is positive. If a discretionary cash bonus is awarded Mr. Mathiesen will also be entitled to a grant of restricted common shares of LiqTech International, Inc. of equal value to such cash bonus. Mr. Mathiesen is entitled to five weeks of vacation, home internet service, a company car, a LiqTech Int. DK mobile phone, a LiqTech Int. DK laptop and reimbursement of LiqTech Int. DK-related travel expenses. LiqTech Int. DK may terminate the Mathiesen Agreement upon not less than twelve months prior notice, and Mr. Mathiesen may terminate the Mathiesen Agreement with twelve months prior notice.

Toftegaard Agreement

On August 15, 2018 Mr. Claus Toftegaard was appointed Chief Financial Officer of the Company. Pursuant to the terms of a CFO Contract, in consideration for his services, Mr. Toftegaard shall receive an annual base salary initially set at DKK 1,080,000 (or approximately $165,659 based on the currency exchange rate of $1 = DKK 6.5194 as of December 31, 2018). Mr. Toftegaard is entitled to six weeks of vacation, home internet service, a company car, a LiqTech Int. DK mobile phone, a LiqTech Int. DK laptop and reimbursement of LiqTech Int. DK-related travel expenses. LiqTech Int. DK may terminate the Toftegaard Agreement upon not three months prior notice and Mr. Toftegaard may terminate the Toftegaard Agreement with one-month prior notice. 

Degn Agreement

On June 30, 2017, Mr. Degn and the Company agreed to replace Mr. Degn’s previous employment agreement in its entirety with a CFO Service Agreement, whereby Mr. Degn was entitled to compensation at an average monthly rate of DKK 102,917. Mr. Degn notified the Company of his resignation on July 30, 2018 with effect from August 14, 2018.

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Outstanding Equity Awards at Last Fiscal Year End

The following table sets forth all outstanding equity awards held by our named executive officers as of December 31, 2018.

Option Awards

Stock Awards

Name

Number of Securities Underlying Unexercised Exercisable (#)

Number of Securities Underlying Unexercised Unexercisable (#)

Equity Incentive Plan Awards: No. of Securities Underlying Unexercised Unearned Options

Option Exercise Price

Option Expiration Date

Number of Shares or Units of Stock That Have Not Vested

Market Value of Shares or Units of Stock That Have Not Vested

Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested

Sune Mathiesen, CEO

-

-

-

$

-

-

-

-

-

-

Claus Toftegaard, CFO

-

-

-

$

-

-

-

-

-

-

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Compensation of Directors

For 2018 the Chairman of the Board was entitled to an annual fee of $50,000; each non-executive director was entitled to $25,000 for services on the Board of Directors; the Audit Committee Chairman was paid an additional annual fee of $10,000 per year, the Compensation Committee Chairman was paid an additional annual fee of $6,000 per year; and each qualifying non-executive director would receive an automatic annual stock grant on January 2 of each year in the amount of $30,000 commencing the first year after full vesting of their initial 100,000 share stock grant that vest over a three year period. The Parent has not entered any agreements with the Directors of any special compensation in relation to retirement, resignation, change of control or other kinds of events that might lead to the Director leaving the Board of LiqTech International, Inc.

The following table provides information regarding compensation that was earned or paid to the individuals who served as non-employee directors during the year ended December 31, 2018.

Name	Fees earned or paid in cash (1)($)		Stock Awards (2)($)		Option awards (2)		Non-equity incentive plan compensation		Non-qualified deferred compensation earnings		All other compensation		Total
Aldo Petersen		-		-		-		-		-		157,862	$	157,862
Mark Vernon		37,500		30,000		-		-		-		-		67,500
Alexander J. Buehler		35,000		-		-		-		-		-		35,000
Peyton Boswell		25,000		-		-		-		-		-		25,000
Joel Gay		10,417		21,667		-		-		-		-		32,084

(1)	Our independent directors are entitled to cash compensation of $25,000 per year, the chairman of our Board is entitled to additional $25,000 per year, the chairman of our Audit Committee is entitled to additional $10,000 per year and the chairman of our Compensation Committee is entitled to additional $6,000 per year.
(2)	These amounts represent the aggregate grant date fair value for stock awards granted in 2018, computed in accordance with FASB ASC Topic 718. As such, these amounts do not correspond to the compensation actually realized by each director for the period.
	The Company issued 29,703 shares of restricted stock valued at $30,000 for services provided and to be provided by Mr. Vernon. Mr. Vernon shall provide general work as member of the Board of Directors and other services, which are mutually agreeable by both parties on an ad hoc basis.  The Company awarded 100,000 restricted shares of Common Stock valued at $130,000 for services to be provided by Mr. Gay, of which 16,667 shares of restricted stock valued at $21,667 vested prior to his resignation from the Board on January 15, 2019. All other remaining amounts previously awarded have been forfeited.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of March 24, 2019, certain information regarding the beneficial ownership of our common stock, the only class of capital stock we have currently outstanding, of (i) each director and “named executive officers”  (as defined in the section titled “Executive Compensation — Summary Compensation Table”) individually, (ii) our Chief Financial officer, (iii) all directors and executive officers as a group, and (iv) each person known to us who is known to be the beneficial owner of more than 5% of our common stock. In accordance with the rules of the SEC, “beneficial ownership” includes voting or investment power with respect to securities. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. 

Name of Beneficial Owner(1)	Shares of Common Stock Beneficially Owned (2)		Percentage of Common Stock Beneficially Owned (3)
Directors and NEOs
Sune Mathiesen (4)		1,394,493		1.9	%
Claus Toftegaard		-		-
Mark Vernon		692,239		0.9	%
Alexander J. Buehler		33,333		*
Peyton Boswell		33,333		*
Peter Leifland		-		-
All executive officers and directors as a group (6 persons)		2,054,094		2.8	%
5% Shareholders:
AWM Investment Company, Inc.		4,636,182		6.3	%
Norman H. Pessin (5)		1,977,255		2.7	%
Sandra F. Pessin (5)		4,344,201		5.9	%
Brian Pessin (5)		2,524,635		3.5	%
		8,846,091		12.1	%

* Less than one percent.

(1)	Unless otherwise indicated, the address for each person listed above is: c/o LiqTech International A/S, Industriparken 22C 12, DK-2750 Ballerup, Denmark.
(2)	Under the rules and regulations of the SEC, beneficial ownership includes (i) shares actually owned, (ii) shares underlying preferred stock, options and warrants that are currently exercisable and (iii) shares underlying options and warrants that are exercisable within 60 days of March 24, 2019. All shares beneficially owned by a particular person under clauses (ii) and (iii) of the previous sentence are deemed to be outstanding for the purpose of computing the percentage ownership of that person but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(3)	Based on 73,078,184 shares issued and outstanding as of March 24, 2019.
(4)	All of these shares are owned by Masu A/S, a Danish entity. Mr. Mathiesen controls the voting and disposition of the shares owned by Masu A/S
(5)	Due to the family relationship, Norman H. Pessin, Sandra F. Pessin and Brian Pessin is considered as one and their total shareholding is therefore 12.1%.

We know of no arrangements, including pledges, by or among any of the forgoing persons, the operation of which could result in a change of control of us.

The following table provides information, as of December 31, 2018, regarding the number of shares of Company common stock that may be issued from outstanding stock options.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders:		-		-		-
Equity compensation plans not approved by security holders		280,000	$	0.74		3,973,797	(1)
Total		280,000				3,973,797	(1)

(1) On August 21, 2013, Parent’s Board of Directors adopted the 2013 LiqTech International, Inc. Share Incentive Plan (the “Plan”), which is the Company’s sole compensation plan as of December 31, 2018. The Plan authorized awards that equal to 10% of the total outstanding shares of Common Stock on an as-converted basis as of August 21, 2013, (2,451,150 shares of Common Stock), plus an increase of that number of shares of Common Stock to be added on each of the third, sixth and ninth anniversary of the Plan’s effectiveness. Accordingly on August 21, 2016, 2,451,150 shares of Common Stock became authorized under the Plan. Pursuant to the terms of Plan, if any award thereunder terminates, expires, or lapses for any reason, any shares subject to such award shall again be available for the grant of an Award pursuant to the Plan The number of securities remaining available for future issuance accounts for 127,500 stock options which have been exercised, 280,000 stock options that remain outstanding and 521,003 shares of Common Stock issued as “Restricted Share Units,” which were not forfeited prior to vesting.

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Item 13. Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

The following discussion relates to types of transactions involving our company and any of our executive officers, directors, director nominees or five percent stockholders, each of whom we refer to as a "related party." For purposes of this discussion, a "related-party transaction" is a transaction, arrangement or relationship:

•     in which we participate;

•     that involves an amount in excess of the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and

•     in which a related party has a direct or indirect material interest.

From January 1, 2017 through the date of this Annual Report on Form 10-K, there have been no related-party transactions, except for the executive officer and director compensation arrangements described in the section "Executive Compensation" and as described below.

On or about May 12, 2017, Sandra F. Pessin and Brian Pessin entered into subscription agreements with the Company for 2,000,000 and 1,000,000 shares of common stock, respectively, of at a price of $0.25 per share for a total consideration of $750,000.

On June 30, 2017, Mr. Degn and the Company entered into a CFO Service Agreement, whereby Mr. Degn would be entitled to compensation at an average monthly rate of $15,400 until March 31, 2018. This agreement was extended to August 14, 2018 when Mr. Degn resigned from the Company.

On or about November 22, 2017, Sandra F. Pessin and Brian Pessin entered into subscription agreements with the Company for 208,333 and 125,000 shares of preferred stock, respectively, at a price of $1.20 per share for a total consideration of $358,333.

Policies and Procedures for Related Party Transactions

Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of such persons’ immediate family members or affiliates, in which the amount involved exceeds $120,000, or 1% of the average of our total assets at year-end for the last two completed fiscal years, must first be presented to our audit committee for review, consideration and approval. All of our directors, executive officers and employees will be required to report to our audit committee any such related party transaction. In approving or rejecting the proposed agreement, our audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a director’s independence. Our audit committee will approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our audit committee determines in the good faith exercise of its discretion.

Item 14. Principal Accountant Fees and Services

Audit and Audit-Related Fees

The aggregate fees billed or expected to be billed by our independent auditors for the audit of our annual consolidated financial statements for the year ended December 31, 2018, and 2017 and for the review of our quarterly financial statements. During 2018 and 2017 audit fees were $152,500 and $148,894. Our auditors did not provide any tax compliance, planning services or audit related services for the Company. Our auditors did not provide any other services than those described above. 

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Audit Committee Pre-approval

The policy of the Audit Committee is to pre-approve all audit and non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax fees, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The Audit Committee has delegated pre-approval authority to certain committee members when expedition of services is necessary. The independent accountants and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent accountants in accordance with this pre-approval delegation, and the fees for the services performed to date. The Audit Committee approved all of the services described above in this Item 14 in advance during the fiscal year ended December 31, 2018. 

Item 15. Exhibits and Financial Statement Schedules

(a)        Financial Statements and Schedules

The financial statements are set forth under Item 8 of this Annual Report. The following financial statement schedule for the years ended December 31, 2018 and December 31, 2017 is included in this Annual Report on Form 10-K:

a.          Valuation and Qualifying Accounts for the years ended December 31, 2018 and December 31, 2017.

	2018		2017
Bad debt expense		353,562		(102,189	)
Reserve for obsolete inventory		251,920		(206,155	)

	Balance Beginning of Year		Charges to Costs and Expenses		Deductions (1)			Balance End of Year
Year Ended December 31, 2018
Allowance for inventory obsolescence	$	1,409,074	$	251,920	$	(549,199	)	$	1,111,795
Allowance for doubtful accounts		660,581		353,562		(42,371	)		971,772
Totals	$	2,069,655	$	605,482	$	(591,570	)	$	2,083,567

Year Ended December 31, 2017
Allowance for inventory obsolescence	$	1,421,345	$	(206,155	)	$	193,884		$	1,409,074
Allowance for doubtful accounts		2,128,452		(102,189	)		(1,365,682	)		660,581
Totals	$	3,549,797	$	(308,344	)	$	(1,171,798	)	$	2,069,655

	2018			2017
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the period		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

(1) Includes write-offs, the impact of foreign currency exchange rates.

