truefalseSimon Seidelin StadilÅrsrapport25578198KPMGØstre Havnegade 22DDK-9000 Aalborg2021-01-012021-12-312020-01-012020-12-312022-07-132022-07-1332562302LiqTech Water A/SBenshøj Industrivej 249500HobroDKDenmark2009-09-01Sdr. Onsild Kirkeby7020 7258www.liqtech.cominfo@liqtech.com KPMG25578198Steffen S. Hansenmne32737statsaut. revisorØstre Havnegade22D9000AalborgDKDenmark45707077602022-07-13Regnskabsklasse C, mellemstor virksomhedfalsefalseRevisionspåtegningThe Board of Directors and the Executive Board have today discussed and approved the annual report of LiqTech Water A/S for the financial year 1 January – 31 December 2021.The annual report has been prepared in accordance with the Danish Financial Statements Act.We recommend that the annual report be approved at the annual general meeting.Hobro,Morten Dyrlund DamgaardCEOAlexander Jon BuehlerChairmanSimon Seidelin StadilRikke Holgersen FeldTo the shareholder of LiqTech Water A/SWe conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the "Auditor's responsibilities for the audit of the financial statements" section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.Aalborg,73215021532856026224180-583429-5015917-9077813-74754819472658-11510154-14774856-57413-322847-52998-410056-388650-9135226-60838547414508-4669111-1438576037189651698512737991920724894780100875501779140826926634130104885595980265089838831138743142496514653091020-0.35-0.340.97-3.69-39.96-40.86-30.4779.7-159.33-1584.3947.8438.5516.2822.482.632638371919Capital resources During the financial year 2022, additional capital of USD 26 million has been raised through the Company’s listed US parent company, LiqTech International Inc. Accordingly, the Company has sound capital resources and furthermore committed to support LiqTech Water A/S as a key operating entity.7321502153285601573365722203802665658600239-9077813-74754811861480243561322847-9135226-77983280-1714474-9135226-608385434518551550035577836977913171871714647167296520844269944849944843012634359441068400954045304196959510726397159484449578310404534152674844552477129093466669063029798246154385166307527839311449491144949028391650520343170093882384658167630952714279834177017662568633718965169851273157500015750002692440159471642535163417791408269266346313928640053963139286400539395244728608551671057173332963215885455786132750005250000969926652208813084315365241001308431536524100371896516985127315750000253516340269244-26924400-9135226157500026924415947164Development projects Development costs comprise costs, wages, salaries and amortisation directly and indirectly attributable to development activities.Deposits The accounting policies used in the preparation of the financial statements are consistent with those of last year. Deposits are measured at amortised cost.Reserve for development costs The reserve for development costs comprises capitalised development costs. The reserve cannot be used for dividends, distribution or to cover losses. If the recognised development costs are sold or in other ways excluded from the Company's operations, the reserve will be dissolved and transferred directly to the distributable reserves under equity. If the recognised development costs are written down, the part of the reserve corresponding to the write-down of the developments costs will be reversed. If a write-down of development costs is subsequently reversed, the reserve will be re-established. The reserve is reduced by amortisation of capitalised development costs on an ongoing basis.2638-9135226-6083854Related party transactions LiqTech Water A/S' related parties comprise the following:In our opinion, the financial statements give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2021 and of the results of the Company's operations for the financial year 1 January – 31 December 2021. Further, in our opinion, the Management's review gives a fair review of the development in the Company's activities and financial matters, of the results for the year and of the Company's financial position.We have audited the financial statements of LiqTech Water A/S for the financial year 1 January – 31 December 2021 comprising income statement, balance sheet, statement of changes in equity and notes, including accounting policies. The financial statements are prepared in accordance with the Danish Financial Statements Act. In our opinion, the financial statements give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2021 and of the results of the Company's operations for the financial year 1 January – 31 December 2021 in accordance with the Danish Financial Statements Act.Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the Danish Financial Statements Act and for such internal control that Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, Management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the financial statements unless Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.Our objectives are to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements in Denmark will always detect a material misstatement when it exists. Misstatements may arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also identify and assess the risks of material misstatement of the company financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. obtain an understanding of internal control relevant to the audit in order to design 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 control. evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. conclude on the appropriateness of Management's use of the going concern basis of accounting in preparing the financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. evaluate the overall presentation, structure and contents of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that gives a true and fair view. