Vectrix Corporation - Preliminary Results

RNS Number:7711L
Vectrix Corporation
15 January 2008

15 January 2008

VECTRIX Corporation
("Vectrix" or "the Company")

Unaudited Preliminary Results for fiscal year ended 30 September 2007

Vectrix Corporation (AIM: VRX), the high performance zero emission scooter
company today announces its Preliminary Results for the year to 30 September
2007. Vectrix is the first company to design, develop and mass produce a high
performance, zero emission powered two wheel vehicle. The Vectrix MAXI Scooter,
the Company's first vehicle to be commercially marketed, has a top speed of
62mph, a range of up to 60 miles and acceleration of 0-50 mph in 6.8 seconds.

Principal Events

• Admission to trading of shares on AIM Market of the London Stock
Exchange (AIM) and fundraising of £ 33.7 million (net proceeds)

• Certification or homologation of the Vectrix bike in the U.S., European
Union and Australia, enabling consumer launch of the bike in those
territories

• Establishment of mass assembly capacity in Wroclaw and commercial
production of first 1,775 bikes

• Successful resolution of initial product quality issues; product defect
level reduced from 1.0 per bike in June 2007 to fewer than 0.013 at calendar
year end, which is within our tolerances for product integrity

• Recognition of US$0.8 million of revenues from sales of bikes to end
users, and recording of US$4.1 million of deferred revenues from sales of
bikes to dealers, to be recognized upon final sale to end users (2006: none)

• Substantial investment in marketing resulting in significant media
coverage and overwhelmingly positive product reviews

Andy MacGowan, Chairman and Chief Executive Officer, commented "Our 2007
financial year was marked by several major accomplishments, including our
successful IPO and the international consumer launch of our first street legal
maxi-scooter. While we have been disappointed with significantly lower sales
than originally anticipated, most notably in Italy, we have overcome initial
product quality problems and believe that our sales repositioning efforts will
accelerate market acceptance. We are taking aggressive steps to reduce costs and
increase asset turnover in order to reduce significantly our cash burn. We
remain confident that the MAXI Scooter's design, performance and green
credentials will provide a market-leading, cost effective solution to urban
commuters and fleet operators in our target markets around the world and we
believe we are uniquely positioned to capitalize on the growing demand for green
vehicles."

Enquiries:

VECTRIX Corporation www.vectrix.com
Chris Moe, Chief Financial Officer 401-848-9993

Redleaf Communications 020 7822 0209
Emma Kane / Paul Dulieu

HSBC 020 7991 8888
Nic Hellyer / Nick Donald

CHAIRMAN'S STATEMENT

2007 was fundamentally transformative for Vectrix Corporation. We evolved from a
private company, focused on electric vehicle research and development, into a
publicly-listed company in the initial stage of global operations. In this
watershed year, Vectrix commenced production and sales, evoking an enthusiastic
response from the media and initial riders. We believe this reaction will seed a
large business opportunity in consumer, corporate and government markets.
Vectrix arrived in the motorcycle market as the world's first street-legal,
high-performance premium two-wheel electric vehicle. We achieved our eleven year
objective of producing a zero emission vehicle to compete against some of the
worst polluters in our congested urban centres.

In March 2007, we completed homologation for the European Union and North
America, and, in April we initiated production and assembly in our cutting-edge
plant in Wroclaw, Poland. In May, we launched global brand, marketing, sales and
distribution initiatives that brought the Vectrix Maxi Scooter to its first
customers.

In financial year to 30 September 2007, Vectrix Corp. raised over US$117.1
million of capital and converted approximately US$52 million of senior notes to
common equity. On 24 May 2007, Vectrix Corporation was admitted to the AIM
Market of the London Stock Exchange.

In the second calendar quarter of 2007, as we rapidly ramped production, we
experienced quality issues caused by software problems with our battery charger,
component quality, and defects in our assembly processes. We continually
upgraded our battery charger software, worked with our vendors to eliminate
defective materials, and implemented extensive training programs, in-process
verifications and end-of-line systems checks. These measures improved our
outgoing quality level from almost 1.0 defect per bike in June to fewer than
0.013 defects per bike today, which is in line with our target defect tolerance
level. We believe this process of solving production quality problems in
real-time has enhanced our relationship with our suppliers.

