LIQTECH INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

The condensed consolidated financial statements include the accounts of LiqTech International, Inc., (the “Company”) and its subsidiaries. The terms "Company", “us", "we" and "our" as used in this report refer to the Company and its subsidiaries, which are set forth below in Item2, management's discussion and analysis section. The Company engages in the development, design, production, marketing and sale of automated filtering systems, ceramic silicon carbide membrane applications and diesel particulate air filters in North America, Europe, Asia, Australia, and South America.

These interim consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form10-K for the year ended* December 31, 2023.The results of operations for the period ended March 31, 2024arenot* necessarily indicative of the operating results for the full year and are unaudited. In the opinion of management, all adjustments consisting of a normal recurring nature, necessary for a fair presentation have been included.

Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and its majority-owned subsidiary. All material intercompany transactions and accounts have been eliminated in the consolidation.

Reverse Stock Split–** On May 26, 2023,the Company effected a1-for-8 reverse split of its outstanding Common Stock, $0.001 par value (“Common Stock”). All outstanding Common Stock, warrants, and RSUs were adjusted to reflect the1-for-8 reverse split, with respective exercise prices of the warrants proportionately increased. All stock and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split. The total number of authorized Common Stock was adjusted to reflect the1-for-8 reverse split.

As a result of the reverse Common Stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.”

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 Holding, LiqTech Water, LiqTech Plastics, LiqTech Ceramics, LiqTech Water Projects and LiqTech Emission Control is the Danish Krone (“DKK”); and the functional currency of LiqTech China is the Renminbi (“RMB”). The Company’s reporting currency is the U.S. Dollar for the purpose of these consolidated financial statements. The balance sheet accounts of the foreign subsidiaries are translated into U.S. Dollars at the period-end exchange rates, and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during thethree months ended* March 31, 2024and2023.* Translation gains and losses are deferred and accumulated as a component of other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses that arose from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

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Cash and Restricted Cash – The Company considers all highly liquid debt instruments purchased with a maturity ofthree months or less to be cash equivalents. As of* March 31, 2024and December 31, 2023,*the Company held $920,525 and $941,361, respectively, of restricted cash. The restricted cash is held as security by a local financial institution for ensuring a leasing facility and for payment guarantees issued for the benefit of customers in connection with prepayments of sales orders and for warranties after the delivery of products.

Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to*$250,000.* At* March 31, 2024and December 31, 2023*the Company had $0 and $0 in excess of the FDIC insured limit, respectively.

Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. The Company establishes an allowance for doubtful accounts that 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, age, financial information that is publicly accessible and other currently available evidence.

The roll-forward of the allowance for doubtful accounts for the periods ended* March 31, 2024and December 31, 2023*is as follows:

Inventory – Inventory directly purchased is carried at the lower of cost or net realizable value, as determined on thefirst-in,first-out method.

For inventory produced, standard costs that approximate actual costs, applying the FIFO method, are used to value inventory. Standard costs are reviewed at least annually by management or more often in the event that circumstances indicate a change in cost has occurred.

Work in process and finished goods include material, labor, and production overhead costs. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors.

Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts.

Contracts Assets / Liabilities – Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but hasnot yet been billed. When the Company issues invoices to the customer and the billing is higher than the capitalized Contract assets, the net amount is transferred to Contract liabilities. Contract assets/liabilities are transferred to revenue and cost of goods sold when the right to consideration is unconditional and billed per the terms of the contractual agreement.

Contract assets also include unbilled receivables, which usually comprise the last invoice remaining after the delivery of the water treatment unit, where revenue is recognized at the transfer of control based upon signed acceptance of the water treatment unit by the customer. Most commonly this invoice is sent to the customer at commissioning of the product orno later than12 months after the delivery. Also included in Contract assets are short-term receivables such as VAT and other receivables.

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Leases – The Company has elected tonot recognize lease assets and liabilities with an initial term of12 months or less and tonot separate lease and non-lease components. The Company’s accounting for finance leases (formerly called capital lease obligations) remains substantially unchanged. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases donot provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value. The Company will use the implicit rate when readily determinable. The operating lease ROU asset also includes prepaid lease payments reduced by accrued lease payments. The Company’s lease terms* may*include options to extend or terminate the lease, for which the Company will reflect the change when it is reasonably certain that those options will be exercised. Operating lease cost for lease payments will be recognized on a straight-line basis over the lease term.