Schedules other than that listed above are omitted because the conditions requiring their filing do not exist or because the required information is provided in the Consolidated Financial Statements, including the Notes thereto. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

69

(b)           Exhibits

Exhibit No.	Description	Location
3.1	Articles of Incorporation, as Amended	Incorporated by reference to Exhibit 3(i) to the Company’s Registration Statement on Form 10 (SEC Accession No. 0001078782-09-001287) as filed with the SEC on August 19, 2009
3.2	Certificate of Amendment to the Articles of Incorporation	Incorporated by reference to Exhibit A to the Company’s Information Statement on Schedule 14C as filed with the SEC on September 20, 2011
3.3	Amended and Restated Bylaws	Incorporated by reference to Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012
4.1	Form of Common Stock Certificate	Incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K as filed with the SEC on March 29, 2012
4.2	Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of LiqTech International, Inc.	Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 14, 2017

10.1	Lease Agreements for 1800 - 1810 Buerkle Road, White Bear Lake, Minnesota 55110	Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K/A as filed with the SEC on November 15, 2011
10.2	Lease Agreement for 1800 - 1816 Buerkle Road, White Bear Lake, Minnesota 55110	Incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K as filed with the SEC on March 29, 2012
10.3	Lease Agreement for Industriparken 22C, 2750 Ballerup, Denmark	Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K/A as filed with the SEC on November 15, 2011 (translated in English)

10.4	Director Contract, dated July 29, 2014, by and between LiqTech International A/S and Sune Mathiesen	Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K as filed with the SEC on August 1, 2014
10.5	CFO Contract, dated August 1, 2018, by and between between LiqTech International A/S and Claus Toftegaard	Filed Herewith
10.6	Director Contract, dated October 15, 2018, by and between LiqTech International A/S and Sune Mathiesen	Filed Herewith

10.7 Form of Underwriter’s Warrant (Craig-Hallum Capital Group LLC) Incorporated by reference to the Company’s Form 8-K as filed with the SEC on July 23, 2014

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10.9	Form of Subscription Agreement	Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2017
10.10	Form of Subscription Agreement (U.S. Investors)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 20, 2017
10.11	Form of Subscription Agreement (Non-U.S. Investors)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on November 20, 2017

10.12 Form of Purchase Agreement (Craig-Hallum Group LLC) Incorporated by reference to the Company’s Form 8-K as filed with the SEC on April 16, 2018

21	List of Subsidiaries	Incorporated by reference to Exhibit 21 to the Company's Annual Report on Form 10-K as filed with the SEC on March 30, 2017
23.1	Consent of Sadler, Gibb	Filed herewith
31.1	Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Furnished herewith
32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Furnished herewith

101. INS	XBRL Instance Document	Provided herewith
101. CAL	XBRL Taxonomy Extension Calculation Link base Document	Provided herewith
101. DEF	XBRL Taxonomy Extension Definition Link base Document	Provided herewith
101. LAB	XBRL Taxonomy Label Link base Document	Provided herewith
101. PRE	XBRL Extension Presentation Link base Document	Provided herewith
101. SCH	XBRL Taxonomy Extension Scheme Document	Provided herewith

Item 16. Form 10-K Summary

Not Applicable.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LIQTECH INTERNATIONAL, INC.
Date: April 1, 2019
	By:	/s/ Sune Mathiesen
		Sune Mathiesen  Chief Executive Officer, Principal Executive Officer and Director

In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the dates indicated.

Signatures	Title	Date
/s/ Sune Mathiesen	Chief Executive Officer, Principal Executive Officer and Director	April 1, 2019
Sune Mathiesen
/s/ Mark Vernon	Chairman of the Board of Directors	April 1, 2019
Mark Vernon
/s/ Claus Toftegaard	Chief Financial Officer, Principal Financial and Accounting Officer	April 1, 2019
Claus Toftegaard
/s/ Alexander J. Buehler	Director	April 1, 2019
Alexander J. Buehler
/s/ Peyton Boswell	Director	April 1, 2019
Peyton Boswell

/s/ Peter Leifland	Director	April 1, 2019
Peter Leifland

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EX-10.5

Exhibit 10.5

CFO CONTRACT

Between the undersigned

Claus Toftegaard

Egelundsvej 13

9380 Vestbjerg

CPR no.:

(Hereinafter called the “CFO”)

and

LiqTech International A/S

Industriparken 22C

2750 Ballerup

CVR no.: 2512 1031

(Hereinafter called the “Company”)

has today signed the following Executive Contract (the “Contract”):

1. RECRUITMENT

1.1. This Contract is effective as of August 15, 2018.

2. EMPLOYMENT AND RESPONSIBILITIES

2.1. The CFO is subject to statutory rules and liability to the CEO to perform the duties as CFO of the Company. The CFO is responsible for Company’s complete financial controls and duties as assigned by the CEO of LiqTech International Inc. The place of employment is at the Company’s address in Hobro.

2.2. The CFO shall appoint and dismiss the Company’s financial staff and provides the financial staff with working areas and provide them with working authority.

2.3. The CFO shall be reported as CFO to the Danish Commerce and Companies Agency.

2.4. The CFO will also serve as CFO for LiqTech International Inc and as a Director of LiqTech International A/S and Liqtech Systems A/S.

3. SALARY, BONUS, PENSION AND WAGES REGULATORY

3.1. Beginning August 15, 2018, the CFO’s annual salary is DKK 1,080,000 per year and shall be paid in equal monthly installments on the last business day of each month, in accordance with the Company’s standard payroll practices.

3.2. The CFO shall be eligible to receive an annual cash bonus if certain performance targets are met, as determined annually by the Company’s Compensation Committee. Any annual cash bonus will be paid after the approval of the Company’s audited financial statements by the Company’s Audit Committee. The Compensation Committee reserves the right to provide a discretionary bonus to ensure equitable compensation for performance.

3.3. Every month the Company shall pay 10% of the CFO’s monthly salary as pension for the CFO.

3.4. The CFO’s salary shall be reviewed by the Company in December of each year and may or may not be changed.

4. OTHER BENEFITS

4.1. The Company shall provide a broadband connection in the CFO’s residence and shall be responsible for all installation and operating costs for such broadband connection.

4.2. The Company shall provide a mobile telephone to the CFO and shall be responsible for phone charges connected thereto.

4.3. The Company shall provide a laptop to the CFO.

4.4. The Company will pay for a digital subscription for the newspaper “Børsen”.

4.5. The Company shall provide a company car to the CFO. The Company will pay for all expenses related to the company car. The exact terms use of the company car will be regulated in a separate agreement.

4.6. The tax consequences for the CFO of the private disposal facilities listed above are treated by the Company according to applicable law.

5. TRAVEL AND ENTERTAINMENT

5.1. CFO’s travel expenses for travel and representation in the Company’s interest will be reimbursed by the Company within fifteen days of receipt of appropriate documentation in accordance with Company policies. The CFO may also choose to have a credit card provided by the Company.

6. CONTINUING EDUCATION

6.1. The CFO is entitled to one, compared to his position, proper training program, paid by the Company. The training program shall be approved by the CEO.

7. HOLIDAY

7.1. Holidays are earned and held in accordance with the rules of the Holidays Act equivalent to 5 weeks annually. The CFO is also entitled to 5 days of special holidays every year. The special holiday allowance under the Holidays Act is paid by 1.5% and includes with the same percentage in the calculation of holiday pay on resignation.

2

7.2. The CFO will plan the holiday himself but is obligated to take the Company’s best interests into account. The CFO must notify the CEO of the planned holiday.

7.3. Upon resignation, the CFO is entitled to a 12.5% holiday allowance. The holiday allowance is paid in cash upon resignation along with the last salary payment.

8. TERMINATION

8.1. This Contract may be terminated by either party upon 3 months written notice. The notice will be extended by 1 month for every 12 months of employment. The notice is not to exceed 12 months.

8.2. If the CFO within a period of 12 consecutive months has collected salary for a total of 120 days while the CFO has been sick (including Sundays and holidays) this Contract may be terminated upon 3 month written notice. Notice shall be given immediately on the expiry of the 120 sick days, and while the CFO still is reported sick.

8.3. On resignation the CFO is required to return all materials, including copies as well as effects belonging to the Company in possession of the CFO. This also applies to credit cards, keys, etc. The CFO cannot exercise any lien in any of this material.

8.4. Termination is otherwise subject to the Employers’ and Salaried Employees’ Act.

9. CONFIDENTIALITY

9.1. The CFO has duty of confidentiality regarding everything that he discovers and learns in connection with his employment as CFO, unless they are facts that within the nature of things must be brought forward to a third party. This duty of confidentiality is also valid after the CFO’s resignation.

10. COPIES OF CONTRACT, VENUE ETC.

10.1. Any dispute between the Company and the CFO on the occasion of this Contract of employment must, if agreement between the parties cannot be reached by negotiations, be decided by the ordinary courts in Denmark.

10.2. This contract is drawn up into 2 equal sounding signed copies, one of which remains with the Company, while the other handed to the CFO.

3

Signature

Copenhagen, August 1, 2018	Copenhagen, August 1, 2018
/s/ Claus Toftegaard	/s/ Sune Mathiesen
Claus Toftegaard	LiqTech International A/S

4

EX-10.6

Exhibit 10.6

DIRECTOR CONTRACT

Between the undersigned

Sune Mathiesen

Soren Møllers Gade 4A

8900 Randers

CPR no.:

(Hereinafter called the “Director”)

and

LiqTech International A/S

Industriparken 22C

2750 Ballerup

CVR no.: 2512 1031

(Hereinafter called the “Company”)

has today signed the following Executive Contract (the “Contract”):

1. RECRUITMENT

1.1. This Contract is effective as of October 15, 2018.

2. EMPLOYMENT AND RESPONSIBILITIES

2.1. The Director is subject to statutory rules and liability to the Board to perform the Company’s total business. The Director is responsible for the daily management of the Company and duties as assigned by the Chairman of LiqTech International Inc. The place of employment is Copenhagen.

2.2. The Director shall appoint and dismiss the Company’s staff and provides staff with working areas and provide them with working authority.

2.3. The Director shall be reported as a director to the Danish Commerce and Companies Agency.

2.4. The Director will also serve as a director for LiqTech International Inc.

3. SALARY, BONUS, PENSION AND WAGES REGULATORY

3.1. Beginning April 1, 2018, the Director’s annual salary is DKK 1,800,000 per year and shall be paid in equal monthly installments on the last business day of each month, in accordance with the Company’s standard payroll practices.

3.2. The Director shall be eligible to receive an annual cash bonus of 100% - 150% of the Director’s annual salary if certain performance targets are met, as determined annually by the Company’s Compensation Committee. Any annual cash bonus will be paid after the approval of the Company’s audited financial statements by the Company’s Audit Committee. For calendar year 2018 only, a special annual bonus of USD 100,000 will be paid if the Company is EBIT positive, with an increase in bonus of up to an additional USD 100,000 if EBITDA is greater than USD 1,000,000, with a pro rated payment for EBITDA less than USD 1,000,000 but greater than USD 0. The Compensation Committee reserves the right to provide a discretionary bonus to ensure equitable compensation for performance.

3.3. On the date of award of any cash bonus earned during 2018, 2019 or 2020, the Director will be entitled to a grant of restricted common shares of LiqTech International, Inc. of equal value to such cash bonus.

3.4. The Company shall pay 10% of the Director’s monthly salary as pension for the Director.

3.5. The Director’s salary shall be reviewed by the Company in December of each year and may or may not be changed.

4. OTHER BENEFITS

4.1. The Company shall provide a broadband connection in the Director’s residence and shall be responsible for all installation and operating costs for such broadband connection.

4.2. The Company shall provide a mobile telephone to the Director and shall be responsible for phone charges connected thereto.

4.3. The Company shall provide a laptop to the Director.

4.4. The Company shall provide a company car to the Director. The company car will be at the Director’s choice but with a maximum monthly leasing of DKK 16,000.

4.5. The tax consequences for the Director of the private disposal facilities listed above are treated by the Company according to applicable law.

5. TRAVEL AND ENTERTAINMENT

5.1. Director’s travel expenses for travel and representation in the Company’s interest will be reimbursed by the Company within fifteen days of receipt of appropriate documentation in accordance with Company policies. Travel in the Director’s own car will be reimbursed according to Company policies.

6. CONTINUING EDUCATION

6.1. The Director is entitled to one, compared to his position, proper training program, paid by the Company. The director is planning its own continuing education and shall notify the chairman thereof.

7. HOLIDAY

7.1. Holidays are earned and held in accordance with the rules of the Holidays Act equivalent to 5 weeks annually. The special holiday allowance under the Holidays Act is paid by 1.5% and includes with the same percentage in the calculation of holiday pay on resignation

2

7.2. The Director will plan the holiday himself but is obligated to take the Company’s best interests into account. The Director must notify the Chairman of the planned holiday.

7.3. Upon resignation, the Director is entitled to a 12.5% holiday allowance. The holiday allowance is paid in cash upon resignation along with the last salary payment.

8. TERMINATION

8.1. This Contract may be terminated by either party upon at least 12 months’ prior written notice to the other party. In the event that the contract is terminated by the Company, the Director may be released from duties and be paid 12 months’ salary immediately.

8.2. If the Director within a period of 12 consecutive months has collected salary for a total of 120 days while the Director has been sick (including Sundays and holidays) this Contract may be terminated upon 1 month written notice. Notice shall be given immediately on the expiry of the 120 sick days, and while the Director still is reported sick.

8.3. On resignation the Director is required to return all materials, including copies as well as effects belonging to the Company in possession of the Director. This also applies to credit cards, keys, etc. The Director cannot exercise any lien in any of this material.

8.4. Termination is otherwise subject to the Employers’ and Salaried Employees’ Act.

9. CONFIDENTIALITY

9.1. The Director has duty of confidentiality regarding everything that he discovers and learns in connection with his employment as Director, unless they are facts that within the nature of things must be brought forward to a third party. This duty of confidentiality is also valid after the Director’s resignation.

10. COPIES OF CONTRACT, VENUE ETC.

10.1. Any dispute between the Company and the Director on the occasion of this Contract of employment must, if agreement between the parties cannot be reached by negotiations, be decided by the ordinary courts in Denmark.

10.2. This contract is drawn up into 2 equal sounding signed copies, one of which remains with the Company, while the other handed to the Director.