Furthermore, to address potential dealer or customer issues arising from these
initial quality concerns and resulting production delays, we alerted our sales
force and sent out Tiger Teams for field upgrades/rework, or, alternatively, we
had bikes returned to the factory for rework. While some of our early dealers
were initially disappointed with delays in receiving stock, we believe that our
candour, rapid response to and ownership of these problems has ultimately
strengthened our dealer relationships.

As we began selling activities in April, we focused much of our resources on the
Italian market. Our fundamental assumption, supported by independent market
research, was that the Vectrix Maxi-Scooter would be viewed by the market as an
attractive alternative to existing gas powered maxi-scooters with appealing
performance, technology and green aspects rather than as an entirely new and
different vehicle. Since 65% of the reference market for maxi-scooters was
Italy, we ran a highly Italian-centric marketing campaign. Our dealer response
to date suggests that, at least for the time being, the Italian rider has high
interest but low appetite for green vehicles. Additionally, many Italian scooter
riders use their bikes as primary transportation, and, therefore find the range
limitations of an electric vehicle to be challenging. Lastly, our message that
the relatively high purchase price of our vehicle is offset by low operating
cost appears to be difficult to transmit in Italy. Having therefore determined
that the immediate Italian consumer market opportunity was smaller than
originally estimated, we have substantially trimmed our Italian staff and
curtailed investment in Italy.

While Italy was initially our primary focus, we also introduced the bike to
dealers in Australia, Germany, Spain, the United Kingdom and United States;
these markets show promising signs for Vectrix. At 2007 calendar year end,
Vectrix had dealers in seven countries and, as the pacesetter of the electric
motorcycle market, we continue to work to better understand our markets and find
the best way to serve dealers and riders.

While the Company has launched an innovative vehicle and created significant
product awareness with consumers, dealers and government officials in the EU,
North America and Australia, we have been slow to convert enthusiasm into
consumer sales and as a consequence our sales results are running significantly
below management's pre-IPO expectations. As a result of lower than expected
sales and higher that expected inventories and a U.S. GAAP requirement that we
forecast in a manner consistent with historical sales and trends, we incurred a
US$9.1 million charge in cost of goods sold related to batteries and finished
goods.

In October 2007, we revised the nature of our business relationship with GP
Batteries International ("GP"), the supplier of nickel batteries for the bike.
We reached an agreement with GP releasing us from continuing obligations to
contribute to the operations of a joint venture arrangement and a dedicated
production line and now purchase nickel batteries directly from GP on an "as
needed" basis. We recorded our US$3.7million contribution to the project as an
exceptional expense in fiscal year 2007 (in addition to the US$2.0 million we
expensed in fiscal year 2006). We continue to enjoy a strong relationship with
GP.

Going forward

During the 2007 financial year, we built 1,775 vehicles and sold in to dealers
462 of which 68 sold out to consumers. Through calendar 2007, we have built
2,002 vehicles and sold in 550 to dealers of which 123 sold out to consumers.
The key financial impact of this is that for financial 2007 production and sales
were not aligned and, as a result, both accounts receivable and inventory are
much higher than expected. As we began financial 2008, we adjusted production
due to slower than expected sales and we are increasing the number of dealers in
our distribution network to accelerate vehicle sell through. We believe these
initiatives will bring our inventories, accounts receivables and cash more in
line.

In addition, sales and marketing have been repositioned in light of early market
reaction. We have split the sales and marketing leadership roles following Carlo
Di Biagio stepping down from his executive role as Chief Operating Officer -
Sales and Marketing. Scott Williams, Director of Sales for the Americas, has
assumed responsibility for worldwide sales and Jeff Morrill, Director of
Marketing for the Americas, has assumed global responsibilities for marketing.

Scott Williams has over 26 years of experience leading business development at
companies including Verizon Business, MCI Solutions, Adlex Corporation and
Nortel Networks, while Jeff Morrill has over 17 years' experience in marketing
and sales, having held positions with Nestle, Borden and Johnson & Johnson.

We are reducing reliance on the Signature Store approach because of an overly
long sales development cycle in favour of multi-franchise motorcycle and car
dealers as we believe this will permit faster dealer acquisition and higher unit
sales. We shifted our Rome-based sales administration operation to Middletown,
Rhode Island with reductions in cost and improvements in control.

We plan to grow the US and Northern European consumer business and maintain our
Southern Europe business, reducing emphasis on Italy and focusing more on Spain
and France. Lastly, we are increasing our time, focus and investment of
resources in fleet opportunities in both the UK and the US.

