LIQTECH INTERNATIONAL INC - FORM 10-K

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EX-32.2 - EXHIBIT 32.2 - LIQTECH INTERNATIONAL INC	ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - LIQTECH INTERNATIONAL INC	ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - LIQTECH INTERNATIONAL INC	ex31-2.htm
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EX-21 - EXHIBIT 21 - LIQTECH INTERNATIONAL INC	ex21.htm

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, 2016

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

Commission File Number: 000-53769

LiqTech International, Inc.

(Exact name of registrant as specified in its charter)

Nevada		20-1431677
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Industriparken 22C, DK 2750 Ballerup, Denmark
(Address of principal executive offices)		(Zip Code)

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

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

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

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

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

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

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

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

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

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

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

On June 30, 2016, 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 $0.60 per share on June 30, 2016 was $14,711,188. As of March 23, 2017, there were 36,835,514 shares of common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Table of Contents

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			Page
PART I
	Item 1	Business	1
	Item 1A	Risk Factors	9
	Item 1B	Unresolved Staff Comments	17
	Item 2	Properties	18
	Item 3	Legal Proceedings	18
	Item 4	Mine Safety Disclosures	18
PART II
	Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
	Item 6	Selected Financial Data	19
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 8	Financial Statements and Supplementary Data	30
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
	Item 9A	Controls and Procedures	30
	Item 9B	Other Information	31
PART III
	Item 10	Directors, Executive Officers and Corporate Governance	31
	Item 11	Executive Compensation	35
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
	Item 13	Certain Relationships and Related Transactions, and Director Independence	40
	Item 14	Principal Accountant Fees and Services	41
PART IV
	Item 15	Exhibits and Financial Statement Schedules	41
	Signatures		46

PART I

Item 1. Business

Overview

We are a clean technology company that provides state-of-the-art technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters. For more than a decade, we have developed and manufactured products of re-crystallized silicon carbide. We specialize in two business areas: ceramic membranes for liquid filtration and diesel particulate filters (DPFs) for the control of soot exhaust particles from diesel engines. We are phasing out the fabrication of kiln furniture for the refractory industry. Using nanotechnology, we develop proprietary products using patented silicon carbide technology. Our products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies. We market our products from our offices in the United States and Denmark, and through local representatives. 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 (formerly known as Provital, “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 LiqTech Systems are located in Hobro in Jutland, Denmark, and our U.S. operations are conducted by LiqTech Delaware located in White Bear Lake, Minnesota.

Our Products

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

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”) that currently focus on hydrocarbon production-derived contaminated water, which we refer to herein as “produced water”, removal of heavy metals in mining and energy applications, pre-filtration for reverse osmosis in drinking water and industrial applications. Our SiC Filters have been used in the following applications by our clients:

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

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

	●	Industrial applications: We have delivered complete water treatment systems for targeted applications, such as removal of a variety of substances such as heavy metals (energy providers in Denmark and Germany), scrubber wastewater from marine installations (Yara Marine Technologies), and mining wastewater for a European mining company.

	●	Producing clean drinking water: The potential for the use 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 medium to very large public 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 in produced water from the oil and chemical industry, wastewater from industrial processes and manure filtration; and

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

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

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

	●	Our SiC Filters offer the same water flow as commonly used sand filters which take up to 400 times more space and have pore sizes at least three times bigger than our SiC 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 consumption/maintenance of cartridges.

Our SiC Filters offer consistent removal of oil and suspended solids at high throughput rates regardless of feed conditions. The membranes are ideal for treatment of produced water for discharge, re-injection, pre-reverse osmosis ("RO") as well as polymer flooded streams. We offer on shore and off shore solutions and have extensive experience with produced water streams from fracking, gas condensate, and oil emulsions. We believe our SiC 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 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 and polymeric membranes.

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

The strategic acquisition of Provital in July 2014 (now LiqTech Systems) is consistent with our long-term growth strategy and strengthens our position in the integrated filtration technologies market. LiqTech Systems was one of the first in the world to develop filtration solutions based on ceramic membranes whose products result in more efficient, longer lasting systems that save water and demand less maintenance for large public pools and wastewater. The filtration systems are equipped with LiqTech Systems' own Intelligent Control System, which allows for local and/or remote control, monitoring and management of every aspect of the system. The system is easy to use and gives the user full control. The control system logs all necessary data and sends daily e-mails/SMS with all the information to a designated operator if required. We believe that LiqTech Systems solves many of the problems present in today's pool industry, including excess water consumption, energy, chemical usage, space and maintenance, and improves cost efficiency. The acquisition of LiqTech Systems has allowed LiqTech Systems to become a fully integrated, one-stop shop for plug and play filtration systems. We believe LiqTech will significantly accelerate the time to market for our SiC Filters and provide us with immediate credibility in the liquid filtration industry, particularly with our SiC Filters. By acquiring LiqTech Systems, we have gained validation in the industry by directly expanding our customer base to include existing reputable customers from LiqTech Systems. We plan to continue the research and development, and marketing efforts of LiqTech Systems' UVC Hybrid Mercury/LED lighting systems for use in large marine and recreational pools.

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

For the years ended December 31, 2016 and 2015, we received grants from governmental entities of $157,804 and $797,008, respectively.

For the years ended December 31, 2016 and December 31, 2015, our sales of liquid filters, services and systems were $7,731,079 and $10,347,010, respectively, and accounted for 56% and 65% of our total sales, respectively.

Diesel Particulate Filters (DPFs)

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

Our SiC 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, 2016 and 2015, our sales of DPFs were $5,820,793 and $5,081,304, respectively, and accounted for 42% and 32% of our total sales, respectively.

Kiln Furniture

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

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

For the years ended December 31, 2016 and December 31, 2015, our kiln furniture revenues were $354,522 and $384,273, respectively, and accounted for 2% and 2% of our total sales, respectively.

Our Competitive Strengths

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

●

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

●

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

●

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

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

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

Our Strategy

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

●

Enter New Geographic Markets and Expand Existing Markets. We plan to continue to manufacture and sell our products out of Denmark and the United States. We intend to continue to develop our organization in Denmark and the United States. We intend to work with agents and partners to access appropriate markets.

●

Continue to Strengthen Position in 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 strength in this area. Furthermore, we intend to leverage our experience in the OEM market and expand our presence in the OEM market with new products relating to diesel particulate filter systems. Furthermore, LiqTech and Kailong have signed a Letter of Intent to establish a joint venture for production of SiC Filters in China.

●

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

●

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

Our Industry

Overview

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

Liquid Filtration Market

Water is essential to life on earth, and clean water shortages are expected to affect two-thirds of the human population by 2025 (Worldwildlife). One-third of the human population is living today with clean water shortcomings and this is expected to increase to two-thirds of the population by 2025 due to the growing population (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 membrane filtration is growing rapidly, with more and larger plants being commissioned all over the world.

We also see a general trend worldwide for increasing demand for higher quality re-injection water in connection with unconventional oil and gas production. In addition, we see tightening discharge legislations, increasing water cuts (more water produced per barrel oil) and the introduction of Enhanced Oil Recovery (“EOR”) techniques. The tightening of produced water specifications is a problem for conventional technologies. However, our SiC Filters have been shown to solve these challenges and we believe represent favorable market trends for our business.

LiqTech offers packaged systems consisting of ceramic SiC and conventional RO membranes for industrial and municipal customers. We anticipate that global demand will increase for robust and OPEX attractive products such as ours that are well suited for mobile and modular systems. Reverse osmosis 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 pharmaceutical production (Lux Research). In addition, many laboratories rely on pure water, for which demineralization is an essential step. LiqTech is differentiating by the superior SiC membrane technology and being able to produce more of the water treatment package in-house. According to an industry report (Lux Research), the aggregate water volume treated by membranes is expected to grow from 29 billion cubic meters in 2009 to 82 billion cubic meters in 2020.

The market for marine installations is developing fast with new regulations for Sulphur and ballast water emissions. An estimated +10,000 ships will install a water treatment system over the coming five years. The sales of ballast water cleaning systems may reach as much as $3.1 billion by 2023, up from $467 million in 2013 (Frost and Sullivan).

Diesel Particulate Filter (DPF) Market

The increase in global regulation of diesel particles is expected to drive growth in the DPF market. We expect areas of the United States to begin introducing DPF filters. In Europe, cities in Germany are setting requirements for off-road machinery requirements for DPF filters. According to an industry publication, the global market for new DPF filters manufactured by OEMs is expected to increase from approximately 1.7 million units in 2010 to over 9 million units in 2020. Diesel emissions consist of several toxic gasses and particles: particulate matter (soot), carbon monoxide and hydrocarbons. Soot has been linked to a variety of health problems in humans. Abt Associates, for the Clean Air Task Force, estimates that approximately 21,000 people in the U.S. die prematurely each year from breathing diesel soot, 3,000 of those from lung cancer. Another 27,000 heart attacks, 14,500 hospitalizations and 2.4 million lost work days a year are attributable to diesel particulate matter exposures. In 2010, the Organization for Economic Co-operation and Development (OECD) estimated that diesel transport represented 50% of the total ambient air pollution in OECD countries, which equates to over $785 billion in health damages. The Abt Associates report, using EPA science advisory board methodology, estimated that the monetary value of the health damages from diesel-related particulate matter in the U.S. was approximately $139 billion (in 1999 dollars). Reducing diesel emissions will have both health benefits and social benefits to society, along with reduced costs.

In response to these health impacts, governments have been implementing legislation to regulate emissions from diesel engines. California implemented the Diesel Risk Reduction Plan, which required the curtailment of diesel particle emissions by 25% by 2010 and a further 15% by 2020. New York City has implemented binding directives for the retrofitting of buses, garbage trucks and construction machines. In the European Union, Directive EC 715/2007 of June 20, 2007 defined particle count limits for certain cars and light utility vehicles. Also, in Europe, low emission zones have been implemented locally, creating a patchwork of regulation. The increase in global regulation of diesel particles is expected to drive growth in the DPF market. According to an industry publication, the global market for new DPF filters manufactured by OEMs is expected to increase from approximately 1.7 million units in 2010 to over 9 million units in 2020.

The Asian markets have shown economic growth and an improved standard of living which has led to increased sales of vehicles in the Asia-Oceania region. At the same time, the pollution in major cities has reached high PM levels. As a result, we believe that the Chinese government 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 have plans to expand our production capacity in both Denmark and Minnesota, primarily through additional investment in equipment relating to our liquid filtration products, when this becomes necessary.

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, our 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. Since the start of the Company the automotive industry has been a focus for us and our single largest market. In 2014, we acquired LiqTech Systems (formerly known as Provital), a Danish systems manufacturing company, which has strengthened our focus on the liquid filtration business. This business is now our largest products group focusing on applications within the pool, drinking water, water reclamation, oil and gas, heavy metal removal and aquaculture markets.

For the year ended December 31, 2016, our four largest customers accounted for approximately 33%, 25%, 5% and 4%, respectively, of our net sales (approximately 67% in total). For the year ended December 31, 2015, our four largest customers accounted for approximately 24%, 15%, 11% and 6%, respectively, of our net sales (approximately 56% in total). 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 our four largest 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 these major customers, some of whom have limited working capital resources who may not be able to meet their financial obligations to us.

We plan to actively market our existing products to new customers as we increase our production capacity. As of March 23, 2017, we had nine (9) full time salesmen or distribution agents. We promote our products through direct contact to potential customers and by meeting potential customers in trade fairs and exhibitions.

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

Intellectual Property

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

As of March 23, 2017, we had one issued United States patent that we co-own with a third party, two issued Danish patents, three issued foreign patents (in Germany, China and South Korea) that we co-own with a third party and one pending European patent application which we co-own with a third party. The United States patent that we co-own is generally effective for 20 years from the filing date of the earliest U.S. or international application to which it claims priority. The scope and duration of each of our foreign patents varies in accordance with local law. On July 7, 2014, we obtained a new Danish patent application related to the silicon carbide membrane technology in Denmark. Our patent strategy is generally uncertain and involves complex legal and factual questions. Our ability to maintain and solidify our proprietary technology may depend in part upon our success in obtaining patent rights and enforcing those rights once granted or licensed. We do not know whether any of our pending patent applications will result in the issuance of any patents. Our issued patents and those that may be issued in the future may be challenged, invalidated, rendered unenforceable or circumvented, which could limit our ability to prevent competitors from marketing similar or related products, or shorten the term of patent protection that we may have for our products, processes and enabling technologies. In addition, the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies, duplicate technology developed by us or otherwise possess intellectual property rights that could limit our ability to manufacture our products and operate our business.

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

We also believe that having distinctive names may be an important factor in marketing our products, and therefore use trademarks to brand some of our products. As of March 23, 2017, we had one trademark registration in the United States (LiqTech NA) and four trademark registrations in the European Union (AQUA SOLUTION, CoMem, CDPX and FUTURE FILTRATION).

