Stephen Axelrod - IR Sune Mathiesen - CEO Aldo Petersen - Chairman.

Eric Stine - Craig-Hallum Capital Joe Gomes - William Smith Walter Schenker - MAZ Partners.

Greetings, and welcome to LiqTech International Second Quarter 2017 Results Conference Call. At this time, all participants are in a listen-only mode. A 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, Stephen Axelrod. Thank you, you may begin..

Thank you, Sherry and welcome to all of you to today's conference call to discuss the financial results for the second quarter ended June 30, 2017 and recent business developments. Aldo Petersen, Chairman; and Sune Mathiesen, CEO; will begin their formal remarks shortly.

Before I turn the call over to them, let me remind listeners that following the conference call, there will be an open Q&A session. You should also note that a replay of this call will be available starting today at 3:00 P.M. and ending on September 4, 2017.

To access the replay, please dial 877-660-6853 and enter the conference code number, ID 13668636. To access the number for the reply for international callers, please dial 201-612-7415 and enter the same ID 13668636.

In order for all the listeners to have the opportunity to ask questions, please limit your question initially to one question and one follow-up question. After all individuals have had the opportunity to ask their questions, you're welcome 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 and 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 the press release and conference call.

We therefore urge all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including Risk Factors that attempt to advice interested parties of the risks that may affect our business, financial condition and sales 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.

We therefore urge all listeners not to place undue reliance on these forward-looking statements, which speak only as of this date and the date of the release and the conference call.

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

Thank you very much, Steve, and a warm welcome to everyone participating in this conference call for our second quarter results. Before I leave over the conference to our CEO, Sune Mathiesen.

I want to just touch on an announcement that we have made today of changes in our Board of Directors, I would like to take the opportunity to say a very high thank you for the very good work that Mr. Paul Berjan [ph] and Mr. Mike Bearish [ph] has participated in the last years of the board. We have today announced that we have appointed Mr.

Alexander Buehler to the Board of Directors of LiqTech. Alexander Buehler currently serves as the Chief Executive Officer of Energy Maintenance Services and is on the Board of Energy Recovery Company that he served as Chief Financial Officer until 2014.

We very much look forward to the experience and the knowledge that Alexander Buehler can bring to the Board of Directors. We have also appointed Mr. Peyton Boswell to the Board of Directors. Mr. Peyton Boswell comes with experience from the financial area.

He is a chartered financial analyst, he holds a BA from Cornell University and an MBA from Columbia Business School.

He has been working in investment banking with JPMorgan and today acts in the capacity of CEO of the EnterSolar Company, that works in the renewable energy sector but who has similarly experienced to developing high value system integration project that we work with in LiqTech. So we're very happy to welcome Mr. Alexander Buehler and Mr.

Peyton Boswell to the Board of Directors. We assure that they can help us take the next important steps in us expanding our system integration business, they come with a great number of contacts, a great number of experience and I'm sure that we can utilize the experience that they bring to the Board of Directors.

And with those openings remarks, I want to take over the conference to our CEO, Mr. Sune Mathiesen. Sune, please..

Thank you, Aldo, and good morning to all participants from the U.S. and good afternoon to the participants from Europe. Thank you very much everybody for dialing into this conference call.

Our results for the second quarter were in line with our expectations, and today I would like to spend the time to speak a little bit about the future for our company. Following the decision made by the international maritime organization last year, so we implemented new lower cap on sulphur emissions from international shipping.

We have been following the market very closely. The new lower cap will come into force by January 1, 2020 and it leaves the ship owners with two alternatives; either to switch to alternative fuel with a low content of sulphur or to install scrubber system.

Experts following this industry have been debating on the uptake of scrubber systems from ship owners. We have of course been following this debate very closely. Some experts have been predicting a low uptake and some have been more optimistic and predicting a larger uptake.

It's always very difficult to predict how the market will develop and we have all been holding our breath to see how the development would be. Therefore we are very pleased to note that we are experiencing a very strong interest from this industry and the pace of adoption of scrubber systems seems to be picking up.

It has been more than three years since we first came into contact with this industry and today we have delivered seven systems. This number we expect to be more than doubled in the second half of 2017. We're very encouraged by this rapid development and we believe that our long-term commitment has been the right choice.

We have continuously improved our system from marine scrubbers and today we're proud to offer a system with the smallest footprint of any technology available in the market and we also offer very competitive CapEx and OpEx.