Net cash and short term investments at the end of financial year 2007 is
US$49.6 million and at 31 December 2007, US$32.1 million. In order to ensure
that we have sufficient liquidity to meet our anticipated needs, we are
embarking on an aggressive program to both reduce expenses and increase asset
turnover. Specifically, we have initiatives underway to sell out the remaining
2007 inventory both in-channel and out of channel. We are also better
monitoring and managing existing dealers for collection. Going forward, we
expect the majority of new, multi-franchise dealers to have inventory financing
in place which will accelerate collection cycles.

We are focusing our sustaining R&D spend on continually improving our core
technology suite to improve reliability, functionality and range and to reduce
cost. We are delaying any further investment in new R&D opportunities until we
are comfortable with core vehicle sales.

We are also keeping production on very low throughput until we have our finished
goods inventories in line with the core business. In both production and R&D we
are bringing headcount more in line with scale and planned emphasis of
operations. We have also initiated a comprehensive review of corporate expenses
and expect to decrease them so they are more in line with revenue development.

From a global perspective, the rapid increase in oil prices and growing
awareness of the dangers of climate change were clear trends of 2007. We expect
these global trends to continue and indeed accelerate: this should drive
consumer and business demand, as well as government regulations, in favour of
Vectrix. We are uniquely positioned to capitalize on the growing demand for
green vehicles.

Finally, we wish to thank our staff, dealers, riders, vendors, and shareholders,
who believe in our mission to provide high performance zero emission vehicles
that reduce the carbon footprint of citizens and cities of the world.

Andrew J. MacGowan
Chairman & CEO

BUSINESS REVIEW

Nature of the Business and Organization

Vectrix Corporation ("the Company") was incorporated in Delaware on 6 March 1996
as Breeze Acquisition Corporation to develop, manufacture and distribute
advanced, commercially viable electric vehicle technology. In November 1997, the
Company changed its name to Vectrix Corporation and now has wholly-owned
subsidiaries in Italy, Ireland, the United Kingdom and Poland.

From inception, the Company has devoted its efforts primarily to research and
technology development, securing financing and business planning and is
considered to be a development stage enterprise. The Company is subject to a
number of risks associated with emerging, technology-oriented development stage
companies. Principal among these are risks associated with commercial acceptance
of the Company's products, the establishment of effective distribution channels
and dependence upon key individuals.

On 24 May 2007, the Company's common stock was admitted to the AIM Market of the
London Stock Exchange ("the AIM Listing") and the Company raised approximately
US$68.3 million, net of offering costs.

The Company has also moved its principal office from 11 Touro Street, Newport,
Rhode Island to 76 Hammarlund Way, Tech III Plaza, Suite 250, Middletown,
Rhode Island.

Revenue

Revenues were comprised of sales of scooters to end users. For the fiscal year
ending 30 September 2007, the Company recognized US$0.8 million of revenues
worldwide. This amount was comprised of sales to end users in the UK (40%), the
US (34%), Italy (23%) and other countries (3%). In fiscal year 2006, the Company
did not have any revenues.

The Company recognizes revenue only on sales of products to end users until such
time as the rate of product returns from dealers can be reasonably estimated,
amongst other criteria. For product sales to dealers, the Company records
deferred revenue at gross invoice sales price less estimated cash discounts.
Through 30 September 2007, the Company recorded deferred revenues of
US$4.1 million related to sales of bikes to dealers. The Accounts Receivable
amount is larger than the amount of recognized revenues due to the fact that a
large portion of the receivables is related to scooters sold to dealers and not
yet sold through to end users.

Cost of Sales

Cost of sales was comprised in part of costs related to sales of scooters to end
users (US$0.8 million).

Additionally, the Company includes in cost of sales approximately US$3.2 million
of Inventory Valuation Adjustment for the Lower of Cost or Market (LCM). This
amount is related to the write-down of the value of the finished scooters in our
inventory. See Note 1 for additional explanation.

Cost of Sales also includes a Battery Excess Inventory Charge of US$2.0 million,
related to excess quantities of nickel batteries located in our inventory in
Wroclaw and Excess Battery Purchase Commitment of US$4.0 million related to
batteries located in the supplier's (GP) warehouse. See Notes 2 and 3 for
additional explanation.

For the fiscal year ending 30 September 2007, the Company recognized a total of
US$9.9 million of cost of sales worldwide.