Government Regulation

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

Environmental Matters

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

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

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

Research and Development

As of March 23, 2017, we had ten (10) full-time employees spending a majority of their working hours on research and development. For the years ended December 31, 2016 and 2015, we spent $626,147 and $707,844, respectively, on Company-sponsored research and development.

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

Competition

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

Employees

As of March 23, 2017, we had 69 employees, 66 of whom were full-time employees. We had 59 employees at our operations in Denmark, including 10 in research and development, 9 in sales and engineering and 2 in executive management. We also had 10 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 said Denmark employees, no other employees are members of a labor union or are represented by workers’ councils that have collective bargaining agreements. We believe that our relations with our employees are good.

Corporate Information

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

Item 1A. Risk Factors

RISKS RELATED TO OUR BUSINESS

We may be unable to continue as a going concern based on our historical performance, which has included net losses and an accumulated deficit. We may continue to generate losses and be required to reduce or curtail our operations.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has limited cash and incurred significant recent losses. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 2.

We have historically incurred operating losses and may continue to do so in the future. There can be no assurance that our efforts to execute our business plan will be successful. We must develop new customer relationships and substantially increase our revenues. Our net loss for the year ended December 31, 2016 was $16,418,634 and our net loss for the year ended December 31, 2015 was $2,209,857. As of December 31, 2016 and 2015, we have an accumulated deficit of $24,011,343 and $7,592,709, respectively.

We will need additional funds to sustain our business. In the event that such funds are not received by April 15, 2017, the Company will need to raise funds through public or private sales of equity or debt securities. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our financial condition and results of operations. Additional equity financing may be dilutive to holders of our common stock, and debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate our business. In the event that the Company is unable to raise funds, there is substantial doubt about the ability of the Company to continue as a going concern, and the Company may be required to reduce or curtail its operations.

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

Our acquisition of LiqTech Systems included approximately $9.4 million of goodwill. We are required to evaluate this goodwill for impairment based on the fair value of LiqTech Systems at least once a year. This estimated fair value could change if LiqTech Systems is unable to achieve operating results at the levels that have been forecasted, the market valuation of LiqTech Systems decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by LiqTech Systems. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge to our results of operations. The Company recorded an impairment charge of $7,343,208 and $0 on goodwill, during the year ended December 31, 2016 and 2015 respectively, as managements estimated fair value of the reporting unit did not exceeded the carrying value during 2016 fourth quarter testing.

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

During the year ended December 31, 2016, we had four customers who accounted for approximately 33%, 25%, 5% and 4%, respectively, of our net sales (approximately 67% in total). For the year ended December 31, 2015, our four largest customers accounted for approximately 24%, 15%, 11% and 6%, respectively, of our net sales (approximately 56% in total). 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 (other than Kailong for producing DPFs) 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 these four major customers, some of whom have limited working capital resources who may not be able to meet their financial obligations to us. The failure of any such customers to pay amounts owed to us in a timely fashion or at all could have an adverse effect on our results of operations. The Company is also exposed to credit risk on its accounts receivable, and this risk is heightened during periods when economic conditions worsen. 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 materially adverse effect on our business.

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

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

In order to expand our product offerings and customer base, we will need to hire additional qualified personnel. We may not be able to locate such persons, and even if we locate them, we may not have the funds to employ them, which could have a materially adverse effect on our business.

Future growth of our business depends in part, on the general availability of funding for emissions control programs, as well as enforcement of existing emissions-related environmental regulations and further tightening of emission standards worldwide, both of which are beyond our control and the lack of which could negatively affect our future growth.

Future growth of our business depends in part on the general availability of funding for emissions control programs, which can be affected by economic as well as political reasons which are beyond our control. For example, in light of the budget crisis in California, funding was not available for a state-funded emissions control project and its start date was pushed back. 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. If existing regulations and emissions standards do not continue to become stricter, are loosened or are not enforced by governmental authorities due to commercial and business pressure or otherwise, it could have a material adverse effect on our business, operating results, financial condition and long-term prospects.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We use silicon carbide, 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 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.

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

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

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

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

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

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

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The timing and size of customer purchases;

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

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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 materially adverse effect on our operations in the future.

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

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

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

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

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

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

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

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

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

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

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

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

RISKS RELATED TO OUR COMMON STOCK

Approximately 18.5% of our common stock is beneficially owned by our officers and directors, who have the ability to substantially influence the election of directors and other matters submitted to stockholders.

As of March 23, 2017, 6,825,567 shares, or approximately 18.5% of our common stock, inclusive of shares issuable upon the exercise of immediately exercisable options and warrants, were beneficially owned by our officers and directors, including 1,358,261 shares, or 3.7%, of our common stock beneficially owned by Sune Mathiesen, our Chief Executive Officer and 3,188,541 shares, or 8.7%, of our common stock beneficially owned by Aldo Petersen, our Chairman of the Board. As a result, certain officers and, directors, in particular Sune Mathiesen, and Aldo Petersen, are expected to continue to have the ability to significantly influence the election of our Board of Directors and the outcome of all other issues submitted to our stockholders. The interests of these principal stockholders may not always coincide with our interests or the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders. One consequence to this substantial influence or control is that it may be difficult for investors to remove our management. This could also deter unsolicited takeovers, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

Future equity financings or convertible debt would dilute your ownership and could adversely affect your common stock ownership rights in comparison with those of other security holders.

Our board of directors has the power to issue additional shares of common or preferred stock without stockholder approval. In general, stockholders do not have preemptive rights to any common stock issued by us in the future. Therefore, stockholders may experience additional dilution of their equity investment if we issue additional shares of common stock in the future, including shares issuable under equity incentive plans, or if we issue securities that are convertible into shares of our common stock.

If additional funds are raised through the issuance of equity or convertible debt securities, the percentage of ownership of our existing stockholders will be reduced, and such newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we issue additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder. In addition, such stock issuances might result in a reduction of the book value of our common stock, which could make our stock unattractive to existing stockholders.

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

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

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

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

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

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

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

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

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

●

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

●

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

●

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

As a “smaller reporting company” we are not required and may not include a Compensation Discussion and Analysis section in our proxy statements; we provide only 3 years of business development information; provide fewer years of selected financial data; and have other “scaled” disclosure requirements that are less comprehensive than issuers that are not “smaller reporting companies” which could make our stock less attractive to potential investors, which could make it more difficult for you to sell your shares.

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

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

●

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

●

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

●

a decline in the stock prices of peer companies; and

●

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

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

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

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located at Industriparken 22C, 2750 Ballerup, Denmark. We lease approximately 55,000 square feet at our Ballerup location, of which approximately 10,000 square feet is used for office space and 45,000 square feet is used for production. The lease will expire on August 31, 2018. Our U.S. operations are located at 1800 - 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. Our LiqTech Systems operations are located at Benshøj Industrivej 24, 9500 Hobro, Denmark. We lease approximately 20,699 square feet at our Hobro location, of which approximately 3,550 square feet is used for office space and 17,149 square feet is used for production. The lease will expire on May 31, 2018. Until June 30, 2017, our LiqTech Systems operations has leased an additional 6,060 square feet in Hobro, at Bornholmsvej 3C, Denmark, of which all is planned to be used for production and assembling.

Item 3. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Except as set forth below, as of December 31, 2016, we were not a party to any legal proceeding that we believe would have a material adverse effect on our business, financial condition or operating results.

On September 9, 2014, Mr. Raffaele Bruno Tronchetti Provera (“Plaintiff”), the 60% owner of LiqTech Italy s.r.l. (the “Venture”), sued LiqTech International A/S, the 40% owner of the Venture (“Defendant”), for 750,000 Euros before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. As of March 23, 2017, the case is in the preliminary stages where the court has appointed an expert in order to verify the quality of the products in order to determine whether there is sufficient evidence to proceed. An evaluation of the outcome will only be possible after the results of the court appointment expert are known. This outcome of the court appointment expert is expected to be reported in second quarter of 2017. Defendant believes that the claims are without merit and intends to vigorously defend any litigation.

Item 4. Mine Safety Disclosures.

Not applicable.

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

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

2017		High				Low
1st Quarter (through March 23, 2017)		$	0.67			$	0.42

2016	High		Low
4th Quarter	$	0.83	$	0.59
3rd Quarter		0.97		0.64
2nd Quarter		0.85		0.58
1st Quarter		1.01		0.69

2015	High		Low
4th Quarter	$	1.47	$	0.89
3rd Quarter		1.14		0.70
2nd Quarter		0.94		0.66
1st Quarter		1.17		0.67

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

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

Based upon information supplied to us by our transfer agent as of March 20, 2017, we had approximately 43 stockholders of record.

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

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

	●	our earnings and cash flow;

	●	our capital requirements;

	●	our financial condition; and

	●	other factors our Board of Directors deems relevant.

Item 6. Selected Financial Data

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

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

Forward Looking Statements

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

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.

2016 Developments

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

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

On May 4, 2016, we announced that we had received a $2.0 million follow-on order for the Ground Water Treatment Plant in Serbia that was announced by the Company in February 2016. The total value of the project was $4.0 million and the order was delivered partly in the third quarter of 2016 and the last part is expected to delivered in the second quarter of 2017.

On July 21, 2016, we announced that we had entered into a strategic relationship with one of the leading Chinese companies for diesel particulate filters (DPFs), Kailong High Technology Co. Ltd., to provide Kailong with advanced silicon carbide material for DPF filters. The framework agreement was valued at $2.2 million with the first order of $0.375 million delivered in September 2016.

On August 25, 2016, we announced that we had entered into a letter of intent to establish a diesel particulate filter company in China, The agreement includes a technology transfer fee of $1.5 million, which is payable upon achievement of certain milestones, and a royalty of $2.25 per liter of DPFs. Kailong believes the market potential for high quality emission control systems is significant in China and together with LiqTech could scale to a capacity of 2 million liters in silicon carbide DPFs to serve the Chinese and international market. The New China 6 standard for diesel vehicle emissions will likely put China on the forefront of emission standards in the world creating the need for better DPFs in China.

On September 7, 2016, we announced that we had entered into a Letter of Intent (LOI) to supply a $1.8 million filtration system for a 100,000 tons per year bioethanol plant to be located in Harbin, Heilongjiang, China. The LOI is subject to execution of definitive documents and financing of the project from a Chinese Investment bank. The filtration system is based on the Company´s ceramic membranes and its newly developed RO systems.

On September 27, 2016, we announced that the Company had received an order for silicon carbide diesel particulate filters from Kailong High Technology ("Kailong") for $2,360,000 as part of the framework agreement made between the parties.

On October 6, 2016, we announced that due to regulatory issues it had not been possible for Kailong High Technology to meet the September 30, 2016 deadline for an investment in LiqTech. The parties have therefor agreed to amend the agreement, so that the joint venture is increasing the payment for the technology of producing Silicon Carbide Filters. LiqTech would be paid 2 million USD up-front for the technology and a royalty of USD 2.25 per liter of filters sold in the joint venture in 2018 - 2020.

On October 25, 2016, we announced that our products have been certified according to NSF61 for drinking water products.

On November 10, 2016, we announced that we and Hunan Yonker Water Co., Ltd. ("Yonker") had signed an equity joint venture agreement to set up a joint venture company in China relating to filtration systems based on LiqTech's Silicon Carbide Membrane technology used in water and wastewater treatment for industrial municipal facilities. In addition, Hunan Yonker Investment Group Co. Ltd and LiqTech entered into an agreement pursuant to which Hunan Yonker Investment Group Co. Ltd agreed to purchase 4,000,000 shares of common stock of LiqTech at $1.00 per share. The closing of the purchase of the shares is subject to receipt of all US and China government approvals. On March 1, 2017, we announced that due to regulatory issues it has not been feasible for Hunan Yonker Investment Group (Yonker) to complete the agreed investment in LiqTech before the deadline of February 28, 2017. Therefore, the parties have amended the Investment Agreement and the deadline for completion of the $4 million investment in LiqTech has been extended to April 15, 2017.

On December 13, 2016, we announced that we had received a $350,000 order for the Company´s water treatment systems for flue gas condensate. The order was received from DuPont and will be installed at their facility in Grindsted, Denmark.

On December 19, 2016, we announced that we had received a $260,000 order for the Company´s water treatment systems for flue gas condensate. The order was received from Tjæreborg Industri A/S, a Danish company who specializes in the development and manufacturing of equipment for power plants. The system will be installed at Hobro Varmeværk, Denmark.

2017 Developments

On January 5, 2017, we announced that we and Grundfos Biobooster A/S (Grundfos) have signed a framework agreement for the delivery of silicon carbide ceramic discs. The agreement has a value of minimum $450,000 and an initial term of 2 years. The ceramic discs will be used in Grundfos´s Ultra Filtration systems for water re-use.