We believe that this positions us well to be one of the market leaders for water treatment systems to this industry in the future. Our discussions with scrubber manufacturers and ship owners leads us to believe that we'll see further acceleration in the uptake of scrubber systems over the coming years.

We have already ramped up our business to meet the increased demand and we are ready for a further rain boat [ph] as we see the market developing. Our long-term investment into the marine scrubber industry has proven successful.

We are of course not forgetting about the other opportunities that we have and we are continuing our efforts to establish our technology in the swimming pool, oil and gas, mining, drinking water, power plant and agriculture markets. We have already made significant investments into developing these markets.

Our technology has proven well suited for these applications and we do now have large-scale references. We will continue to invest into these industries and the long-term goal is to see the same adoption of our technology as we now see in the marine scrubber market.

We believe that our investments will be rewarded with orders for some of these industry is already in the second half of 2017.

In May 2017, we completed a private placement of 7,300,000 new shares, the net proceeds of approximately $1.8 million has strengthened our balance sheet and it has allowed us to invest into the acceleration of our business we are anticipating for the second half of 2017.

We continue to manage a relatively low cash position but we are very focused on enforcing payment terms towards our customers that allows us to grow our business on the cash position we have today. We also believe that our cash position will be improved by the end of the year.

As earlier discussed, our PPF has always been lumpy and this has been relying on new mandates throughout the world. This year we have seen an improvement in our sales of DPF and we have experienced an increased activity in the market. We believe that our sales of DPF will remain on a satisfactory level in the second half of 2017.

It has now been three years since we took the decision of transforming our business from a component supplier, intra supplier for water treatment systems; it has taken us sometime to identify the applications where our technology makes the difference and where we are able to offer competitive solution.

We have now been successful in getting large-scale references in a large number of industries that I mentioned earlier. This has allowed us to be specified for future projects.

We are greatly encouraged by the success we are experiencing in the marine scrubber industry and we believe that we will prove equally successful in our other markets in the future.

We believe that the decision to transform our business, the decision to have a narrowed focus and the development of standardized system, water treatment systems has been the right choices. We are convinced that our investments over the past years will now finally pay off and we'll see an acceleration of our business.

We do expect an improvement of revenue and earnings in the second half of 2017. Again, we appreciate the continued support from our shareholders and we will continue our hard work to establish our technology in the market and finally bring value to our shareholders. Having said this, I would now like to turn the conference over to the Q&A Session.

Thank you..

[Operator Instructions] Our first question is from Eric Stine with Craig-Hallum. Please state your question..

So I just wanted to start with the marine scrubber opportunity; maybe just characterize, you know, you mentioned seven systems that you have participated in which I suspect is from a handful of customers, just maybe the interest that you're seeing which gives you that confidence in the second half and also 2018, is that that same handful of customers or you're starting to see that broaden out as you get closer to that 2020 date?.

Yes, we are seeing that customer base being burned out [ph]. We are in contact with -- I would say a good handful of scrubber manufacturers. We're also in contact with engine manufacturers, in contact with ship owners directly. So we see the customer base is being broadened out all the time.

We do have great confidence that we'll more than double that number of seven systems in the second half of the year and that confidence comes from concrete orders that we already have in our backlog..

Got it. And then -- I mean, so the orders would cover that second half confidence.

I mean are those things that then those would be followed by -- I mean there are follow-up orders that would give you that increased confidence for 2018?.

Yes, what we see right now is predominantly that our customers, the scrubber manufacturers, they are getting pilot orders from the end-users and typically it works that way that the end-user will order one ship out of maybe 30 or 50 or whatever is in that group ships that he owns and then through the pilot installations and how it works out and it is successful visible order at the remaining ships that he has in that group of ships.

So yes, we are very confident that this is laying the groundwork for the growth we are anticipating, not only for 2018 but also 2019 and 2020..

Okay, good. Maybe it's turning to the balance sheet, the cash balance, obviously that's still a big focus.

So can you just update us on -- I mean you had some -- I believe it was the mining order and also the Serbia system, once you turn that over that there were some cash payments tied to that; so just kind of maybe an update on where those two items stand?.

Yes, we are still working on the Serbian payment and we are still in the process of handing over the mining system as well. So both, it's hopefully something that we can finish in the third quarter..

Is that -- can you just remind me of the -- maybe the aggregate dollar amount of those two things?.

I would have to get back to you on that Eric. I do not have the exact numbers with me right now, I mean [indiscernible] exhibition, so I do not have access to that right now but I will be happy to come back on those exact numbers..

