LIQTECH INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE1 – BASIS OF PRESENTATION AND OTHER INFORMATION

The accompanying unaudited condensed consolidated financial statements of LiqTech International, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form10-Q of Regulation S-X. They donot include all the information and footnotes required by GAAP for complete financial statements. The* December 31, 2024* consolidated balance sheet data were derived from audited financial statements but doesnot include all disclosures required by GAAP. However, except as disclosed herein, there has beenno material change in the information disclosed in the notes to the consolidated financial statements for the year ended* December 31, 2024* included in the Company’s Annual Report on Form10-K, as filed with the Securities and Exchange Commission on* March 28, 2025.The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Company’s Annual Report on Form10*-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for thethree months ended* March 31, 2025* arenot necessarily indicative of the results that* maybe expected for the year ending December 31,*2025.

Recently Adopted Accounting Pronouncements

In* August 2023,the FASB issued ASU2023*-05, “Business Combinations—Joint Venture Formations (Subtopic805*-60): Recognition and Initial Measurement*,” which requires a newly-formed joint venture to apply a new basis of accounting to its contributed net assets, resulting in the joint venture initially measuring its contributed net assets at fair value on the formation date. ASU2023-05 is effective for all joint venture formations with a formation date on or after* January 1, 2025,with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted for joint ventures formed before the effective date. The adoption of ASU2023*-05 didnot have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting PronouncementsNot Yet Adopted**

In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740*): Improvements to Income Tax Disclosures*,” which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU2023-09 is effective for fiscal years beginning after* December 15, 2025,*with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.

In* November 2024,the FASB issued ASU2024*-03, “Income Statement–* Reporting Comprehensive Income*–* Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses*,” which requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization included in each relevant expense caption presented on the statement of operations. The standard also requires disclosure of qualitative description of the amounts remaining in relevant expense captions that arenot separately disaggregated quantitatively, as well as the total amount of selling expenses and an entity’s definition of selling expenses. ASU2024-03 is effective for annual periods beginning after* December 15, 2026,and interim periods beginning after December 15, 2027.*The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.

The Company currently believes there areno other issued andnot yet effective accounting standards that are materially relevant to its condensed consolidated financial statements.

13

NOTE2 – NONCONTROLLING INTEREST

In* January 2025,the Company established a joint venture Nantong JiTRI LiqTech Green Energy Technology Co., Ltd (the “JV”) in which it holds a 90% ownership interest. The remaining 10% is owned by an unrelatedthird* party. The primary focus of the JV is to develop and commercialize systems for the marine water treatment market in China. The JV is fully consolidated in the Company’s condensed financial statements, and the10% noncontrolling interest is presented separately in the consolidated balance sheet within equity and in the consolidated statement of operations as a component of net income (loss).

As part of the JV agreement, LiqTech has agreed to make our technology available to the JV and to transfer the utilization rights necessary for operations in the marine scrubber market in China. In* February 2025,the JV received R&D funding of RMB 8,000,000 (approximately USD 1.1 million) from the JV partner to support capability development and system construction. The funding is classified as a long-term loan in the financial statements and maybe increased to up to RMB 10,000,000 within12* months if certain technical and commercial milestones are achieved.

The loan bears a fixed annual interest rate of 12% per annum and hasno set maturity date. At the sole discretion of LiqTech, the loan* maybe either converted into equity of the JV in connection with future capital increases or equity injections, or it maybe repaid in full with accrued interest. There isno* separate default rate beyond the stated contractual interest, andno mandatory repayment terms exist unless elected by LiqTech.

As of* March 31, 2025*, the noncontrolling interest in the JV amounted to $6,838 and reflects thethird party’s share of the JV’s net assets and net loss for the period.

NOTE3 – DISAGGREGATION OF REVENUES AND SEGMENT REPORTING

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

The Company sells products throughout the world, and sales by geographical region are as follows for thethree months ended* March 31, 2025and2024*:

The Company’s sales by segment are as follows for thethree months ended* March 31, 2025and2024*:

14

The Company’s income and total assets by segment are as follows:

NOTE4 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following on* March 31, 2025*, and* December 31, 2024*:

The roll-forward of the allowance for doubtful accounts for the periods ended* March 31, 2025* and* December 31, 2024* is as follows:

15

NOTE5 – INVENTORIES

Inventories consisted of the following on* March 31, 2025*, and* December 31, 2024*:

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.

NOTE6 – CONTRACT ASSETS AND CONTRACT LIABILITIES

The roll-forward of Contract assets and Contract liabilities for the periods ended* March 31, 2025* and* December 31, 2024* is as follows:

NOTE7 – 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 and Copenhagen, Denmark.