On January 17, 2017, we announced that we had received a $120,000 order for the Company´s water treatment systems for flue gas condensate. The order was received from Tjæreborg Industri A/S, a Danish company who specializes in the development and manufacturing of equipment for power plants. The system will be installed at Uldum Varmeværk, Denmark in 2017.

On March 1, 2017, we announced that due to regulatory issues it has not been feasible for Hunan Yonker Investment Group (Yonker) to complete the agreed investment in LiqTech before the deadline of February 28, 2017. Therefore, the parties have amended the Investment Agreement and the deadline for completion of the USD 4 million investment in LiqTech has been extended to April 15, 2017.

Results of Operations

Results of Operations for the Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

The following table sets forth our revenues, expenses and net income for the year ended December 31, 2016 and 2015.

													Period to Period Change
	2016			As a % of Sales			2015			As a % of Sales				$		Percent %
Net Sales		13,906,394			100	%		15,812,587			100	%		(1,906,193	)		(12.1	)
Cost of Goods Sold		12,473,965			89.7			12,598,163			79.7			(124,198	)		(1.0	)
Gross Profit		1,432,429			10.3			3,214,424			20.3			(1,781,995	)		(54.4	)

Operating Expenses
Selling expenses		2,164,780			15.6			2,721,781			17.2			(557,001	)		(20.5	)
General and administrative expenses		3,997,304			28.7			2,814,747			17.8			1,182,557			42.0
Non-cash compensation expenses		435,794			3.1			369,531			2.3			66,263			17.9
Research and development expenses		626,147			4.5			707,844			4.5			(81,697	)		(11.5	)
Impairment of goodwill		7,343,208			52.8			-			-			7,343,208			-
Total Operating Expenses		14,567,233			104.8			6,613,903			41.8			7,953,330			120.3

Loss from Operating		(13,134,804	)		(94.5	)		(3,399,479	)		(21.5	)		(9,735,325	)		286.4

Other Income (Expense)
Interest and other income		968			0.0			98,171			0.6			(97,203	)		(99.0	)
Interest (Expense)		(38,945	)		(0.3	)		(51,232	)		(0.3	)		12,287			(24.0	)
Gain (Loss) on investments		(16,621	)		(0.1	)		7,253			0.0			(23,874	)		(329.2	)
Gain (Loss) on currency transactions		(9,555	)		(0.1	)		459,279			2.9			(468,834	)		(102.1	)
Total Other Income (Expense)		(64,153	)		(0.5	)		513,471			3.2			(577,624	)		(112.5	)

Loss Before Income Taxes		(13,198,957	)		(94.9	)		(2,886,008	)		(18.3	)		(10,312,949	)		357.3
Income Taxes Expense (Benefit)		3,219,677			23.2			(697,786	)		(4.4	)		3,917,463			(561.4	)

Net Loss		(16,418,634	)		(118.1	)		(2,188,222	)		(13.8	)		(14,230,412	)		650.3
Less net income attributable to the non-controlled interest in subsidiaries		-			-			21,635			0.1			(21,635	)		(100.0	)
Net Loss attributable to LiqTech		(16,418,634	)		(118.1	)		(2,209,857	)		(14.0	)		(14,208,777	)		643.0

Revenues

Net sales for the year ended December 31, 2016 were $13,906,394 compared to $15,812,587 for the same period in 2015, representing a decrease of $1,906,193, or 12%. The decrease in sales consist of an increase in sales of DPFs of $739,488, a decrease in sales of liquid filters of $2,615,931 and a decrease in sales of kiln furniture $29,751 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 to a delay in certain business opportunities compared to the same period last year where various projects were realized. The decrease in demand for our kiln furniture is due to our decision to not focus on this product line anymore.

Gross Profit

Gross profit for the year ended December 31, 2016 was $1,432,429 compared to $3,214,424 for same period in 2015, representing a decrease of $1,781,995, or 55%. The decrease in gross profit was due to a lower sales activity for the year ended December 31, 2016 compared to the same period in 2015 and an increase in the reserve for obsolete inventory. Included in the gross profit is depreciation of $1,378,277 and $1,437,787 for the years ended December 31, 2016 and 2015, respectively.

Expenses

Total operating expenses for the year ended December 31, 2016 were $14,567,233, representing an increase of $7,953,330, or 120%, compared to $6,613,903 for the same period in 2015. This increase in operating expenses is attributable to an increase in impairment charge of goodwill of $7,343,208, an increase in general and administrative expenses of $1,182,557 or 42% and an increase in non-cash compensation expenses of $66,263 or 18%, and this is partially offset by a decrease in selling and marketing expenses of $557,001 or 21% and a decrease in research and development expenses of $81,697 or 12% compared to the same period in 2015.

Selling expenses for the year ended December 31, 2016 were $2,164,780 compared to $2,721,781 for the same period in 2015, representing a decrease of $557,001 or 21%. This decrease is attributable to a cost reduction in selling expenses in general. Furthermore, the increase of USD against EURO and DKK of approximately 3% from period to period has had a decreasing effect on our expenses in 2016, because a significant amount of our expenses is in EURO and DKK.

General and administrative expenses for the year ended December 31, 2016 were $3,997,304 compared to $2,814,747 for the same period in 2015, representing an increase of $1,182,557, or 42%. This increase is attributable to a cost reduction in general and administrative cost offset by an increase in the provision for bad debt of $1,437,949.

Non-cash compensation expenses for the year ended December 31, 2016 were $435,794 compared to $369,531 for the same period in 2015, representing an increase of $66,263 or 18%. This increase is attributable to increased non-cash compensation expense for options, shares and warrants for services performed granted to directors, employees and management.

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

	2016		2015
Compensation upon vesting of stock options granted to employees	$	307,493	$	154,745
Compensation for vesting of restricted stock awards issued to the board of directors		77,667		204,500
Value of warrants issued for services		50,634		10,286
Total	$	435,794	$	369,531

Research and development expenses for the year ended December 31, 2016 were $626,147 compared to $707,844 for the same period in 2015, representing a decrease of $81,697, or 12%. This decrease is attributable to decreased research and development expenditures for the period ended December 31, 2016 compared to the same period in 2015.

Impairment of goodwill for the year ended December 31, 2016 was $7,343,208 compared to $0 for the same period in 2015, representing an increase 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, 2016 was a loss of $16,418,634 compared to a loss of $2,209,857 for the comparable period in 2015, representing an increase of $14,208,777.

This decrease was primarily attributable to a decrease of $1,781,995 in our gross profit, an increase in operating expenses of $7,953,330, and a decrease in total other income of $577,624. The largest contributor to the increase in operating expenses was the impairment write down of $7,343,208.

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

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

													Period to period change
	2015			As a % of Sales			2014			As a % of Sales				$		Percent %
Net Sales		15,812,587			100	%		14,561,192			100	%		1,251,395			8.6
Cost of Goods Sold		12,598,163			79.7			12,463,949			85.6			134,214			1.1
Gross Profit		3,214,424			20.3			2,097,243			14.4			1,117,181			53.3

Operating Expenses
Selling and Marketing		2,721,781			17.2			3,360,566			23.1			(638,785	)		(19.0	)
General and Administrative		2,814,747			17.8			3,019,094			20.7			(204,347	)		(6.8	)
Non-cash compensation		369,531			2.3			573,029			3.9			(203,498	)		(35.5	)
Research and Development		707,844			4.5			336,066			2.3			371,778			110.6
Total Operating Expenses		6,613,903			41.8			7,288,755			50.1			(674,852	)		(9.3	)

Loss from Operating		(3,399,479	)		(21.5	)		(5,191,512	)		(35.7	)		1,792,033			(34.5	)

Other Income (Expense)
Interest and Other Income		98,171			0.6			10,511			0.1			87,660			834.0
Interest (Expense)		(51,232	)		(0.3	)		(53,379	)		(0.4	)		2,147			(4.0	)
Gain (Loss) on Investments		7,253			0.0			(815	)		(0.0	)		8,068			(989.9	)
Gain on Currency Transactions		459,279			2.9			450,147			3.1			9,132			2.0

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

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

Net Loss		(2,188,222	)		(13.8	)		(3,082,497	)		(21.2	)		894,275			(29.0	)
Less net income attributable to the non-controlled interest in subsidiaries		21,635			0.1			(16,429	)		(0.1	)		38,064			(231.7	)

Net Loss attributable to LiqTech		(2,209,857	)		(14.0	)		(3,066,068	)		(21.1	)		856,211			(27.9	)

Revenues

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

Gross Profit

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

Expenses

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

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

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

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

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

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

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

Net Loss

Net loss attributable to the Company for the year ended December 31, 2015 was a loss of $2,209,857 compared to a loss of $3,066,068 for the comparable period in 2014, representing an improvement of $856,211. This increase was primarily attributable to an increase of $1,117,181 in our gross profit, a decrease in operating expenses of $674,852, an increase in total other income of $107,007 and an decrease in income tax benefit of $1,004,765. The largest contributor to the decrease in operating expenses was a decrease in selling expenses of $638,785 or 19.0%.

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. However, the Company has limited cash and incurred significant recent losses raising substantial doubt about the ability of the Company to continue as a going concern. As earlier announced the Company has entered into an Investment Agreement with Hunan Yonker Investment Group for an USD 4 million investment in LiqTech no later than April 15, 2017. In the event that such funds are not received by April 15, 2017, the Company will need to raise funds by the issuance of debt or equity. There can be no assurance that the Company will be able to raise funds on terms that are favorable to the Company or at all. In the event that the Company is unable to raise funds, the Company will be required to reduce or curtail operations.

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, 2016, we had cash and restricted cash of $1,208,650 and working capital of $3,497,577 and at December 31, 2015, we had cash and restricted cash of $1,663,417 and working capital of $7,642,313. At December 31, 2016, our working capital decreased by $4,144,736, compared to December 31, 2015. Total current assets were $8,506,321 and $12,983,004 at December 31, 2016 and at December 31, 2015, respectively, and total current liabilities were $5,008,744 and $5,340,690 at December 31, 2016 and at December 31, 2015, respectively.

LiqTech Systems had previously a DKK 2,000,000 (approximately $300,000 at September 30, 2015) standby line of credit with a bank, subject to certain borrowing base limitations. Outstanding borrowings are due on demand. Interest is calculated based on a variable interest rate and is payable quarterly. The line was cancelled June 12, 2015.

In connection with certain orders, we have to give the customer a working guarantee or a prepayment guarantee or security bond. For that purpose, we previously had a guarantee credit line of DKK 94,620 (approximately $13,416 at December 31, 2016) with a bank, subject to certain base limitations. As of December 31, 2016, we had DKK 94,620 (approximately $13,416) in working guarantee against the line. This line of credit is guaranteed by Vækstfonden (the Danish state's investments fund) and is secured by certain assets of LiqTech Systems such as receivables, inventory and equipment.

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

We will need additional funds to sustain our business. We may raise such funds from time to time through public or private sales of equity or debt securities. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our financial condition and results of operations. Additional equity financing may be dilutive to holders of our common stock, and debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate our business. In the event that the Company is unable to raise funds, there is substantial doubt about the ability of the Company to continue as a going concern.

Cash Flows

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Cash provided (used) by operating activities is net income (losses) adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities for the year ended December 31, 2016 was $415,794, representing an increase of $2,506,758 compared to cash used by operating activities of $2,090,964 for the year ended December 31, 2015. The $2,506,758 increase in cash provided by operating activities for the year ended December 31, 2016 was mainly due to decreases in accounts receivable of $841,918, a decrease in accrued expenses of $1,018,643 and a decrease in long term contracts of $1,807,658 offset by an increase in inventory of $547,934 and a decrease in accounts payable of $1,192,386.

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

Cash used in investing activities was $373,740 for the year ended December 31, 2016, as compared to cash used in investing activities of $592,656 for the year ended December 31, 2015. Cash used in investing activities decreased of $218,916 for the year ended December 31, 2016, compared to the year ended December 31, 2015. This decrease was primarily due to the period over period decrease of $202,538 in the purchase of property and equipment.

Cash used by financing activities was $202,619 for the year ended December 31, 2016, as compared to cash provided by financing activities of 223,072 for the year ended December 31, 2015. This decrease in cash used by financing activities for the year ended December 31, 2016, compared to 2015, was mainly due to a decrease in payments proceeds on capital lease obligations offset by payments on loans payable.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

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

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

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

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

Off Balance Sheet Arrangements

As of December 31, 2016, we had no off-balance sheet arrangements other than normal operating leases. We are not aware of any material transactions which are not disclosed in our consolidated financial statements.