11. ENTIRE AGREEMENT

11.1. This Contract amends and restates in its entirety the Director Contract entered into between the parties on July 29, 2014, which is hereby terminated and replaced by this Contract.

3

Signature

Copenhagen                         15/10/2018	Copenhagen                15/10/2018
/s/ Sune Mathiesen	/s/ Claus Toftegaard
Sune Mathiesen	LiqTech International A/S

4

EX-23.1

Exhibit 23.1

 

Registered with the Public Company

Accounting Oversight Board

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

LiqTech International, Inc.

As independent registered public accountants, we hereby consent to the use of our report dated April 1, 2019, with respect to the financial statements for LiqTech International, Inc., in its registration statements on Form S-3 (File No.333-220496) and S-8 (File No. 333-193580) relating to the December 31, 2018 financial statements, which is incorporated by reference. We also consent to the reference of our firm under the caption “Experts” in the registration statements.

Salt Lake City, UT

March 29, 2019

EX-31.1

Exhibit 31.1

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

I, Sune Mathiesen, certify that:

1.           I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018 of Liqtech International, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 (c)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 (d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 (a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 (b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2019	By:	/s/ Sune Mathiesen
	Name:	Sune Mathiesen
	Title:	Chief Executive Officer and Principal Executive Officer

EX-31.2

Exhibit 31.2

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

I, Claus Toftegaard, certify that:

1.           I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018 of Liqtech International, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 (c)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 (d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 (a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 (b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2019	By:	/s/ Claus Toftegaard
	Name:	Claus Toftegaard
	Title:	Chief Financial Officer and Principal Financial and Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Liqtech International, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report ”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: April 1, 2019	By:	/s/ Sune Mathiesen
	Name:	Sune Mathiesen
	Title:	Chief Executive Officer and Principal Executive Officer

A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Liqtech International, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report ”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: April 1, 2019	By:	/s/ Claus Toftegaard
	Name:	Claus Toftegaard
	Title:	Chief Financial Officer and Principal Financial and Accounting Officer

A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2018	Mar. 29, 2019	Jun. 30, 2018
Document Information [Line Items]
Entity Registrant Name	LIQTECH INTERNATIONAL INC
Entity Central Index Key	0001307579
Trading Symbol	liqt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		73,078,184
Entity Public Float			$ 52,533,852
Entity Shell Company	false
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Current Assets:
Cash	$ 3,776,111	$ 2,486,199
Accounts receivable, net	1,308,122	1,124,842
Other receivables	1,098,796	636,539
Contract assets	624,275	490,100
Inventories, net	4,432,055	4,661,866
Prepaid expenses	133,847	28,151
Total Current Assets	11,373,206	9,427,697
Property and Equipment, net	1,431,649	1,959,205
Other Assets:
Investments at costs	5,714	6,001
Other intangible assets	748	3,349
Deposits	347,932	283,686
Total Other Assets	354,394	293,036
Total Assets	13,159,249	11,679,938
Current Liabilities:
Current portion of capital lease obligations	13,789	26,186
Accounts payable	2,122,479	1,775,230
Accrued expenses	1,868,229	1,725,566
Contract liabilities	516,335	306,845
Deferred revenue / customers deposits	98,781	933,994
Total Current Liabilities	4,619,613	4,767,821
Total Liabilities	4,619,613	4,767,821
Commitment and Contingencies (See Note 8)
Stockholders' Equity:
Series A Mandatory Convertible Preferred stock; par value $0.001, 10,000,000 shares authorized, 0 and 2,200,837 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		2,201
Common stock; par value $0.001, 100,000,000 shares authorized 72,915,547 and 44,229,264 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively	72,916	44,430
Additional paid-in capital	46,521,299	40,457,907
Accumulated deficit	(32,286,224)	(28,471,696)
Deferred compensation	(23,499)	(79,933)
Accumulated other comprehensive loss	(5,744,856)	(5,040,792)
Total Stockholders' Equity	8,539,636	6,912,117
Total Liabilities and Stockholders' Equity	$ 13,159,249	$ 11,679,938

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Dec. 31, 2018	Dec. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	2,200,837
Preferred stock, shares outstanding (in shares)	0	2,200,837
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	72,915,547	44,229,264
Common stock, shares outstanding (in shares)	72,915,547	44,229,264

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Net Sales	$ 12,232,088	$ 11,343,177
Cost of Goods Sold	11,165,944	11,136,426
Gross Profit	1,066,144	206,751
Operating Expenses:
Selling expenses	1,703,327	1,944,989
General and administrative expenses	3,187,311	2,332,169
Research and development expenses	661,014	536,848
Total Operating Expense	5,551,652	4,814,006
Loss from Operations	(4,485,508)	(4,607,255)
Other Income (Expense)
Interest and other income	28,401	1,515
Interest expense	(71,781)	(45,888)
Gain (loss) on currency transactions	344,023	(102,470)
Gain (loss) on sale of fixed assets	4,907	(24,065)
Total Other Income (Expense)	305,550	(170,908)
Loss Before Income Taxes	(4,179,958)	(4,778,163)
Income Tax Expense (Benefit)	(365,430)	(317,810)
Net Loss	$ (3,814,528)	$ (4,460,353)
Basic and Diluted Loss Per Share (in dollars per share)	$ (0.06)	$ (0.11)
Weighted Average Common Shares Outstanding (in shares)	63,843,634	41,595,856

XML

Consolidated Statements of Other Comprehensive Income (Loss) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Net Loss	$ (3,814,528)	$ (4,460,353)
Other Comprehensive Income (loss) - Currency Translation, Net	(704,064)	650,509
Total Comprehensive Loss	$ (4,518,592)	$ (3,809,844)

XML

Consolidated Statement of Stockholders' Equity - USD ($)	Convertible Preferred Stock [Member] Preferred Stock [Member]	Convertible Preferred Stock [Member] Common Stock [Member]	Convertible Preferred Stock [Member] Additional Paid-in Capital [Member]	Convertible Preferred Stock [Member] Retained Earnings [Member]	Convertible Preferred Stock [Member] AOCI Attributable to Parent [Member]	Convertible Preferred Stock [Member] Deferred Compensation, Share-based Payments [Member]	Issuance 1 [Member] Board of Directors Chairman [Member] Preferred Stock [Member]	Issuance 1 [Member] Board of Directors Chairman [Member] Common Stock [Member]	Issuance 1 [Member] Board of Directors Chairman [Member] Additional Paid-in Capital [Member]	Issuance 1 [Member] Board of Directors Chairman [Member] Retained Earnings [Member]	Issuance 1 [Member] Board of Directors Chairman [Member] AOCI Attributable to Parent [Member]	Issuance 1 [Member] Board of Directors Chairman [Member] Deferred Compensation, Share-based Payments [Member]	Issuance 2 [Member] Board of Directors Chairman [Member] Preferred Stock [Member]	Issuance 2 [Member] Board of Directors Chairman [Member] Common Stock [Member]	Issuance 2 [Member] Board of Directors Chairman [Member] Additional Paid-in Capital [Member]	Issuance 2 [Member] Board of Directors Chairman [Member] Retained Earnings [Member]	Issuance 2 [Member] Board of Directors Chairman [Member] AOCI Attributable to Parent [Member]	Issuance 2 [Member] Board of Directors Chairman [Member] Deferred Compensation, Share-based Payments [Member]	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Deferred Compensation, Share-based Payments [Member]	Total
BALANCE (in shares) at Dec. 31, 2016																				36,835,514
BALANCE at Dec. 31, 2016																				$ 36,836	$ 36,084,117	$ (24,011,343)	$ (5,691,301)	$ (148,561)
Common shares issued, net offering cost (in shares)																				7,300,000
Common shares issued, net offering cost																				$ 7,300	1,752,700
Conversion of mandatory preferred stock issued (in shares)	2,200,837
Conversion of mandatory preferred stock issued	$ 2,201		$ 2,511,067
Common shares issued, for services provided (in shares)								93,750						200,000
Common shares issued, for services provided								$ 94	$ 59,906			$ (60,000)		$ 200	$ 69,800			$ (70,000)
Forfeiture of Stock Based Compensation																					(19,683)			19,684
Stock based compensation expenses recognized for the year																								178,944
Other Comprehensive Income (loss) - Currency Translation, Net																							650,509		$ 650,509
Net Loss																						(4,460,353)			(4,460,353)
BALANCE (in shares) at Dec. 31, 2017																			2,200,837	44,429,264
BALANCE at Dec. 31, 2017																			$ 2,201	$ 44,430	40,457,907	(28,471,696)	(5,040,792)	(79,933)
Common shares issued, net offering cost (in shares)																				19,448,529
Common shares issued, net offering cost																				$ 19,449	5,845,628
Conversion of mandatory preferred stock issued (in shares)																			(2,200,837)	8,803,348
Conversion of mandatory preferred stock issued																			$ (2,201)	$ 8,803	(6,602)
Common shares issued, for services provided (in shares)								59,406
Common shares issued, for services provided								$ 59	$ 59,941
Stock based compensation expenses recognized for the year																								56,434
Other Comprehensive Income (loss) - Currency Translation, Net																							(704,064)		(704,064)
Net Loss																						(3,814,528)			$ (3,814,528)
Exercising of stock options (in shares)																				175,000					175,000
Exercising of stock options																				$ 175	164,425
BALANCE (in shares) at Dec. 31, 2018																				72,915,547
BALANCE at Dec. 31, 2018																				$ 72,916	$ 46,521,299	$ (32,286,224)	$ (5,744,856)	$ (23,499)

XML

Consolidated Statement of Stockholders' Equity (Parentheticals) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Common Stock [Member] | Issuance 1 [Member] | Board of Directors Chairman [Member]
Shares issued, price per share (in dollars per share)	$ 1.01	$ 0.64
Common Stock [Member] | Issuance 2 [Member] | Board of Directors Chairman [Member]
Shares issued, price per share (in dollars per share)		0.35
Common Stock [Member]
Shares issued, price per share (in dollars per share)	$ 0.34	$ 0.25
Shares issued, offering cost	$ 747,423	$ 65,000
Convertible Preferred shares, convertible securities (in shares)	4
Preferred Stock [Member] | Convertible Preferred Stock [Member]
Shares issued, price per share (in dollars per share)		$ 1.20
Shares issued, offering cost		$ 127,736
Convertible Preferred shares, convertible securities (in shares)		8,803,348
Shares issued, offering cost	$ 747,423	$ 192,736

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Cash Flows from Operating Activities:
Net Loss	$ (3,814,528)	$ (4,460,353)
Adjustments to reconcile net (loss) to net cash provided (used) by operations:
Depreciation and amortization	648,734	939,500
Non-cash compensation	116,434	178,944
Bad debt expense	353,562	(102,189)
Reserve for obsolete inventory	207,384	(206,155)
Gain on sale of equipment	(4,907)	24,065
Changes in assets and liabilities:
Accounts receivable	(999,099)	(241,256)
Contracts assets	(134,175)
Inventory	32,241	564,359
Prepaid expenses	(184,009)	41,314
Accounts payable	347,249	(487,458)
Accrued expenses	(692,550)	80,797
Contract liabilities	209,490	353,070
Total Adjustments	(99,646)	1,144,991
Net Cash used in Operating Activities	(3,914,174)	(3,315,362)
Cash Flows from Investing Activities:
Purchase of property and equipment	(178,872)	(137,674)
Proceeds from sale/recovery of property and equipment	7,982	14,001
Net Cash used in Investing Activities	(170,890)	(123,673)
Cash Flows from Financing Activities:
Net payments on capital lease obligation	(12,397)	(113,639)
Payments on loans payable		(54,929)
Proceeds from issuance of mandatory convertible preferred stock		2,641,004
Payment of stock offering costs	(747,423)	(192,736)
Proceeds from issuance of common stock	6,777,100	1,825,000
Net Cash Provided by Financing Activities	6,017,280	4,104,700
Loss on Currency Translation	(642,304)	611,884
Change in Cash and Cash Equivalents	1,289,912	1,277,549
Cash and Cash Equivalents at Beginning of Period	2,486,199	1,208,650
Cash and Cash Equivalents at End of Period	3,776,111	2,486,199
Supplemental Disclosures of Cash Flow Information:
Interest	44,604	45,888
Income Taxes	$ 570	$ 580

XML

Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE

1

- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

The consolidated financial statements include the accounts of LiqTech International, Inc. (“Parent”) and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this Annual report refer to Parent and its subsidiaries, which are set forth below. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide liquid and diesel particulate air filters in United States, Canada, Europe, Asia and South America. Set forth below is a description of Parent and each of its subsidiaries:

LiqTech International, Inc., a Nevada corporation organized in

July 2004,

formerly known as Blue Moose Media, Inc.

LiqTech USA, a Delaware corporation and a wholly-owned subsidiary of Parent formed in

May 2011.

LiqTech International AS, a Danish corporation, incorporated on

January 15, 2000 (

“LiqTech Int. DK”), a

100%

owned subsidiary of LiqTech USA, engages in development, design, application, marketing and sales of membranes on ceramic diesel particulate and liquid filters and catalytic converters in Europe, Asia and South America.

LiqTech NA, Inc. (“LiqTech NA”), incorporated in Delaware on

July 1, 2005,

a

100%

owned subsidiary of LiqTech USA. LiqTech NA, Inc. engages in the production, marketing and sale of ceramic diesel particulate and liquid filters and kiln furniture in United States and Canada.