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

Long-lived Assets–** The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may*not* be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in its use of the assets. The Company measures the recoverability of assets that will continue to be used in its operations by comparing the carrying value of the asset grouping to its estimate of the related total future undiscounted net cash flows. If an asset grouping’s carrying value isnot 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.

Goodwill and Intangible Assets – The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business, with the residual purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but arenot limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

Acquired intangible assets with determinable useful lives are amortized on a straight-line or accelerated basis over the estimated periods benefited, ranging fromone toten years. Customer relationships and other non-contractual intangible assets with determinable lives are amortized over periods offive years.

The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. The evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, butnot limited to, revenue growth rates, gross profit margins, and operating expenses over the expected remaining useful life of the related asset. A shortfall in these estimated operating cash flows could result in an impairment charge in the future.

Goodwill isnot amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The Company estimates the fair value of the reporting unit using the discounted cash flow and market approaches. Forecasts of future cash flows are based on the Company’s best estimate of future net sales and operating expenses, using primarily expected category expansion, pricing, market segment fundamentals, and general economic conditions.

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Revenue Recognition – The Company records revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic606, “Revenue from Contracts with Customers.” Revenue is recognized upon the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the followingfive-step approach: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as a performance obligation is satisfied.

The Company sells products throughout the world, and sales by geographical region are as follows for thethree months ended* March 31, 2024and2023:*

The Company’s sales by product line are as follows for thethree months ended* March 31, 2024and2023:*

For Water (systems and aftermarket), Ceramics (diesel particulate filters and membranes), and Plastics (components), revenue is recognized when performance obligations specified within the terms of a contract with the customer are satisfied, which occurs when control of the product transfers to the customer or when services are rendered by the Company. The majority of the Company’s sales contracts contain performance obligations satisfied at a point in time when title along with risks and rewards of ownership have transferred to the customer. This generally occurs when the product is shipped or accepted by the customer. Revenue for service contracts is recognized as the services are provided. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise to the right to receive payment from the customer. The Company’s standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due isnot significant. Pre-payments received prior to satisfaction of performance obligations are recorded as a Contract liability. Considering the relatively short time between revenue recognition and receipt of payment, financing components donot exist between the Company and its customers.

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

System sales are recognized when the Company transfers control to the customer based upon sales and delivery conditions specified in the sales contract. This typically occurs upon shipment of the system from the production facility but can also occur upon other agreed delivery terms. In connection with the completion of the system, it is normal procedure to issue a FAT (Factory Acceptance Test) asserting that the customer has accepted the performance of the system as it is being shipped from our production facility in Hobro, Denmark. As part of the performance obligation, the customer is normally offered commissioning services (final assembly and configuration at a place designated by the customer), and this commissioning is therefore considered asecond performance obligation and is valued at cost, with the addition of a standard gross margin. Thissecond performance obligation is recognized as revenue at the time the commissioning services are rendered together with the cost incurred. Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e., thefirst performance obligation), this portion is recognized as a Contract liability.

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Aftermarket sales represent parts, extended warranties, and maintenance services. For the sale of aftermarket parts, the Company transfers control and recognizes revenue when parts are shipped to the customer. When customers are given the right to return eligible parts and accessories, the Company estimates the expected returns based on an analysis of historical experience. The Company adjusts estimated revenues at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. The Company recognizes revenue for extended warranty and maintenance agreements based on the standalone selling price over the life of the contract.

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

The roll-forward of Contract assets / liabilities for the periods ended* March 31, 2024and December 31, 2023*is as follows:

Advertising Cost – Costs incurred in connection with advertising of the Company’s products are expensed as incurred. Advertising costs are included in sales expenses, and total advertising costs for thethree-month periods ended* March 31, 2024and2023* were $13,821 and $32,599, respectively.

Research and Development Cost – The Company expenses research and development costs as incurred. Included in operating expense for thethree-month periods ended* March 31, 2024and2023* were research and development costs of $254,812 and $342,619, respectively.

Income Taxes – The Company accounts for income taxes in accordance with FASB ASC Topic740, Accounting for Income Taxes. This statement requires an asset and liability approach with respect to accounting for income taxes.

Income/(Loss) Per Share – The Company calculates earnings (loss) per share in accordance with FASB ASC260, Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of Common Stock 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 shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options, RSUs and warrants that have been granted but havenot yet been exercised.

Stock Awards – During the years presented in the accompanying consolidated financial statements, the Company has granted stock awards. The Company accounts for stock awards in accordance with the provisions of FASB ASC Topic718, Compensation – Stock Compensation.