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.Management is responsible for the Management's review. Our opinion on the financial statements does not cover the Management's review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the Management's review and, in doing so, consider whether the Management's review is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management's review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management's review is in accordance with the financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the Management's review. The financial ratios have been calculated as follows: Return on invested capital Operating profit/loss * 100 Average invested capital Return on equity Profit/loss from ordinary activities after tax x 100 Average equity Solvency ratio Equity ex. non-controlling interests at year-end x 100 Total equity and liabilities at year-endThe principal activities of the Company are to develop and produce fully automated water purification systems for use in the maritime industry and in the energy and water supply sectors. Further the Company also produces fully automated filtration systems for applications in the pool and spa market.The Company's income statement for 2021 shows a loss before tax of DKK -9,1 million compared to a loss of DKK 7,8 million in 2020. The balance sheet on December 31 2021, shows a total of DKK 37,2 million and total equity of DKK 17,8 million. Gross profit for the year came in at DKK 7,3 million compared to DKK 15,3 million in 2020 and was negatively affected by rising inflation and supply chain constraints. Furthermore, since the start of the COVID-19 pandemic in early 2020, there has been an overall decline in new orders, particularly in the shipping industry, due to reduced investments caused by demand disruption and the volatility of oil prices. However, the Company has identified significant opportunities for its solutions within several industries: acid purification, oil & gas filtration, food & beverage filtration and within pool filtration systems.The Company's knowledge resources are an essential factor for the continuous development of innovative solutions.Except raise of capital no other events have occurred after the balance sheet date of material importance to the annual report for 2021.The annual report of LiqTech Water A/S for 2021 has been prepared in accordance with the provisions applying to reporting class C medium-sized entities under the Danish Financial Statements Act.Pursuant to section 86(4) of the Danish Financial Statements Act, no cash flow statement has been prepared. The Company's cash flows are included in the cash flow statement in the consolidated financial statements of LiqTech International Inc., 1804 Buerkle Road, White Bear Lake, MN 55110, United States of America.On initial recognition, transactions denominated in foreign currencies are translated at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and the date of payment are recognised in the income statement as financial income or financial expenses. Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the balance sheet date. The difference between the exchange rates at the balance sheet date and the date at which the receivable or payable arose or was recognised in the latest financial statements is recognised in the income statement as financial income or financial expenses.Pursuant to Section 32 of the Danish Financial Statements Act, the Company has decided only to disclose gross profit.Income from the sale of goods, comprising the sale of goods, is recognised in revenue when delivery and transfer of risk to the buyer have taken place, and the income may be measured reliably and is expected to be received. The date of transfer of the most significant benefits and risks is determined using standard Incoterms ® 2020. Income is recognised with the reference to stage of completion.Other operating income comprises items secondary to the activities of the entity, including gains on the disposal of intangible assets and property, plant and equipment.Other external costs comprise distribution costs and costs related to sales, sales campaigns, administration, office premises, operating leases, etc.Staff costs comprise wages and salaries, including holiday allowance, pension and other social security costs, etc., to the Company's employees, excluding reimbursements from public authorities.Financial income and expenses comprise interest income and expense, financial costs regarding finance leases, gains and losses on securities, payables and transactions denominated in foreign currencies, amortisation of financial assets and liabilities as well as surcharges and refunds under the on-account tax scheme, etc.The Parent Company is subject to the Danish rules on compulsory joint taxation of the Group's Danish subsidiaries. The subsidiaries are included in the joint taxation from the date when they are included in the consolidated financial statements and up to the date when they are excluded from the consolidation. The Parent Company is the administrative company for the joint taxation and accordingly settles all payments of corporation tax to the tax authorities. On payment of joint taxation contributions, current Danish corporation tax is allocated between the jointly taxed entities in proportion to their taxable income. Entities with tax losses receive joint taxation contributions from entities that have used the losses to reduce their own taxable profit. Tax for the year comprises current corporation tax for the year and changes in deferred tax, including changes in tax rates. The tax expense relating to the profit/loss for the year is recognised in the income statement, and the tax expense relating to amounts directly recognised in equity is recognised directly in equity.Fixtures and fittings, tools and equipment are measured at cost less accumulated depreciation and impairment losses.  