LiqTech Systems AS, a Danish Corporation ("LiqTech Systems") (Formerly Provital Solutions A/S) was incorporated on

September 1, 2009

and engages in the manufacture of fully automated filtering systems for application within the pool and spa markets, marine applications, and a number of industrial applications within Denmark and international markets.

LiqTech Germany (“LiqTech Germany”) a

100%

owned subsidiary of LiqTech Int. DK, incorporated in Germany on

December 9, 2011,

engages in marketing and sale of liquid filters in Germany. The Company is in the process of closing operations, which is expected to be completed during

2019.

LiqTech PTE Ltd, (“LiqTech Sing”) a

95%

owned subsidiary of LiqTech Int. DK, incorporated in Singapore on

January 19, 2012,

engages in marketing and sale of liquid filters in Singapore and other countries in the area. The Company is in the process of closing operations, which is expected to be completed during

2019.

Consolidation

 

--

 The consolidated financial statements include the accounts and operations of the Company. The non-controlling interests in the net assets of the subsidiaries are recorded in equity. The non-controlling interests of the results of operations of the subsidiaries are included in the results of operations and recorded as the non-controlling interest in subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.

Functional Currency / Foreign currency translation -- 

The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The Functional Currency of LiqTech Int. DK and LiqTech Systems AS is the Danish Krone (“DKK”), the functional currency of LiqTech Germany is the Euro and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is U.S. Dollar for the purpose of these consolidated financial statements. The foreign subsidiaries balance sheet accounts are translated into U.S. Dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the years ended

December 31, 2018

and

2017.

Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Reclassification

 

–

 Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had

no

impact on total financial position, net income, or stockholder’s equity.

Cash, Cash Equivalents and Restricted Cash

 

--

 The Company considers all highly liquid debt instruments purchased with a maturity of

three

months or less to be cash equivalents. The Company had

no

balances held in a financial institution in the United States in excess of federally insured amounts at

December 31, 2018

and

December 31, 2017.

Accounts Receivable

 

--

 Accounts receivables consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts which reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. 

The roll forward of the allowance for doubtful accounts for the year ended

December 31, 2018

and

December 31, 2017

is as follows:

	201 8			201 7
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the periods		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

Inventory

 

--

 Inventory is carried at the lower of cost or market, as determined on the

first

-in,

first

-out method.

Property and Equipment

 

--

 Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from

three

to

ten

years (See Note

3

).

Long-Term Investments

 

--

 Investments in non-consolidated companies are included in long-term investments in the consolidated balance sheet and are accounted for under the cost method and equity method. For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts based on information requested from these privately held companies. Generally, this information

may

be more limited,

may

not

be as timely as and

may

be less accurate than information available from publicly traded companies. Assessing each investment's carrying value requires significant judgment by management. If it is determined that there is an-other-than-temporary decline in the fair value of a non-public equity security, we write-down the investment to its fair value and record the related write-down as an investment loss in the consolidated statement of operations.

Long Lived Assets

 – The Company evaluates its long-lived assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets

may

not

be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the asset.

Revenue Recognition and Sales Incentives

 

--

 On

January 1, 2018,

the Company adopted Accounting Standards Codification Topic

606,

“Revenue from Contracts with Customers,” which includes clarifying ASUs issued in

2015,

2016

and

2017

(“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified-retrospective method as of

January 1, 2018.

The new revenue standard did

not

have a material impact on revenue recognition. The Company does

not

expect the impact of the adoption of the new standard to be material to net income on an ongoing basis.

For membrane and DPF product sale, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied which occurs when control of the membrane, DPF or services are transferred to the customer. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer.  Revenue for service contracts are recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise for the right to payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is

not

significant. Pre-Payments received prior to satisfaction of performance obligations are recorded as a customer deposit liability. Given the insignificant days between revenue recognition and receipt of payment, financing components do

not

exist between the Company and its customers.

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer upon shipment of the system based on the terms of the contract. For the majority of Systems, the Company transfers control and recognizes revenue when products are shipped to the customer according to the terms of the contract or purchase order. In connection with the system it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from the production facility in Hobro. As part of the delivery performance, the customer is normally offered a commissioning (a final assembly and configuration at a place designated by the customer) and this commission is therefore considered a

second

delivery performance and is valued at cost, based on the contractual performance given a standard gross margin rate. This

second

performance delivery is recognized as revenue at the time of delivery of the commissioning together with the cost incurred. Part of the invoicing to the customer is also contributed to the commissioning and at transfer of the control of the system, i.e. the

first

performance obligation, some of the invoicing will still be awaiting the commissioning and is therefore recognized as Other receivable while the revenue related to the commissioning is recognized as Deferred Income.

Aftermarket sales represent part sales, extended warranty and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer or services are provided. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract, which reflects the costs to perform under these contracts, which corresponds with, and thereby depicts the transfer of control to the customer. For invoicing to customers where the transfer of control has

not

occurred (prepayments), the invoiced amount is recognized as Contract assets / Contracts liabilities.

The Company has received long-term contracts for grants from government entities for development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our Balance Sheets as contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our Balance Sheets as contract liabilities.

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. 

Advertising Cost

 

--

 Costs incurred in connection with advertising of the Company’s products is expensed as incurred. Such costs amounted to

$38,951

and

$16,350,

for the years ended

December 31, 2018

and

2017,

respectively.

Research and Development Cost

 

--

 The Company expenses research and development costs for the development of new products as incurred. Included in operating expense for the years ended

December 31, 2018

and

2017

were

$661,014,

and

$536,848,

respectively, of research and development costs.

Income Taxes

 

--

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

740

Accounting for Income Taxes. This statement requires an asset and liability approach for accounting for income taxes.

Loss Per Share

 

--

 The Company calculates loss per share in accordance with FASB ASC

260

Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares included in the diluted earnings per share calculation include in-the-money stock options and warrants that have been granted but have

not

been exercised.

Stock Options and Awards

 

--

 The Companies have granted stock options to certain key employees. See Note

11.

During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards. The Company accounts for options in accordance with the provisions of FASB ASC Topic

718,

Compensation – Stock Compensation. Non-cash compensation costs of

$56,434

and

$178,944

have been recognized for the vesting of options and stock awards granted to employees.

Fair Value of Financial Instruments

 

--

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

820.

The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a

three

-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

● Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

● Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

● Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their short-term maturities.

Accounting Estimates

 

--

 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets allowance for doubtful accounts receivable, contract assets, reserve for obsolete inventory, depreciation and impairment of property plant and equipment and contract liabilities commitment and contingencies, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

Recent Accounting Pronouncements

 

--

 On

February 25, 2016,

the FASB issued ASU

2016

-

02,

"Leases," which makes many changes to accounting for leases. The standard will be effective for public companies with interim and annual periods beginning after

December 15, 2018.

One of the most notable changes is many of the leases that are currently accounted for as operating leases will have to be capitalized and accounted for similarly to how capital leases are currently accounted for, unless certain criteria are met. We have evaluated the impact this standard will have on our lease accounting. The standard is requiring us to capitalize a right of use asset and lease liability equal to the present value of the future minimum lease payments disclosed in Note

7.

The evaluation concludes that the impact of this standard is

not

considered material.   

In

June 2018,

the FASB issued ASU

No.

2018

-

07,

Compensation – Stock Compensation (Topic

718

) (“ASU

2018

-

07”

). ASU

2018

-

07

provides for improvements to nonemployee share-based payment accounting by expanding the scope of Topic

718

to include share-based payment transactions for acquiring goods and services from nonemployees. The awards will be measured at grant date, consistent with accounting for employee share-based payment awards. The measurement date has been redefined as the date at which the grantor and grantee reach a mutual understanding of the key terms and conditions of the award. The requirement to reassess classification of equity-classified awards upon vesting has been eliminated.

Other recent accounting pronouncements issued by the FASB did

not

or are

not

believed by management to have a material impact on the Company’s present or future financial statements. 

XML

Note 2 - Inventory

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE

2

- INVENTORY

Inventory consisted of the following at

December 31, 2018

and

December 31, 2017:

	201 8			201 7
Furnace parts and supplies	$	596,806		$	400,589
Raw materials		1,659,826			1,260,209
Work in process		1,691,175			2,123,418
Finished goods and filtration systems		1,596,042			2,297,743
Reserve for obsolescence		(1,111,794	)		(1,420,093	)
Net Inventory	$	4,432,055		$	4,661,866

A portion of the inventory,

$4,011,203,

is held as part of a collateral on a line of credit and guarantees with financial institutions. See Note

6.

XML

Note 3 - Property and Equipment

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

NOTE

3

 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at

December 31, 2018

and

December 31, 2017:

	Useful Life			201 8			201 7
Production equipment	3	-	10	$	9,614,189		$	10,114,398
Lab equipment	3	-	10		82,930			87,094
Computer equipment	3	-	5		204,807			204,553
Vehicles	3	-	5		71,711			75,312
Furniture and fixture		5			111,417			106,047
Leasehold improvements		10			1,037,678			1,076,731
					11,122,732			11,664,135
Less Accumulated Depreciation					(9,691,083	)		(9,704,930	)
Net Property and Equipment				$	1,431,649		$	1,959,205

Depreciation expense amounted to

$819,070

and

$937,235,

for the year ended

December 31, 2018

and

2017,

respectively. A portion of the property and equipment is held as collateral on a line of credit and guarantees with financial institutions. See Note

6.

XML

Note 4 - Investments at Cost

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE

4

– INVESTMENTS AT COST

The following tables summarize Level

1,

2

and

3

financial assets and financial (liabilities) by their classification in the Statement of Financial Position:

As of December 31, 2018	Level 1		Level 2		Level 3
Investments		-		-		5,714
Total		-		-		5,714

As of December 31, 2017	Level 1		Level 2		Level 3
Investments		-		-		6,001
Total		-		-		6,001

At

December 31, 2018,

and

December 31, 2017,

our total investments of

$5,714

and

$6,001

respectively, consisted of an investment of EUR

5,000

in LEA Technology in France to strengthen our sales channels in the French market.

XML

Note 5 - Definite-life Intangible Assets

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

NOTE

5

 - DEFINITE-LIFE INTANGIBLE ASSETS

At

December 31, 2018

and

December 31, 2017,

definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products of

$748

and

$3,349,

respectively. The patents are recorded at cost and amortized over

ten

years. Amortization expense for the years ended

December 31, 2018

and

2017

was

$2,519

and

$2,265,

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

Year ending December 31,	Amortization Expenses
2019		748
Thereafter		-
	$	748

XML

Note 6 - Lines of Credit

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE

6

- LINES OF CREDIT

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guarantee line of DKK

94,620

(approximately

$14,514

at

December 31, 2018)

with a bank, subject to certain base limitations. As of

December 31, 2018,

we had DKK

94,620

(approximately

$14,514

) 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. The Company has

no

other available lines of credit.

XML

Note 7 - Leases

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

NOTE

7

 - LEASES

Operating Leases

 

--

The Company leases office and production facilities under operating lease agreements expiring within

12

months, in

February 2021

and in

August 2024

respectively. 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, 2018

are as follows:

Year ending December 31,	Lease Payments
2019		712,250
2020		578,997
2021		402,584
2022		350,249
Thereafter		560,977
Total Minimum Lease Payments	$	2,605,057

Lease expense charged to operations was

$642,546

and

$651,032,

for the year ended

December 31, 2018,

and

2017.

Capital Leases

 

--

 The Company leases equipment on various variable rate capital leases currently calling for monthly payments of approximately

$2,093

expiring through

July 2019.

Included in property and equipment, at

December 31, 2018

and

December 31, 2017,

the Company had recorded equipment on capital lease at

$1,182,778

and

$1,328,672,

respectively, with related accumulated depreciation of

$1,169,272

and

$1,301,870,

respectively. During the years ended

December 31, 2018

and

2017,

depreciation expense for equipment on capital lease amounted to

$11,180,

and

$39,623,

respectively, and has been included in depreciation expense. During the years ended

December 31, 2018

and

2017,

interest expense on a capital lease obligation amounted to

$5,021

and

$6,290,

respectively.

Future minimum capital lease payments are as follows for the years ended

December 31:

Year ending December 31,	Lease Payments
2019		14,654
Thereafter		-
Total minimum lease payments		14,654
Less amount representing interest		(865	)
Present value of minimum lease payments		13,789
Less Current Portion		(13,789	)
	$	-

XML

Note 8 - Agreements, Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE

8

 - AGREEMENTS, COMMITMENTS AND CONTINGENCIES

401

(K) Profit Sharing Plan

 -- LiqTech NA has a

401

(k)-profit sharing plan and trust covering certain eligible employees. The amount LiqTech NA contributes is discretionary. For the year ending

December 31, 2018

and

2017,

matching contributions were expensed and totaled

$11,691

and

$11,347,

respectively.

Contingencies --

From time to time, we

may

be involved in litigation relating to claims arising out of our operations in the normal course of business.

On

November 20, 2018

a former supplier to Liqtech International AS contacted the Company with a claim of

DKK448,500

(

$68,800

) alleging that a former Agreement from

2016

had

not

been respected. The Company has contested the claim due to lack of evidence to support the claim.

No

provision has been made as per

December 31, 2018

as the Company does

not

expect the claim to materialize in any payments to the former supplier.