Operating Leases -- The Company leases office and production facilities under operating lease agreements expiring in March 2021, August 2018, May 2018, and June 2017. 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, 2016 are as follows:

Year ending December 31,	Lease Payments
2017		559,058
2018		457,735
2019		179,094
Thereafter		395,898
Total Minimum Lease Payments	$	1,591,785

Significant Accounting Policies and Critical Accounting Estimates

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

	●	the assessment of collectability of accounts receivable, which impacts operating expenses when and if we record bad debt or adjust the allowance for doubtful accounts;
	●	the assessment of recoverability of long-lived assets, which impacts gross margin or operating expenses when and if we record asset impairments or accelerate their depreciation;
	●	the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes;
	●	the valuation of inventory, which impacts gross margin; and
	●	the recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.

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

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

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

The roll forward of the allowance for doubtful accounts for the year ended December 31, 2016 and December 31, 2015 was as follows:

	2016			2015
Allowance for doubtful accounts at the beginning of the period	$	1,087,871		$	1,654,290
Bad debt expense		1,437,949			80,729
Amount of receivables written off		(252,792	)		(398,083	)
Effect of currency translation		(144,576	)		(249,065	)
Allowance for doubtful accounts at the end of the period	$	2,128,452		$	1,087,871

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 $7,343,208 and $0 on goodwill, during the year ended December 31, 2016 and 2015, as management's estimated fair value of the reporting unit did not exceeded the carrying value during 2016 fourth quarter testing.

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, 2016 and 2015, no impairment charge of long-lived assets has been recorded.

Revenue Recognition and Sales Incentives

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

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

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

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

Income Taxes

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

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

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

Inventory

The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory. As of December 31, 2016, we had total furnace parts and supplies of 336,799, raw material of $1,216,098, work-in-process inventory of $ 2,499,242, total finished goods inventory of $ 2,544,081 and reserve for obsolescence of $1,421,345. The estimated future demand is included in the development of our short-term manufacturing plans to enable consistency between inventory valuation and build decisions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of the customer base, acceptance of the product by the customer and the various environmental authorities, competitor’s products, as well as an assessment of the selling price in relation to the product cost. If our demand forecast for specific products is greater than actual demand, and we fail to reduce manufacturing output accordingly, we could be required to write off inventory, which would negatively impact our gross margin.

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

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.

Item 8. Financial Statements and Supplementary Data.

Our financial statements are attached on the following “F” pages.

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm	F-1

Consolidated Balance Sheets at December 31, 2016 and 2015	F-2

Consolidated Statements of Operations for the years ended December 31, 2016 and 2015	F-4

Consolidated Statement of Other Comprehensive Income for the years ended December 31, 2016 and 2015	F-5

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2016 and 2015	F-6

Consolidated Statement of Cash Flows for the years ended December 31, 2016 and 2015	F-7

Notes to the Consolidated Financial Statements	F-9

F-i

4397 SOUTH ALBRIGHT DRIVE,SALT LAKE CITY, UTAH 84124

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

Board of Directors

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

Industriparken 22C, DK

2750 Ballerup, Denmark

We have audited the accompanying consolidated balance sheets of LiqTech International, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, other comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2016 and 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, and audit of its internal controls over financial reporting for the year ended December 31, 2016 and 2015. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting for the year ended December 31, 2016 and 2015. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of LiqTech International, Inc. and subsidiaries as of December 31, 2016 and 2015 and the results of their operations and their cash flows for the years ended December 31, 2016, and 2015, in conformity with generally accepted accounting principles in the United States.

/s/ Gregory & Associates, LLC.

March 30, 2017

Salt Lake City, Utah

F-1

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of		As of
	December 31,		December 31,
	2016		2015
Current Assets:
Cash	$	1,208,650	$	1,370,591
Restricted cash balances		-		292,826
Accounts receivable, net		1,111,759		3,191,858
Other receivables		306,177		505,945
Cost in excess of billing		642,700		2,519,321
Inventories		5,174,874		4,916,671
Prepaid expenses		62,161		13,670
Current deferred tax asset		-		172,122

Total Current Assets		8,506,321		12,983,004

Property and Equipment, net accumulated depreciation:		2,633,558		3,538,694

Other Assets:

Investments at costs		5,282		21,838
Long term deferred tax asset		-		3,684,497
Goodwill		-		7,582,749
Other intangible assets		5,614		10,386
Deposits		261,553		252,378

Total Other Assets		272,449		11,551,848

Total Assets	$	11,412,328	$	28,073,546

(Continued)

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

F-2

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of			As of
	December 31,			December 31,
	2016			2015
Current Liabilities:
Current portion of notes payable	$	15,034		$	-
Current portion of capital lease obligations		45,883			150,157
Accounts payable		2,262,688			3,455,085
Accrued expenses		2,385,586			1,441,840
Billing in excess of cost		106,375			175,338
Accrued income taxes payable		580			570
Deferred revenue / customers deposits		192,597			117,700

Total Current Liabilities		5,008,743			5,340,690


Long-term notes payable, less current portion		39,895			-
Long-term capital lease obligations, less current portion		93,942			165,572
Total Long-Term Liabilities:		133,837			165,572

Total Liabilities		5,142,580			5,506,262

Commitment and Contingencies See Note 11		-			-

Stockholders' Equity:
Common stock; par value $0,001, 100,000,000 shares authorized, 36,835,514 and 39,532,035 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively		36,836			39,532
Additional paid-in capital		36,084,117			36,087,808
Accumulated deficit		(24,011,343	)		(7,592,709	)
Deferred compensation		(148,561	)		(590,742	)
Other comprehensive income, net		(5,691,301	)		(5,376,605

Total Stockholders' Equity		6,269,748			22,567,284

Total Liabilities and Stockholders' Equity	$	11,412,328		$	28,073,546

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

F-3

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended

	December 31,
	2016			2015
Net Sales	$	13,906,394		$	15,812,587

Cost of Goods Sold		12,473,965			12,598,163

Gross Profit		1,432,429			3,214,424

Operating Expenses:
Selling expenses		2,164,780			2,721,781
General and administrative expenses		3,997,304			2,814,747
Non-cash compensation expenses		435,794			369,531
Research and development expenses		626,147			707,844
Impairment of goodwill		7,343,208			-

Total Operating Expense		14,567,233			6,613,903

Loss from Operations		(13,134,804	)		(3,399,479	)

Other Income (Expense)
Interest and other Income		968			98,171
Interest expense		(38,945	)		(51,232	)
Gain (Loss) on investments		(16,621	)		7,253
Gain (Loss) on currency transactions		(9,555	)		459,279

Total Other Income (Expense)		(64,153	)		513,471

Loss Before Income Taxes		(13,198,957	)		(2,886,008	)

Income Tax Expense (Benefit)		3,219,677			(697,786	)

Net Loss		(16,418,634	)		(2,188,222	)

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

Net Loss Attributable To LiqTech	$	(16,418,634	)	$	(2,209,857	)

Basic Loss Per Share	$	(0.45	)	$	(0.06	)

Weighted Average Common Shares Outstanding		36,835,514			36,790,420

Diluted Loss Per Share	$	(0.45	)	$	(0.06	)

Weighted Average Common Shares Outstanding Assuming Dilution		36,835,514			36,790,420

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

F-4

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

	For the Years Ended
	December 31,
	2016			2015

Net Loss		(16,418,634	)		(2,188,222	)

Currency Translation, Net of Taxes		(314,696	)		(2,540,688	)

Other Comprehensive Loss	$	(16,733,330	)	$	(4,728,910	)

Comprehensive Income (Loss) Attributable To Non-controlled Interest in Subsidiaries		-			-

Comprehensive Loss Attributable To LiqTech International Inc.	$	(16,733,330	)	$	(4,728,910	)

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

F-5

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2016, 2015 and 2014

	Common Stock						Additional Paid-in			Retained			Other Compre- hensive			Deferred Compen-			Non- controlled Interest in
	Shares			Amount			Capital			Earnings			Income			sation			Subsidiaries
BALANCE, December 31, 2014		39,404,782		$	39,405		$	35,632,410		$	(5,382,852	)	$	(2,835,917	)	$	(504,748	)	$	16,717

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

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

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

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

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

Currency translation, net														(2,540,688	)					(16,717	)

Net Income for the year ended December 31, 2015											(2,209,857	)

BALANCE, December 31, 2015		39,532,035		$	39,532		$	36,087,808		$	(7,592,709	)	$	(5,376,605	)	$	(590,742	)	$	0

Warrants issued for services								33,000									(33,000	)

Forfeiture of Stock Based Compensation								(39,387	)								39,387

Stock based compensation expenses recognized for the year ended December 31, 2016																	435,794

Cancelation of common share held in escrow in connection with acquisition of LiqTech Systems AS		(2,696,521	)		(2,696	)		2,696
Currency translation, net														(314,696	)

Net Income for the year ended December 31, 2016											(16,418,634	)

BALANCE, December 31, 2016		36,835,514		$	36,836		$	36,084,117		$	(24,011,343	)	$	(5,691,301	)	$	(148,561	)	$	0

F-6

LiqTech International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Increase (Decrease) in Cash and Cash Equivalents

	For the Years Ended
	December 31,
	2016			2015
Cash Flows from Operating Activities:
Net Loss	$	(16,418,634	)	$	(2,188,222	)
Adjustments to reconcile net (loss) to net cash provided (used) by operations:
Depreciation and amortization		1,378,277			1,444,109
Non-cash compensation		435,794			369,531
Bad debt expense		1,437,949			(80,729	)
Reserve for obsolete inventory		802,966			174,143
Change in deferred tax asset / liability		3,856,619			(250,523	)
Impairment of goodwill		7,343,208			-
Loss on Investments		16,556			-
Changes in assets and liabilities:
(Increase) decrease in restricted cash		292,826			(73,947	)
(Increase) decrease in accounts receivable		841,918			(1,280,537	)
(Increase) decrease in inventory		(1,147,934	)		(175,948	)
(Increase) decrease in prepaid expenses/deposits		(57,666	)		49,012
Increase (decrease) in accounts payable		(1,192,386	)		1,118,143
Increase (decrease) in accrued expenses		1,018,643			(24,671	)
Increase (decrease) long-term contracts		1,807,658			(1,171,325	)

Total Adjustments		16,834,428			97,258

Net Cash Provided (Used) by Operating Activities		415,794			(2,090,964	)

Cash Flows from Investing Activities:
Purchase of property and equipment		(373,740	)		(576,278	)
Purchase of Long-term investments		-			(16,378	)

Net Cash Used by Investing Activities		(373,740	)		(592,656	)

Cash Flows from Financing Activities:
Payments on loans payable		(26,714	)		-
Net payments proceeds on capital lease obligation		(175,905	)		(223,072	)

Net Cash Used by Financing Activities		(202,619	)		(223,072	)

Loss on Currency Translation		(1,376	)		(1,576,469	)

Net Increase (Decrease) in Cash and Cash Equivalents		(161,941	)		(4,483,161	)

Cash and Cash Equivalents at Beginning of Period		1,370,591			5,853,752
Cash and Cash Equivalents at End of Period	$	1,208,650		$	1,370,591

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

F-7

LIQTECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

	For the Years Ended December 31,
	2016		2015
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	38,945	$	51,232
Income Taxes	$	590	$	570

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

Compensation upon vesting of stock options granted to employees	$	307,493	$	154,745
Compensation for vesting of restricted stock awards issued to the board of directors		77,667		204,500
Value of warrants issued for services		50,634		10,286
Total	$	435,794	$	369,531

On December 31, 2016, the Company canceled 2,696,521 common shares two-thirds (2/3) of the previously issued common shares held in escrow issued in connection with the Company through its subsidiary, LiqTech Int. DK, acquisition of all of the issued and outstanding capital stock of LiqTech Systems A/S (formerly Provital Solutions A/S), as LiqTech Systems A/S failed to meet the 2014, 2015 and 2016 catchup gross revenue and EBITDA thresholds for release from escrow.

The Company purchased a $81,643 vehicle on a note payable.

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

F-8

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 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, liquid filters, diesel particulate air filters and kiln furniture 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 Asia (“LiqTech Asia”) a 60% owned subsidiary of LiqTech Int. DK, incorporated in South Korea on July 20, 2006, was a dormant subsidiary. The company was closed on March 6, 2015.

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 2017.

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 2017.

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. The financial statements include the accounts of LiqTech Systems from the date of acquisition on July 31, 2014.

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, the functional currency of LiqTech Singapore is the Singapore Dollar and the functional Currency of LiqTech Asia is South Korean Won. The Company’s reporting currency is U.S. Dollar for the purpose of these 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, 2016 and 2015. 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.

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, 2016 and December 31, 2015. At December 31, 2016 and 2015, the Company had cash balances of $0 and $292,826 that are restricted to secure guarantees issued by the Company. The cash is restricted until the underlying guarantees are released.