16

During thethree months ended* March 31, 2025*, cash paid for amounts included for the measurement of finance lease liabilities was $116,413, and the Company recorded finance lease expenses in other income (expenses) of $31,779.

During thethree months ended* March 31, 2025*, cash paid for amounts included for the measurement of operating lease liabilities was $210,187, and the Company recorded operating lease expense of $210,187.

Supplemental balance sheet information related to leases as of* March 31, 2025* and* December 31, 2024* was as follows:

Maturities of lease liabilities at* March 31, 2025* were as follows:

17

NOTE8 –** LONG-TERM DEBT**

The components of notes payable are as follows:

For thethree months ended* March 31, 2025,and2024*, the Company recognized interest expense of $0 and$0, respectively, and $168,030 and $146,040, respectively, on the Senior Promissory Notes related to the amortization of debt issuance costs.

NOTE9 –** 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.

Changes in the Company’s current and long-term warranty obligations included in accrued expenses on the balance sheet, as of* March 31, 2025* and* December 31, 2024*, were as follows:

NOTE10 –** STOCKHOLDERS**’** EQUITY**

Common Stock** – The Company has 50,000,000 authorized shares of Common Stock, $0.001 par value. As of March 31, 2025 and* December 31, 2024*, there were 9,606,024 and 9,475,443 shares of Common Stock issued and outstanding, respectively.

18

Stock Issuances

During thethree months ended* March 31, 2025*, the Company has made the following issuances of Common Stock:

On* January 1, 2025,the Company issued 30,703 shares of Common Stock to settle RSUs. The RSUs were valued at $81,886 for services provided by management in2024*. The Company recognized the stock-based compensation of the award over the requisite service period during the year ended* December 31, 2024*.

On* January 3, 2025,the Company issued 52,350 shares of Common Stock to settle RSUs. The RSUs were valued at $183,750 for services provided by the Board of Directors in2024*. The Company recognized the stock-based compensation of the award over the requisite service period during the year ended* December 31, 2024*.

On* January 3, 2024,the Company issued 75,921 shares of Common Stock to settle RSUs. The RSUs were valued at $245,899 for services provided by management in2024*. The Company recognized the stock-based compensation of the award over the requisite service period during the year ended* December 31, 2024*. In connection with the issuance,28,394 shares of Common Stock, with a total value of $53,097, were withheld from vesting to settle tax withholdings associated with stock-based compensation.

Warrants

On* March 26, 2025,the Company entered into a Second Amendment to the Note and Warrant Purchase Agreement (the "Second Amendment") originally dated June 22, 2022,with the holders of the Company’s senior promissory notes. In connection with the Second Amendment, the parties executed AllongeNo.* 2 (the "Allonges") to each of the existing amended notes, resulting in an extension of the maturity date from* January 1, 2026to May 1, 2027.*

Additionally, pursuant to the Allonges, beginning on* January 1, 2026,the notes will bear interest at a rate of 10% per annum, payable semiannually. In the event of a default or if the notes arenot* repaid on or before the new maturity date, the interest rate increases to 13% per annum, with a monthly 1% step-up up to a cap of 16% per annum, payable monthly. Accrued interest (excluding default interest)* may*be paid in cash or in shares of common stock, at the Company’s election, subject to certain limitations.

As part of the transaction, the Company and the noteholders also agreed to amend and restate the related warrants, reducing the exercise price from $5.20 to $2.00 per share and extending the expiration date to* December 31, 2029.*The repricing resulted in an incremental change in warrant value of $220,000.

The following is a summary of the periodic changes in warrants outstanding for thethree months ended* March 31, 2025,and2024*:

19

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 stock awards, including RSUs, to officers, directors, and consultants of the Company. At* March 31, 2025*,26,042 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 stock awards, including RSUs, to officers and directors of the Company. At* March 31, 2025*,528,529 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 $241,245 and $193,321 for thethree-month periods ended* March 31, 2025,and2024*, respectively. On* March 31, 2025*, the Company had $1,067,746 of unrecognized compensation cost related to non-vested stock grants.

A summary of the status of the RSUs as of* March 31, 2025* and changes during the period are presented below:

20

NOTE11 –LOSS 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 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 is the same for the reported periods.

As of* March 31, 2025*, the Company had 554,571 RSUs,5,299,879 prefunded warrants, and 6,091,346 warrants, all exercisable for shares of Common Stock.

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.

NOTE12 –SIGNIFICANT CUSTOMERS AND CONCENTRATIONS

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, 2025*, approximately 93% of the Company’s assets were located in Denmark,4% were located in China, and 3% were located in the U.S. As of* December 31, 2024*, approximately 86% of the Company’s assets were located in Denmark,0% were located in China, and 14% were located in the U.S.

NOTE13 –SUBSEQUENT EVENTS

None.

21