Annual Report 2015 – iQ Power Licensing AG · 2017-01-14 · Annual Report 2015 – iQ Power Licensing AG 5 Revenues from operations improved in the second half of 2015 from CHF

Annual Report 2015 – iQ Power Licensing AG

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CEO Statement

Dear Shareholders,

The year 2015 proved to be an important strategic turning point for iQ Power. The

accomplishments achieved confirm the 2012 decision to concentrate on the core

licensing business. The decision in early 2015 to sacrifice short-term profitability in

order to rescue the troubled Licensee factory in Korea was proven correct through

the approval of the Rehabilitation Plan by the local Korean court in January 2016.

Today the Licensee battery factory is the centerpiece of our License strategy. Not

only does the factory provide a steady and growing source of income, but it also

serves as a model factory for other potential licensees in the future. The recognition

of the electrolyte mixing as a key performance enhancer has gained significant

momentum during the last six months due to the sales growth at the Korean factory.

Most importantly, 2015 marked the beginning of a long-term intensive cooperation

with Discover Energy Corporation, Vancouver, Canada (DEC). DEC is actively

promoting the iQ Power technology to their worldwide network of aftermarket

distributors in all strategically important parts of the world. The financial support from

Discover Energy was the key to approval of the Rehabilitation Plan by the local

Korean court. Discover Energy has made the iQ Power technology the basis of their

entire starter battery sales.

Various other events influenced and shaped the business development and share

price. The license agreement with the largest South American Battery manufacturer,

Moura Baterias S.A., progressed at a much slower than anticipated pace due to very

long investment delays at automobile manufacturers due to the economic and

political crisis in Brazil. The insignificant license income at the North American

licensee was again disappointing.

Macroeconomics:

The global economy grew unevenly in 2015. In the USA and Germany growth

remained steady. The European countries began a modest recovery from the

financial difficulties of 2013 and 2014, however much of the developing world was

setback by the low oil price and large economic slowdown in China. Stock markets

worldwide experienced lackluster performance despite the continued low interest


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rate policy of the Central Banks. The Blue Chips profited much more from the

uncertainty than the higher risk-reward stocks such as iQ Power.

Starter battery sales in Europe remained flat due to the warm winter weather across

the Continent. Sales of starter batteries in developing countries grew at much

weaker pace of 3% to 4% annual volume growth, as many economies suffered from

the pull back in investment due to stagnation in China and weak oil prices. The

market for the premium batteries for Start-Stop applications continue to grow faster

than conventional batteries, however the total market share is still small.

Technology Trends

As in years past, despite many new announced developments for battery technology

for E-vehicles, the demand is insignificant due to the many problems and hurdles

facing this transportation alternative. The lower price of oil has greatly reduced the

economic incentive to change to E-vehicles. Despite government subsidies and

billions of dollars of R&D in lithium and other advanced technologies, all industry

experts are agreed that lead acid starter batteries will dominate the automotive

market for at least the next 25 years. Furthermore, the supply of lithium remains

limited and in countries that are not deemed stable democracies. As the demand for

lithium has increased, the price for lithium has almost tripled over the last 12 months.

Notwithstanding the highly publicized introduction of less expensive E-vehicles

through companies like Tesla motors, industry experts are also agreed that vehicles

with Start-Stop engines will be the favored solution by automobile manufacturers

(OEMs) to meet the pressure from governments in all regions to improve fuel

consumption and reduce greenhouse emissions.

2015 continued the trend towards the Enhanced Flooded Battery for starter batteries

for vehicles with Start-Stop engines. The previously dominant AGM battery, in which

the electrolyte is trapped in a sponge-like lead plate separator, was increasingly

replaced by the EFB battery, in which the electrolyte is fluid as in conventional

batteries. The reason for this change is the high cost and thermal sensitivity of the

AGM batteries. Although the EFB does age more quickly than the AGM due to acid

stratification, the OEMs feel that this technology will be adequate for the Start-Stop

engines. iQ Power technology has been proven to effectively combat the aging of

the EFB battery by eliminating acid stratification and thus achieving significantly

higher cycle times and a substantial longer service life for these batteries.


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Core License Strategy

In 2015 management and the Board of Directors stayed the course on the new

strategy of concentration on the core license business. This strategy was the original

strategy of iQ Power at the founding of the company.

Operations

In 2015 iQ Power was able to deepen and expand its cooperation with the new

strategic partner, Discover Energy Corporation, Vancouver, Canada (DEC). DEC is

investing heavily to promote the iQ Power technology in all strategically important

markets in the world. The key to this engagement was the rehabilitation of the

Korean factory, which provides a high quality and cost competitive base battery.