Okay, thank you..

Thank you very much..

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

Good morning. If you could just -- I just want to circle back real quick on Eric's question here on the handing over of the contracts; last quarter you guys said that they should be done in June/early July, and we're still waiting on it.

What is holding up being able to have final handing over of these two contracts that we can get paid here?.

And you're absolutely right, Joe, we didn't anticipate that we will be able to wrap that up in the second quarter. Unfortunately when you have those very large installations, the Serbian businesses, the $4 million order and the mining order was a $6 million order.

And unfortunately when you have those large installations, sometimes handing over fees is being postponed and this is what has happened in this case.

We do have some confidence levels that we will be able to finish both in the third quarter, we're working hard to make that happen and we really do hope that next time we speak, we'll be able to announce that we have delivered everything and we have received payment..

I guess I understand all that, I guess -- I'm little confused, is it something, the customer saying that the system is not working as advertised or is there some dispute? It just seems to be a very long and dragged out handing over process, even for something of an installed of this nature..

Yes, I understand. If we look at the Serbian systems and we have been discussing this earlier, then we have been hit by very un-normal winter in Serbia where we had snow for a very long period of time which is not normal in those areas.

In regards to the mining project it is in the nature of the order that there is a certain time period for handing over the project, we had hoped to do that in the first part of that time period and now it seems like we'll be in the backend of that schedule.

So it's un-normal unfortunately that that the handing over process can be very long, we also see this sort of marine scrubber systems that handing all the projects is the difficult part because we need to do some work, the customer needs to do some work and it's not always that we are in control of things unfortunately.

So this is also the case here..

Okay.

And just maybe if you could touch a little bit in some of these other industries and what's given you confidence that you will see some orders in the second half, and especially I don't know, you -- we talked a lot about the China oil and gas trial, you're supposed to get the first results from that shortly after the first quarter call, just wondering where we stand on that.

If you could talk a little bit about China and some of these other orders you're talking about, I'd appreciate it..

Yes, in general I would say we have spent the past three years building a pipeline in a number of industries. Some of the investments we make, we have to see that we were not successful, we did not have the right offering for that application and so on.

But we also know that some of the industries that we have been investing into, we have the right solution for the problems they are facing, that goes for the swimming pool market, it goes for mining, it goes for drinking water and all the industries that we discussed earlier.

We have been able to get a number of large-scale references into these industries and we have proven that out it works [ph].

It means that since that happened, we have been able to continue our specification work and be specified for future projects, and our confidence level that we'll see orders from some of these industries comes from the pipeline that we have built, the projects that we have been specified into now starts to materialize and I do sincerely believe that we'll see some orders from a number of these industries and in the fall and winter this year..

Okay, thanks..

Thank you very much, Joe..

Our next question is from Walter Schenker from MAZ Partners. Please state your question..

Good afternoon for you, good morning for us. If we go back six/nine months ago, the thing that was going to really significantly change the outlook for the company was going to be China with two different partnerships; one in DPF and on in water.

I understand on the water side there was a problem with the investment but there is still ought to be an opportunity in China since they still have a drinking water purity problem and DPF was a very large market, with -- especially the air quality.

Could you just specifically look at those two markets in China and give us an update on the company's prospects there?.

Yes, I can do that Walter. With regards to the filter in the automotive industry, we have a relationship with Keylong [ph] and Keylong [ph] has participated in the order flow of the second quarter. So they continue to buy filters from us and are preparing their customer base for the China Six level.

They feel very confident that they have now reached the level of introducing the silicon carbide filters to their customer base so that they can progress in a long-term ordering flow.

At the same time, we are finalizing the discussions around the production capacity for the Chinese market, so the level we have with DPF is that they are participating in the growth that we have in DPF, they have used our filters for introducing that filter technology to their customers, they have integrated it in their SCR system offering to their customers, they have been spending the better part of a year, introducing the new technology to their customers so that we will soon start to see enhanced business from Keylong [ph] in the filter market.

As we announced in the second quarter the huge disappointment around working with Yonker. We took an unfortunate learning process of being a western company relying on the fact that entering into firm agreements and contract in China was something that would carry first an investment and then a significant business amount with Yonker.

We had to say that the disappointment that we have in the way that Yonker have managed this relationship have made us start looking for alternative water company partners in the Chinese market.

