Donald Weinberger - Managing Member, Wolfe Axelrod Weinberger Associates Aldo Petersen - Chairman Sune Mathiesen - CEO.

Gary Zwetchkenbaum - Plum Tree Consulting Joe Gomes - William Smith Walter Schenker - MAZ Partners Eric Stine - Craig-Hallum.

Greetings, and welcome to the LiqTech International First Quarter 2016 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Mr. Donald Weinberger. Thank you Mr. Weinberger, you may begin..

Thank you, Dian. Sune Mathiesen, CEO will begin his formal remarks shortly. Before I turn the call over to him, let me remind our listeners that following the conference call, there will be an open question-and-answer session.

You should also note that a replay of the conference call will be available starting at 3 PM today Eastern Time and ending on June 2. To access the replay, please dial 877-660-6853 and enter the conference ID number 13604621. The access number for the replay for international callers is 201-612-7415 with the conference ID number 13636746.

If you do not have today press release, please contact my office at 212-370-4500 and we will be pleased to relate the details of the call to you. In order for all listeners to have an opportunity to ask questions today, please limit your question participation initially to one question and one follow-up.

After all individuals have had an opportunity to ask their questions, you're welcomed to ask further questions. Now please bear with me for a minute as I read the forward-looking statements. The press release and conference call contains forward-looking statements.

Although the forward-looking statements reflect the good faith, judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed in these forward looking statements.

Readers and listeners are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission, including the risk factors that attempt to advice interested parties of the risks that may affect the business, financial condition results of operations and cash flows.

If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected. Readers and listeners are urges not to place undue reliance on these forward-looking statements, which speak only as of the date of this release and conference call.

We assume no obligation to update any forward-looking statements in order to reflect any events or circumstance that may arise after the date of this release and call. Having dispensed with that, it is now my pleasure to have Sune Mathiesen begin the conference call with his introductory remarks. Sune, please proceed..

Thank you very much Don. And good morning to our listeners from the U.S. and good afternoon to our listeners from Europe. Thank you very much for dialing into this conference call to discuss our first quarter 2016 results.

The results for the first quarter were slightly below our expectations but as earlier discussed however results are some expected lumpiness in order inflow and also revenue recognition in our sales of membranes and systems.

We however very pleased to note that our sales of membranes and systems continue to improve significantly on a year-on-year basis and more than doubled in the quarter. It's now been more than 18 months since we revised our business strategy and changed our focus sales of components into systems.

We believe that the consistent year-on-year growth in this business segment proves that we have made the right decision. The cycle for our system sale is longer than we initially expected and we have come to know that it is typically 12 to 36 months.

On that basis we're very pleased to note our progress that we still consider to be early stages results for our revised strategy and to see that our pipeline is constantly improving in both size and quality.

Last year and in the first months this year we delivered several large scale water treatment systems to a number of applications and we recently completed the installation of the $6.9 million order for a mining company we announced last year, the largest order in the history of the company.

Several customers from different industries have been waiting the outcome from these first projects and now that we have successfully completed the installations, we are experiencing a significantly increased interest from several markets and industries. The successful completion of these first large scale projects is key to our continued growth.

And we’re happy to note that the completion has been according to plan. We'll use the experience gained from these projects to further improve our products and costs and we believe there will be even more competitors in the future. Our business in the pool market was disappointing in 2015.

We have recently entered into new agent agreements in the Netherlands, Spain, Poland, Norway, France and U.K. We are very pleased to note that this has already led several orders this year and it demonstrates to us the importance of local presence.

In a short time this group of agents has managed to build an impressive pipeline and we believe that these first orders are only the beginning of excellent relationships. We will continue to expand our distributor and agent network not only in this industry but also in other industries.

In February 2016, we announced a $2 million order for drinking water treatment plant in Serbia. And we recently announced a $2 million follow on order for these projects. The ground water in Serbia contains high amounts of a arsenic, boron, iron and manganese.

Our technology has proven very successful for the removal of these harmful substances and we believe that there are several significant opportunities for our technology not only in Serbia, but also in North America, South America, the Asia Pacific region and large parts of Eastern Europe.