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Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and liabilities in accordance with FASB ASC Topic820. 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 non-recurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or 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 athree-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, other receivables, prepaid expenses, accounts payable, accrued expenses, and senior promissory notes payable approximate 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 including accounts receivable; allowance for doubtful accounts; contract assets; reserve for excess and obsolete inventory; depreciation and impairment of property, plant and equipment; goodwill; liabilities including contract liabilities and contingencies; the disclosures of contingent assets and liabilities at the date of the financial statements; and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

Recent Accounting Pronouncements –Recent accounting pronouncements issued by the FASB didnot or arenot believed by management to have a material impact on the Company’s present or future financial statements.

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NOTE2 – 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 incurred significant recent losses, which raises substantial doubt about the ability of the Company to continue as a going concern for a period ofone year from the issuance of these financial statements. There isno assurance that the Company will be successful in executing the proposed cost reductions, strategy, and profitability improvement measures, thus achieving profitable operations. The financial statements donot include any adjustments that might result from the realization of these uncertainties.

We continue to analyze various alternatives, including potentially obtaining debt or equity financings or other arrangements. Our future success depends on our ability to restore profitability and raise capital as needed. We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities* mayhave rights, preferences, or privileges senior to those of our common stock, and our current shareholders mayexperience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may*be required to curtail our current development programs, reduce operating costs, forego future development and other opportunities, or even terminate our operations.

As of* March 31, 2024,*the Company had cash and cash equivalents of $7,726,213, net working capital of $12,777,940, an accumulated deficit of $78,310,475, and total assets and liabilities of $31,366,068 and $16,828,606, respectively.

NOTE3 - INVENTORY

Inventory consisted of the following on* March 31, 2024,and December 31, 2023:*

Inventory valuation adjustments for excess and obsolete inventory are calculated based on current inventory levels, movements, expected useful lives, and estimated future demand for the products.

NOTE4 - LEASES

The Company leases certain vehicles, real property, production equipment and office equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating lease or finance lease for financial reporting purposes. The majority of our operating leases are non-cancelable leases for production and office space in Hobro, Aarhus and Copenhagen, Denmark.

During thethree months ended* March 31, 2024,*cash paid for amounts included for the measurement of finance lease liabilities was $1,088,658, and the Company recorded finance lease expenses in other income (expenses) of $56,428.

During thethree months ended* March 31, 2024,*cash paid for amounts included for the measurement of operating lease liabilities was $203,886, and the Company recorded operating lease expense of $202,929.

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Supplemental balance sheet information related to leases as of* March 31, 2024and December 31, 2023*was as follows:

Maturities of lease liabilities at* March 31, 2024*were as follows:

NOTE5 - LINES OF CREDIT

In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee or a security bond. For that purpose, we have a guaranteed credit line of EUR 850,000 (approximately $905,000) secured by a cash deposit. As of* March 31, 2024,the Companyno* longer has any outstanding working guarantees issued to customers against this credit line.

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NOTE6 –** LONG-TERM DEBT**

Senior Promissory Notes

On* June 22, 2022,the Company issued and sold Senior Promissory Notes in an aggregate principal amount of $6.0 million (the “Notes”) and issued warrants to purchase 531,250 shares of Common Stock to affiliates of Bleichroeder L.P.,21 * AprilFund, L.P., and21 * April*Fund, Ltd. (together, the “Purchasers”), pursuant to a note and warrant purchase agreement entered into with the Purchasers (the “Note and Warrant Purchase Agreement”). The warrants issued in this transaction have an exercise price of $5.20 per share, a term offive years and are exercisable for cash at any time.

The Notes originally had a term of 24 months and donot bear interest during this period. If the Notes arenot repaid on or before thesecond anniversary of issuance, however, the Notes will thereafter bear interest of 10% per annum, which will increase by 1% each month the Notes remain unpaid, up to a maximum of 16% per annum, payable monthly.

Additionally, as part of the transaction, the Company issued 28,846 warrants to the placement agent. The warrants issued in this transaction have an exercise price of $5.20 per share, a term offive years and are exercisable for cash at any time.

As a result, the Company recorded an initial debt discount of $695,749, based on the relative fair value of the warrants and Notes issued. The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions: expected term of 2.5 years, stock price of $3.44, exercise price of $5.20, volatility of 80.8%, risk-free rate of 3.13%, andno forfeiture rate. The debt discount will be accreted according to the effective interest method over the contractual term of the Notes. The warrants qualified for equity classification and were reported within Additional Paid-In Capital.

