News Column

LIQTECH INTERNATIONAL INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 12, 2014

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. In addition, the following discussion should be read in conjunction with our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 27, 2014, and the financial statements and notes thereto. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 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 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 in Singapore, Germany, France, Italy, Korea and Brazil. 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") and LiqTech NA, Inc., a Delaware corporation ("LiqTech Delaware"). Collectively, LiqTech USA, LiqTech Int. DK and LiqTechDelaware are referred to herein as our "Subsidiaries". On August 23, 2012, LiqTech A/S, a Danish limited company ("LiqTech AS") and former subsidiary of the Company was merged with and into LiqTech Int. DK.



We conduct operations in the Kingdom of Denmark and the United States. Our Danish operations are located in the Copenhagen, Denmark area and our U.S. operations are conducted by LiqTech Delaware located in White Bear Lake, Minnesota. In October and December 2011, we opened sales offices in France and Germany and in January 2012, we opened a sales office in Singapore.

Our Strategy



Our strategy is to create stockholder value by leveraging our competitive 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 on

continuing to manufacture and sell our products out of Denmark and the United

States. In October 2011, the Company opened sales offices in France and Germany and in January 2012, we opened a sales office in Singapore. We also intend to expand our production capability to Asia when needed, by



investing in a new production facility in South Korea, along with opening new

marketing offices on the continent. In addition to utilizing local

representatives, we intend to also establish sales outlets with technical

support in other European nations such as Italy, while expanding to other

markets. In certain other locations such as Japan, China and Australia, we intend to work with agents and partners to access such markets. 23

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? Continue to Strengthen Position in DPF Market. We believe that we have a

strong position in the retrofit market for diesel particulate filter 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. We intend to leverage our products and experience,

as the global DPF market is expected to undergo significant growth.



? Continue to Develop and Improve Technologies and Open New End Markets. We

intend to continuously develop our ceramic membrane 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. We also plan on

manufacturing a SiC membrane of 0.01 microns or less, which would position us

to enter the ultrafiltration market.



? Continue Our Focus on Developing an Inorganic Reverse Osmosis Membrane. There

is no inorganic reverse osmosis membrane in the market today. In 2011, we

received a $2 million grant from The Danish National Advanced Technology

Foundation to develop a SiC-based membrane that can perform reverse osmosis.