Cost comprises the purchase price and any costs directly attributable to the acquisition until the date on which the asset is available for use. Indirect production overheads and borrowing costs are not recognised in cost. Where individual components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items, which are depreciated separately. The basis of depreciation is cost less any projected residual value after the end of the useful life. Depreciation is provided on a straight-line basis over the estimated useful life. The estimated useful lives are as follows: The useful life and residual value are reassessed annually. Changes are treated as accounting estimates, and the effect on depreciation is recognised prospectively. Gains and losses on the disposal of property, plant and equipment are stated as the difference between the selling price less selling costs and the carrying amount at the date of disposal. Gains and losses are recognised in the income statement as other operating income or other operating costs, respectively.Fixtures and fittings, tools and equipment 3-5 years Leasehold improvements 5 yearsThe carrying amount of intangible assests and property, plant and equipment is subject to an annual test for indications of impairment other than the decrease in value reflected by depreciation or amortisation. Impairment tests are conducted of individual assets or groups of assets when there is an indication that they may be impaired. Write-down is made to the recoverable amount if this is lower than the carrying amount. The recoverable amount is the higher of an asset's net selling price and its value in use. The value in use is determined as the present value of the forecast net cash flows from the use of the asset or the group of assets, including forecast net cash flows from the disposal of the asset or the group of assets after the end of the useful life.Inventories are measured at cost in accordance with the FIFO method. Where the net realisable value is lower than cost, inventories are written down to this lower value. Goods for resale and raw materials and consumables are measured at cost, comprising purchase price plus delivery costs. Finished goods and work in progress are measured at cost, comprising the cost of raw materials, consumables, direct wages and salaries and indirect production overheads. Indirect production overheads comprise indirect materials and wages and salaries as well as the maintenance of depreciation of production machinery, buildings and equipment as well as factory administration and management. Borrowing costs are not included in cost. The net realisable value of inventories is calculated as the sales amount less costs of completion and costs necessary to make the sale and is determined taking into account marketability, obsolescence and development in expected selling price.Receivables are measured at amortised cost. Write-down is made for bad debt losses where there is an objective indication that a receivable or a portfolio of receivables has been impaired. If there is an objective indication that an individual receivable has been impaired, write-down is made on an individual basis. Write-downs are calculated as the difference between the carrying amount of receivables and the present value of forecast cash flows, including the realisable value of any collateral received. The effective interest rate for the individual receivable or portfolio is used as discount rate.Contract work in progress is measured at the selling price of the work performed less progress billings and expected losses. The selling price is measured on the basis of the stage of completion at the balance sheet date and the projected income from the individual contract work in progress. The stage of completion is stated as the share of costs incurred in proportion to estimated total costs relating to contract work in progress. When the selling price of a construction contract cannot be estimated reliably, the selling price is measured at the lower of costs incurred and net realisable value. The individual construction contract is recognised in the balance sheet as receivables or payables, respectively. Net assets comprise the total of construction contracts where the selling price of the work performed exceeds progress billings. Net liabilities comprise the total of construction contracts where progress billings exceed the selling price. Costs arising from sales work and contracting are recognised in the income statement as incurred.Prepayments comprise prepayment of costs incurred relating to subsequent financial years.Cash at bank and in hand comprises cash.Current tax payable and receivable is recognised in the balance sheet as tax computed on the taxable income for the year, adjusted for tax on the taxable income of prior years and for tax paid on account. Deferred tax is measured using the balance sheet liability method on all temporary differences between the carrying amount and the tax value of assets and liabilities based on the planned use of the asset or settlement of the liability. However, deferred tax is not recognised on temporary differences relating to goodwill non-deductible for tax purposes and on office premises and other items where the temporary differences arise at the date of acquisition without affecting either profit/loss or taxable income. Deferred tax assets, including the tax value of tax loss carryforwards, are recognised at the expected value of their utilisation within the foreseeable future; either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity. Any deferred net assets are measured at net realisable value. Deferred tax is measured in accordance with the tax rules and at the tax rates applicable at the balance sheet date when the deferred tax is expected to crystallise as current tax. Changes in deferred tax as a result of changes in tax rates are recognised in the income statement or equity, respectively.Provisions comprise anticipated costs of provisions. Provisions are recognised when, as a