We want to make more than certain that we will not queue the same mistake of relying on a partner that apparently sells very much in love with our technology and then just drag their process of figuring out how to utilize silicon carbide membrane technologies in the Chinese market and how it would affect their own offering in the market.

So we take it very seriously to find the right partner in the Chinese market, we still believe as we stated in the end of 2016 that there are water opportunities for the LiqTech Technology but we sit right now with a huge disappointment on the way that Yonker is active in the agreement that we had and we are in the process of trying to find the exact right partner.

And we very firmly believe that we will find partners in China for our scrubber products but we will also find partners for water solution and we don't think that it's going to be one water company that's going to act as the sole partner.

Our scrubber water focus has made us identify more than 20 different operators in the Chinese markets and our organization is right now in the process of discussing and evaluating who can be the right partner in that market. But for sure, we don't want to repeat the huge disappointment we had with Yonker for the water market.

So in conclusion, we worked well with Keylong [ph] for the filter market and we are in the process of finding the right partner/partners for our water treatment in China..

Thank you..

[Operator Instructions] Our next question is from Tristan [ph] with MTB Asset Management. Please state your question..

Good morning. Sune, you mentioned that you expect to see a pickup in the second half given the relatively low numbers in the first half of the year.

I was wondering if you can kind of give any additional color into what you consider to be a substantial pickup in both revenues and earnings in the second half?.

Yes. What we expect to see in the second half is especially our scrubber business materializing.

As we mentioned, we do expect to see number more than doubling from the seven systems that we delivered over the past three years, and for us it's important to see this ramp up and I think we can all imagine that to deliver the same amount of systems that we have spent three years delivering in only six months is a significant ramp up.

We do hope that this number will be higher than seven, we have reason to believe that it will but we also have to realize that over the year it could be December, it could be January; so to put an exact number on the number of systems that will deliver is difficult. We just know by now there will be more than seven.

Obviously, and we have been discussing this before. We have spent sometime this year to reduce our cost base which means that the revenue level we need to get to, to turn the company cash flow positive is lower than it was in the past.

It is our hope that we'll get close to this number in the second half of the year; again, we have to be careful something could fall into one quarter and something could fall into the next quarter, but we have reason to believe that we'll get very close to that and that we will see a much improved, both revenue number and earnings number in the second half of the year compared to the first half..

So are you saying you expect to be cash flow positive in the second half in total?.

We expect to turn the company cash flow positive in the near future. And whether we will be cash flow positive or for the full half year or it will happen sometime in the half year, we sincerely hope that it will.

But again, we have to be careful because if something falls from one quarter into the next quarter, it significantly changes our numbers but yes, we do believe that we have a good chance of hitting those revenue numbers that will turn our company cash flow positive..

And I apologize, you may have addressed this already but I had to hop-off for a little bit at the beginning of the call, that the last two scrubber orders that you publicly announced; one was $400,000 and one was $290,000; as we look forward and we look at these, say seven orders that you have coming in the back half and then hopefully more than that, what should investors look at in terms of an average order size for you guys?.

Yes, what we have said in the past is that our average order size for our scrub orders was approximately $250,000 to $300,000. What we are learning right now is that this number is growing due to various reasons; one, the systems are getting bigger.

It seems like the ships that we're addressing needs larger systems and also we are changing our systems to other materials that are more extensive. So a good guess about average order size for the scrubber business in the future is somewhere between $400,000 to $500,000..

Okay, that was all my questions. Thanks..

Our next question is from James Curson [ph], he is a private investor. You may state your question..

Good morning or good afternoon.

What is -- have you disclosed or you quantified backlog?.

No, we have not disclosed our backlog..

Is there a reason?.

Yes, it's historical reason. We have not been used to do so. Why? Well, we are still in the stage of transforming our company and historically our background has been going up and down.

What we see now is that we've spent a lot of resources and focusing our business into the marine scrubber business which means smaller systems, smaller orders but more orders.

And hopefully, that will make our revenue more stable from quarter to quarter, so in the future it may very well make sense for us to discuss our backlog but right now it has been the decision not to do so..

But you do know your backlog now and you do know that it consists mostly of marine scrubbers; so can you disclose it?.

No, we are not in a position to disclose the backlog in this call. But again, we are evaluating from quarter to quarter if it makes sense to other habit of disclosing our backlog for the coming quarters. And as I say, the more stable our business grows, the more stable it grows with the smaller sized systems for the marine scrubber business.