On* October 13, 2023,the Company and the Purchasers entered into an amendment to the Note and Warrant Purchase Agreement (the “Amendment”) and AllongeNo.* 1 to each of the Notes (collectively, the “Allonges”) effective as of* September 30, 2023,pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024,to January 1, 2026 (the “Extension”). As consideration for the Extension, simultaneously with the entry into the Amendment and Allonges, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $5.20 per share, subject to adjustment as provided therein (the“2023* Warrants”). The2023 Warrants are exercisable at any time prior to thefive-year anniversary of the initial exercise date of* September 30, 2023.The Amendment qualifies as a modification and entitles the Purchasers to registration rights with respect to the shares of Common Stock issuable upon exercise of the2023* Warrants pursuant to the existing Registration Rights Agreement, dated* June 22, 2022,*by and between the Company and the Purchasers.

As a result of the amendment, the Company recorded an initial debt discount of $1,193,206, based on fair value of the warrants issued. The Company determined the fair value of the warrants by using the Black-Scholes Option Pricing Model, with the following assumptions: expected term of 5.0 years, stock price of $3.89, exercise price of $5.20, volatility of73.66%, risk-free rate of 4.60%, andno forfeiture rate. The debt discount will be accreted according to the effective interest method over the contractual term of the Notes. The warrants qualified for equity classification and were reported within Additional Paid-In Capital.

The components of notes payable are as follows:

For thethree months ended* March 31, 2024and2023,* the Company recognized interest expense of $0 and $0, respectively, and $146,040 and $84,528, respectively on the Senior Promissory Notes related to the amortization of debt issuance costs.

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NOTE7 –** AGREEMENTS AND COMMITMENTS**

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

Product Warranties – The Company provides a standard warranty for its systems, generally for a period ofone tothree years after customer acceptance. The Company estimates the costs that* may*be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

In addition, the Company sells an extended warranty for certain systems, which generally provides a warranty for up tofour years from the date of commissioning. The specific terms and conditions of the warranties vary depending upon the product sold and the country in which the installation occurred. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.

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Changes in the Company’s current and long-term warranty obligations included in accrued expenses on the balance sheet, as of* March 31, 2024and December 31, 2023,*were as follows:

NOTE8 –EARNINGS PER SHARE

Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. For the periods where there is a net loss, stock options, warrants and Restricted Stock Units (“RSUs”) have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Consequently, the weighted average number of shares of Common Stock used to calculate both basic and diluted net loss per common share are the same for the reported periods.

As of* March 31, 2024,*the Company had 405,298 RSUs,3,390,008 prefunded warrants, and 1,091,346 warrants, all exercisable for shares of Common Stock

As of* March 31, 2023,*the Company had 354,114 RSUs,3,390,008 prefunded warrants, and 560,096 warrants, all exercisable for shares of Common Stock

NOTE9 –** STOCKHOLDERS**’** EQUITY**

Common Stock** – The Company has 50,000,000 authorized shares of common stock, $0.001 par value (“Common Stock”). As of March 31, 2024and2023, respectively, there were 5,807,340 and 5,658,930 shares of Common Stock issued and outstanding.

Voting** **– Holders of common stock are entitled toone vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and donot have any right to cumulate votes in the election of directors.

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

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

Other Matters** **– Holders of common stock haveno conversion, preemptive or other subscription rights, and there areno redemption rights or sinking fund provisions with respect to our common stock. All of the issued and outstanding shares of common stock on the date of this Annual Report are validly issued, fully paid and non-assessable.

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

The Company has 2,500,000 authorized shares of preferred stock, $0.001 par value. As of* March 31, 2024,*there wereno preferred shares issued and outstanding.

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Reverse Stock Split– On* May 26, 2023,the Company effected a1*-for-8 reverse split of its outstanding Common Stock, $0.001 par value (“Common Stock”). All outstanding Common Stock, warrants, and RSUs were adjusted to reflect the1-for-8 reverse split, with respective exercise prices of the warrants proportionately increased. All stock and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split. The total number of authorized Common Stock was adjusted to reflect the1-for-8 reverse split.

As a result of the reverse stock split, an amount equal to the decreased value of Common Stock was reclassified from “Common Stock” to “Additional Paid-in Capital.”