On

February 27, 2019,

LiqTech Systems AS was contacted by a former supplier alleging that the Company owed

DKK543,905

(

$83,400

) for services rendered in

2017,

The claimant has previously filed a lawsuit to claim payment for the services, which was denied by the Company due to severe errors in the services supplied, and the claim was rejected by the court of law in

2018.

Due to the nature of the new claim and the previous ruling from the court of law,

no

provision has been made as per

December 31, 2018.

 

On

December 2017,

we reported the following legal proceeding which have been ended in

2018

with the result below.

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 (“Defendant”), the

40%

owner of the Venture,

750,000

Euros before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. In

2018

the lawsuit was revoked by the Italian court and the Plaintiff was ordered to pay the cost occurred in connection with the case to the Defendant.

On

December 20, 2017,

the Company received a demand from a customer for approximately

$1,098,678

from the previous installation of a water treatment system. The customer was disputing that the system complied with the contact based on testing inputs to the system outside the parameters of the contract. The Company completed the installation and testing of the system and maintained that it was in compliance with the contract’s requirements. In

2018

the demand was settled between the parties and resulted in a final payment to the Company of

EUR380,000

as a full and final settlement of the dispute. The amount was deemed income in

Q4

2018.

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we have a guarantee line of DKK

94,620

(approximately

$14,514

at

December 31, 2018)

with a bank, subject to certain base limitations. As of

December 31, 2018,

we had DKK

94,620

(approximately

$14,514

) 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. The Company has

no

other available lines of credit.

XML

Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

9

 - INCOME TAXES

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

740,

Accounting for Income Taxes; which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carry forwards. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a

two

-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The

first

step is to determine whether the tax position meets the more-likely-than-

not

condition for recognition and the

second

step is to determine the amount to be recognized based on the cumulative probability that exceeds

50%,

Actual results could differ from these estimates.

As of

December 31, 2018,

the Company had net operating loss carryovers of approximately

$15,749,964

for U.S. federal tax purposes expiring through

2037;

approximately

$7,454,447

for Danish tax purposes, which do

not

expire; approximately

$475,161

for German tax purposes, which do

not

expire and approximately

$617,359

for Singapore tax purposes which do

not

expire.

As of

December 31, 2018

and

December 31, 2017,

the Company established a valuation allowance of

$3,293,000

and

$2,833,000

for the tax components of LiqTech International Inc. and Liqtech NA, respectively,

$1,892,000

and

$1,850,000

for the tax components of LiqTech International AS and LiqTech Systems, respectively,

$132,000

and

$139,000

for the tax component of LiqTech Germany and

$105,000

and

$110,000

for the tax component of LiqTech Singapore as management could

not

determine that it was more than likely

not

that sufficient income could be generated by these components to realize the resulting net operating loss carry forwards and other deferred tax assets of these components. The change in the valuation allowance for the year ended

December 31, 2018

was

$460,000,

$42,000,

$(

7,000

) and $(

5,000

) for the US, Danish, German and Singapore components. The change in the valuation allowance for the year ended

December 31, 2017

was $(

709,000

),

$755,000,

$17,000

and

$13,000

for the US, Danish, German and Singapore components.

The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset (liabilities) at

December 31, 2018

and

December 31, 2017:

	201 8			201 7
Vacation accrual	$	3,814		$	2,900
Allowance for doubtful accounts		734			743
Reserve for obsolete inventory		241,624			305,425
Business tax credit carryover		-			30,935
Deferred Compensation		24,451			16,787
Net operating loss carryover		5,184,992			4,646,434
Excess of book over tax depreciation		(33,182	)		(71,116	)
Valuation allowance		(5,422,432	)		(4,932,108	)
Long term deferred tax asset	$	-		$	-

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the years ended

December 31, 2018

and

2017:

 

	201 8			201 7
Computed tax at expected statutory rate	$	(877,791	)	$	(1,624,575	)
State and local income taxes, net of federal benefit		(9	)		(4,350	)
Non-US income taxed at different rates		(15,535	)		256,207
Effect of change in corporate tax rate		321,925			994,336	)
Non-deductible expenses		14,580			4,664
Valuation allowance		193,584			75,156
Other		(2,184	)		(19,248	)
Income tax expense (benefit)	$	(365,430	)	$	(317,810	)

The components of income tax expense (benefit) from continuing operations for the years ended

December 31, 2018

and

2017

consisted of the following:

	201 8			201 7
Current income tax expense:
Danish	$	(365,430	)	$	(317,810	)
Federal		-			-
State		-			-
Current tax (benefit)	$	(365,430	)	$	(317,810	)
Book in excess of tax depreciation	$	(40,231	)	$	(225,111	)
Allowance for doubful accounts		-			459
Net operating loss carryover		(729,928	)		260,540
Valuation allowance		704,876			75,156
Deferred compensation		13,127			(8,287	)
Accrued vacation		(949	)		2,550
Reserve for obsolete inventory		53,105			(105,307	)
Deferred tax expense (benefit)	$	-		$	-
Total tax expense (benefit)	$	(365,430	)	$	(317,810	)

Deferred income tax expense / (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income. 

The Company files Danish and U.S. federal and Minnesota state income tax returns. LiqTech International AS and LiqTech Systems AS are generally

no

longer subject to tax examinations for years prior to

2014

for their Danish tax returns. LiqTech NA is generally

no

longer subject to tax examinations for years prior to

2014

for U.S. federal and U.S. states tax returns. 

XML

Note 10 - Earnings Per Share

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

1

0

 - EARNINGS PER SHARE

The following data shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potential dilutive common stock for the year ended

December 31, 2018

and

2017:

	For the Year Ended December 31
	201 8			201 7
Net Loss attributable to LiqTech International Inc.	$	(3,814,528	)	$	(4,460,353	)
Weighted average number of common shares used in basic earnings per share		63,843,634			41,595,856
Effect of dilutive securities, stock options and warrants		-			-
Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share		63,843,634			41,595,856

For the year ended

December 31, 2018,

the Company had

280,000

options outstanding to purchase common stock at

$0.74

per share and

400,000

 warrants outstanding to purchase common stock at

$1.65

per share, which were

not

included in the loss per share computation because their effect would be anti-dilutive.

For the year ended

December 31, 2017,

the Company had

455,000

options outstanding to purchase common stock at

$0.74

to

$1.01

per share and

400,000

 warrants outstanding to purchase common stock at

$1.65

per share, which were

not

included in the loss per share computation because their effect would be anti-dilutive. The Company previously had outstanding

2,200,837shares

of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock automatically converted into

8,803,348

common shares on

May 14, 2018.

The

2,200,837

Mandatory Convertible Preferred shares have

not

been included in the calculation of loss per share for the year ended

December 31, 2017

as their effect would be anti-dilutive.

XML

Note 11 - Stockholders' Equity

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

1

1

- STOCKHOLDERS' EQUITY

Common Stock --

 

100,000,000

authorized shares of common stock,

$0.001

par value. As of

December 31, 2018

and

2017,

respectively, there were 

72,915,547

and

44,229,264

common shares issued and outstanding.   

Voting

--

Holders of common stock are entitled to

one

vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do

not

have any right to cumulate votes in the election of directors. 

Dividends

--

Subject to the rights and preferences of the holders of any series of preferred stock, if any, which

may

at the time be outstanding, holders of common stock are entitled to receive ratably such dividends as our Board of Directors from time to time

may

declare out of funds legally available.  

Liquidation Rights

--

In the event of any liquidation, dissolution or winding-up of affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of common stock will be entitled to share ratably in the distribution of any of our remaining assets.  

Other Matters

--

Holders of common stock have

no

conversion, preemptive or other subscription rights, and there are

no

redemption rights or sinking fund provisions with respect to our common stock. All of the issued and outstanding shares of common stock on the date of this Annual report are validly issued, fully paid and non-assessable.

Preferred Stock

 --

Our Board of Directors has the authority to issue preferred stock in

one

or more classes or series and to fix the designations, powers, preferences and rights, the qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock

may

have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders and

may

adversely affect the voting and other rights of the holders of common stock.

The Company has

10,000,000

authorized Preferred stock,

$0.001

par value. As of

December 31, 2018,

and

2017

respectively, there were

0

and

2,200,837

mandatory convertible preferred shares issued and outstanding.

Stock Issuance

s

On

January 2, 2018,

the Company issued 

59,406

shares of restricted stock valued at

$60,000

for services provided by the Board of Directors. The Company recognized the non-cash compensation during the period ending

December 31, 2018.

The shares vested immediately.

On

April 16, 2018,

the Company completed a registered public offering of its common stock. At closing, the Company issued

19,448,529

shares of common stock at a per share price of

$0.34

and generated net proceeds of

$5,865,077.

  

On

November 22, 2017,

the Company completed a private placement of

2,200,837

shares of mandatory convertible preferred stock (

1

to

4

conversion rate) or

8,803,348

shares of common stock at a per share price of

$1.20

per preferred share for aggregate proceeds of

$2,641,004,

net of offering costs of

$127,736.

 On

May 17, 2018,

2,200,837

mandatory convertible preferred shares of Series A Convertible Preferred Stock were converted into

4

common shares per share, or

8,803,348

common shares.

On

October 16, 2018

the Company issued

130,000

shares in connection with employees exercising shares in relation to the stock option plan entered in

2015.

The shares were issued at a share price of

$1.01

and generated net proceeds of

$131,300.

On

September 19

and

November 27, 2018,

the Company issued a total of

45,000

shares in connection with employees exercising shares in relation to the stock option plan entered in

2015.

The shares were issued at a share price of

$0.74

and generated net proceeds of

$33,300.

As of

December 31, 2018

and

2017,

the Company has recorded non-cash compensation expense of

$100,667

 and

$90,833

relating to the awards, respectively.   

Common Stock Purchase Warrants 

A summary of the status of the warrants outstanding at

December 31, 2018

is presented below:

		Warrants Outstanding						Warrants Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	1.65		400,000		0.57	$	1.65		400,000	$	1.65
Total			400,000		0.57	$	1.65		400,000	$	1.65

At

December 31, 2018

and

2017,

the Company had

zero

non-vested warrants. We have recorded non-cash compensation expense of

$0

and

$17,634

for the year ended

December 31, 2018

and

2017

related to the warrants issued.

The exercise price of the warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions of the outstanding shares of common stock and combinations of the outstanding shares of common stock. For so long as the warrants remain outstanding, we are required to keep reserved from our authorized and unissued shares of common stock a sufficient number of shares to provide for the issuance of the shares underlying the warrants.

Stock Options

 

In

August 2015,

the Company’s Board of Directors adopted a Stock Option Plan (the “Plan”). Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, officers, and directors of the Company. At

December 31, 2018,

280,000

options were granted and outstanding under the Plan. 

The Company recognizes compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company recognized stock-based compensation expense related to the options of

$15,767

and

$70,477

for the years ended

December 31, 2018

and

2017,

respectively. At

December 31, 2018,

the Company had approximately

$0

of unrecognized compensation cost related to non-vested options expected to be recognized through

August 13, 2020.

A summary of the status of the options outstanding under the Company’s stock option plans at

December 31, 2018

is presented below: 

		Options Outstanding						Options Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.74		280,000		1.62	$	0.74		280,000	$	0.74
Total			280,000		1.62	$	0.74		280,000	$	0.74

A summary of the status of the options at

December 31, 2018,

and changes during the period is presented below:

	December 31, 201 8
	Shares			Weighted Average Exercise Price		Average Remaining Life		Weighted Average Intrinsic Value
Outstanding at beginning of period		455,000		$	0.82		5.15	$	-
Granted		-			-		-		-
Exercised		(175,000	)		-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at end of period		280,000		$	0.34		1.62	$	-
Vested and expected to vest		280,000		$	0.34		1.62	$	-
Exercisable end of period		280,000		$	0.34		1.62	$	-

At

December 31, 2018,

the Company had

zero

non-vested options.

XML

Note 12 - Significant Customers / Concentration

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE

1

2

 - SIGNIFICANT CUSTOMERS / CONCENTRATION

For the year ended

December 31, 2018,

our

four

largest customers accounted for approximately

10%,

9%,

6%

and

5%,

respectively, of our net sales (approximately

31%

in total). For the year ended

December 31, 2017,

our

four

largest customers accounted for approximately

16%,

10%,

7%

and

5%,

respectively, of our net sales (approximately

38%

in total).

The Company sells products throughout the world; sales by geographical region are as follows for the year ended

December 31, 2018

and

2017:

	For the Year Ended December 31
	2018		2017
United States and Canada	$	922,245	$	1,115,447
Australia		597,214		640,322
South America		49,861		89,438
Asia		1,369,735		1,608,822
Europe		9,293,033		7,889,148
	$	12,232,088	$	11,343,177

The Company’s sales by product line are as follows for the year ended

December 31, 2018

and

2017:

	For the Year Ended December 31
	2018		2017
Ceramic diesel particulate	$	6,536,085	$	7,230,416
Liquid filters and systems		5,264,663		3,529,360
Development projects		431,340		458,064
Kiln furniture		-		125,337
	$	12,232,088	$	11,343,177

As of

December 31, 2018,

approximately

91%

and

9%

of the Company’s assets were located in Denmark and the United States, respectively. As of

December 31, 2017,

approximately

87%

and

13%

of the Company’s assets were located in Denmark and the United States, respectively.