We intend to continue our research and development efforts to modify our

membrane into one that can perform reverse osmosis over the next several

years. Recent Developments Recent Contract Wins On July 16, 2014, we announced a $0.3 million order from a Middle East customer to be delivered this year. The end-user placed the order to confirm the benefits of the LiqTech SiC membrane technology for various upstream produced water applications. We are currently engaged with many Oil & Gas projects primarily in Europe, the Americas and China. The purchase order was for one of our pilot systems installed with LiqTech SiC membrane technology in and effort to test the use of our SiC membranes for various produced water applications. We believe this first order can lead to follow-on sales in 2015. We see a general worldwide trend of increasing demand for higher quality re-injection water. We also see tightening discharge legislations, increasing water cuts (more water produced per barrel oil) and the introduction of Enhanced Oil Recovery ("EOR") techniques that increase the amount of crude oil extracted from an oil field. In June 2014, we announced a $0.3 million order from a Middle East Customer for a water membrane system. We view this as a validation point for our technology. This end-user placed the purchase order for one of our pilot systems installed with LiqTech SiC membrane technology in order to test the use of our SiC membranes for various produced water applications. We believe this first order can also lead to follow-on sales in 2015. In May 2014, we announced a $0.3 million order with Time Solution, a Danish based company selling conventional RO systems, for commercial flat sheet membranes. The first prototypes of Time Solution's filtration unit were finalized in December 2013 and the finished product has demonstrated positive results outperforming conventional technology for Pre-RO by lowering operating expenditures for customers. In March 2014, we announced a $0.5 million order for DPFs with Emigreen B.V. Netherland, an expert in the emission control of industrial combustion engines. The integration of Emigreen's generator engine and our filter resulting in the removal of 99.9% of soot particulates. Also in March 2014, we announced our first SiC membrane order from an emerging algae market participant for $0.3 million. The algae market has been identified as one of our major emerging market opportunities, and companies in a number of industries including oil, chemical, and pharmaceuticals have identified opportunities in harvesting algae. More efficient harvesting processes are required to reduce production cost and the use of SiC membranes will be a key element in reducing cost thereby improving profitability for the end-users. 24 -------------------------------------------------------------------------------- In March 2013, we announced our agreement with FMC Technologies, Inc. (NYSE: FTI), for the use of our silicon carbide membrane technology for oil/gas applications. This exclusive agreement has brought us into the attractive unconventional shale Oil & Gas sector and will allow for the development of new water treatment systems. The agreement includes a multi-year, multi-million dollar commitment towards LiqTech in order for FMC Technologies to maintain exclusivity. The agreement may be terminated at any time by FMC by providing notice to us. We believe our solution will become increasingly common as the market continues to trend toward more stringent water qualities, which cannot be met with conventional technologies. Stock Offering On July 22, 2014, the Company, entered into a purchase agreement with Craig-Hallum Capital Group LLC as Underwriter, pursuant to which the Company agreed to sell, and the Underwriter agreed to purchase for resale to the public an Offering, subject to the terms and conditions expressed therein, 6,956,522 shares of common stock of the Company, par value $0.001 per share at a price to the public of $1.50 per share. The Offering closed on July 28, 2014. The Company granted the Underwriter a 30-day option to purchase an additional 1,043,478 shares which was exercised by Craig-Hallum Capital Group LLC on July 25, 2014. The Company also issued to the Underwriter, for a price of $50, a warrant to purchase 400,000 shares at an exercise price of $1.65 per share. The warrants are immediately exercisable and will remain exercisable for five years. Provital Acquisition On the July 28, 2014, the Company, through its subsidiary, LiqTech Int. DK, completed the acquisition of all of the issued and outstanding capital stock (the "Provital Shares") of Provital Solutions A/S, a Danish company ("Provital") from Masu A/S, a Danish company ("MASU"). In consideration for the Provital Shares, MASU received cash consideration in the sum of DKK12,600,000, that is, approximately USD$2,300,000, and 4,044,782 shares of the Company's common stock (the "Payment Shares"). One-third (1/3) of the Payment Shares shall be subject to a lock-up period of six (6) months. The remaining two-thirds (2/3) of the Payment Shares shall be held in escrow and one-third of the Payment Shares will be released from escrow contingent upon Provital, for the year ending December 31, 2014, achieving (i) gross revenues of not less than DKK65,000,000 and EBITDA of DKK6,500,000, or (ii) EBITDA of not less than DKK10,000,000 and gross revenues of not less than DKK50,000,000. Another one-third (1/3) of the Payment Shares will be released from escrow contingent upon Provital, for the year ending December 31, 2015, achieving (i) gross revenues of not less than DKK120,000,000 and EBITDA of DKK12,000,000, or (ii) EBITDA of not less than DKK16,000,000 and gross revenues of not less than DKK80,000,000. The purchase agreement includes "catch up" provisions that provide that the Payment Shares placed in escrow will be released from escrow if Provital (1) for the years ending December 31, 2014 and December 31, 2015, achieves accumulated gross revenues (i) exceeding DKK185,000,000 and EBITDA of DKK18,500,000, or (ii) EBITDA of not less than DKK26,000,000 and gross revenues of not less than DKK130,000,000 or (2) for the year ending December 31, 2016, achieves gross revenues exceeding DKK105,000,000 and EBITDA of not less than DKK21,000,000.



Change in Officers and Appointment of Director

Effective July 29, 2014, the board of directors (the "Board") of the Company, accepted the amicable resignation of Finn Helmer from his position as Chief Executive Officer of the Company. Effective July 30, 2014, the Board appointed Mr. Sune Mathiesen to serve as CEO and as a Board member of the Company. 25 --------------------------------------------------------------------------------

CEO Employment Agreement On July 29, 2014, LiqTech Int. DK and Mr. Mathiesen entered into an Employment Agreement pursuant to which Mr. Mathiesen shall also serve as Director and Chief Executive Officer of the Company. In consideration for Mr. Mathiesen's services to the Company, Mr. Mathiesen shall receive an annual base salary initially set at DKK 1,500,000. Mr. Mathiesen's Employment Agreement also provides that he shall receive a yearly bonus of five percent (5%) of the average gross profit for LiqTech Int. DK and Provital Solutions A/S for any sales (revenue) greater than or equal to DKK130,000,000 per year. The calculation in connection with the bonus is described in the Employment Agreement. In addition, Mr. Mathiesen shall be entitled to five weeks' vacation, a Company mobile phone, broadband connection in his residence, a Company laptop and reimbursement of Company-related travel expenses. The Company may terminate Mr. Mathiesen's employment upon not less than 12 months' notice and Mr. Mathiesen may terminate with 12 months' notice to the end of the month. The contract is irredeemable from both parties until December 31, 2016. Mr. Mathiesen has served as CEO and as a Director of MASU, a Danish company since February 2013. He has served as CEO and Director of the Board of Provital 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-around. 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. Results of Operations