We are currently working on a large number of new projects and we believe that our efforts will lead to further new orders in the future. In 2015 we announced the cooperation with the leading pump manufacturer Grundfos to develop a contact system for ground water treatment.

We're pleased to announce that this system has shown great performance, not only in groundwater for which it was originally intended, but also on applications within storm water treatment and regulation of backwater order from San Francis.

The results from these pilots have exceeded our expectations and we're now under process of making a go-to-market plan. The versatility of the system allows us to market the same products for several large industries and consequently reduce costs and improve competitiveness.

We also recently completed the delivery of our first commercial LED UVC product for surface disinfection. We're working together with large companies in the water utility market and our next product to be delivered this summer is a large scale swimming pool product for large player in the amusement park industry.

The market pilot UV disinfection is rapidly developing and the performance, costs and availability of LEDs is constantly improving. We have been developing our technology for the past four years and we consider ourselves to be one of the pioneers in this emerging market.

Despite a slight year-on-year improvement for this quarter, the sales of our DPF product continues to be disappointing.

The lack of new low emission zones in Europe and North America has caused us to search for new markets and for some time we have spent great efforts into investigating and understanding the opportunities for our DPF product in China.

We have now determined the great demand for our technology, but we also realize that in order to be successful in China you need a local partner, a local projection to ensure a competitive price and sufficient capacity to cover this great demand.

Therefore we have entered into discussions with several Chinese companies with the ambitions to find the right partner for future cooperation. Our order inflow in the first four months was $6 million.

With this our current backlog are constantly improving sales pipeline and ongoing final negotiations, we believe that 2016 will prove to be year of growth. With this, I conclude my remarks and I would like to turn the conference to Q&A session. Thank you..

[Operator Instructions] Our first question comes from Gary Zwetchkenbaum with Plum Tree Consulting. Please state your question..

Good morning, Sune. I wanted to ask some questions relating to -- you talked about growth in 2016. In the previous conference call, you talked about ability to be cash flow positive and be profitable. You gave some numbers for the second and third quarter, which you attained that - the roughly $12 million that you expected.

Can you talk about going forward in terms of where the growth? You talked about a growth year, where you think you'll be; your gross margins? Can you talk about with the cash on hand, do you think you're going to raise more money and focus on that on the growth and the margins for me..

Absolutely. Well, first of all, yes, the first quarter was a little bit below our expectations, which is not on normal. First Q is expectedly, for us, not the best quarter.

We believe that with the much better quarter inflow we had than invoicing in the first quarter, with the current backlog that we have, and with the negotiations that -- the final negotiation that we currently have for customers, we believe that 2016 will again be a year of growth.

Again be a year where we demonstrate that our technology is gaining more and more acceptance in different industries. And we still expect that we will be cash flow positive for the year. With the regards to the need for further capital, we have no plans right now to raise additional capital.

We believe -- even if cash is restricted, we believe that it will improve through the year. So we have no plans in that direction..

Again, you were talking about the pipeline. You are the only silicon carbide game in town. I understand that the cycle is longer, 6 months to 24 months.

Can you talk about the acceptance now of the silicon carbide membrane and the ability to have new customers in the areas where polymer was the only game in town?.

Well, as I mentioned before, we -- it has been about 8 months -- 18 months since we introduced our revised business strategy. In that strategy, we identified a number of application areas where we believe our product made a significant difference in regards to smaller footprint, less usage of chemicals, less usage of water and so on and so on.

Over these 18 months, we've been able to secure a number of large-scale orders like the one for a mining company, like the one for Scrubber Wastewater treatment in the marine industry and so on.

Now that we have completed these installations, we are experiencing significant growth in the entrance -- interest from other players of these industries and we're seeing a great number of inquiries. And we believe that these players have simply been waiting for the outcome of the first project.

So to answer your question in short, yes; yes, we believe that having being able to execute on these first full-scale systems now means that we will see further orders from those industries..