F-9

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, 2016 and December 31, 2015 is as follows:

	2016			2015
Allowance for doubtful accounts at the beginning of the period	$	1,087,871		$	1,654,290
Bad debt expense		1,437,949			80,729
Amount of receivables written off		(252,792	)		(398,083	)
Effect of currency translation		(144,576	)		(249,065	)
Allowance for doubtful accounts at the end of the period	$	2,128,452		$	1,087,871

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 5).

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.

Intangible Assets -- Definite life intangible assets include patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting Standards Board, (“FASB”) Accounting Standards Codification, (“ASC”) Topic 350, “Goodwill and Other Intangible Assets” and amortized the patents on a straight line basis over the estimated useful life of two to ten years.

Goodwill -- Goodwill is evaluated for impairment annually, 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.

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

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

F-10

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

Advertising Cost -- Costs incurred in connection with advertising of the Company’s products is expensed as incurred. Such costs amounted to $14,504 and $34,442, for the years ended December 31, 2016 and 2015, 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, 2016 and 2015 were $626,147, and $707,844, 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.

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

Stock Options and Awards -- The Companies have granted stock options to certain key employees. See Note 14. 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 $435,794 and $369,531 have been recognized for the vesting of options and stock awards granted to employees with an associated recognized tax benefit of $35,045 and $157,080 for the years ended December 31, 2016 and 2015, respectively.

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, 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, cost in excess of billings, reserve for obsolete inventory, depreciation and impairment of property plant and equipment and impairment of goodwill and liabilities billings in excess of cost 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.

F-11

Recent Accounting Pronouncements -- In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On July 9 2015, the FASB agreed to delay the effective date by one year; accordingly, the new standard is effective for us beginning in the first quarter of 2018 and we expect to adopt it at that time. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method, nor have we determined the impact of the new standard on our consolidated financial statements.

In 2015, the FASB issued an amended standard requiring that we classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current. The amended standard is effective for us beginning in the first quarter of 2017; early adoption is permitted and we are evaluating whether we will early adopt. The amended standard may be adopted on either a prospective or retrospective basis. We do not expect that the adoption of this standard will have a significant impact on our financial position or results of operations.

In February 2016, the FASB issued changes to the accounting for leases that primarily affect presentation and disclosure requirements. The new standard will require the recognition of a right to use asset and underlying lease liability for operating leases with an initial life in excess of one year. This standard is effective for us beginning in the first quarter of 2019. We have not yet determined the impact of the new standard on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, that will require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application of this standard is permitted. This standard is not expected to have a material effect on the Company’s financial position, results of operations and cash flows.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. This standard is not expected to have a material effect on the Company’s financial position, results of operations and cash flows.

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

NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has limited cash and incurred significant recent losses. These factors raise substantial doubt about the ability of the Company to continue as a going concern. There is no assurance that the Company will be successful in raising additional cash through the issuance of debt or equity instruments or return to achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

F-12

NOTE 3 - RELATED PARTY TRANSACTIONS

During October and December of 2014, an officer of LiqTech NA provided $25,000 and $35,000 in non-interest bearing advances to the Company totaling $60,000. These advances have been included in accounts payable at December 31, and were repaid in January 2015.

During March 2015, an officer of LiqTech NA provided $25,000 in non-interest bearing advances to the Company. These advances were repaid in May 2015.

NOTE 4 - INVENTORY

Inventory consisted of the following at December 31, 2016 and December 31, 2015:

	2016			2015
Furnace parts and supplies	$	336,799		$	466,538
Raw materials		1,216,098			1,498,406
Work in process		2,499,242			1,770,070
Finished goods and filtration systems		2,544,080			1,788,161
Reserve for obsolescence		(1,421,345	)		(606,504	)
Net Inventory	$	5,174,874		$	4,916,671

The inventory is held as collateral on a lines and credit and guarantees with financial institutions. See Note 9.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2016 and December 31, 2015:

	Useful Life			2016			2015
Production equipment	3	-	10	$	10,370,462		$	10,536,377
Lab equipment	3	-	10		76,658			143,783
Computer equipment	3	-	5		185,652			269,526
Vehicles	3	-	5		39,090			40,365
Furniture and fixture		5			146,453			141,502
Leasehold improvements		10			955,563			972,023
					11,773,878			12,103,576
Less Accumulated Depreciation					(9,140,320	)		(8,564,882	)
Net Property and Equipment				$	2,633,558		$	3,538,694

Depreciation expense amounted to $1,373,505 and $1,437,787, for the year ended December 31, 2016 and 2015, respectively. The property and equipment is held as collateral on a lines of credit and guarantees with financial institutions. See Note 9.

NOTE 6 – 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, 2016	Level 1		Level 2		Level 3

Investments		-		-		5,282

Total		-		-		5,282

As of December 31, 2015	Level 1		Level 2		Level 3

Investments		-		-		21,838

Total		-		-		21,838

At December 31, 2016, our total investments of $5,282 consisted of an investment of $5,282 in LEA Technology in France to strengthen our sales channels in the French market.

At December 31, 2015, our total investments of $21,838 consisted of an investment of $5,460 in LEA Technology in France to strengthen our sales channels in the French market and an investment of $16,378 in LiqTech Italy, a newly organized Italian Company, to strengthen our sales channels in the Italian market.

F-13

NOTE 7 - DEFINITE-LIFE INTANGIBLE ASSETS

At December 31, 2016 and December 31, 2015, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products of $5,614 and $10,386, respectively. The patents are recorded at cost and amortized over two to ten years. Amortization expense for the years ended December 31, 2016 and 2015 was $4,772 and $6,322, respectively. Expected future amortization expense for the years ended are as follows:

Year ending December 31,	Amortization Expenses
2017		2,699
2018		2,270
2019		645
Thereafter		-
	$	5,614

NOTE 8 - GOODWILL

The following is a summary of goodwill:

	December 31, 2016

Goodwill at beginning of period	$	7,582,749
Effect of currency translation		(239,541	)
Impairment write down		(7,343,208	)
Goodwill at end of period	$	-

Goodwill consists of:

December 31,

2016

LiqTech Systems A/S (Formerly Provital Solutions A/S)

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. Key variables included in evaluating goodwill for impairment include the pipeline of proposed potential customer sales, budgeted reoccurring sales, risk free interest rate and risk premium rate and future budgeted operating results. The Company recorded an impairment charge of $7,343,208 and $0 on goodwill, during the year ended December 31, 2016 and 2015, as management's estimated fair value of the reporting unit did not exceeded the carrying value during 2016 fourth quarter testing.

NOTE 9 - 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 $13,416 at December 31, 2016) with a bank, subject to certain base limitations. As of December 31, 2016, we had DKK 94,620 (approximately $13,416) 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 10 - LEASES

F-14

The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2016 are as follows:

Year ending December 31,	Lease Payments
2017		559,058
2018		457,735
2019		179,094
Thereafter		395,898
Total Minimum Lease Payments	$	1,591,785

Lease expense charged to operations was $645,817 and $697,736, for the year ended December 31, 2016, and 2015.

Capital Leases -- The Company leases equipment on various variable rate capital leases currently calling for monthly payments of approximately $9,319, $591 and $532 expiring through July 2018. Included in property and equipment, at December 31, 2016 and December 31, 2015, the Company had recorded equipment on capital lease at $1,240,358 and $1,302,005, respectively, with related accumulated depreciation of $1,126,550 and $1,033,062, respectively.

During the years ended December 31, 2016 and 2015, depreciation expense for equipment on capital lease amounted to $130,025, and $141,050, respectively, and has been included in depreciation expense. During the years ended December 31, 2016 and 2015, interest expense on a capital lease obligation amounted to $16,758 and $26,840, respectively.

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

Year ending December 31,	Lease Payments
2017	$	121,636
2018		23,720
Thereafter		-
Total minimum lease payments		145,356
Less amount representing interest		(5,531	)
Present value of minimum lease payments		139,825
Less Current Portion		(45,883	)
	$	93,942

NOTE 11 - 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, 2016 and 2015, matching contributions were expensed and totaled $11,347 and $14,610, 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 September 9, 2014, Mr. Raffaele Bruno Tronchetti Provera (“Plaintiff”), the 60% owner of LiqTech Italy s.r.l. (the “Venture”), sued LiqTech International A/S, the 40% owner of the Venture (“Defendant”), 750,000 Euros before the Court of Como, Italy alleging, among other things, that certain products provided by Defendant to the Venture were defective. As of March 23, 2017, the case is in the preliminary stages where the court has appointed an expert in order to verify the quality of the products in order to determine whether there is sufficient evidence to proceed. An evaluation of the outcome will only be possible after the results of the court appointment expert are known. This outcome of the court appointment expert is expected to be reported in second quarter of 2017. Defendant believes that the claims are without merit and intends to vigorously defend any litigation.

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 $13,416 at December 31, 2016) with a bank, subject to certain base limitations. As of December 31, 2016, we had DKK 94,620 (approximately $13,416) in working guarantee against the line. At December 31, 2016, the Company had a cash balance of $292,826 that is restricted to secure work issued by the Company that is not part of the above line of credit.

F-15

NOTE 12 - INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes; which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit 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, 2016, the Company had net operating loss carryovers of approximately $11,128,000 for U.S. Federal purposes expiring through 2036; approximately $6,486,000 for Danish tax purposes, which do not expire; approximately $437,000 for German tax purposes, which do not expire and approximately $571,000 for Singapore tax purposes which do not expire.

As of December 31, 2016 and 2015, the Company established a valuation allowance of $3,542,000 and $0 for the tax components of LiqTech International Inc and Liqtech NA, $1,095,000 and $0 for the tax components of LiqTech International AS and LiqTech Systems AS, $122,000 and $118,000 for the tax component of LiqTech Germany and $97,000 and $109,000 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, 2016 was $3,542,000, $1,095,000, $4,000 and $12,000 for the US, Danish, German and Singapore components. The change in the valuation allowance for the year ended December 31, 2015 was $0, $0, $118,000 and $109,000 for the US, Danish, German and Singapore components.

The Company is not relying on the reversal of deferred tax liabilities to realize the deferred tax assets. The same variable used by the Company in evaluating goodwill for impairment were used in assessing the realization of deferred tax assets (See Note 8).

The Company further considered the following positive and negative evidence:

Positive Evidence

1) The Company had profitable 2015 third and fourth quarter results. The Company noted a significant increase in proposed sales pipeline from December 31, 2014 to 2015.

2) The Company executed in June 2015 a Diesel Particular Filtration supplier contract in China.

3) For Danish tax purposes the Company is able to obtain tax refunds for research and development expenditures

Negative Evidence

1) The Company has noted a longer than anticipated sales cycle from proposals to signing filtration systems order.

2) The Company has a net loss from operations for the year ended December 31, 2016 and 2015.

3) The Company has experienced a decrease in liquid filter sales.

4) The Company has experienced delays in requested shipment date of large DPF sales orders and collection of receivables from large water treatment systems.

The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset (liabilities) at December 31, 2016 and December 31, 2015:

	2016			2015
Vacation accrual	$	5,450		$	3,933
Allowance for doubtful Accounts		1,202			14,089
Reserve for obsolete inventory		200,118			154,100
Valuation Allowance		(206,770	)
Net current tax assets	$	-		$	172,122

Business tax credit carryover		30,935			30,935
Deferred compensation		8,500			-
Net operating loss carryover		4,906,974			4,333,820
Excess of book over tax depreciation		(296,227	)		(452,088	)
Valuation Allowance		(4,650,182	)		(228,170	)
Long term deferred tax asset	$	-		$	3,684,497

F-16

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, 2016 and 2015:

	2016			2015
Computed tax at expected statutory rate	$	(4,487,649	)	$	(991,139	)
State and local income taxes, net of federal benefits		(3,721	)		(20,476	)
Non-deductible expenses		4,242			5,291
Non-US income taxed at different rates		1,325,180			47,837
Non-deductible deferred compensation		148,170			140,175
Effect of changes in tax rates		(21,489	)		(31,748	)
Non-deductible impairment of goodwill		1,615,506			-
Non-deductible loss of subsidiaries		-			50,579
Valuation Allowance		4,739,806			109,842
Other items		(100,368	)		(8,147	)
Income tax expense (benefit)	$	3,219,677		$	(697,786	)

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2016 and 2015 consisted of the following:

	2016			2015
Current income tax expense:
Danish	$	(329,816	)	$	(266,107	)
Federal		-			-
State		580			570
Current tax (benefit)	$	(329,236	)	$	(265,537	)


Book in excess of tax depreciation	$	(158,684	)	$	(136,572	)
Business tax credit carryover		-			(5,226	)
Net operating loss carryover		(1,000,650	)		(517,153	)
Allowance for doubtful accounts		12,705			156,036
Valuation Allowance		4,756,013			-
Accrued Vacation		(1,517	)		1,143
Deferred Compensation		(8,500	)		171,615
Reserve for obsolete inventory		(50,452	)		(102,092	)
Deferred tax expense (benefit)	$	3,548,913		$	(432,249	)
Total tax expense (benefit)	$	3,219,677		$	(697,786	)

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 is generally no longer subject to tax examinations for years prior to 2010 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2012 for U.S. federal and U.S. states tax returns.