XML

Note 13 - Subsequent Event

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE

1

3

 - SUBSEQUENT EVENT

The Company’s management reviewed material events through

March 29, 2019. 

 On

February 25, 2019,

the Company issued a total of

146,405

shares of restricted stock valued at

$82,595

for services provided by the Board of Directors. The Company recognized the non-cash compensation during the period ending

December 31, 2018.

The shares vested immediately.

On

February 25, 2019,

the Company issued

36,232

shares of restricted stock valued at

$75,000

as a bonus related to the employment agreement with the CEO, Mr. Sune Mathiesen.

On

January 16,

January 22,

February 4

and

February 14, 2019

respectively, the Company issued a total of

180,000

shares in connection with employees exercising shares in relation to the stock option plan entered in

2015.

The shares were issued at a share price of

$0.74

and generated net proceeds of

$133,200.

XML

Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

SEC Schedule, 12-09, Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

a.          Valuation and Qualifying Accounts for the years ended

December 31, 2018 

and

December 31, 2017.

	201 8		201 7
Bad debt expense		353,562		(102,189	)
Reserve for obsolete inventory		251,920		(206,155	)

	Balance Beginning of Year		Charges to Costs and Expenses		Deductions (1)			Balance End of Year
Year Ended December 31, 2018
Allowance for inventory obsolescence	$	1,409,074	$	251,920	$	(549,199	)	$	1,111,795
Allowance for doubtful accounts		660,581		353,562		(42,371	)		971,772
Totals	$	2,069,655	$	605,482	$	(591,570	)	$	2,083,567

Year Ended December 31, 2017
Allowance for inventory obsolescence	$	1,421,345	$	(206,155	)	$	193,884		$	1,409,074
Allowance for doubtful accounts		2,128,452		(102,189	)		(1,365,682	)		660,581
Totals	$	3,549,797	$	(308,344	)	$	(1,171,798	)	$	2,069,655

	201 8			201 7
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the period		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

(

1

) Includes write-offs, the impact of foreign currency exchange rates.

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Business and Basis of Presentation

The consolidated financial statements include the accounts of LiqTech International, Inc. (“Parent”) and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this Annual report refer to Parent and its subsidiaries, which are set forth below. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide liquid and diesel particulate air filters in United States, Canada, Europe, Asia and South America. Set forth below is a description of Parent and each of its subsidiaries:

LiqTech International, Inc., a Nevada corporation organized in

July 2004,

formerly known as Blue Moose Media, Inc.

LiqTech USA, a Delaware corporation and a wholly-owned subsidiary of Parent formed in

May 2011.

LiqTech International AS, a Danish corporation, incorporated on

January 15, 2000 (

“LiqTech Int. DK”), a

100%

owned subsidiary of LiqTech USA, engages in development, design, application, marketing and sales of membranes on ceramic diesel particulate and liquid filters and catalytic converters in Europe, Asia and South America.

LiqTech NA, Inc. (“LiqTech NA”), incorporated in Delaware on

July 1, 2005,

a

100%

owned subsidiary of LiqTech USA. LiqTech NA, Inc. engages in the production, marketing and sale of ceramic diesel particulate and liquid filters and kiln furniture in United States and Canada.

LiqTech Systems AS, a Danish Corporation ("LiqTech Systems") (Formerly Provital Solutions A/S) was incorporated on

September 1, 2009

and engages in the manufacture of fully automated filtering systems for application within the pool and spa markets, marine applications, and a number of industrial applications within Denmark and international markets.

LiqTech Germany (“LiqTech Germany”) a

100%

owned subsidiary of LiqTech Int. DK, incorporated in Germany on

December 9, 2011,

engages in marketing and sale of liquid filters in Germany. The Company is in the process of closing operations, which is expected to be completed during

2019.

LiqTech PTE Ltd, (“LiqTech Sing”) a

95%

owned subsidiary of LiqTech Int. DK, incorporated in Singapore on

January 19, 2012,

engages in marketing and sale of liquid filters in Singapore and other countries in the area. The Company is in the process of closing operations, which is expected to be completed during

2019.

Consolidation, Policy [Policy Text Block]

Consolidation

 

--

 The consolidated financial statements include the accounts and operations of the Company. The non-controlling interests in the net assets of the subsidiaries are recorded in equity. The non-controlling interests of the results of operations of the subsidiaries are included in the results of operations and recorded as the non-controlling interest in subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Functional Currency / Foreign currency translation -- 

The functional currency of LiqTech International, Inc., LiqTech USA, Inc. and LiqTech NA is the U.S. Dollar. The Functional Currency of LiqTech Int. DK and LiqTech Systems AS is the Danish Krone (“DKK”), the functional currency of LiqTech Germany is the Euro and the functional currency of LiqTech Singapore is the Singapore Dollar. The Company’s reporting currency is U.S. Dollar for the purpose of these consolidated financial statements. The foreign subsidiaries balance sheet accounts are translated into U.S. Dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the years ended

December 31, 2018

and

2017.

Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Reclassification, Policy [Policy Text Block]

Reclassification

 

–

 Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had

no

impact on total financial position, net income, or stockholder’s equity.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash, Cash Equivalents and Restricted Cash

 

--

 The Company considers all highly liquid debt instruments purchased with a maturity of

three

months or less to be cash equivalents. The Company had

no

balances held in a financial institution in the United States in excess of federally insured amounts at

December 31, 2018

and

December 31, 2017.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Accounts Receivable

 

--

 Accounts receivables consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts which reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. 

The roll forward of the allowance for doubtful accounts for the year ended

December 31, 2018

and

December 31, 2017

is as follows:

	201 8			201 7
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the periods		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

Inventory, Policy [Policy Text Block]

Inventory

 

--

 Inventory is carried at the lower of cost or market, as determined on the

first

-in,

first

-out method.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

 

--

 Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from

three

to

ten

years (See Note

3

).

Investment, Policy [Policy Text Block]

Long-Term Investments

 

--

 Investments in non-consolidated companies are included in long-term investments in the consolidated balance sheet and are accounted for under the cost method and equity method. For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts based on information requested from these privately held companies. Generally, this information

may

be more limited,

may

not

be as timely as and

may

be less accurate than information available from publicly traded companies. Assessing each investment's carrying value requires significant judgment by management. If it is determined that there is an-other-than-temporary decline in the fair value of a non-public equity security, we write-down the investment to its fair value and record the related write-down as an investment loss in the consolidated statement of operations.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Long Lived Assets

 – The Company evaluates its long-lived assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets

may

not

be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the asset.

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition and Sales Incentives

 

--

 On

January 1, 2018,

the Company adopted Accounting Standards Codification Topic

606,

“Revenue from Contracts with Customers,” which includes clarifying ASUs issued in

2015,

2016

and

2017

(“new revenue standard”). The new revenue standard was applied to all open revenue contracts using the modified-retrospective method as of

January 1, 2018.

The new revenue standard did

not

have a material impact on revenue recognition. The Company does

not

expect the impact of the adoption of the new standard to be material to net income on an ongoing basis.

For membrane and DPF product sale, revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied which occurs when control of the membrane, DPF or services are transferred to the customer. The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer.  Revenue for service contracts are recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise for the right to payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is

not

significant. Pre-Payments received prior to satisfaction of performance obligations are recorded as a customer deposit liability. Given the insignificant days between revenue recognition and receipt of payment, financing components do

not

exist between the Company and its customers.

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost-plus margin.

System sales are recognized when the Company transfers control based upon signed acceptance of the system by the customer upon shipment of the system based on the terms of the contract. For the majority of Systems, the Company transfers control and recognizes revenue when products are shipped to the customer according to the terms of the contract or purchase order. In connection with the system it is normal procedure to issue a FAT (Factory Acceptance Test) stating that the customer has accepted the performance of the system as it is being shipped from the production facility in Hobro. As part of the delivery performance, the customer is normally offered a commissioning (a final assembly and configuration at a place designated by the customer) and this commission is therefore considered a

second

delivery performance and is valued at cost, based on the contractual performance given a standard gross margin rate. This

second

performance delivery is recognized as revenue at the time of delivery of the commissioning together with the cost incurred. Part of the invoicing to the customer is also contributed to the commissioning and at transfer of the control of the system, i.e. the

first

performance obligation, some of the invoicing will still be awaiting the commissioning and is therefore recognized as Other receivable while the revenue related to the commissioning is recognized as Deferred Income.

Aftermarket sales represent part sales, extended warranty and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer or services are provided. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract, which reflects the costs to perform under these contracts, which corresponds with, and thereby depicts the transfer of control to the customer. For invoicing to customers where the transfer of control has

not

occurred (prepayments), the invoiced amount is recognized as Contract assets / Contracts liabilities.

The Company has received long-term contracts for grants from government entities for development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems. We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as labor and materials. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations. The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our Balance Sheets as contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our Balance Sheets as contract liabilities.

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. 

Advertising Costs, Policy [Policy Text Block]

Advertising Cost

 

--

 Costs incurred in connection with advertising of the Company’s products is expensed as incurred. Such costs amounted to

$38,951

and

$16,350,

for the years ended

December 31, 2018

and

2017,

respectively.

Research, Development, and Computer Software, Policy [Policy Text Block]

Research and Development Cost

 

--

 The Company expenses research and development costs for the development of new products as incurred. Included in operating expense for the years ended

December 31, 2018

and

2017

were

$661,014,

and

$536,848,

respectively, of research and development costs.

Income Tax, Policy [Policy Text Block]

Income Taxes

 

--

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

740

Accounting for Income Taxes. This statement requires an asset and liability approach for accounting for income taxes.

Earnings Per Share, Policy [Policy Text Block]

Loss Per Share

 

--

 The Company calculates loss per share in accordance with FASB ASC

260

Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares included in the diluted earnings per share calculation include in-the-money stock options and warrants that have been granted but have

not

been exercised.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Options and Awards

 

--

 The Companies have granted stock options to certain key employees. See Note

11.

During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and awards. The Company accounts for options in accordance with the provisions of FASB ASC Topic

718,

Compensation – Stock Compensation. Non-cash compensation costs of

$56,434

and

$178,944

have been recognized for the vesting of options and stock awards granted to employees.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value of Financial Instruments

 

--

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

820.

The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a

three

-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

● Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

● Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

● Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their short-term maturities.

Use of Estimates, Policy [Policy Text Block]

Accounting Estimates

 

--

 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets allowance for doubtful accounts receivable, contract assets, reserve for obsolete inventory, depreciation and impairment of property plant and equipment and contract liabilities commitment and contingencies, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

 

--

 On

February 25, 2016,

the FASB issued ASU

2016

-

02,

"Leases," which makes many changes to accounting for leases. The standard will be effective for public companies with interim and annual periods beginning after

December 15, 2018.

One of the most notable changes is many of the leases that are currently accounted for as operating leases will have to be capitalized and accounted for similarly to how capital leases are currently accounted for, unless certain criteria are met. We have evaluated the impact this standard will have on our lease accounting. The standard is requiring us to capitalize a right of use asset and lease liability equal to the present value of the future minimum lease payments disclosed in Note

7.

The evaluation concludes that the impact of this standard is

not

considered material.   

In

June 2018,

the FASB issued ASU

No.

2018

-

07,

Compensation – Stock Compensation (Topic

718

) (“ASU

2018

-

07”

). ASU

2018

-

07

provides for improvements to nonemployee share-based payment accounting by expanding the scope of Topic

718

to include share-based payment transactions for acquiring goods and services from nonemployees. The awards will be measured at grant date, consistent with accounting for employee share-based payment awards. The measurement date has been redefined as the date at which the grantor and grantee reach a mutual understanding of the key terms and conditions of the award. The requirement to reassess classification of equity-classified awards upon vesting has been eliminated.

Other recent accounting pronouncements issued by the FASB did

not

or are

not

believed by management to have a material impact on the Company’s present or future financial statements. 