Sune, my final question is going forward 2016, the key areas that we'll see increased business and just a little reflection of the margins going forward. Thank you..

Yes, recently we have seen a great deal of interest from the drinking water market. We have seen these orders from Serbia, but we also have lot of interest from other markets in the drinking water industry. And our product has proven very successful in removing iron, manganese, arsenic, which is a great problem throughout the world mainly.

Now that we have been able to secure these large-scale orders, we expect that we will be able to take these references and introduce our systems in other geographical markets. So definitely, drinking water treatment will be one of the industries that we expect to perform this year.

We see an increased level of business in the swimming pool market again, which we're very happy to note. We've been able to enter into distribution agreements with a number of companies in different countries.

And already in a very short period of time, we've seen orders from these markets and we believe that we'll see this business grow throughout the years as well. And the last one I will mention right now is the mining industry.

Now that we have completed this $6.9 million order that we've announced last year, we are experiencing a lot of interest from other mining companies. So I believe that this will also be an area of growth for 2016..

Thank you, Sune. I hope you get a call from -- Michigan regarding their water problem..

Let's hope so. Thanks a lot, Garry..

You are welcome..

Our next question comes from Joe Gomes with William Smith. Please state your question..

Good morning, Sune. Just, first of on the Serbia. There you've got some follow on. I just wanted if you could give us a little more color as to what the follow on expanded your scope into.

Also, maybe a little more initiated several new projects with the same partner -- I mean, what's the potential here in Serbia for LiqTech?.

Yes. Well, Serbian order, the initial order we had is for a ceramic UF plant and the follow on order was for plastic tanks, it was for RO systems, iron exchange system and basically the things that we were build in our own factory as well.

So it means that we are expanding into different kinds of water treatment, but still utilizing the experience we gained over the past 18 months. With regard to the potential in Serbia, well this first order will serve about 30,000 people to 12 million people in Serbia alone with exactly the same problems.

I would say, right now we are looking or we're working on numerous new projects, a large two-digit number. So there is great potential for further orders..

Okay.

And on the pool market that you said was disappointing in 2015, one of the contracts that we had talked about last year was with REIT multiple orders here, just trying to - whatever - where do we stand there? What's happened with that install program?.

Well, like all construction work in the world seems to be at these days it's been heavily delayed. And we actually got to know yesterday that they called for the first project to be installed, so we expect to deliver that very shortly and following that we should deliver that next project as well..

And I'm not quite sure if I recall -- what were the size of the each individual order?.

They are different sizes, but I think all together for these projects its little more than $1 million..

Okay. And in Denmark, another area that seems to just be taking forever -- there they have this deadline of, I think, June of next year. Doesn't seem to be any movement or any rush or concern by the pool companies to adopt to these rules.

Is this just a another one of the rules like would there be -- a number the DPF market or it's just not going to be enforce so that people just aren't going to make any investment or are you actually starting to see some of these pools operators coming to you and saying, okay, we now need to setup a plan here to be able to meet the mandate..

First of all, we believe that it will still be enforced. Second, we are actually starting to see lot of tenders coming out. So it seems like the businesses starting to wake up a little bit and realize that this is only about a year away.

But they have been very late reacting to this mandate and frankly speaking, it will be difficult for all the pool owners to complete their installations in just one year. But we are see -- we are seeing an increased number of tenders, so we believe that will bring business to us this year as well..

Okay, thanks. I'll now get back in the line..

Our next question comes from Walter Schenker with MAZ Partners. Please take your question..

I realize that, Sune, when you came in and merger took place, the company decided to redirect its primary trust to these larger projects as oppose to just selling component rate.

Having said that an awful lot of time and effort went into marketing and testing of the membranes into a range of large potential applications, be it coal-fired plants in Germany, water treatment in the Middle East, Dallas or shipping companies, whole range and stuff.

Have you basically just said to all of those markets, a number of which already bought and tried out the product or oil rates that we just add a business that one salesman is dedicated to doing it. We're not doing it at all.

I mean what happened to some of these applications where people had evaluated it, had bought, at least some filters to do a trial or an initial installation.