The financial information below is derived from our unaudited condensed consolidated financial statements included elsewhere in this report.

The following table sets forth our revenues, expenses and net income for the three and six months ended June 30, 2014 and 2013:

Three months ended June 30, Period to period change As a % As a % Percent 2014 of Sales 2013 of Sales US$ % Net Sales 3,973,687 100 % 2,805,921 100 % 1,167,766 41.6 Cost of Goods Sold 3,122,473 78.6 2,513,400 89.6 609,073 24.2 Gross Profit 851,214 21.4 292,521 10.4 558,693 191.0 Operating Expenses Selling and Marketing 929,277 23.4 715,592 25.5 213,685 29.9 General and Administrative 763,524 19.2 541,824 19.3 221,700 40.9 Non-cash compensation 172,205 4.3 743,519 26.5 (571,314 ) (76.8 ) Research and Development 39,833 1.0 111,254 4.0 (71,421 ) (64.2 ) Total Operating Expenses 1,904,839 47.9 2,112,189 75.3 (207,350 ) (9.8 ) Income (loss) from Operating (1,053,625 ) (26.5 ) (1,819,668 )



(64.9 ) 766,043 (42.1 )

Interest and Other Income 10,550 0.3 2,244 0.1 8,306 370.1 Interest (Expense) (10,599 ) (0.3 ) (12,952 ) (0.5 ) 2,354 (18.2 ) (Loss) on Investments 1,278 0.0 - - 1,278 - Gain (loss) on Currency Transactions (48,112 ) (1.2 ) 77,199 2.8 (125,311 ) (162.3 ) Gain (Loss) on Sale of Fixed Assets - - (2,135 ) (0.1 ) 2,135 (100.0 ) Total Other Income (Expense) (46,883 ) (1.2 ) 64,356 2.3 (111,238 ) (172.8 ) Income Before Income Taxes (1,100,508 ) (27.7 ) (1,755,312 ) (62.6 ) 654,805 (37.3 ) Income Taxes Expense (Income) (337,118 ) (8.5 ) (444,659 ) (15.8 ) 107,541 (24.2 ) Net Income (763,390 ) (19.2 ) (1,310,653 ) (46.7 ) 547,263 (41.8 ) Less net income attributable to the non-controlled interest in subsidiaries (1,254 ) (0.0 ) (2,551 ) (0.1 ) 1,298 (50.9 ) Net Income attributable to LiqTech (762,136 ) (19.2 ) (1,308,102 ) (46.6 ) 545,966 (41.7 ) 26

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Six months ended June 30, Period to period change As a % As a % Percent 2014 of Sales 2013 of Sales $ % Net Sales 7,171,189 100 % 6,205,069 100 % 966,120 15.6 Cost of Goods Sold 5,764,847 80.4 5,350,525 86.2 414,322 7.7 Gross Profit 1,406,342 19.6 854,544 13.8 551,798 64.6 Operating Expenses Selling and Marketing 1,598,824 22.3 1,289,517 20.8 309,307 24.0 General and Administrative 1,436,181 20.0 1,204,129 19.4 232,052 19.3 Non-cash compensation 392,623 5.5 774,888 12.5 (382,265 ) (49.3 ) Research and Development 140,419 2.0 258,239 4.2 (117,820 ) (45.6 ) Total Operating Expenses 3,568,047 49.8 3,526,773 56.8 41,274 1.2 Income (loss) from Operating (2,161,705 ) (30.1 ) (2,672,229 )



(43.1 ) 510,523 (19.1 )