NOTE 13 - 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, 2016 and 2015:

	For the Year Ended December 31
	2016			2015
Net Loss attributable to LiqTech International Inc.	$	(16,418,634	)	$	(2,209,857	)
Weighted average number of common shares used in basic earnings per share		36,835,514			36,790,420
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		36,835,514			36,790,420

F-17

For the year ended December 31, 2016, Parent had 868,000 options outstanding to purchase common stock of Parent at $0.74 to $1.90 per share and Parent had 825,575 warrants outstanding to purchase common stock of Parent at $0.81 to $4.06 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, 2015, Parent had 1,071,000 options outstanding to purchase common stock of Parent at $0.74 to $1.90 per share and Parent had 7,225,575 warrants outstanding to purchase common stock of Parent at $1.00 to $4.06 per share, which were not included in the loss per share computation because their effect would be anti-dilutive. The basic and diluted weighted average shares was restated to reflect the cancelation of 2,696,521 shares held in escrow. See Note 14.

NOTE 14 - STOCKHOLDERS' EQUITY

Common Stock -- Parent has 100,000,000 authorized shares of common stock, $0.001 par value. As of December 31, 2016 and 2015, respectively, there were 36,835,514 and 39,532,035 common shares issued and outstanding.

Voting -- Holders of Parent 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 which may at the time be outstanding, holders of Parent 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 of Parent, 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 Parent common stock will be entitled to share ratably in the distribution of any of our remaining assets.

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

Preferred Stock -- Our Board of Directors has the authority to issue Parent 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 Parent 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.

Common Stock Cancelation

On December 31, 2016, the Company canceled 2,696,521 common shares two-thirds (2/3) of the previously issued common shares held in escrow issued in connection with the Company through its subsidiary, LiqTech Int. DK, acquisition of all of the issued and outstanding capital stock of Provital Solutions A/S, as Provital Solutions A/S failed to meet the 2014, 2015 and 2016 catchup gross revenue and EBITDA thresholds for release from escrow.

Common Stock Issuance

On August 14, 2015, the Company issued an additional 27,253 shares of restricted stock valued at $20,167 for services provided and to be provided by the board of directors. The Company will recognize the non-cash compensation of the award over the requisite service period, of which 27,253 shares vested on January 1, 2016.

On April 13, 2015, the Company issued an additional 100,000 shares of restricted stock valued at $75,000 for services provided and to be provided by the board of directors. The Company will recognize the non-cash compensation of the award over the requisite service period, of which 33,333 shares vested on January 1, 2016, 33,333 shares will vest on January 1, 2017 and 33,334 shares will vest on January 1, 2018.

During the third quarter 2014, the Company issued 47,500 shares of common stock in connection with the exercise of 47,500 stock options with an exercise price of $1.50 each.

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 LiqTech Systems and as part of the consideration for the LiqTech Systems Shares, the Company issued 4,044,782 of Parent’s common shares.

F-18

On July 28, 2014, Parent completed a registered public offering of its common stock. As part of the closing, Parent issued 8,000,000 shares of common stock at a per share price of $1.50 and generated net proceeds of $10,736,278 net of offering costs of $1,263,722.

During 2014, the Company issued an additional 100,000 shares of restricted stock valued at $158,000 for services provided by the board of directors. The Company will recognize the non-cash compensation of the award over the requisite service period, of which 33,333 shares vested on December 31, 2014, 33,333 shares will vest on December 31, 2015 and 33,334 shares will vest on December 31, 2016.

As of December 31, 2016 and 2015, the Company has recorded non-cash compensation expense of $77,667 and $204,500 relating to the awards, respectively.

Common Stock Purchase Warrants

A summary of the status of the warrants outstanding at December 31, 2016 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
$	0.81		100,000		1.00	$	0.81		100,000	$	0.81
$	1.00		200,000		1.00	$	1.00		133,333	$	1.00
$	1.65		400,000		2.57	$	1.65		400,000	$	1.65
$	4.06		125,575		0.18	$	4.06		125,575	$	4.06
Total			825,575		1.64	$	1.76		758,908	$	1.82

At December 30, 2016, the Company had 66,667 non-vested warrants. We have recorded non-cash compensation expense of $50,634 for the year ended December 31, 2016 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.

On February 15, 2016, the Company issued to a consultant a warrant to purchase 100,000 shares at an exercise price of $0.81 per share. The warrants are exercisable immediately and will remain exercisable until December 31, 2017.

On June 4, 2015, the Company issued to Wolfe Axelrod Weinberger Associates, LLC a warrant to purchase 200,000 shares at an exercise price of $1.00 per share. The warrants vested 1/3 upon issuance, 1/3 on June 4, 2016, 1/3 will vest on June 2017, and will remain exercisable until December 31, 2017.

Stock Options

In August 2011, Parent’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, 2016, 868,000 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 weighted-average assumptions used to estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as follows:

	LiqTech International, Inc.
Expected term (in years)	5	-	10
Volatility	74.65%	to	76.87%
Risk free interest rate	1.38%	-	2.24%
Dividend yield		0%

F-19

The Company recognized stock based compensation expense related to the options of $307,493 and $154,745 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016, the Company had approximately $105,927 of unrecognized compensation cost related to non-vested options expected to be recognized through December 31, 2018.

A summary of the status of the options outstanding under the Company’s stock option plans at December 31, 2015 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		400,000		3.62	$	0.74		133,334	$	0.74
$	0.75		100,000		3.29	$	0.75		33,333	$	0.75
$	1.01		130,000		8.97	$	1.01		130,000	$	1.01
$	1.90		238,000		0.08	$	1.90		238,000	$	1.90
Total			868,000		3.41	$	1,10		534,667	$	3.32

A summary of the status of the options at December 31, 2016, and changes during the period is presented below:

	December 31, 2016
	Shares			Weighted Average Exercise Price		Average Remaining Life		Weighted Average Intrinsic Value

Outstanding at beginning of period		1,071,000		$	1.19		3.93	$	-
Granted		-			-		-		-
Exercised		-			-		-		-
Forfeited		(203,000	)		1.59		-		-
Expired		-			-		-		-
Outstanding at end of period		868,000		$	1.10		3.41	$	0
Vested and expected to vest		868,000		$	1.10		3.41	$	0
Exercisable end of period		534,667		$	1.32		3.32	$	0

At December 31, 2016, the Company had 333,333 non-vested options with a weighted average exercise price of $0.74 and with a weighted average grant date fair value of $0.46, resulting in unrecognized compensation expense of $105,927, which is expected to be expensed over a weighted-average period of 1.2 years.

The total intrinsic value of options at December 31, 2016 was $0. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at December 31, 2016 (for outstanding options), less the applicable exercise price.

NOTE 15 - SIGNIFICANT CUSTOMERS / CONCENTRATION

The Company sells products throughout the world; sales by geographical region are as follows for the year ended December 31, 2016 and 2015:

	For the Year Ended December 31
	2016		2015
United States and Canada	$	689,766	$	1,521,718
Australia		387,807		382,883
South America		115,675		2,400,000
Asia		1,105,272		1,139,090
Europe		11,607,874		10,368,896
	$	13,906,394	$	15,812,587

F-20

The Company’s sales by product line are as follows for the year ended December 31, 2016 and 2015:

	For the Year Ended December 31
	2016		2015
Ceramic diesel particulate	$	5,820,793	$	5,081,304
Liquid filters		7,731,079		10,347,010
Kiln furniture		354,522		384,273
	$	13,906,394	$	15,812,587

As of December 31, 2016, approximately 85% and 15% of the Company’s assets were located in Denmark and the United States, respectively. As of December 31, 2015, approximately 89% and 11% of the Company’s assets were located in Denmark and the United States, respectively

NOTE 16 - SUBSEQUENT EVENT

The Company had 238,000 options and 125,575 warrants expire unexercised during the first quarter of 2017.

The Company’s management reviewed material events through March 30, 2017.

F-21

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

Our management, with the participation of both of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, both our chief executive officer and chief financial officer concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on International Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that:

●

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

●

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

●

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even internal controls determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error, and the risk of fraud. The projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies may deteriorate. Because of these limitations, there can be no assurance that any system of internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.

Based on its assessment and those criteria, our principal executive officer and principal financial officer concluded that the Company’s internal control over financial reporting as of December 31, 2016 was effective.

This annual 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 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 23, 2017.

Name	Age	Titles
Aldo Petersen	55	Chairman of the Board
Sune Mathiesen	42	Chief Executive Officer (Principal Executive Officer), Director
Soren Degn	47	Chief Financial Officer (Principal Financial and Accounting Officer)
Paul Burgon	46	Director
Mark Vernon	64	Director
Michael S. Barish	76	Director
Rengarajan Ramesh	56	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:

Aldo Petersen. Aldo Petersen has been Chairman of the Board of LiqTech since August 2011. He has been the Chief Executive Officer of APE Invest A/S, a private Danish investment company, since 1996. Until 2006, Mr. Petersen was also the Chief Executive Officer of EuroTrust (formerly known as Telepartner), a former NASDAQ-listed company that he founded in 1986. Prior to EuroTrust, he started and sold one of Denmark’s first hedge funds, Dansk Formue Invest. Mr. Petersen was a major investor in Greentech, a renewable energy company that builds wind farms in Denmark, Germany, Poland and Italy. He is a private investor in wind farms in Germany and France, and was also a major investor in Football Club Copenhagen (listed on the Copenhagen Stock Exchange). Mr. Petersen has a B.A. degree in Economics from Copenhagen Business School.

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.

Soren Degn. Mr. Degn has served as Chief Financial Officer of LiqTech International, Inc. since August 2011. From 2008 until 2011, he was the Chief Financial Officer of Guava, a publicly listed internet advertising company. From 2007 to 2008, Mr. Degn served as Chief Financial Officer of Advance Renewable Energy Ltd. From 2001 to 2006, he was the Chief Financial Officer of EuroTrust (a NASDAQ/AIM listed company, formerly known as Telepartner). From 1996 to 2001, he was the financial controller at Kampsax (a consulting company). From 1989 to 1996, he worked at KPMG in Denmark. Mr. Degn has a B.A. degree in Business Administration and an M.B.A. from Copenhagen Business School.

Paul Burgon. Mr. Burgon has served as a Director of LiqTech since September 2011. Mr. Burgon has led corporate mergers and acquisitions for most of his career, leading and completing over 60 transactions worth over $2 billion. Mr. Burgon has been the Vice President of Business Development and then the Senior Vice President of Mergers & Acquisitions for Steel Partners Holdings since 2012. Mr. Burgon was the interim Chief Financial Officer of SWK Holdings Corporation (OTCBB: SWKH) from 2010 to 2012. Mr. Burgon served as a Principal and CFO of NightWatch Capital Advisors, LLC from 2005 to 2012. Mr. Burgon was a Manager and then Director of Corporate Development for Danaher Corporation from 1998 to 2005. Mr. Burgon led corporate development at Fluke Corporation from 1997 to 1998 and worked at Coopers and Lybrand from 1994 to 1997. Mr. Burgon holds a B.S.BA. degree (cum laude) in Finance and International Business and an International Executive M.B.A. degree from the McDonough School of Business at Georgetown University.

Mark Vernon. Mr. Vernon 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.

Michael S. Barish. Mr. Barish was appointed to serve as Director effective as of May 19, 2014. Mr. Barish has over 40 years’ experience in the investment industry, having worked as a security analyst, portfolio manager, and investment advisor. Since 2009, Mr. Barish has actively pursued personal investments in both public and private companies. Furthermore, he has served on the Board of Directors of AeroGrow International Inc. and Zero E Technologies, LLC since 2010. Previously, he served on the Board of Directors of Guaranty National Insurance Company, a publicly held property and casualty company. Mr. Barish co-founded Lazarus Investment Partners LLLP in 2003, a private investment partnership for which he served as portfolio manager until July 2009. In 1973, Mr. Barish founded Cambiar Investors, an investment advisory firm for which he served as President and Chief Investment Officer until 2001. Mr. Barish was a member of the New York Society of Security Analysts and received the designation as Chartered Financial Analyst. He received his BBA in Accounting & Finance from the University of Michigan.