General and Administrative

General and Administrative expenses consist of costs incurred in connection with
finance and administrative activities, including personnel costs, various
consulting and professional services fees, facilities and general corporate
expenses. General and Administrative expenses were US$10.9 million for the
twelve months ending 30 September 2007, as compared to US$6.4 million for the
same twelve month period in 2006, an increase of US$4.5 million, or 70%. This
increase resulted primarily from:

(i) an increase in administrative headcount from 10 employees world wide at 30
September 2006 to 27 employees at 30 September 2007, in various locations,
as required to grow the business activities of the Company in different
functions;
(ii) an increase in related employment costs, travel and related expenses and
office costs;
(iii) costs of launch of new United Kingdom and Italian operations;
(iv) increased legal and administrative costs, related to developing the
distribution network, regulatory compliance and establishment of
subsidiaries; and
(v) an increase in intellectual property costs.

Liquidity and Capital Resources

As of 30 September 2007, the Company had US$49.6 million of net cash and cash
equivalents and short-term investments and other working capital of US$15.8
million. Cash, cash equivalents and short-term investments were US$48.2 million
higher than corresponding amounts as of 30 September 2006, primarily as result
of the Company's sale of new shares of common stock, net of cash used in
operations and for capital expenditures.

In March 2007, the Company successfully placed (via private placement) 29.1
million new shares of common stock at a per share price of US$0.90, raising a
net total of US$23.2 million. Previously, between October 2006 and January
2007, the Company raised a total of US$26.4 million in convertible notes, which
converted to common stock at the completion of the March private placement.

In May 2007, the Company raised net proceeds of US$ 68.3 million from the sale
of common shares in its IPO.

Cash Used in Operations

Net cash used in operating activities was US$54.4 million for the twelve months
ended 30 September 2007, attributable primarily to a net loss of US$54.2
million, adjusted for non-cash charges related to depreciation and amortization
expenses (including debt issuance costs) of US$1.4 million, interest expense on
notes of US$4.9 million, interest expense on issued warrants of US$6.0 million,
stock compensation cost of US$0.8 million and restricted stock, restricted units
and stock option expense of US$2.2 million.

Also affecting net cash used in operations in fiscal 2007 were:

(i) an increase in inventory of US$16.5 million:
(ii) an increase in prepaid expenses and other current assets of
US$5.8 million;
(iii) an increase in deferred cost of sales of US$3.6 million, offset by an
increase in deferred revenues of US$3.8 million (related to sales to
dealers which have not sold through to end customers);
(iv) an increase in accounts receivable of US$4.3 million;
(v) a decrease in deferred expenses of US$1.5 million; and
(vi) an increase in accounts payable of US$3.2 million.

Cash Used in Investing Activities

Net cash used in investing activities was US$15.3 million for the twelve months
ended 30 September 2007. It primarily reflects the purchase of machinery to
build assembly facilities in Poland and the pilot production line in the United
States as well as the relocation of corporate offices in Rome, Poland and United
States. This amount includes US$0.2 million that related to restricted cash
amounts in Italy and Poland and US$6.1 million, related to purchases of
short-term investments.

Cash Provided by Financing Activities

Net cash provided by financing activities was US$117.1 million for the twelve
months ended 30 September 2007 and resulted primarily from:

(i) the Company's issuance of common stock (net of issuance costs) of
US$68.3 million upon the AIM listing;
(ii) proceeds from sale of convertible notes (net of issuance costs) of
US$26.3 million; and
(iii) proceeds from issuance of common stock through private placement
(net of issuance costs) of US$23.2 million.

Summary

In May 2007, the Company raised approximately US$68.3 million (£33.7 million),
net of offering costs in the placing (at price of £0.52 per share) of its common
shares on AIM. The proceeds were used to provide capital to fund the Company's
vehicle production in Poland, sales and marketing activities in selected world
markets (including development of dealer network) and further product research
and development.

Based on our plan to reduce costs and improve asset turnover, management
believes that the Company's cash, cash equivalents and short-term investments at
30 September 2007 will be sufficient to meet its anticipated cash requirements
for operating and working capital purposes for at least 12 months.