result of past events, the Company has a legal or a constructive obligation, and it is probable that there may be outflow of resources embodying economic benefits to settle the obligation. Provisions are measured at value in use. Warranties comprise obligations to make good any defects within the warranty period of 2-5 years. Provisions are recognised based on the Company's experience with warranties. Provisions expected to be maintained for more than one year from the balance sheet date are discounted at a rate reflecting risk and the due date for payment.Liabilities are measured at net realisable value, which usually is equivalent to norminal value.Deferred income comprises advance invoicing regarding income in subsequent years.Wages and salaries 14,711,476 20,860,260 Pensions 813,591 934,130 Other social security costs 208,590 272,666 Other staff costs 0 136,746 15,733,657 22,203,802 Average number of full-time employees 26 38In accordance with section 98b(3)(II) of the Danish Financial Statements Act, remuneration of the Company's management and Board of Directors is not disclosed.DKK 2021 2020 Current tax for the year 0 -805,543 Deferred tax for the year 0 -908,931 0 -1,714,474 Deferred tax asset is recognised based on anticipated earnings for the coming five years.DKK Development projects Cost at 1 January 2021 515,500 Transfers for the year -108,865 Cost at 31 December 2021 406,635 Amortisation for the year -61,450 Amortisation and impairment losses at 31 December 2021 -61,450 Carrying amount at 31 December 2021 345,185DKK Fixtures and fittings, tools and equipment Leasehold improve-ments Total Cost at 1 January 2021 1,106,008 2,466,323 3,572,331 Additions for the year 66,306 17,577 83,883 Transfers for the year 108,865 0 108,865 Cost at 31 December 2021 1,281,179 2,483,900 3,765,079 Depreciation and impairment losses at 1 January 2021 -736,229 -751,676 -1,487,905 Depreciation for the year -189,172 -415,037 -604,209 Depreciation and impairment losses at 31 December 2021 -925,401 -1,166,713 -2,092,114 Carrying amount at 31 December 2021 355,778 1,317,187 1,672,965 DKK Deposits Cost at 1 January 2021 994,484 Cost at 31 December 2021 994,484 Carrying amount at 31 December 2021 994,484 DKK 31/12 2021 31/12 2020 Contract work in progress, selling price 35,309,806 130,550,731 Contract work in progress, progress billing -33,299,908 -130,918,434 2,009,898 -367,703 recognised as follows: Sales price work in progress projects 2,979,824 6,154,385 Prepayments and advance invoicing -969,926 -6,522,088 2,009,898 -367,703DKK 31/12 2021 31/12 2020 Deferred tax at 1 January 1,144,949 236,018 Deferred tax adjustment for the year in the income statement 0 908,931 1,144,949 1,144,949Company has tax asset due to tax losses. Management expects to utilize tax assets from profitable operations going forward but due to uncertainty and expected losses in 2022 management has found is fair not to recognize tax assets except tax losses related to R&D costs for which tax refund will be claimed.Warranty provisions represented DKK 6,314 thousand (2020: DKK 6,401 thousand). The provision is mainly to cover costs arising from water systems delivered by Liqtech Water A/S.Liqtech Water A/S is taxed jointly with other Danish companies in the Liqtech Holding Group. As a 100% owned subsidiary, the Company has joint and unlimited liability with the other companies in the joint taxation for Danish corporation tax within the joint taxation group. The Company has entered into lease agreements with a residual commitment in the amount of DKK 1,347 thousand, of which DKK 453 thousand falls due within a year. Furthermore, the Company has entered into a commerial tenancy agreement with a remaining term of 143 months and a residual commitment in the amount of DKK 22,512 thousand, of which DKK 2,094 thousand falls due within a year.Together with its Parent Company, the Company has issued performance guarantees of up to DKK 10.0 million for customer projects provided by the Company's bankers. Current guarantees made up DKK 3.7 million at 31 December 2021. The Company has guaranteed for the Parent Company's bank debt. Apart from the guarantee, the Parent Company had no bank debt at 31 December 2021. The following shareholders are registered in the Company's register of shareholders as holding a minimum of 5% of the votes or a minimum of 5% of the contributed capital: Liqtech Holding A/S, Benshøj Industrivej 24, 9500 Hobro. Liqtech Water A/S is part of the consolidated financial statements of LiqTech International Inc., 1804 Buerkle Road, White Bear Lake, MN 55110, United States of America. The consolidated financial statements of LiqTech International Inc. can be obtained from the company's website: httos://www.liqtech.com/325623022021-01-012021-12-31325623022021-01-012021-12-311325623022020-01-012020-12-31325623022020-12-31325623022021-01-012021-12-31g:PreviousYearMember325623022021-01-012021-12-31g:TwoYearsAgoMember325623022021-01-012021-12-31g:ThreeYearsAgoMember325623022021-01-012021-12-31g:FourYearsAgoMember325623022021-12-31325623022021-12-31g:PreviousYearMember325623022021-12-31g:TwoYearsAgoMember325623022021-12-31g:ThreeYearsAgoMember325623022021-12-31g:FourYearsAgoMember325623022021-01-012021-12-311325623022021-01-012021-12-311325623022021-01-012021-12-312325623022021-01-012021-12-313325623022021-01-012021-12-31c:ContributedCapitalMember325623022021-01-01c:ContributedCapitalMember325623022021-12-31c:ContributedCapitalMember325623022021-01-012021-12-31c:ReserveForDevelopmentExpenditureMember325623022021-01-01c:ReserveForDevelopmentExpenditureMember325623022021-12-31c:ReserveForDevelopmentExpenditureMember325623022021-01-012021-12-31c:RetainedEarningsMember325623022021-01-01c:RetainedEarningsMember325623022021-12-31c:RetainedEarningsMember325623022021-01-012021-12-31c:RetainedEarningsMember325623022020-01-012020-12-31c:RetainedEarningsMemberxbrli:pureiso4217:DKKiso4217:DKK