Dr. Rengarajan Ramesh. Dr. Ramesh was appointed to serve as Director effective as of April 14, 2015. Dr. Ramesh consulted for Wasserstein & Co. in 2009 and joined them as a partner in 2010. He currently serves on the board of RWL Water as well as on the Innovation Business Development Advisory Board for United Technologies Corporation. He is a member of the investment committee for Sustainable Water for Food, at US AID, was a Board member of Imagine H2O, and is the Chairman of its Scientific Advisory Board. Most recently he served on the board of High Pressure Equipment Company a portfolio company of Wasserstein & Co. Mr. Ramesh served as a member of the International Advisory Board to The Ministry of Environment and Water for the Government of Singapore from 2006 to 2009 and on the Executive Board of the National Center for Food Protection and Defense from 2006-2009. From 2003 to 2009, he held several senior management roles at GE Water & Process Technologies, including four years as Chief Technology Officer during which time Dr. Ramesh played a key role in the development and implementation of the strategy that led to the creation of GE's $2.5 billion global water platform, managing engineering and technology organizations of over 700 engineers and scientists. Prior to serving at GE, Dr. Ramesh worked with A. Schulman Inc., a global, specialty chemicals manufacturer, for over 20 years. Dr. Ramesh received his M.S. and Ph.D. in Chemical Engineering from the University of Akron and was awarded the distinguished alumni award in 2005. Dr. Ramesh has four issued patents.

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. Petersen’s knowledge regarding our history and operations provides a critical link between management and the Board, enabling the Board to provide its oversight function with the benefit of management’s perspective of the business.

Mr. Burgon’s hands-on experience in public company corporate governance and corporate finance provides the Board with a unique perspective on corporate governance matters and corporate finance matters. Given his financial experience, Mr. Burgon has been determined by our Board to be an Audit Committee Financial Expert.

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. Barish’s experience in the investment industry, spanning over forty (40) years, includes successes as a security analyst, portfolio manager, investment advisor, public company board member, and founder of investment management firms. Mr. Barish is also a Chartered Financial Analyst. Given such experience and expertise, Mr. Barish provides the Board with a unique perspective on financial matters. Further, the Board has determined that he qualifies as an Audit Committee Financial Expert.

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.

Mr. Ramesh’s significant experience in technology, products, industry dynamics and business development in the water industry are valuable to the Board as it seeks to implement and maintain growth strategies that will enable the Company to succeed.

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. Burgon, Vernon, Barish and Ramesh 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. Our other director, Mr. Petersen, is not considered independent under these rules because Mr. Petersen has influence as a significant stockholder. 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 two times and informally eight times during 2016. During 2016, each director attended at least 75% of the meetings of the board and the committees upon which he or she serves.

We do not have a policy regarding director attendance at our annual meetings of stockholders. Directors Aldo Petersen and Sune Mathiesen both attended our annual meeting of stockholders held on November 8, 2016.

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
Paul Burgon*	Mark Vernon *	Mark Vernon *
Mark Vernon	Paul Burgon	Paul Burgon
Michael Barish	Michael Barish	Michael Barish

* Chairman of the committee

Audit Committee

Our Audit Committee consists of Paul Burgon (Chair), Mark Vernon and Michael Barish 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. Burgon 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, 2016, the Audit Committee met four times.

Compensation Committee

Our Compensation Committee consists of Mark Vernon (Chair), Paul Burgon and Michael Barish, 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 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, 2016, the Compensation Committee met two times.

Governance Committee

Our Governance Committee consists of Mark Vernon (Chair), Paul Burgon and Michael Barish. Mr. Vernon 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, 2016, the Governance Committee met three times.

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.

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 and greater than ten percent (10%) beneficial owners were timely filed.

Item 11. Executive Compensation

Summary Compensation Table

The following table sets forth certain information with respect to compensation for the years ended December 31, 2016 and 2015 earned by or paid to our chief executive officer and our two most highly compensated executive officers, other than our chief executive officer, in 2016 whose total compensation exceeded $100,000 (the “named executive officers”).

Summary Compensation Table

Name and Principal Position	Year	Salary ($) (1)		Bonus ($)		Stock Awards ($)		Option Awards ($) (2)		Nonequity Incentive Plan Compensation		Nonqualified Deferred Compensation Earnings		Other			Total
Sune Mathiesen, Chief Executive Officer (3)
	2016	$	216,099					$	-		-		-	$	21,268	(5)	$	237,267
	2015		220,992						-		-		-		22,962			243,954
	2014		266,951						-		-		-		11,123			278,074

Soren Degn, Chief Financial Officer (4)
	2016		216,146						-		-		-		17,440	(5)		233,586
	2015		169,801		-		-		96,968		-		-		16,691			283,460
	2014		229,813		-		-		-		-		-		18,331			248,144

Johnny Marcher, Chief Technical Officer (6)
	2016		128,845						-		-				12,775	(5)		141,620
	2015		115,258		-		-		31,700		-		-		7,204			154,162
	2014		121,885		-		-		-		-		-		5,125			127,010

(1)	Total salaries for Messrs. Mathiesen, Marcher and Degn for 2014 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 5.6190, as of December 31, 2014. Total salaries for Messrs. Mathiesen, Marcher and Degn for 2015 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 6.8300, as of December 31, 2015. Total salaries for Messrs. Mathiesen, Marcher and Degn for 2016 are reported on an as-converted basis from Danish Krone (DKK) to U.S. dollars ($) based on the currency exchange rate of $1.00 = DKK 7.0528, as of December 31, 2015. 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, 2014, December 31, 2015 or December 31, 2016, or at any other rate.

(2)	These amounts represent the aggregate grant date fair value for stock awards granted in fiscal year 2015, computed in accordance with FASB ASC Topic 718. See notes to consolidated financial statements contained elsewhere in this report for further information on the assumptions used to value stock options. On December 22, 2015, Mr. Degn was granted stock options to purchase 130,000 shares of common stock, at $1.01 per share. The options vested immediately. All of these options will expire on December 21, 2025. On August 14, 2015, Mr. Marcher was granted stock options to purchase 75,000 shares of common stock, at $0.74 per share. The vesting schedule of such options is as follows: one-third of the options vest on August 13, 2016, one third of such options vest on August 13, 2017 and one third of such options vest on August 13, 2018. All of these options will expire on August 13, 2020.

(3)	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 $212,681 based on the currency exchange rate of $1.00 = DKK 7.0528, as of December 31, 2016.

(4)	Mr. Degn became our Chief Financial Officer in August 2011. Pursuant to his employment agreement, Mr. Degn is entitled to an annual base salary of approximately $174,399 based on the currency exchange rate of $1.00 = DKK 7.0528, as of December 31, 2016.

(5)	Pursuant to Mr. Mathiesen’s employment agreement, Mr. Matiesen’s received $21,268 of contributions from the Company to his individual retirement account in 2016. Pursuant to Mr. Degn’s employment agreement, Mr. Degn received $17,440, $16,691 and $18,331 of contributions from the Company to his individual retirement account in 2016, 2015 and 2014. Pursuant to Mr. Marcher’s employment agreement, Mr. Marcher received 12,775, $7,204 and $5,125 of contributions from the Company to his individual retirement account in 2016, 2015 and 2014, respectively.

(6)

On September 1, 2015, Mr. Marcher executed an employment agreement with LiqTech International A/S (Denmark) to serve as Chief Technology Officer and on the same date, Mr. Marcher’s employment agreement (as amended) to serve as Chief Operating Officer of LiqTech International, Inc. and, Liqtech Int. DK, and Director of LiqTech Delaware was terminated. Pursuant to his employment agreement, Mr. Marcher is entitled to an annual base salary of approximately $129,310 based on the currency exchange rate of $1.00 = DKK 7.0528, as of December 31, 2016.

Employment Arrangements

During the year ended December 31, 2016, we had employment agreements with Messrs. Mathiesen, Degn, Marcher and Petersen. 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. Mr. Mathiesen was also engaged to serve as a Director of LiqTech Int. DK pursuant to a Director Contract, dated July 15, 2014, by and between Mr. Mathiesen and LiqTech Int. DK (the “Mathiesen Agreement”). Pursuant to the terms of the Mathiesen Agreement, in consideration for his services, Mr. Mathiesen shall receive 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). Further, he shall receive 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 (the gross margin is fixed at 40% without depreciations). For example, the calculation will be as follows, if the revenue for LiqTech Int. DK and LiqTech Systems should be DKK 200,000,000 in a year and the gross profit DKK 80,000,000 (40%) the bonus would be the following: 80,000,000 minus 130,000,000 * 0.4 = 52,000,000 DKK = 28,000,000 * 0.05 = DKK 1,400,000. Mr. Mathiesen is entitled to five weeks of vacation, home internet service, 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 to the end of the month. The Mathiesen Agreement was irredeemable from both parties until December 31, 2016. The full details of the Mathiesen Agreement are set forth and incorporated by reference to Exhibit No. 10.24 to this Annual Report on Form 10-K.

Degn Agreement

Effective December 21, 2015, LiqTech International, Inc. entered into an Amended and Restated Employment Agreement with Søren Degn, the Company’s Chief Financial Officer (“CFO”). Mr. Degn has served as the Company’s CFO since his appointment on August 24, 2011. The Agreement supersedes and replaces all other agreements between the Company and Mr. Degn regarding the terms of his engagement by the Company as its CFO. In consideration for Mr. Degn’s service to the Company, Mr. Degn is entitled to receive a base salary initially set at DKK 1,230,000 per year USD equivalent, with eligibility to receive up to 60% of his base salary in the sole discretion of the Board, a one-time signing bonus in the amount of $40,000, and options to purchase 130,000 shares of common stock of the Company pursuant to the Company’s equity incentive plan. The Agreement also sets forth the other terms of the standard Company benefits that Mr. Degn will be eligible for as an employee. The Agreement shall last until the second anniversary of the Effective Date (as defined in the agreement) and will renew automatically for successive one year terms unless a notice of non-renewal is given by either party, or unless Mr. Degn’s employment is otherwise terminated prior to the expiration of any term. The amended and restated employment agreement is referenced as Exhibit No. 10.28 to this Annual Report on Form 10-K.

Marcher Appointment

On November 1, 2013, Johnny Marcher was appointed to serve as Chief Operating Officer (“COO”) of LiqTech International, Inc. and LiqTech Int. DK. Mr. Marcher was also engaged to serve as a Director of LiqTech Int. DK and as a Director of LiqTech Delaware pursuant to an amendment to his previous contract, by and between Mr. Marcher and LiqTech Int. DK. In consideration for such services, Mr. Marcher received an annual base salary initially set at DKK 720,000 (or approximately $117,620 based on the currency exchange rate of $1 = DKK 6.1214 as of December 31, 2014). In addition, Mr. Marcher was entitled to five weeks’ vacation, a Company mobile phone, a Company laptop and reimbursement of Company-related travel expenses. On September 1, 2015, Mr. Marcher executed an employment agreement with LiqTech International A/S (Denmark) to serve as Chief Technology Officer and on the same date, Mr. Marcher’s employment agreement (as amended) to serve as COO of LiqTech International, Inc. and Liqtech Int. DK, and Director of LiqTech Delaware was terminated. In consideration for such services, Mr. Marcher received an annual base salary initially set at DKK 900,000 (or approximately $127,609 based on the currency exchange rate of $1 = DKK 7.0528 as of December 31, 2016).

Petersen Agreement

Effective January 1, 2014, LiqTech International, Inc. and Aldo Petersen entered into a Services Agreement (the “Petersen Agreement”) whereby Mr. Petersen shall provide on-going services to us which shall include, without limitation, participation at road shows, general investor relations services, general work as Chairman of the Board and other services which are mutually agreeable by both parties on an ad hoc basis (collectively, the “Services”) in consideration for annual payments equal to DKK1,235,000 (or approximately $201,751 based on the currency exchange rate of $1 = DKK 6.1214 as of December 31, 2014), payable as follows: (a) DKK205,833.34 representing payment for the Services for the months of January and February, 2014; and (b) DKK102,916.67 on the final business day of each month beginning on March 31, 2014 through the end of the term of this Agreement (i.e. December 31, 2014). Except for the above-mentioned amounts, no amounts, bonus amounts or otherwise, shall be due and payable by us to Mr. Petersen in connection with the Services. We shall, at our sole cost and expense, provide Mr. Peterson with a laptop computer and a mobile telephone, including communication costs. Such items shall be utilized by Mr. Peterson in furtherance of Mr. Peterson’s duties and obligations under the Petersen Agreement. The Petersen Agreement shall continue for an initial period of one year and thereafter, shall be renewed automatically for subsequent one year terms unless otherwise agreed to in writing by both parties or unless otherwise terminated in accordance with the terms of the Petersen Agreement. We may terminate the Petersen Agreement at any time by providing twelve months prior written notice of termination to Mr. Petersen, effective as of the date of delivery of said notice. The Petersen Agreement is referenced as Exhibit No. 10.23 to this Annual Report on Form 10-K.

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, 2016.