Have you just walked away from that?.

No, I don't think that we have walked away from it, Walter, but we have definitely chosen the direction to sell complete systems instead of selling standalone membranes. Have that cost us to lose out on few orders, probably yes. But more importantly, we see now that the focus that we have dedicated into the applications that we chose to be active in.

The dedication to selling systems is now paying off. We realize that it's been 18 months since we introduced the revised strategy. We have realized now that a system sales takes somewhere between 12 to 36 months. So we are still in the very early stages here.

I think the important thing is that we've been able to complete a good number of first large-scale systems in a number of industries and now that we have completed them we see that lot of all players in these industries are starting to be more interested in our solutions.

I can honestly say that, we are working very hard at this moment on the quotation side, we are making a lot of offers and I still believe that we made a right decision of selling systems instead of just components and I believe that we will see and we will prove successful in this..

Okay. Thank you.

Our next question comes from Eric Stine with Craig-Hallum. Please state your question..

Hi Sune, I’m wondering can we just come back to the balance sheet, I believe that with that installation of the mining project to your schedule to get a pretty nice payment, so just curious did you in fact get that payment and may be where cash – the cash balance stands today..

Yes, as you see Eric we are restricted on our cash balance right now. We expect that to increase throughout the year and we still have payments to collect on the mining order. So we are obviously aware of the situation, we are handling the situation and right now we feel confident that cash balance will improve as we progress for the year..

Okay. And what does visibility look like in the timing of that collection. I know that maybe those two weren't exactly tied but around the time of that installation, in the expectation was that you would get that, is that something you got - pretty good visibility into or maybe talk about that.

Very good visibility. We have scheduled to collect the next payment from that project in July. So we have absolutely no reason to believe that we shouldn't meet that deadline..

Okay. I mean is there anything that needs to be done on your end or that's just the - the terms of the payment that you -.

It's basically just the terms of the contract that they need - they finalized the installation from our side now, now they need to finalize their things and start of the plan which is scheduled for end of this month. Then you have the 30 day trial period and then we can collect the next payments so we feel happy..

Okay.

And is that – I've been thinking about in the $4 million range is that the level we should be thinking about or is it difference in that?.

No, it's not exactly $4 million that we still need to collect. I can't remember the specific amount here but it’s not $4 million, it’s less. But we are managing the situation, all the time we are making cash flow predications and it seems like we should improve our cash position on quarter-to-quarter basis..

Okay. And maybe just thinking about the mining order from a revenue perceptive, I know first quarter was not - was a little bit below what you were thinking, and I think as of start of this year there was about 60% of that revenue left to be recognized. Any color on the breakdown between 1Q and 2Q of that remaining 60%..

Yes, if I recall right we recognized about 20% of the revenue in the first quarter..

Okay, all right. May be just one more from me and then I’ll jump back in the line but you talked about the pool market in what you are doing in terms of the agent network but whether it’s the pool market or expanding that to other parts of your business, is that build-out something that you think could help shorten the sales cycle..

Well I think what is important and what we have seen now and realized is that it's just really key to have local presence in the different countries. And now that we have established these distributors in the number of countries and we will continue on expanding that, we see that we are getting more traction in the pool market.

I must say that they have been very successful all the agents in establishing quite impressive pipelines in a very short time and I believe that will get further traction as we progress for the year. So, I would say we've really now realized that local presence not only in the swimming pool market but all industries that we’re into is key.

So we will be working hard to find the right partners in the different industries and hopeful be able to announce for the partners in the near future..

Okay. Thank you..

[Operator Instructions] There are no further questions. I'd like to turn the call back over to management for closing remarks..

Well, thank you very much for dialing in ladies and gentlemen. And we will continue our hard work to see for orders and we believe that we have come a long way.

We're still in the very early stages of this business transformation but that we have been able to complete these first large scale project as were the key to our further growth and we have great confidence that the pipeline we have, backlog that we have and the orders that we've always secured this year will lead to further growth in 2016 and also profitability.

So thank you very much ladies and gentlemen..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..