In February 2015, the CEO of iQ Power Licensing AG (IQPL) replaced the long-time

but controversial CEO of iQ Power Asia (IQPA). This exceptional event paved the

way for a stabilization and re-financing of operations. Currently the CEO of IQPL is

transitioning from working full-time to concentration on product and program

development as well as obtaining new licensees. The shareholders of iQ Power Asia

are convinced that large series production will re-start in due course.

Sales in 2015 in Korea developed much slower than desired, due to the lack of a

proper product range. Great efforts and investments were made to expand the

program from 9 to 35 models. Unfortunately, this giant undertaking was not finished

until the 1st quarter of 2016 and major customers withheld the orders waiting to see if

the factory would fulfill its promise to offer a complete car line. In addition to new car

battery types, the Korean factory will now concentrate on introducing a full product

line of commercial truck batteries.

In March, 2016 a full-time senior manager was appointed at iQ Power Asia to help

run day-to-day operations. Over the course of 2016, the current CEO of iQ Power

will transfer duties to the new manager and will concentrate on expanding the

license income base of iQ Power.

Progress continues at the OEM-oriented Brazilian licensee, Moura Baterias, the

largest battery manufacturer on the South American continent. Despite the delays


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caused by the crisis in Brazil, the agreement continues to be a significant milestone

and gives IQPL a champion for OEM orders. Recently, the Brazilian licensee has

reported that the first molds for the product introduction will be finished this month.

The quality inspection from iQ Power engineering and quality control will take place

in July. The start of battery production is anticipated for the 4th quarter of 2016.

The licensee in North America failed to live up to the forecasts announced by

themselves in 2014. There was no significant income in 2015. Management of iQ

Power is no longer concerned about this lack of progress because, due to the well-

established network of Discover Energy, North America will be the leading market for

the iQ Power technology in 2016.

In 2015 iQ Power purchased a large number of new molds in order to support the

production at the Korean factory. These new molds include the design

improvements, which were made to the new 2nd

Generation of mixing parts, in order

make the parts more assembly-robot friendly and speed up assembly times to full

line speed. Licensees now profit from the manufacturing of the mixing parts by iQ

Power, in that they may order the parts on an as-needed basis and without

investment risk or need of extensive manufacturing know-how.

In 2015 iQ Power entered the decisive phase of patent applications at the national

level. Patent applications were filed in over 50 countries, which account for 95% of

vehicle sales globally. The applications represent a significant investment for iQ

Power, but it is vital to protecting our intellectual properties as the technology gains

popularity and recognition. The investment was funded by sell of a stake of the

existing corporate bonds to a small group of qualified investors. All new patents are

based on the new iQ Power 2nd

Generation technology (iQP-2), which is more

effective and efficient than the first Generation. The new patent applications lengthen

the timeframe, for license income by 20 years to 2034.

Financial Results

Due to the new corporate structure, the financial reporting and accounting

regulations have changed. This makes comparisons difficult for this year especially.

Next year comparisons will then return to normal.


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Revenues from operations improved in the second half of 2015 from CHF 0.1 million

to CHF 0.2 million with a total of CHF 0.3 million for the full year 2015, as the Korean

facility used up the old iQ parts inventories and began ordering the new iQP-2 parts.

The amount for the 2nd

half was reduced by CHF 0.05 million due to the financial

restructuring. For the year, sales decreased in from CHF 1.0 million (2014) to only

CHF 0.3 million in 2015, mainly due to the one-time license payment in 2014.

However, sales revenue could have been much more but major customers held back

sales awaiting the re-start in Korea. The delay was prolonged due to the lack of a full

product program.

The loss in the second half of 2015 showed an improvement over the first half of

2015 from minus CHF 1.4 million to minus CHF 1.1 million. The operating loss was

only CHF 0.5 million, which is in line with the low revenues recorded. One-time write-

downs accounted for the additional CHF 0.6 million loss: Write-downs of 0.4 million

were for receivables and valuation of assets in iQ Power Asia, which were necessary

as part of the re-structuring program. An additional write-down of CHF 0.2 million

was required by the financial accounting rules for the investment in the small

stationary battery company (formerly iQ Industries). iQ Power Licensing AG as of

April 2016 holds a 10% stake in the stationary battery factory, Hempe GmbH in

Thüringen, Germany, which is a holdover from an earlier diversification strategy

valued at CHF 0.2 million. iQ Power holds an option to sell this investment in 2020

for cash at a small profit.

As usual, normal operational costs were equally divided between engineering,

reporting and listing costs, and administration. All significant risks were considered in

the financial statements.

