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(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

Great investments don't arrive at your front door, gift wrapped and topped with a red ribbon. If there's one thing we learned over all the years that we've been running our microcap fund, it's that often the best opportunities can come from the most unusual of places.

One of our peers asked us recently, "Do you really own millions of dollars of a Danish company that trades on the OTC"? We sure do! LiqTech International (NYSEMKT:LIQT) is not only a Danish company trading on the OTC, but it's in the unfamiliar business of membrane filtration. The company's revolutionary silicon carbide technology is complex, but its utility is something everyone can relate to: clean air and water. Nothing is more essential to life. Not even Facebook.

Silicon carbide is one of the most durable materials on the planet and LiqTech's technology manipulates it for use in filtration products. One example is as a diesel particulate filter, which removes as much as 99% of the particulates that diesel engines would otherwise add to the environment. Other examples are water filters for use in fracking and in the decontamination of ballast water. LiqTech sells its filters to industries that spend big dollars to solve contamination problems they are forced to address.

We first got to know the company through Aldo Petersen, its Chairman. He explained that LiqTech had been working on its filtration technologies for over 10 years, and was finally getting to the point that it was seeing commercial interest. Aldo was so convinced of the company's potential that he invested a few million dollars of his own money to have a stake. That got our attention. He's deeply involved in the company and has earned our respect for his forthrightness and his savvy.

LiqTech's earnings call last week is another example of opportunity not arriving gift wrapped at your door. It was a really long call - over 6,000 words and north of an hour in length. It was hard to follow for someone not already familiar with the wild world of membranes. And if you are not used to hearing English spoken with a Danish accent, you really had to sharpen your ears.

Our investment thesis on LiqTech has to do not only with the revolutionary nature of the company's technology but also that no one's paying attention to it right now. There's no red bow. We see the company in the midst of emerging from obscurity to greatness, but few have noticed.

Further, the headlines from the last earnings release were the type to scare away investors who don't do their homework. Net sales for the quarter were down 5% on a year-over-year basis. How can sales be down for an emerging growth company?! Simply, the diesel particulate filter business was challenged last quarter. While there are signs of optimism there, it's important to remember that the real opportunity is in the liquid membrane business, which grew at 38% in the quarter, and is now almost half of total sales. Moreover, the pipeline for this business is so strong that last quarter's sales are irrelevant in our view. What's coming is what counts.

Investors willing to labor on a long, difficult conference call have a lot to be excited about:

  • The company just got approved to list on the New York Stock Exchange.
  • The key relationship with energy technology giant FMC (NYSE:FTI) is exceeding expectations.
  • LiqTech is working on a number of transactions that make the slicing and dicing of last quarter's revenues child's play. They hope to have several significant announcements in this regard over the next few quarters.
  • Management is targeting $100 million in revenues three years from now. The big companies that are LiqTech's customers move slowly, but every sign is that they are showing growing interest in LiqTech's technologies.
  • The balance sheet is strong and management sees no need to raise capital.
  • They envision themselves being an attractive acquisition target, along the lines of a filtration company GE bought for $760 million.
  • From China, to the Middle East, to coal plants, to desalination - there's no shortage of opportunity for LiqTech.

But don't take our word for it. We've parsed the call for quotes that summarize what we see as the key developments at the company. Without further adieu.

3-Year revenue target

"The goal of the company is to get to $100 million in revenue over those three years and we think the platform of partners that we have established [allows] us to aim for that revenue stream over the next three years."

LiqTech as an attractive acquisition candidate

"If you develop high quality technology you will end up being acquired by some of the big water companies. A company that we [are] very familiar with is a company called Zenon, a Canadian company that was developed from zero revenue and ended up having $40 million, approximately, in membrane sales and $120 million in system sales, [and] was in 2005 acquired by GE for $760 million."

On cash needs

"We are now in a strong cash position, we will definitely not look to raise more capital into the company."

On the NYSE listing

"I'm very happy to tell you that we have been approved for the listing on New York Stock Exchange."

On upcoming investor relations efforts

"We are very, very anxious to . . . spend a significant amount of time going on the road, meeting all the investors that [have] been reluctant to invest in LiqTech because of our OTC listing, so as soon as we have the appropriate dates the management team will come to New York, to Boston, and other cities in the U.S. to talk to investors."

The relationship with FMC

"We are ahead of the time schedule that we initially activated with FMC which means that we believe that we will see a faster roll out than we initially expected back in March when we entered into this agreement."

"Significant business with FMC would be to get to around $10 million in systems."

On the large accounts they are working on

"We have negotiated and finalized two strategic agreements with companies inside the oil industry . . . . Unfortunately, we are not allowed to reveal the companies we're working with but I can at least say that it is some serious projects that we are going forward with." [Management stated elsewhere on the call that they are targeting large partners that could each add $5 to $10 million in annual revenue.]

The fourth quarter and beyond

"If we look at the different business areas here we are very comfortable that we will see an increase in revenues in the fourth quarter and in coming quarters."

"We are comfortable that we will increase our revenue significantly over the coming orders from the big partners that we have, from the many different companies who have now accepted to use silicon carbide membranes. So we will see vast improvements in the LiqTech business over the coming quarters."

Want to hear more?

This article is an abridged version of one that we published on our website. You can read the full version here.

If you'd like to hear the entire earnings call for greater context, it's available until November 28, 2013 at (877) 660-6853, conference id# 13572827. Gå have det sjovt!

Disclosure: The author is long LIQT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no plans to trade LIQT in the next 72 hours. I have no position in FMC. This article and the interview herein may contain historical information and forward-looking statements within the meaning of applicable securities laws with respect to the business, financial conditions, and operational results of the interviewed company (the "Company"). Such statements reflect the current beliefs, views, assumptions, and expectations of the Company with respect to future events and are subject to uncertainties and risks. Many factors could cause the actual results, performance, or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Some of these factors may include changes in the markets in which the Company operates and in the general business environment and economic conditions, the loss or gain of customers, unpredictable sales cycles, competitive pressures, market acceptance of new products, inability to meet efficiency and cost reduction objectives, changes in business strategy, and various other factors, both referenced and not referenced in this article. In addition, various risks and uncertainties, including but not limited to those described in reports filed by the Company with the Securities and Exchange Commission or other regulatory organizations, as applicable, may affect the Company's operational results. No obligation is assumed to update any forward-looking statements.

Source: LiqTech's Emergence From Obscurity