XML

Note 1 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	201 8			201 7
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the periods		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

XML

Note 2 - Inventory (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	201 8			201 7
Furnace parts and supplies	$	596,806		$	400,589
Raw materials		1,659,826			1,260,209
Work in process		1,691,175			2,123,418
Finished goods and filtration systems		1,596,042			2,297,743
Reserve for obsolescence		(1,111,794	)		(1,420,093	)
Net Inventory	$	4,432,055		$	4,661,866

XML

Note 3 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	Useful Life			201 8			201 7
Production equipment	3	-	10	$	9,614,189		$	10,114,398
Lab equipment	3	-	10		82,930			87,094
Computer equipment	3	-	5		204,807			204,553
Vehicles	3	-	5		71,711			75,312
Furniture and fixture		5			111,417			106,047
Leasehold improvements		10			1,037,678			1,076,731
					11,122,732			11,664,135
Less Accumulated Depreciation					(9,691,083	)		(9,704,930	)
Net Property and Equipment				$	1,431,649		$	1,959,205

XML

Note 4 - Investments at Cost (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

As of December 31, 2018	Level 1		Level 2		Level 3
Investments		-		-		5,714
Total		-		-		5,714

As of December 31, 2017	Level 1		Level 2		Level 3
Investments		-		-		6,001
Total		-		-		6,001

XML

Note 5 - Definite-life Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Year ending December 31,	Amortization Expenses
2019		748
Thereafter		-
	$	748

XML

Note 7 - Leases (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Year ending December 31,	Lease Payments
2019		712,250
2020		578,997
2021		402,584
2022		350,249
Thereafter		560,977
Total Minimum Lease Payments	$	2,605,057

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Year ending December 31,	Lease Payments
2019		14,654
Thereafter		-
Total minimum lease payments		14,654
Less amount representing interest		(865	)
Present value of minimum lease payments		13,789
Less Current Portion		(13,789	)
	$	-

XML

Note 9 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	201 8			201 7
Vacation accrual	$	3,814		$	2,900
Allowance for doubtful accounts		734			743
Reserve for obsolete inventory		241,624			305,425
Business tax credit carryover		-			30,935
Deferred Compensation		24,451			16,787
Net operating loss carryover		5,184,992			4,646,434
Excess of book over tax depreciation		(33,182	)		(71,116	)
Valuation allowance		(5,422,432	)		(4,932,108	)
Long term deferred tax asset	$	-		$	-

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	201 8			201 7
Computed tax at expected statutory rate	$	(877,791	)	$	(1,624,575	)
State and local income taxes, net of federal benefit		(9	)		(4,350	)
Non-US income taxed at different rates		(15,535	)		256,207
Effect of change in corporate tax rate		321,925			994,336	)
Non-deductible expenses		14,580			4,664
Valuation allowance		193,584			75,156
Other		(2,184	)		(19,248	)
Income tax expense (benefit)	$	(365,430	)	$	(317,810	)

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	201 8			201 7
Current income tax expense:
Danish	$	(365,430	)	$	(317,810	)
Federal		-			-
State		-			-
Current tax (benefit)	$	(365,430	)	$	(317,810	)
Book in excess of tax depreciation	$	(40,231	)	$	(225,111	)
Allowance for doubful accounts		-			459
Net operating loss carryover		(729,928	)		260,540
Valuation allowance		704,876			75,156
Deferred compensation		13,127			(8,287	)
Accrued vacation		(949	)		2,550
Reserve for obsolete inventory		53,105			(105,307	)
Deferred tax expense (benefit)	$	-		$	-
Total tax expense (benefit)	$	(365,430	)	$	(317,810	)

XML

Note 10 - Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	For the Year Ended December 31
	201 8			201 7
Net Loss attributable to LiqTech International Inc.	$	(3,814,528	)	$	(4,460,353	)
Weighted average number of common shares used in basic earnings per share		63,843,634			41,595,856
Effect of dilutive securities, stock options and warrants		-			-
Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share		63,843,634			41,595,856

XML

Note 11 - Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

		Warrants Outstanding						Warrants Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	1.65		400,000		0.57	$	1.65		400,000	$	1.65
Total			400,000		0.57	$	1.65		400,000	$	1.65

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

		Options Outstanding						Options Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.74		280,000		1.62	$	0.74		280,000	$	0.74
Total			280,000		1.62	$	0.74		280,000	$	0.74

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

	December 31, 201 8
	Shares			Weighted Average Exercise Price		Average Remaining Life		Weighted Average Intrinsic Value
Outstanding at beginning of period		455,000		$	0.82		5.15	$	-
Granted		-			-		-		-
Exercised		(175,000	)		-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at end of period		280,000		$	0.34		1.62	$	-
Vested and expected to vest		280,000		$	0.34		1.62	$	-
Exercisable end of period		280,000		$	0.34		1.62	$	-

XML

Note 12 - Significant Customers / Concentration (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	For the Year Ended December 31
	2018		2017
United States and Canada	$	922,245	$	1,115,447
Australia		597,214		640,322
South America		49,861		89,438
Asia		1,369,735		1,608,822
Europe		9,293,033		7,889,148
	$	12,232,088	$	11,343,177

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	For the Year Ended December 31
	2018		2017
Ceramic diesel particulate	$	6,536,085	$	7,230,416
Liquid filters and systems		5,264,663		3,529,360
Development projects		431,340		458,064
Kiln furniture		-		125,337
	$	12,232,088	$	11,343,177

XML

Schedule II - Valuation and Qualifying Accounts (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Valuation Allowances and Reserves, Bad Debt Expense and Reserve for Obsolete Inventory [Table Text Block]

	201 8		201 7
Bad debt expense		353,562		(102,189	)
Reserve for obsolete inventory		251,920		(206,155	)

Valuation Allowances and Reserves [Table Text Block]

	Balance Beginning of Year		Charges to Costs and Expenses		Deductions (1)			Balance End of Year
Year Ended December 31, 2018
Allowance for inventory obsolescence	$	1,409,074	$	251,920	$	(549,199	)	$	1,111,795
Allowance for doubtful accounts		660,581		353,562		(42,371	)		971,772
Totals	$	2,069,655	$	605,482	$	(591,570	)	$	2,083,567

Year Ended December 31, 2017
Allowance for inventory obsolescence	$	1,421,345	$	(206,155	)	$	193,884		$	1,409,074
Allowance for doubtful accounts		2,128,452		(102,189	)		(1,365,682	)		660,581
Totals	$	3,549,797	$	(308,344	)	$	(1,171,798	)	$	2,069,655

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	201 8			201 7
Allowance for doubtful accounts at the beginning of the period	$	660,581		$	2,128,452
Bad debt expense		353,562			(102,189	)
Receivables written off during the periods		-			(1,678,856	)
Effect of currency translation		(42,371	)		313,174
Allowance for doubtful accounts at the end of the period	$	971,772		$	660,581

XML

Note 1 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Cash, Uninsured Amount	$ 0	$ 0
Value Added Tax Of Invoice, Percentage	25.00%
Advertising Expense	$ 38,951	16,350
Research and Development Expense, Total	661,014	536,848
Allocated Share-based Compensation Expense, Total	$ 56,434	$ 178,944
Minimum [Member]
Property, Plant and Equipment, Useful Life	3 years
Maximum [Member]
Property, Plant and Equipment, Useful Life	10 years
LiqTech USA [Member] | LiqTech International DK [Member]
Percentage of Subsidiary Owned	100.00%
LiqTech USA [Member] | LiqTech NA [Member]
Percentage of Subsidiary Owned	100.00%
LiqTech International DK [Member] | LiqTech Germany [Member]
Percentage of Subsidiary Owned	100.00%
LiqTech International DK [Member] | LiqTech PTE [Member]
Percentage of Subsidiary Owned	95.00%

XML

Note 1 - Summary of Significant Accounting Policies - Allowance for Doubtful Accounts (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Allowance for doubtful accounts at the beginning of the period	$ 660,581	$ 2,128,452
Bad debt expense	353,562	(102,189)
Receivables written off during the periods		(1,678,856)
Effect of currency translation	(42,371)	313,174
Allowance for doubtful accounts at the end of the period	$ 971,772	$ 660,581

XML

Note 2 - Inventory (Details Textual)	Dec. 31, 2018 USD ($)
Inventory Pledged as Collateral	$ 4,011,203

XML

Note 2 - Inventory - Summary of Inventory (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Furnace parts and supplies	$ 596,806	$ 400,589
Raw materials	1,659,826	1,260,209
Work in process	1,691,175	2,123,418
Finished goods and filtration systems	1,596,042	2,297,743
Reserve for obsolescence	(1,111,794)	(1,420,093)
Net Inventory	$ 4,432,055	$ 4,661,866

XML

Note 3 - Property and Equipment (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Depreciation, Total	$ 819,070	$ 937,235

XML

Note 3 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Property and equipment, gross	$ 11,122,732	$ 11,664,135
Less Accumulated Depreciation	(9,691,083)	(9,704,930)
Net Property and Equipment	1,431,649	1,959,205
Production Equipment [Member]
Property and equipment, gross	9,614,189	10,114,398
Lab Equipment [Member]
Property and equipment, gross	82,930	87,094
Computer Equipment [Member]
Property and equipment, gross	204,807	204,553
Vehicles [Member]
Property and equipment, gross	$ 71,711	75,312
Furniture and Fixtures [Member]
Useful Life (Year)	5 years
Property and equipment, gross	$ 111,417	106,047
Leasehold Improvements [Member]
Useful Life (Year)	10 years
Property and equipment, gross	$ 1,037,678	$ 1,076,731
Minimum [Member]
Useful Life (Year)	3 years
Minimum [Member] | Production Equipment [Member]
Useful Life (Year)	3 years
Minimum [Member] | Lab Equipment [Member]
Useful Life (Year)	3 years
Minimum [Member] | Computer Equipment [Member]
Useful Life (Year)	3 years
Minimum [Member] | Vehicles [Member]
Useful Life (Year)	3 years
Maximum [Member]
Useful Life (Year)	10 years
Maximum [Member] | Production Equipment [Member]
Useful Life (Year)	10 years
Maximum [Member] | Lab Equipment [Member]
Useful Life (Year)	10 years
Maximum [Member] | Computer Equipment [Member]
Useful Life (Year)	5 years
Maximum [Member] | Vehicles [Member]
Useful Life (Year)	5 years

XML

Note 4 - Investments at Cost (Details Textual)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 EUR (€)	Dec. 31, 2017 USD ($)	Dec. 31, 2017 EUR (€)
Other Long-term Investments | $	$ 5,714		$ 6,001
LEA Technology [Member]
Other Long-term Investments | €		€ 5,000		€ 5,000

XML

Note 4 - Investments at Cost - Financial Assets and Liabilities (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Fair Value, Inputs, Level 1 [Member]
Investments
Total
Fair Value, Inputs, Level 2 [Member]
Investments
Total
Fair Value, Inputs, Level 3 [Member]
Investments	5,714	6,001
Total	$ 5,714	$ 6,001

XML

Note 5 - Definite-life Intangible Assets (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Intangible Assets, Net (Excluding Goodwill), Total	$ 748	$ 3,349
Patents [Member]
Amortization of Intangible Assets, Total	$ 2,519	$ 2,265
Patents [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life	10 years

XML

Note 5 - Definite-life Intangible Assets - Expected Future Amortization Expense (Details)	Dec. 31, 2018 USD ($)
2019	$ 748
Thereafter
	$ 748

XML

Note 6 - Lines of Credit (Details Textual) - Dec. 31, 2018	USD ($)	DKK (kr)
Line of Credit Facility, Maximum Borrowing Capacity	$ 14,514	kr 94,620
Guarantor Obligations, Current Carrying Value	$ 14,514	kr 94,620

XML

Note 7 - Leases (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Operating Leases, Rent Expense, Total	$ 642,546	$ 651,032
Capital Leased Assets, Gross, Total	1,182,778	1,328,672
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	1,169,272	1,301,870
Depreciation, Total	819,070	937,235
Interest Expense, Lessee, Assets under Capital Lease	5,021	6,290
Assets Held under Capital Leases [Member]
Depreciation, Total	11,180	$ 39,623
Capital Lease Obligations [Member]
Debt Instrument, Periodic Payment, Total	$ 2,093

XML

Note 7 - Leases - Future Minimum Lease Payments for Non-cancelable Operating Leases (Details)	Dec. 31, 2018 USD ($)
2019	$ 712,250
2020	578,997
2021	402,584
2022	350,249
Thereafter	560,977
Total Minimum Lease Payments	$ 2,605,057

XML

Note 7 - Leases - Future Minimum Capital Lease Payments (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017
2019	$ 14,654
Thereafter
Total minimum lease payments	14,654
Less amount representing interest	(865)
Present value of minimum lease payments	13,789
Less Current Portion	$ (13,789)	$ (26,186)

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Note 8 - Agreements, Commitments and Contingencies (Details Textual)							12 Months Ended
	Feb. 27, 2019 USD ($)	Feb. 27, 2019 DKK (kr)	Nov. 20, 2018 USD ($)	Nov. 20, 2018 DKK (kr)	Dec. 20, 2017 USD ($)	Sep. 09, 2014 EUR (€)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 EUR (€)	Dec. 31, 2017 USD ($)	Dec. 31, 2018 DKK (kr)
Defined Contribution Plan, Cost | $							$ 11,691		$ 11,347
Line of Credit Facility, Maximum Borrowing Capacity							14,514			kr 94,620
Guarantor Obligations, Current Carrying Value							$ 14,514			kr 94,620
Customer Dispute, Installation of Water Treatment Systems [Member]
Loss Contingency, Damages Sought, Value | $					$ 1,098,678
Litigation Settlement, Amount Awarded from Other Party | €								€ 380,000
LiqTech International AS [Member] | Claim with Former Supplier for Breach of Agreement [Member]
Loss Contingency, Damages Sought, Value			$ 68,800	kr 448,500
LiqTech International AS [Member] | Claim with Former Supplier for Services Rendered [Member] | Subsequent Event [Member]
Loss Contingency, Damages Sought, Value	$ 83,400	kr 543,905
LiqTech Italy [Member] | Chief Executive Officer [Member]
Loss Contingency, Damages Sought, Value | €						€ 750,000
Equity Method Investment, Ownership Percentage						60.00%
LiqTech Italy [Member] | Chief Executive Officer [Member] | Venture [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners						40.00%