The equity capital decreased from CHF 2.5 million to CHF 1.9 million at the end of

the year. This was due to the losses incurred during 2015. Due to the financial

restructuring the investment and stake in iQ Power Asia was re-classified from

shareholding (23.2%) to financial asset because of the formal legal loss of influence

on the company during the rehabilitation process at iQ Power Asia. The equity ratio

decreased from 48% to 38%. The liquidity of the company remains satisfactory, with

cash on hand of CHF 0.2 million at the end of 2015.


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Outlook for 2016

Through the intensive cooperation with the strategic partner, Discover Energy, and

the beginning of the production and sales by the Korean factory, iQ Power has now

secured a sustainable and growing revenue base. The focus of activities for the first

part of 2016 will be almost exclusively on the growth of the licensee in Korea, which

is the fastest avenue to near-term revenue growth. Starting in the 2nd

half of 2016,

management will concentrate on expanding the base of license sales.

We do not anticipate significant income from Brazil until 2017 due to the delays

stemming from the economic crisis in that country. No significant revenue is

anticipated from the licensee in North America in 2016.

Sales for 2016 year-to-date are up significantly from income generated in Korea,

with sales already exceeding total year 2015. As orders and capacity expands in

Korea, management anticipates significantly stronger sales for the full year. There

are further developments that may also add to profitability. It is too early to make a

firm profit forecast for the full year 2016, however, barring major unforeseen events,

a worst case/best case scenario would show operative profits anywhere from some

hundred thousand CHF loss to a several hundred thousand CHF profit.

We would like to thank all of our stakeholders for their untiring efforts for the

progress achieved thus far.

Charles Robert Sullivan

CEO, iQ Power Licensing AG


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Report of the Directors The year 2015 was a challenging year for the Board of iQ Power Licensing AG in

which the turnaround of the key licensee, iQ Power Asia Inc. Gwangju, Korea, was

the main activity. The support for the key licensee was of vital interests to iQ Power

Licensing AG. Not only is it the best and most stable income source for the

company, but it also has a signal effect for other potential licensees.

In addition to the events in Korea, the Board of Directors approved a new non-

exclusive worldwide license for the strategic partner Discover Energy Corporation,

Vancouver/Canada. Discover Energy Corporation, under the brand MIXTECH, is

investing a large amount of money to promote iQ Power technology worldwide. More

importantly, they have invested millions of dollars to support and stabilize the

production at iQ Power Asia. This engagement will be a cornerstone of growth for

the future of iQ Power Licensing AG.

In 2015 iQ Power Licensing AG suffered a reversal in income, following a positive

trend in 2014. This was due to three main reasons, 1- the restructuring in Korea led

to sharp drop in anticipated license income as deliveries to customers were halted

awaiting the re-start of production in Korea, 2- the restructuring plan caused paper

losses from write downs required for debt from iQ Power Asia, and 3- extraordinary

expenses were occurred as iQ Power Licensing AG filed patents in over 50

countries, representing 95% of automobile sales worldwide. These losses are not

indicative of the future. They are investments to lay a foundation for future growth

and profitability.

In the fiscal year 2015, the Board of Directors has performed its obligations under

the law and the Articles of Association with great care. The Board held close contact

to the management and advised on strategic decisions and important individual

measures of the management and they supervised the operations of the

management continuously.

Important issues in the deliberations of the Board have included the solution of the

ongoing problems with iQ Power Asia Inc. and the development of partnership with

Discover Energy, Vancouver, Canada. Following the successful fusion of iQ Power

AG and iQ Power Licensing AG in January, 2015, no changes to the legal or

organizational structure of iQ Power Licensing AG were made in 2015. The Board

held a total of four official sessions including teleconferences in 2015.


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My special thanks are dedicated to our shareholders, which, through their support

and loyalty enable the development of the company. I would also like to thank the

management, employees, licensees and my fellow Board members for their

extraordinary commitment and their constructive cooperation.

Zug, June 2016

Dr. Raymond Wicki,

Chairman of the Board

Consolidated Financial Statements as at 31 December 2015 Page 1

iQ Power Licensing AG, Zug

Consolidated Financial Statements

as at 31 December 2015


CONSOLIDATED BALANCE SHEET

in CHF 1.000

31. 12.

2015

31.12.