Interest and Other Income 13,745 0.2 2,400 0.0 11,345 472.7 Interest (Expense) (22,120 ) (0.3 ) (24,657 ) (0.4 ) 2,538 (10.3 ) (Loss) on Investments (841 ) (0.0 ) - 0.0 (841 ) - Gain (loss) on Currency Transactions (45,325 ) (0.6 ) (36,974 ) -0.6 (8,351 ) 22.6 Gain (Loss) on Sale of Fixed Assets - - (2,135 ) 0.0 2,135 (100.0 ) Total Other Income (Expense) (54,541 ) (0.8 ) (61,366 ) (1.0 ) 6,825 (11.1 ) Income Before Income Taxes (2,216,246 ) (30.9 ) (2,733,595 ) (44.1 ) 517,349 (18.9 ) Income Taxes Expense (Income) (695,560 ) (9.7 ) (741,523 ) (12.0 ) 45,963 (6.2 ) Net Income (1,520,686 ) (21.2 ) (1,992,072 ) (32.1 ) 471,386 (23.7 ) Less net income attributable to the non-controlled interest in subsidiaries (3,114 ) (0.0 ) (14,159 ) (0.2 ) 11,045 (78.0 ) Net Income attributable to LiqTech (1,517,572 ) (21.2 ) (1,977,913 ) (31.9 ) 460,341 (23.3 )



Comparison of the three month periods ended June 30, 2014 and June 30, 2013

Revenues Net sales for the three months ended June 30, 2014 were $3,973,687 compared to $2,805,921 for the same period in 2013, representing an increase of $1,167,766 or 41.6%. The increase in sales consist of an increase in sales of DPFs of $514,718 and an increase in sales of liquid filters of $805,662 and a decrease in sales of kiln furniture of $152,614. The increase in demand for our DPFs is mainly due to an increase in activities and mandates. The increase in demand for our liquid filters is due to an increase in worldwide sales of those products. The decrease in demand for our kiln furniture is due to a decision of not focusing on this product line anymore. 27 --------------------------------------------------------------------------------

Gross Profit Gross profit for the three months ended June 30, 2014 was $851,214 compared to $292,521 for same period in 2013, representing an increase of $558,693 or 191%. The increase in gross profit was due to an increase in our sales and a continuing focus on lowering our production costs. Included in gross profit is depreciation of $409,861 and $373,837 for the three months ended June 30, 2014 and 2013, respectively. Expenses Total operating expenses for the three months ended June 30, 2014 were $1,904,839 representing a decrease of $207,350 or 9.8%, compared to $2,112,189 for the same period in 2013. This decrease in operating expenses is attributable to an increase in selling and marketing expenses of $213,685 or 29.9%, an increase in general and administrative expenses of $221,685 or 40.9%, a decrease in non-cash compensation expenses of $571,314 or 76.8% and a decrease in research and development expenses of $71,421 or 64.2% compared to the same period in 2013. Selling expenses for the three months ended June 30, 2014 were $929,277 compared to $715,592 for the same period in 2013, representing an increase of $213,685 or 29.9%. This increase is attributable to an increase in costs in general, the increase in investment in our sales resources and investment in new market opportunities. While we believe that increased investment in sales may produce attractive returns for the Company, profitability from such investments will likely take several fiscal quarters to be realized. General and administrative expenses for the three months ended June 30, 2014 were $763,524 compared to $541,824 for the same period in 2013, representing an increase of $221,700, or 40.9%. This increase is attributable to increases in general costs, a one-time increase in legal expenses, increase in the provision for bad debt of $107,111 and a general increase in listing expenses.



Non-cash compensation expenses for the three months ended June 30, 2014 were $172,205 compared to $743,519 for the same period in 2013, representing a decrease of $571,314 or 76.8%. This decrease is attributable to decreased non-cash compensation expense for options, shares and warrants issued for services performed by directors, employees and management.

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

For the three Months Ended June 30, June 30, 2014 2013



Compensation upon vesting of stock options granted to employees and the board of directors

$ 65,539



$ 233,897 Compensation for vesting of restricted stock awards issued to the board of directors

106,666 130,222 Warrants - 379,400 Total Non-Cash Compensation $ 172,205$ 743,519 28

-------------------------------------------------------------------------------- Research and development expenses for the three months ended June 30, 2014 were $39,833 compared to $111,254 for the same period in 2013, representing a decrease of $71,421, or 64.2%. This decrease is attributable to decreased research and development expenditures for the three months ending June 30, 2014 compared to the same period in 2013.



