New Royalty Agreement and Machine Purchase Order for EnWave

Less than a week after its machine purchase order from Gay Lea Foods, EnWave Corporation (TSXV:ENW – $0.80 CAD & OTC:NWVCF – $0.64 USD) signed a commercial royalty-bearing license and machine purchase order with Ereğli Agrosan.

Ereğli Agrosan, is a Turkish company that produces high-value, natural products and derivative products for the food, cosmetic and health sectors. It has many strong, existing relationships with businesses in the Turkish, European and Asian markets, which are seeking to source higher-quality, natural food products.

The license grants Ereğli Agrosan the exclusive right to process a variety of fruit, vegetable and cheese products using EnWave’s Radiant Energy Vacuum (REV) dehydration technology in Turkey.

Attached to the license is a 10kW REV machine purchase order, which is scheduled to be up and running at Ereğli Agrosan’s facility by spring 2016. Moreover, in order to retain its exclusivity for Turkey, Ereğli must purchase three additional REV dryers on an agreed upon timeline. A clear indication that EnWave’s negotiating position is getting stronger.

Most likely Ereğli Agrosan will first produce dried fruits and cheese products. It will pay EnWave a quarterly product specific royalty based on the wholesale value of the individual product offerings. EnWave royalty streams typically range between 2% and 10%.

Machine Purchase Timeline

After representatives of both companies met in 2015, EnWave supplied Ereğli Agrosan with samples of dried fruits, cheese and vegetables products. These samples, along with products from other manufacturers, were presented to prospective clients to get their feedback. Ultimately, from the different options that the Turkish company had, they opted for EnWave’s REV technology.

Ereğli wants to start producing REV dried products as fast as possible. They are currently prospecting potential clients, so that when they actually start producing dried fruits and cheese, they already have a market.

As Ereğli Agrosan is operating from Istanbul, the strategically located capital of Turkey, it easily can reach 1.5 billion potential customers in Europe, Eurasia, the Middle East and North Africa. Since Turkey has a highly developed technological infrastructure in transportation (both railway and sea transport), direct delivery to most EU countries is possible.

The first machine purchase order under the license is for a small 10kW commercial REV dryer to be installed in the spring of 2016. If Ereğli wants to remain the exclusive producer of REV dried products in Turkey, it will have to purchase a second 10kW commercial REV machine when the first one is installed.

The license further requires the Turkish company to submit purchase orders for at least one full-scale 100kW REV machine within twelve months of the start-up of the first small commercial unit, and a second 100kW REV machine within three years in order to retain exclusivity.

The agreement with Ereğli is potentially worth well over $2.5 million in machine sales alone. Knowing that a 100kW dryer generates between $200,000 and $400,000 in royalties per year at full utilization, it’s obvious that this could become a very lucrative deal for EnWave.

Ereğli Agrosan

Ereğli Agrosan has a very capable management team, with extensive knowledge and experience in financial management, international trade, marketing and operations management.

The company’s head office and research and development laboratory are based in İstanbul, and it owns about 900 hectares (2,225 acres) of agricultural land.

It’s also completing two production facilities in Turkey: a 30,000m2 (320,000 square feet) building in Konya and a 4,000m2 facility (43,000 square feet) in Tarsus-Mersin.

Conclusion

Ereğli Agrosan is a group with strong financial capabilities and expertise. Its goal is to address the need in the market for more nutritious, better quality ingredients and snack products. And it has chosen EnWave machinery to do so.

Next to Dominant Slice Lda from Portugal, this is the second commercial royalty bearing license signed by EnWave with a European partner company. It’s the seventh license to produce cheese snacks and the sixth license to produce fruit and vegetable products using REV technology, which again confirms the solid position that EnWave is conquering in the dried dairy, fruits and vegetable markets.

The deal with Ereğli, which immediately includes a total of four potential machine sales, may become EnWave’s blueprint for future agreements. With ever more national and international entities becoming aware of EnWave’s superior technology, the Company’s negotiating position is getting much stronger. As a result, it can enforce bigger and better deals in return for certain product and geographic exclusivity.

EnWave is clearly on its way to become a big success. It recently turned cash flow positive, and it’s constantly increasing its machine sales and royalty income.

Next week we’ll publish a new interview with EnWave’s Vice President of Business Development, Mr. Brent Charleton. He’ll give us an overview of the Company’s achievements in the past few months and a sneak peek into what’s ahead. Buy recommendation.

For important disclosures, please read our disclaimer.

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