It may very much make sense to disclose the backlog as we proceed. It is something that we're working on right now and hopefully we'll get to the stage where it makes a lot of sense to do so. But for now the position has been that it's not something we do..

I don't want to be argumentative but it doesn't seem to make a lot of clearance to not want to disclose it because it goes up and down; that would be a reason to disclose it, not the other way. So I'll just end my comment. Thank you..

Thank you very much..

Our next question is from Anthony Marchez [ph], he is a private investor. Please state your question..

Good morning, two questions.

First, in any of your lines of business, is there any type of recurring revenue once you make the sales; for example, in the scrubber business, you make to fail obviously there is other ships but once you make that sale for that particular ship, is there any recurring revenue?.

Yes, let me address it in two ways because what you are not asking about is actually a very important question. If a ship owner owns 500 ships, then he may own 20 different types of ships. So it means he owns 20 of one type of ship and 50 of another type and so on.

What we're experiencing right now is that we're getting pilot orders for that type of ships, so one ship owner may place five pilot orders, one of each type. Once he approves those pilot orders, he will be placing orders for the additional ships he has of that type. So that is one type of reoccurring revenue.

But I understand your question as well, is there some follow-on business to selling the scrubber system, and there is. What we're building right now is the source of intersection [ph], this is very tough and demand application which means that even though we deliver systems of very high spend that they require service from time to time.

And we are in the process of building that service organization to service the systems that we've already sold. So we do expect to see quite a bit of reoccurring revenue on that account..

Right, okay.

And the final question is, has your balance sheet been an impediment to getting sales while since you're focusing on the scrubber market right now, has your balance sheet been an issue with some ship owners? If you had for example, a partner, would it have made it easier to financially more capable partner, less put it that, would it made it easier to procure sales earlier?.

Yes, it is a constant discussion and we're not going to lie on that but we also have to think, the more open and honest you are that there is a perception to get somewhere cost in this.

So we are very open and honest but we are a small company with relatively fairly capitalized which means that we need to enforce certain payments that enables us to deliver the systems to our customers. So if you're asking me if it is a constant discussion, it is. If you're asking me if we are losing orders on that account, it's a no.

We are not losing orders but we are facing that discussion a lot and we are being open and honest and our customers are very, very cooperative in working together with us; so we have not lost orders in that account..

And I guess, so -- again, not to puff-up the company but -- so do you think -- you think you were getting the orders obviously because you believe you have a superior system and that's why they are taking the risk if you will of putting the order with you as opposed to -- what are the competitor products? I guess what you're saying is you believe your product is significantly better than whatever the competition is offering?.

I think the difference is that our largest customer in this area is a customer that we've been working with for the last three years and they are the biggest in the market for total scrubber order system.

So the whole process of testing our technology and getting accustomed to our technology gives us that advantage that offsets the concern of our cash position.

And what we have been very, very delighted to see is that it has now entered into customer relationship with three other large operators in this market; so we strongly believe that the validation of our technology offsets the concern about our cash balance because from that large customer we constantly hear that it is a superior technology and a superior solution that we are offering and we think that we see proof of that by having a number of other large customers in this area committing to our technology.

And then Sune, you could talk about the competitive landscape in this because -- yes, of course there are competition in such a big market..

Yes, so I think the important thing in the scrubber industry is that we are one of the pioneers, we have been there from the very beginning.

It's a new young industry, we have been making large investments into this for three years now and which means that the market accepts that we bring a very well proven technology to the market and that offsets the concern about our financial position as Aldo correctly stated.

We are not facing any competition from filtration companies at the moment in the marine scrubber business; we are more facing competition from different technologies life -- especially centrifuge which is very common well known technology in the marine market but it also comes with a lot of downsides because the sludge that we have to bring to show and dispose off is of a much higher amount than the sludge we produce in our systems.

So we have a lot of competitors [indiscernible] our competitors technologies in this industry and I think that we are very well positioned for the future..

Great. I appreciate the answers. Thank you..

[Operator Instructions] Okay, ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back over to management for closing comments..

Thank you everybody for dialing in today. I think we had some good discussions. I think that we very much like to share our optimism for the future.

I think we have reached an important stage of the company, we really have the chance to see the first market that it really embraces our technology, the marine scrubber business, and I look very much forward to seeing how that plays out in the second half of 2017.

We're very much optimistic about the future for our company and we will continue our hard work to turn this company into an attractive company and to grow revenue and earnings. And thank you for your continued support, from our shareholders; and have a great day..

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