Net Loss Attributable to the Company

Net income attributable to the Company for the three months ended June 30, 2014 was a loss of $762,136 compared to a loss of $1,308,102 for the comparable period in 2013, representing a decrease in loss of $545,966. This decrease was primarily attributable to a decrease of $207,350 in our operating expenses and increase in gross profit of $558,693.



Comparison of the six month periods ended June 30, 2014 and June 30, 2013

Revenues Net sales for the six months ended June 30, 2014 were $7,171,189 compared to $6,205,069 for the same period in 2013, representing an increase of $966,120 or 15.6%. The increase in sales consist of an increase in sales of DPFs of $146,240 and an increase in sales of liquid filters of $1,143,804 and a decrease in sales of kiln furniture of $323,924. The increase in demand for our DPFs is mainly due to an increase in activities and mandates. The increase in demand for our liquid filters is due to an increase in worldwide sales of those products. The decrease in demand for our kiln furniture is due to a decision of not focusing on this product line anymore. Gross Profit Gross profit for the six months ended June 30, 2014 was $1,406,342 compared to $854,544 for same period in 2013, representing an increase of $551,798 or 64.6%. The increase in gross profit was due to an increase in our sales and a continuing focus on lowering our production costs. Included in the gross profit is depreciation of $870,152 and $773,447 for the three months ended June 30, 2014 and 2013, respectively. Expenses Total operating expenses for the six months ended June 30, 2014 were $3,568,047 representing an increase of $41,274 or 1.2%, compared to $3,526,773 for the same period in 2013. This increase in operating expenses is attributable to an increase in selling and marketing expenses of $309,307 or 24.0%, an increase in general and administrative expenses of $232,052 or 19.3%, a decrease in non-cash compensation expenses of $382,265 or 49.3% and a decrease in research and development expenses of $117,820 or 45.6% compared to the same period in 2013. Selling expenses for the six months ended June 30, 2014 were $1,598,824 compared to $1,289,517 for the same period in 2013, representing an increase of $309,307 or 24.0%. This increase is attributable to an increase in costs in general, the increase in investment in our sales resources and investment in new market opportunities. While we believe that increased investment in sales may produce attractive returns for the Company, profitability from such investments will likely take several fiscal quarters to be realized. General and administrative expenses for the six months ended June 30, 2014 were $1,436,181 compared to $1,204,129 for the same period in 2013, representing an increase of $232,052, or 19.3%. This increase is attributable to increases in general costs, a one-time increase in legal expenses, increase in the provision for bad debt of $107,111 and a general increase in listing expenses. Non-cash compensation expenses for six months ended June 30, 2014 were $392,623 compared to $774,888 for the same period in 2013, representing a decrease of $382,265 or 49.3%. This decrease is attributable to decreased non-cash compensation expense for options, shares and warrants for services performed granted to directors, employees and management. 29 --------------------------------------------------------------------------------



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

For the six Months Ended June 30, June 30, 2014 2013



Compensation upon vesting of stock options granted to employees and the board of directors

$ 119,891



$ 265,266 Compensation for vesting of restricted stock awards issued to the board of directors

213,332 130,222 Warrants 59,400 379,400 Total Non-Cash Compensation $ 392,623$ 774,888 Research and development expenses for the six months ended June 30, 2014 were $140,419 compared to $258,239 for the same period in 2013, representing a decrease of $117,820, or 45.6%. This decrease is attributable to decreased research and development expenditures for the six months ending June 30, 2014 compared to the same period in 2013.



Net Loss Attributable to the Company

Net income attributable to the Company for the six months ended June 30, 2014 was a loss of $1,517,572 compared to a loss of $1,977,913 for the comparable period in 2013, representing a decrease in loss of $460,341. This decrease was primarily attributable to an increase of $551,798 in gross profit.