2014

Assets

Cash and cash equivalents 197 458

Trade receivables 0 13

Receivables against participations 845 0

Receivables against associated companies 0 94

Prepayments to suppliers 530 513

Other assets and receivables 99 114

Current assets 1.671 1.192

Roperty, plant and equipment 344 312

Goodwill 11 0

Intangible assets 463 674

Participations 2.356 0

Participations in associated companies 0 2.607

Longterm financial assets 190 433

Non-current assets 3.364 4.026

Total assets 5.035 5.218

Liabilities and equity

Accounts payable trade 106 275

Other liabilities 53 82

Accrued expenses 1.091 1.010

Accruals 447 556

Convertible bond 970 316

Current liabilities 2.667 2.239

Accruals 0 23

Borrowings from shareholder 439 461

Non-current liabilities 439 484

Share capital 2.700 2.452

Additional paid-in capital and other reserves 2.066 351

Other reserves -7 0

Accumulated deficit -2.830 -308

Equity 1.929 2.495

Total liabilities and equity 5.035 5.218


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

in CHF 1’000 except per share data 2015 2014

Revenues 273 1.095

Cost of sales 0 0

Gross Margin 273 1.095

Research and development expenes -582 -508

Administrative expenses -1.926 -1.775

Betriebsergebnis -2.236 -1.187

Financial income 93 124

Financial exenses -116 -201

Impairment participation -251 0

Loss before tax -2.510 -1.265

Tax -12 -13

Loss after tax -2.522 -1.278

Non-controlling interests 0 0

Shareholder of iQ Power Licensing AG -2.522 -1.278

Other comprehensive income, net of tax: Currency

translation differences, that ill be reclassified to the

income statement if certain conditions are met -7 0

Total comprehensive income -2.529 -1.278

Non-controlling interests 0 0

Shareholder of iQ Power Licensing AG -2.529 -1.278

Undilluted and dilluted (loss) per share

Loss per share -0,01 -0,01


CONSOLIDATED STATEMENT OF CASHFLOW

in CHF 1.000 2015 2014

Net loss after tax -2.522 -1.278

Adjustments:

Financial result – net 23 78

Depreciation and Amortization 255 349

Impairment strategic investment ABC GmbH 184 0

Impairment receivables against iQ Power Asia Inc. 182 0

Impairment participation 251 0

Other non- expenses and (income) 28 -23

Net cashflow before changes in working capital -1.599 -875

Increase receivables and other assets -922 -409

Decrease trade liabilities and other liabilities -198 -287

Decrease accrued expenes and accruals -51 -190

Operating cashflow -2.769 -1.761

Interest paid -72 -148

Net cash used in operating activities (A.) -2.841 -1.909

Interest received 0 102

Investment in tangible assets -68 -224

Investment in financial assets 0 -41

Acquisitions of businesses, net of cash acquired -4 0

Net cash used in investing activities (B.) -71 -164

Proceeds from convertible bond 2.694 0

Repayments of loans 0 -92

Repayments convertible bonds 0 -42

Sale of treasury shares 0 15

Proceeds from issuance of shares (net) 0 2.570

Net cash from financing activities (C.) 2.694 2.450

Net (decrease) increase in cash and cash

equivalents -218 377

Foreign exchange variation -43 1

Cash and cash equivalents at beginning of the year 458 80

Cash and cash equivalents at end of the year 197 458

Free Cashflow = (A. ./. B.) -2.912 -2.073


CONSOLIDATED STATEMENT OF CHANGE IN EQUITY

in CHF 1.000

except numer of

shares

Number of

shares

Share

capital

Addi-

tional

paid-in

capital

and other

reserves

Trea-

sury

shares

Other

re-

serves

Accu-

mulated

deficit Equity

Equity as at

1.1.2014 788.257.455 14.897 16.606

-6 0 -30.267 1.230

Net loss after tax

-1.278 1.278

Other com-

prehensive income

0 0

Total

comprehensive

income

0 -1.278 -1.278

Issuance of preferred

shares 192.683.895 1.896 1.102

2.998

Expense of issuance

of shares -451

-451

Valuation converible

bond -4

-4

Sale of treasury

shares -6 6 0

Equity as at

31.12.2014 (before

merger

adjustments) 980.941.350 16.793 17.247

0 -31.545 2.495

Equity adjustments

from merger -735.706.012 -14.341 -18.896

0 31.237 0

Equityas at

31.12.2014 (after

merger

adjustments) 245.235.338 2.452 351

0 -308 2.495

Loss after tax -2.522 -2.522

Other compre-

hensive income

-7 -7

Total compre-

hensive income

-7 -2.522 -2.529

Conversion

convertible bonds 24.791.508 248 1.638

1.886

Equity portion

convertible bond 77

77

Equity as at

31.12.2015 270.026.846 2.700 2.066

-7 -2.830 1.929


Documents

Annual Report 2015 – iQ Power Licensing AG · 2017-01-14 · Annual Report 2015 – iQ Power Licensing AG 5 Revenues from operations improved in the second half of 2015 from CHF