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Note 9 - Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
LiqTech International Inc and LiqTech NA [Member]
Deferred Tax Assets, Valuation Allowance, Total	$ 3,293,000	$ 2,833,000
LiqTech International AS and LiqTech Systems AS [Member]
Deferred Tax Assets, Valuation Allowance, Total	1,892,000	1,850,000
LiqTech Germany [Member]
Deferred Tax Assets, Valuation Allowance, Total	132,000	139,000
LiqTech Singapore [Member]
Deferred Tax Assets, Valuation Allowance, Total	105,000	110,000
Internal Revenue Service (IRS) [Member] | Domestic Tax Authority [Member]
Deferred Tax Assets, Operating Loss Carryforwards, Domestic	15,749,964
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	(460,000)	(709,000)
Danish Ministry of Taxation [Member] | Domestic Tax Authority [Member]
Deferred Tax Assets, Operating Loss Carryforwards, Domestic	7,454,447
Danish Ministry of Taxation [Member] | Foreign Tax Authority [Member]
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	(42,000)	755,000
Federal Ministry of Finance, Germany [Member] | Foreign Tax Authority [Member]
Deferred Tax Assets, Operating Loss Carryforwards, Foreign	475,161
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	(7,000)	17,000
Inland Revenue, Singapore (IRAS) [Member] | Foreign Tax Authority [Member]
Deferred Tax Assets, Operating Loss Carryforwards, Foreign	617,359
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ (5,000)	$ 13,000

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Note 9 - Income Taxes - Deferred Tax Assets (Liabilities) (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Vacation accrual	$ 3,814	$ 2,900
Allowance for doubtful accounts	734	743
Reserve for obsolete inventory	241,624	305,425
Business tax credit carryover		30,935
Deferred Compensation	24,451	16,787
Net operating loss carryover	5,184,992	4,646,434
Excess of book over tax depreciation	(33,182)	(71,116)
Valuation allowance	(5,422,432)	(4,932,108)
Long term deferred tax asset

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Note 9 - Income Taxes - Reconciliation of Income Tax Expense (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Computed tax at expected statutory rate	$ (877,791)	$ (1,624,575)
State and local income taxes, net of federal benefit	(9)	(4,350)
Non-US income taxed at different rates	(15,535)	256,207
Effect of change in corporate tax rate	321,925	994,336
Non-deductible expenses	14,580	4,664
Valuation allowance	193,584	75,156
Other	(2,184)	(19,248)
Total tax expense (benefit)	$ (365,430)	$ (317,810)

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Note 9 - Income Taxes - Components of Income Tax Expense (Benefit) from Continuing Operations (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Current income tax expense:
Federal
State
Current tax (benefit)	(365,430)	(317,810)
Book in excess of tax depreciation	(40,231)	(225,111)
Allowance for doubful accounts		459
Net operating loss carryover	(729,928)	260,540
Valuation allowance	704,876	75,156
Deferred compensation	13,127	(8,287)
Accrued vacation	(949)	2,550
Reserve for obsolete inventory	53,105	(105,307)
Deferred tax expense (benefit)
Total tax expense (benefit)	(365,430)	(317,810)
Danish Ministry of Taxation [Member]
Current income tax expense:
Danish	$ (365,430)	$ (317,810)

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Note 10 - Earnings Per Share (Details Textual) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.34	$ 0.82
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 1.65	$ 1.65
Preferred Stock, Shares Issued, Total	0	2,200,837
Convertible Preferred Stock, Aggregate Shares Issued upon Conversion		8,803,348
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.74	$ 0.74
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance		$ 1.01
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	280,000	455,000
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	400,000	400,000
Mandatory Convertible Preferred Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		2,200,837

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Note 10 - Earnings Per Share - Amounts Used in Computing Earnings Per Share (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Net Loss attributable to LiqTech International Inc.	$ (3,814,528)	$ (4,460,353)
Weighted average number of common shares used in basic earnings per share (in shares)	63,843,634	41,595,856
Effect of dilutive securities, stock options and warrants (in shares)	0
Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share (in shares)	63,843,634	41,595,856

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Note 11 - Stockholders' Equity (Details Textual) - USD ($)							12 Months Ended
	Nov. 27, 2018	Oct. 16, 2018	Sep. 19, 2018	Apr. 16, 2018	Jan. 02, 2018	Nov. 22, 2017	Dec. 31, 2018	Dec. 31, 2017
Common Stock, Shares Authorized							100,000,000	100,000,000
Common Stock, Par or Stated Value Per Share							$ 0.001	$ 0.001
Common Stock, Shares, Issued, Total							72,915,547	44,229,264
Preferred Stock, Shares Authorized							10,000,000	10,000,000
Preferred Stock, Shares Outstanding, Ending Balance							0	2,200,837
Stock Issued During Period, Shares, New Issues				19,448,529
Share Price				$ 0.34
Proceeds from Issuance of Common Stock				$ 5,865,077			$ 6,777,100	$ 1,825,000
Convertible Preferred Stock, Aggregate Shares Issued upon Conversion								8,803,348
Payments of Stock Issuance Costs							747,423	$ 192,736
Allocated Share-based Compensation Expense, Total							$ 56,434	$ 178,944
Class of Warrant or Right, Outstanding, Non-vested Warrants							0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance							280,000	455,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Ending Balance							0
Common Stock, Shares, Outstanding, Ending Balance							72,915,547	44,229,264
The 2011 Stock Options Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance							280,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options							$ 0
The 2015 Stock Option Plan [Member]
Stock Issued During Period, Shares, New Issues	45,000	130,000	45,000
Share Price	$ 0.74	$ 1.01	$ 0.74
Proceeds from Issuance of Common Stock	$ 33,300	$ 131,300	$ 33,300
Warrants [Member]
Allocated Share-based Compensation Expense, Total							0	$ 17,634
Employee Stock Option [Member] | The 2011 Stock Options Plan [Member]
Allocated Share-based Compensation Expense, Total							15,767	70,477
Director [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross					59,406
Stock Issued During Period, Value, Restricted Stock Award, Gross					$ 60,000
Director [Member] | Restricted Stock [Member]
Allocated Share-based Compensation Expense, Total							$ 100,667	$ 90,833
Convertible Preferred Stock [Member]
Preferred Stock, Shares Outstanding, Ending Balance							0	2,200,837
Convertible Preferred Stock, Aggregate Shares Issued upon Conversion						8,803,348
Convertible Preferred Stock [Member] | Private Placement [Member]
Stock Issued During Period, Shares, New Issues						2,200,837
Convertible Preferred Stock, Shares Issued upon Conversion						4
Shares Issued, Price Per Share						$ 1.20
Proceeds from Issuance of Private Placement						$ 2,641,004
Payments of Stock Issuance Costs						$ 127,736

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Note 11 - Stockholders' Equity - Warrants Outstanding by Exercise Price (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Exercise prices of warrants (in dollars per share)	$ 1.65	$ 1.65
Warrants outstanding (in shares)	400,000
Warrants outstanding, weighted average remaining contractual life (Year)	208 days
Warrants outstanding, weighted average exercise price (in dollars per share)	$ 1.65
Warrants exercisable (in shares)	400,000
Warrants exercisable, weighted average exercise price (in dollars per share)	$ 1.65
Warrant 1 [Member]
Exercise prices of warrants (in dollars per share)	$ 1.65
Warrants outstanding (in shares)	400,000
Warrants outstanding, weighted average remaining contractual life (Year)	208 days
Warrants outstanding, weighted average exercise price (in dollars per share)	$ 1.65
Warrants exercisable (in shares)	400,000
Warrants exercisable, weighted average exercise price (in dollars per share)	$ 1.65

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Note 11 - Stockholders' Equity - Options Outstanding by Exercise Price (Details)	12 Months Ended
	Dec. 31, 2018 $ / shares shares
Options outstanding (in shares) | shares	280,000
Options outstanding, weighted average remaining contractual life (Year)	1 year 226 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 0.74
Options exercisable (in shares) | shares	280,000
Options exercisable, weighted average exercise price (in dollars per share)	$ 0.74
Price Range 1 [Member]
Exercise prices of options (in dollars per share)	$ 0.74
Options outstanding (in shares) | shares	280,000
Options outstanding, weighted average remaining contractual life (Year)	1 year 226 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 0.74
Options exercisable (in shares) | shares	280,000
Options exercisable, weighted average exercise price (in dollars per share)	$ 0.74

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Note 11 - Stockholders' Equity - Status of Options and Changes During the Year (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Outstanding, shares (in shares)	455,000
Outstanding, weighted average exercise price (in dollars per share)	$ 0.34	$ 0.82
Outstanding, average remaining life (Year)	1 year 226 days	5 years 54 days
Granted, shares (in shares)
Granted, weighted average exercise price (in dollars per share)
Exercised, shares (in shares)	(175,000)
Exercised, weighted average exercise price (in dollars per share)
Forfeited, shares (in shares)
Forfeited, weighted average exercise price (in dollars per share)
Expired, shares (in shares)
Expired, weighted average exercise price (in dollars per share)
Outstanding, shares (in shares)	280,000	455,000
Outstanding, weighted average intrinsic value
Vested and expected to vest, shares (in shares)	280,000
Vested and expected to vest, weighted average exercise price (in dollars per share)	$ 0.34
Vested and expected to vest, average remaining life (Year)	1 year 226 days
Vested and expected to vest, weighted average intrinsic value
Exercisable end of period, shares (in shares)	280,000
Exercisable end of period, weighted average exercise price (in dollars per share)	$ 0.34
Exercisable end of period, average remaining life (Year)	1 year 226 days
Exercisable end of period, weighted average intrinsic value

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Note 12 - Significant Customers / Concentration (Details Textual)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Number of Major Customers	4	4
Concentration Risk, Percentage	31.00%	38.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Major Customer 1 [Member]
Concentration Risk, Percentage	10.00%	16.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Major Customer 2 [Member]
Concentration Risk, Percentage	9.00%	10.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Major Customer 3 [Member]
Concentration Risk, Percentage	6.00%	7.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Major Customer 4 [Member]
Concentration Risk, Percentage	5.00%	5.00%
Geographic Concentration Risk [Member] | Assets, Total [Member] | DENMARK
Concentration Risk, Percentage	91.00%	87.00%
Geographic Concentration Risk [Member] | Assets, Total [Member] | UNITED STATES
Concentration Risk, Percentage	9.00%	13.00%

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Note 12 - Significant Customers / Concentration - Net Sales by Geographical Region (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Net Sales	$ 12,232,088	$ 11,343,177
Reportable Geographical Components [Member] | US And Canada [Member]
Net Sales	922,245	1,115,447
Reportable Geographical Components [Member] | AUSTRALIA
Net Sales	597,214	640,322
Reportable Geographical Components [Member] | South America [Member]
Net Sales	49,861	89,438
Reportable Geographical Components [Member] | Asia [Member]
Net Sales	1,369,735	1,608,822
Reportable Geographical Components [Member] | Europe [Member]
Net Sales	$ 9,293,033	$ 7,889,148

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Note 12 - Significant Customers / Concentration - Sales by Product Line (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Net Sales	$ 12,232,088	$ 11,343,177
Ceramic Diesel Particulate [Member]
Net Sales	6,536,085	7,230,416
Liquid Filters [Member]
Net Sales	5,264,663	3,529,360
Development Projects [Member]
Net Sales	431,340	458,064
Kiln Furniture [Member]
Net Sales		$ 125,337

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Note 13 - Subsequent Event (Details Textual) - USD ($)			1 Months Ended	12 Months Ended
	Feb. 25, 2019	Jan. 02, 2018	Feb. 14, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				175,000
Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period			180,000
Shares Issued, Price Per Share			$ 0.74
Proceeds from Stock Options Exercised			$ 133,200
Director [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross		59,406
Stock Issued During Period, Value, Restricted Stock Award, Gross		$ 60,000
Director [Member] | Subsequent Event [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	146,405
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 82,595
Chief Executive Officer [Member] | Subsequent Event [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	36,232
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 75,000

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Schedule II - Valuation and Qualifying Accounts - Bad Debt Expense and Reserves for Obsolete Inventory (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Bad debt expense	$ 353,562	$ (102,189)
Reserve for obsolete inventory	$ 207,384	$ (206,155)

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Schedule II - Valuation and Qualifying Accounts - Valuation and Qualifying Accounts (Details) - USD ($)		12 Months Ended
		Dec. 31, 2018	Dec. 31, 2017
Balance Beginning of Year		$ 2,069,655	$ 3,549,797
Charges to Costs and Expenses		605,482	(308,344)
Deductions	[1]	(591,570)	(1,171,798)
Balance End of Year		2,083,567	2,069,655
SEC Schedule, 12-09, Reserve, Inventory [Member]
Balance Beginning of Year		1,409,074	1,421,345
Charges to Costs and Expenses		251,920	(206,155)
Deductions	[1]	(549,199)	193,884
Balance End of Year		1,111,795	1,409,074
SEC Schedule, 12-09, Allowance, Credit Loss [Member]
Balance Beginning of Year		660,581	2,128,452
Charges to Costs and Expenses		353,562	(102,189)
Deductions	[1]	(42,371)	(1,365,682)
Balance End of Year		$ 971,772	$ 660,581

[1] Includes write-offs, the impact of foreign currency exchange rates.

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Schedule II - Valuation and Qualifying Accounts - Rollforward for Allowance for Doubtful Accounts (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Allowance for doubtful accounts at the beginning of the period	$ 660,581	$ 2,128,452
Bad debt expense	353,562	(102,189)
Receivables written off during the periods		(1,678,856)
Effect of currency translation	(42,371)	313,174
Allowance for doubtful accounts at the end of the period	$ 971,772	$ 660,581