Liquidity and Capital Resources

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 June 30, 2014, we had cash of $1,265,367 and working capital of $6,310,915 and at December 31, 2013, we had cash of $4,884,275 and working capital of $7,692,669. At June 30, 2014, our working capital decreased by $1,381,754 compared to December 31, 2013. Total current assets were $9,475,345 and $12,239,110 at June 30, 2014 and at December 31, 2013, respectively, and total current liabilities were $3,164,430 and $4,546,441 at June 30, 2014 and at December 31, 2013, respectively. On October 9, 2013, we announced that the warrant and option exercise raised $4,051,000 which included the exercise of 100,000 warrants by Aldo Petersen, Chairman of the Board of LiqTech, 25,000 stock options by Lasse Andreassen, founder and former Board member of LiqTech and 50,000 stock options by Soren Degn, CFO of LiqTech, $450,000 was received on September 30, 2013 and $3,601,000 was received during October 2013. The Board noted that the additional capital was an orderly solution to improving the Company's capital structure as well as enhancing the ability of LiqTech to list on an exchange. In addition, the new capital gives the Company additional flexibility to generate new orders and to sustain future growth. On March 2, 2012, we completed a registered public offering of our common stock. As part of the initial closing, we issued 2,511,500 shares of our common stock in a registered direct placement of our shares at a per share price of $3.25. The net proceeds to us from the initial closing were approximately $7.1 million. We have and intend to continue to use the net proceeds from the offering for the development and marketing of our products, the engineering, development and testing of our membranes, and the opening of local sales offices in certain countries outside of the U.S. and Denmark. Pending application of such proceeds, we have and intend to continue to invest the proceeds in short-term, interest-bearing, investment-grade marketable securities or money market obligations. 30

-------------------------------------------------------------------------------- In general, lines of credit in Denmark are due on demand. Our lines of credit with the bank were called in July 2013. Since our public offering in March 2012 we have not drawn any amount on our lines of credit. On July 28, 2014, we closed a registered firm commitment underwritten public offering of 8,000,000 shares at a price to public of $1.50 per share, which included all 1,043,478 shares subject to the underwriter's over-allotment option. LiqTech estimates net proceeds received from the offering to be approximately $10.8 million, after deducting underwriting discounts and estimated offering expenses. The Company used approximately $2.3 million of the offering to fund a portion of the purchase price of Provitaland the balance shall be used to pay transaction expenses and for other general corporate purposes. We believe that our cash flow and other potential sources of funds will be sufficient to fund our anticipated working capital needs and capital spending requirements for the foreseeable future. However, if we were to incur any unanticipated expenditures or the negative trend of our operating cash flow does continue, such circumstances could put a substantial burden on our cash resources. We may also need additional funds for possible future strategic acquisitions of businesses, products or technologies complementary to our business. If additional funds are required, 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 growth plans and 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. Cash Flows



Six months ended June 30, 2014 Compared to six months ended June 30, 2013

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 six months ended June 30, 2014 was $3,241,864, representing an increase of $1,831,516 compared to cash used by operating activities of $1,410,348 for the six months ended June 30, 2013. The $1,831,516 increase in cash used by operating activities for the six months ended June 30, 2014 was mainly due to the net loss of $1,520,686, the increases of $352,642 in inventory, the increases of $469,591 in accounts receivable, net of bad debt, and a decrease of $1,280,581 in accrued expenses.



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

Cash used in investing activities was $183,008 for the six months period ended June 30, 2014, as compared to cash used in investing activities of $280,802 for the six months period ended June 30, 2013. Cash used in investing activities decreased for the six months period ended June 30, 2014, compared to the six months period ended June 30, 2013. This decrease was primarily due to a decrease of $80,425 in the purchase of equipment and a decrease of $17,369 in the purchase of long-term investments. Cash used by financing activities was $112,516 for the six months period ended June 30, 2014, as compared to cash used by financing activities of $106,568 for the six months period ended June 30, 2013. This change of $5,948 in cash used by financing activities for the six months period ended June 30, 2014 compared to 2013, was due to net payments proceeds on capital lease obligation. 31 --------------------------------------------------------------------------------



Off Balance Sheet Arrangements

As of June 30, 2014, 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 August, 2018, March 2017, February 2017 and December 2016.. Some of these lease agreements have a right to extend.



The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of June 30, 2014 are as follows:

Operating Lease Year ending December Payments 2014 $ 317,256 2015 651,924 2016 668,935 2017 494,207 2018 312,032 Thereafter - Total Minimum Lease Payments $ 2,444,354



Significant Accounting Policies and Critical Accounting Estimates

There have been no significant changes in our significant accounting policies and critical accounting estimates since the filing of our Annual Report on Form 10-K for the period ended December 31, 2013.



Recent Enacted Accounting Standards

For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see "Note 1: Recently Enacted Accounting Standards" in the accompanying Financial Statements.

Off Balance Sheet Arrangements

We are not aware of any material transactions which are not disclosed in our consolidated financial statements.


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