Stock Issuances

Since* January 1, 2024,*the Company has made the following issuances of Common Stock:

On* January 3, 2024,the Company issued 24,500 shares of Common Stock to settle RSUs. The RSUs were valued at $73,500 for services provided by the Board of Directors in2023.* The Company recognized the stock-based compensation of the award over the requisite service period during the year ended* December 31, 2023.*

On* January 3, 2024,the Company issued 85,528 shares of Common Stock to settle RSUs. The RSUs were valued at $289,672 for services provided by management in2023.* The Company recognized the stock-based compensation of the award over the requisite service period during the year ended* December 31, 2023.*In connection with the issuance,29,998 shares of Common Stock, with a total value of $102,567, were retired to settle tax withholdings associated with stock-based compensation.

Warrants

On* May 17, 2022,the Company entered a warrant purchase agreement with existing stockholders to purchase 3,803,133 shares of Common Stock at an offering price of $3.992 per prefunded warrant, which represents the offering price of $4.00 per share of the Company’s Common Stock less the $0.008 per share exercise price for each pre-funded warrant. The warrants represented gross proceeds of approximately $15,182,075 as part of the Company’s public offering of Common Stock and pre-funded warrants totaling$23,000,000* before underwriting discounts, commissions, and offering expenses payable by the Company.

On* June 22, 2022,the Company completed a private placement of Senior Notes in an aggregate principal amount of $6,000,000 and warrants to purchase 531,250 shares of Common Stock of the Company to affiliates of Bleichroeder L.P.,21 * AprilFund, L.P., and21 * AprilFund, Ltd. (together, the "Purchasers"), pursuant to a note and warrant purchase agreement (the “Note and Warrant Purchase Agreement”). Additionally, as part of the transaction, the Company issued 28,846 warrants to the placement agent. All warrants issued in this transaction have an exercise price of $5.20 per share, a term offive* years, and are exercisable for cash at any time.

On* October 13, 2023,the Company entered into an amendment to the Note and Warrant Purchase Agreement effective as of September 30, 2023,pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024,to January 1, 2026 (the “Extension”). As consideration for the Extension, the Company issued to the Purchasers additional warrants to purchase an aggregate of 531,250 shares of Common Stock at an exercise price of $5.20 per share. The warrants are exercisable at any time prior to thefive-year anniversary of the initial exercise date of September 30, 2023.*

The following is a summary of the periodic changes in warrants outstanding for thethree months ended* March 31, 2024and2023:*

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Stock-based Compensation

In2013, the Company’s Board of Directors adopted a Share Incentive Plan (the “Incentive Plan”). Under the terms and conditions of the Incentive Plan, the Board of Directors is empowered to grant RSUs to officers, directors, and consultants of the Company. At* March 31, 2024,52,082 RSUs were granted and outstanding under the Incentive Plan. Directors of the Company receive share compensation consisting of annual grants of $36,750 ($73,500 for the Chairman of the Board) in RSUs per annum withone*-year vesting.

In2022, the Company’s Board of Directors adopted an Equity Incentive Plan (the*“2022* Incentive Plan”). Under the terms and conditions of the2022 Incentive Plan, the Board of Directors is empowered to grant RSUs to officers and directors of the Company. At* March 31, 2024,353,216 RSUs were granted and outstanding under the2022* Incentive Plan.

The Company recognizes compensation costs for RSU grants to directors and management based on the stock price on the date of the grant.

The Company recognized stock-based compensation expense related to RSU grants of $193,321 and $157,174 for thethree-month periods ended* March 31, 2024and2023,* respectively. On* March 31, 2024,*the Company had $1,198,062 of unrecognized compensation cost related to non-vested stock grants.

A summary of the status of the RSUs as of* March 31, 2024*and changes during the period are presented below:

NOTE10 - SIGNIFICANT CUSTOMERS / CONCENTRATION / DISAGGREGATED REVENUE

The following table presents customers accounting for10% or more of the Company’s revenue:

• Zero or less than10%

The following table presents customers accounting for10% or more of the Company’s Accounts receivable:

• Zero or less than10%

As of* March 31, 2024,approximately 97% of the Company’s assets were located in Denmark,1% were located in the U.S., and 2% were located in China. As of December 31, 2023,*approximately 98% of the Company’s assets were located in Denmark,0% were located in the U.S., and 2% were located in China.

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NOTE11 – SEGMENT REPORTING

The Company operates inthree segments: Water, Ceramics and Plastics.

Segment information for the business areas is as follows:

NOTE12 - SUBSEQUENT EVENTS

None

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