LiqTech International (LIQT), Kailong High Technology Sign LOI to Produce And Sell Silicon Carbide Filters in China

August 25, 2016 8:39 AM EDT

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LiqTech International, Inc. (NYSE: LIQT) and Kailong High Technology Co. Ltd. announced today that they have entered into a letter of intent to establish a diesel particulate filter company in China.

The agreement includes a technology transfer fee of $1.5 million, which is payable upon achievement of certain milestones, and a royalty of $2.25 per liter of diesel particulate filters ("DPF"), which could generate $2.25 million in royalty revenue in 2018 and $4.5 million in royalty revenue in 2019 if the joint venture company achieves Kailong's projections. Kailong believes the market potential for high quality emission control systems is significant in China and together with LiqTech could scale to a capacity of 2 million liters in Silicon Carbide DPF to serve the Chinese and international market. The New China 6 standard for diesel vehicle emissions will likely put China on the forefront of emission standards in the world creating the need for better DPF in China.

LiqTech will own 30% of the company and invest $4 million in the joint venture company over a 2-year period. Kailong will invest a minimum of $2.5 million in LiqTech, conditional to Chinese government approval. In the event that government approval is not obtained, the letter of intent will terminate. In addition, the letter of intent is conditional on execution of definitive agreements.

Zang Zhicheng, Chairman of Kailong, stated, "In the past 15 years, Kailong has established a strong business platform in China for Selective Catalytic Reduction ("SCR") Systems for the diesel vehicle industry. We have been planning to enter into Silicon Carbide ("SIC") production and have had serious discussions with companies in Italy, Japan and South Korea. We have ultimately chosen LiqTech as our partner because of its leadership in SIC technology and its extensive knowledge in working with SIC. We believe that not only for the near term opportunity, but also for the future development of industry leading technology, LiqTech is the right partner. Kailong and LiqTech intend to work closely in sharing Kailong's experience in China and LiqTech's experience in SIC in developing the DPF market in China."

Mr. Aldo Petersen, Chairman of LiqTech, noted, "LiqTech has a long history in the DPF Market. The DPF market in China has been in development for a number of years and we are very impressed by the strong focus that the Chinese Government has on Emission Standards. We believe that the DPF market in China will develop rapidly over the next several years, but to be successful, LiqTech believes the right partner is necessary. We believe we have found that partner in Kailong and are very optimistic about the long-term future of the new company. It will take 12-18 months to establish the new facility, but with our current capacity, LiqTech can service Kailong until the new company can service the DPF market in China."

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