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

(1)

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

Soren Degn, CFO

Johnny Marcher, CTO LiqTech Int. DK

(1)

Each option has an exercise price equal to the fair market value of our common stock at the time of grant as reported on the NYSE Mkt on the date of grant.

(2)

See footnote 2 to the Summary Compensation Table for the grant date and vesting schedule of each option reflected above.

Compensation of Directors

For 2016 each non-executive director was entitled to $25,000 for services on the Board of Directors; the Audit Committee Chairman was paid an additional fee of $10,000 per year, the Compensation Committee Chairman was paid an additional 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 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, 2016. Except as set forth in the table, during 2016, directors did not earn nor receive cash compensation or compensation in the form of stock awards, option awards or any other form.

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 (3)		Total
Aldo Petersen		-		-		-		-		-		172,910	$	172,910
Paul Burgon		35,000		30,000		-		-		-		-	$	65,000
Mark Vernon		31,000		30,000		-		-		-		-	$	61,000
Mike Barish		25,000		-		-		-		-		-	$	25,000
Rengarajan Ramesh		25,000		-		-		-		-		-	$	25,000

(1)	Our independent directors are entitled to cash compensation of $25,000 per year, the chairman of our Audit Committee is entitled to $35,000 per year and the chairman of our Compensation Committee is entitled to $31,000.

(2)	These amounts represent the aggregate grant date fair value for stock awards granted in 2015, 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 48,875 shares of restricted stock valued at $30,000 for services provided and to be provided by Mr. Burgon. Mr. Burgon 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 issued 48,875 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.

(3)	Mr. Petersen has entered into a Services Agreement whereby Mr. Petersen shall provide on-going services to us including participation at road shows, general investor relations services, general work as Chairman of the Board of Directors and other services, which are mutually agreeable by both parties on an ad hoc basis. See “Certain Relationships and Related Transactions” for a description of the Services Agreement.

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

The following table sets forth, as of March 18, 2016, 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)		1,358,261		3.7	%
Mike Barish		1,402,336		3.8
Aldo Petersen		3,188,541		8.7
Soren Degn(5)		298,000		*
Mark Vernon		243,033		*
Paul Burgon		235,396		*
Rengarajan Ramesh		66,666		*
All executive officers and directors as a group (7 persons)(6)		6,792,233		18.5	%
5% Shareholders:
Clear Harbor Asset Management, LLC		2,103,026		5.7	%
Norman H. Pessin (7)		3,812,569		10.4	%
Sandra F. Pessin (7)		3,812,569		10.4	%
Brian Pessin (7)		3,812,569		10.4	%

*	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 options and warrants that are currently exercisable and (iii) shares underlying options and warrants that are exercisable within 60 days of March 23, 2017. 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 36,835,514 shares issued and outstanding as of March 23, 2017.

(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)

Includes 118,000 shares and 50,000 shares owned by LD Consulting ApS (former SHD Invest ApS) and LHD Invest ApS, respectively, each of which is a Danish entity. The voting and disposition of the shares owned by LD Consulting ApS and LHD Invest ApS are controlled by Mr. Degn. Includes 130,000 shares underlie a 10-year option immediately exercisable at an exercise price of $1.01 per share with expiration date December 11, 2025.

(6)	Includes 130,000 shares underlie a 10-year option immediately exercisable at an exercise price of $1.01 per share.

(7)	Includes 1,302,006 shares owned by Norman H. Pessin, 1,510,869 shares owned by Sandra F. Pessin and 999,694 shares owned by Brian Pessin.

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.

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; and

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

From January 1, 2015 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.

Effective January 1, 2014, LiqTech International, Inc. and Mr. Petersen entered into a Services Agreement whereby Mr. Petersen shall provide on-going services to us which shall include, without limitation, participation at road shows, general investor relations services, general work as Chairman of the Board and other services which are mutually agreeable by both parties on an ad hoc basis (collectively, the “Services”) in consideration for annual payments equal to DKK1,235,000, payable as follows: (a) DKK205,833.34 representing payment for the Services for the months of January and February, 2014; and (b) DKK102,916.67 on the final business day of each month beginning on March 31, 2014 through the end of the term of this Agreement (i.e. December 31, 2014). Except for the above-mentioned amounts, no amounts, bonus amounts or otherwise, shall be due and payable by us to Mr. Petersen in connection with the Services. We shall, at our sole cost and expense, provide Mr. Petersen with a laptop computer and a mobile telephone, including communication costs. Mr. Petersen shall utilize such items in furtherance of Mr. Petersen’s duties and obligations under the Services Agreement. The Services Agreement shall continue for an initial period of one (1) year and thereafter, shall be renewed automatically for subsequent one (1) year terms unless otherwise agreed to in writing by both parties or unless otherwise terminated in accordance with the terms of the Services Agreement. We may terminate the Services Agreement at any time by providing twelve (12) months prior written notice of termination to Mr. Petersen, effective as of the date of delivery of said notice. The agreement is ongoing as of the date of filing.

During March 2015, an officer of LiqTech NA provided $25,000 in non-interest bearing advances to the Company. These advances were repaid in May 2015.

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 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, 2016, and 2015 and for the review of our quarterly financial statements. During 2016 and 2015 audit fees were $151,689 and $162,277. 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.

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, 2016.

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, 2016 and December 31, 2015 is included in this Annual Report on Form 10-K:

a. Valuation and Qualifying Accounts for the years ended December 31, 2016 and December 31, 2015.

	Balance Beginning of Year		Charges to Costs and Expenses		Deductions (1)			Balance End of Year
Year Ended December 31, 2016
Allowance for inventory obsolescence	$	606,504	$	824,958	$	(10,117	)	$	1,421,345
Allowance for doubtful accounts		1,087,871		1,437,949		(397,368	)		2,128,452
Totals	$	1,694,375	$	2,262,907	$	(407,485	)	$	3,549,797

	Balance Beginning of Year		Charges to Costs and Expenses			Deductions (1)			Balance End of Year
Year Ended December 31, 2015
Allowance for inventory obsolescence	$	449,098	$	174,143		$	(16,737	)	$	606,504
Allowance for doubtful accounts		1,654,290		(80,729	)		(485,690	)		1,087,871
Totals	$	2,103,388	$	93,414		$	(502,427	)	$	1,694,375

	2016			2015
Allowance for doubtful accounts at the beginning of the period	$	1,087,871		$	1,654,290
Bad debt expense		1,437,949			80,729
Amount of receivables written off		(252,792	)		(398,083	)
Effect of currency translation		(144,576	)		(249,065	)
Allowance for doubtful accounts at the end of the period	$	2,128,452		$	1,087,871

(1) Includes write-offs, the impact of foreign currency exchange rates and the effect of the acquisition of LiqTech Systems A/S.

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.

(b) Exhibits

Exhibit No.	Description	Location
1.1	Placement Agency Agreement, dated March 2, 2012, by and between LiqTech International, Inc. and Sunrise Securities Corp.	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on March 8, 2012

2.1	Agreement and Plan of Merger dated as of August 23, 2011 by and among Blue Moose Media, Inc., LiqTech USA, Inc. and BMD Sub	Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K/A as filed with the SEC on October 11, 2011

3.1	Articles of Incorporation	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	Bylaws	Incorporated by reference to Exhibit 3(ii) to the Company’s Registration Statement on Form 10 (SEC Accession No. 0001078782-09-001287) as filed with the SEC on August 19, 2009

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	Form of Warrant issued to Investors in the Private Placement	Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K as filed with the SEC on August 25, 2011

4.3	Form of Warrant issued to Sunrise Securities Corp.	Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the SEC on March 8, 2012

10.1	Form of Securities Purchase Agreement by and between LiqTech USA, Inc. and each of the investors in the Private Placement	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on August 25, 2011

10.2	Employment Agreement dated July 29, 2011 between LiqTech A/S and Lasse Andreasson	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A as filed with the SEC on October 11, 2011 (translated in English)

10.3	Employment Agreement dated November 16, 2005 between LiqTech NA, Inc. and Donald S. Debelak	Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A as filed with the SEC on October 11, 2011

10.4	Addendum to Employment Agreement, dated December 15, 2011, between LiqTech NA, Inc. and Donald S. Debelak	Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.5	Employment Agreement, dated July 29, 2011, between LiqTech International Inc. and Soren Degn (translated in English)	Incorporated by reference to Exhibit 10.5 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.6	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

10.7	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

10.8	Lease Agreement for Grusbakken 12, DK-2820 Gentofte Denmark	Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K/A as filed with the SEC on November 15, 2011 (translated in English)

10.9	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)

10.10	DKK 6,000,000 Line of Credit Agreement, between LiqTech A/S and Sydbank A/S	Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K/A as filed with the SEC on November 15, 2011 (translated in English)

10.11	DKK 3,000,000 Line of Credit Agreement, between LiqTech A/S and Sydbank A/S	Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K/A as filed with the SEC on November 15, 2011 (translated in English)

10.12	Note Payable Agreement between LiqTech A/S and Sydbank A/S, for the principal amount of $475,000 USD	Incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 15, 2011 (translated in English)

10.13	Form of Guarantee in respect of obligations of LiqTech A/S (translated in English)	Incorporated by reference to Exhibit 10.13 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.14	Form of Guarantee in respect of obligations of LiqTech International A/S (translated in English)	Incorporated by reference to Exhibit 10.14 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.15	Form of Guarantee in respect of obligations of LiqTech NA, Inc. (translated in English)	Incorporated by reference to Exhibit 10.15 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.16	Form of Promissory Note payable to certain related parties	Incorporated by reference to Exhibit 10.16 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.17	Business Mortgage of LiqTech A/S (translated in English)	Incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.18	Business Mortgage of LiqTech International A/S (translated in English)	Incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K as filed with the SEC on March 29, 2012

10.19	Bonus and Services Agreement, dated October 31, 2012, by and between the Company and Aldo Petersen	Incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 14, 2012

10.20	Agreement, dated March 25, 2013, by and among LiqTech International, Inc., LiqTech Denmark International and Mr. Lasse Andreassen.	Incorporated by reference to Exhibit 10.20 to the Company’s Form 10-K as filed with the SEC on March 27, 2013

10.21	Director Conract, dated March 27, 2013, by and between Mr. Finn Helmer and LiqTech Denmark International	Incorporated by reference to Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2013

10.22	Director Agreement, dated November 1, 2013, by and between LiqTech International A/S and Mr. Marcher	Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K as filed with the SEC on March 27, 2014

10.23	Services Agreement, dated effective January 1, 2014, by and between LiqTech International, Inc. and Aldo Petersen	Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K as filed with the SEC on March 27, 2014

10.24	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

10.25	Securities Purchase Agreement, dated July 15, 2014 by and among LiqTech International A/S, a Danish company, LiqTech Systems A/S, a Danish company and Masu A/S, a Danish company	Incorporated by reference to the Company’s Form 8-K as filed with the SEC on July 16, 2014

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

10.27	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

10.28	Amended and Restated Employment Agreement, dated December 21, 2015 by and between LiqTech International, Inc. and Søren Degn	Incorporated by reference to the Company's Form 8-K as filed with the SEC on December 23, 2015

10.29	Contract for Yonker-Liqtech Equity Joint Venture by and between LiqTech International, Inc., and Hunan Yonker Water Co., Ltd., dated November 8, 2016	Incorporated by reference to the Company's Form 8-K as filed with the SEC on November 14, 2016

10.30	Agreement for the Purchase of Common Stock in LiqTech International, Inc., by and between Hunan Yonker Investment Group Co., Ltd, dated November 8, 2016	Incorporated by reference to the Company's Form 8-K as filed with the SEC on November 14, 2016

10.31	Amendment to the Letter of Intent between Liqtech International, Inc. and Kailong High Technology, Co., Ltd.	Incorporated by reference to the Company's Form 8-K as filed with the SEC on October 6, 2016

10.32	Binding Letter of Intent between LiqTech International, Inc. and Kailong High Technology Co., Ltd.	Incorporated by reference to the Company's Form 8-K as filed with the SEC on August 26, 2016

21	List of Subsidiaries	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

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: March 30, 2017
	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	March 30, 2017
Sune Mathiesen


/s/ Aldo Petersen	Chairman of the Board of Directors	March 30, 2017
Aldo Petersen


/s/ Soren Degn	Chief Financial Officer, Principal Financial and Accounting Officer	March 30, 2017
Soren Degn


/s/ Paul Burgon	Director	March 30, 2017
Paul Burgon


/s/ Mike Barish	Director	March 30, 2017
Mike Barish


/s/ Mark Vernon	Director	March 30, 2017
Mark Vernon


/s/ Rengarajan Ramesh	Director	March 30, 2017
Rengarajan Ramesh

LIQTECH INTERNATIONAL INC - FORM 10-K - March 30, 2017

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LIQTECH INTERNATIONAL INC Reports