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Annual Report 2015 – iQ Power Licensing AG
1
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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Annual Report 2015 – iQ Power Licensing AG
2
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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Annual Report 2015 – iQ Power Licensing AG
3
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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Annual Report 2015 – iQ Power Licensing AG
4
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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Annual Report 2015 – iQ Power Licensing AG
5
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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Annual Report 2015 – iQ Power Licensing AG
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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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Annual Report 2015 – 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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Annual Report 2015 – iQ Power Licensing AG
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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
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Consolidated Financial Statements as at 31 December 2015 Page 1
iQ Power Licensing AG, Zug
Consolidated Financial Statements
as at 31 December 2015
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Consolidated Financial Statements as at 31 December 2015 Page 2
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
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Consolidated Financial Statements as at 31 December 2015 Page 3
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
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Consolidated Financial Statements as at 31 December 2015 Page 4
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
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Consolidated Financial Statements as at 31 December 2015 Page 5
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
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Consolidated Financial Statements as at 31 December 2015 Page 6
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