Christopher R. Moe
Chief Financial Officer

Vectrix Corporation (a development stage enterprise)
Consolidated Statement of Operations (unaudited)
(USD in thousands)

Twelve Months Ended
30 September
2007 2006
US$'000 US$'000
----------- ----------
Net Revenues 819
----------- ----------

COGS
Inventory revaluation (LCM) Note 1 3,173
Battery excess inventory charge Note 2 1,950
Battery excess purchase commitment Note 3 3,980
Cost of goods sold 820
----------- ----------
Total COGS 9,923
----------- ----------

Gross Margin (9,104)

Expenses
Research and development 9,557 14,126
General and administrative 10,886 6,391
Selling and marketing 12,468
Depreciation Expense 1,379 481
Additional rent write-off 180
Start-up cost - Wroclaw facility 731
Nickel battery joint-venture write-off Note 4 3,690
Acquired technology
----------- ----------
Loss from operations (47,995) (20,998)

Other income, net 16 5
Gain on sale of assets 6
Interest income 883 5
Interest expense Note 5 (10,958) (3,174)
Foreign exchange gain 4,078
----------- ----------
Loss before provision for income taxes (53,970) (24,162)
Provision for income taxes (191) (233)
----------- ----------
Net loss (54,161) (24,395)
----------- ----------
Basic and diluted net loss
per share US$(0.36) US$(0.46)
Weighted average shares
Outstanding - basic and diluted 151,269 52,663

Vectrix Corporation (a development stage enterprise)
Consolidated Balance Sheet (unaudited)
(USD in thousands)

At 30 September
2007 2006
US$'000 US$'000
Assets
Current assets
Cash and cash equivalents 44,332 2,133
Short-term investments 6,066 50
Restricted cash 235
Accounts receivable Note 6 4,457
Other receivables 237 197
Inventories Note 7 19,289 1,375
Deferred cost of goods sold Note 8 3,893
Prepaid expenses and other current assets 540 293
Input VAT Note 9 5,933
------------ ---------
Total current assets 84,982 4,048
Property and equipment, net 10,248 2,206
Other assets 308 262
------------ ---------
Total assets 95,538 6,516
------------ ---------

Liabilities and Stockholders' Equity
Current liabilities
Bank overdraft 784
Accounts payable 6,667 3,061
Adverse purchase commitments Note 10 3,980
Accrued liabilities 1,251 2,015
Due to related parties 528 984
Accrued compensation 756 1,522
Deferred revenue Note 11 4,074
Current portion of capital lease obligation 44 18
Short-term notes payable 52 8,902
Short-term notes payable to stockholders 14,344
Other current liabilities 451
------------ ---------
Total current liabilities 18,587 30,846

Capital lease obligation, less current portion 154 65
Other long-term liabilities 74
------------ ---------
Total liabilities 18,815 30,911
------------ ---------
Stockholders' equity (deficit)
Preferred stock, US$0.10 par value; 0 and 6,000,000 shares
Authorized at 30 September 2007and 2006, respectively
Series B nonvoting convertible preferred stock, 0 and
925,000 shares authorized, issued and outstanding at
30 September 2007 and 2006, respectively 93
Common stock, US$0.10 par value; 435,000,000, and
194,000,000 shares authorized; 248,427,434
and 57,872,214 shares issued and outstanding at
30 September 2007 and 2006, respectively 24,843 5,787
Additional paid-in capital 170,559 33,866
Deficit accumulated during development stage (118,271) (64,110)
Accumulated other comprehensive loss (408) (31)
------------ ---------
Total stockholders' equity (deficit) 76,723 (24,395)
------------ ---------
Total liabilities and stockholders' equity (deficit) 95,538 6,516
------------ ---------

Vectrix Corporation (a development stage enterprise)
Consolidated Statement of Cash Flows (unaudited)
(USD in thousands)

Twelve Months Ended
30 September
2007 2006
US$'000 US$'000

Cash flows from operating activities
Net loss (54,161) (24,395)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 1,379 481
Non-cash charges related to issuance of warrants 1,496
Other non-cash compensation expense 2,975 1,668
Non-cash interest expense on
warrants and notes Note 5 10,961
Inventory revaluation - LCM Note 1 3,173
Battery excess inventory change Note 2 1,950
Battery excess purchase commitments Note 3 3,980
Changes in assets and liabilities:
Accounts receivable Note 6 (4,248)
Deferred COGS Note 8 (3,636)
Prepaid expenses and other current assets (5,750) (340)
Inventories Note 7 (16,515) (1,375)
Accounts payable 3,190 2,425
Deferred revenue 3,849
Accrued expenses (1,046)
Payable to related party (457) (76)
--------------------------------
Net cash used in operating activities (54,356) (20,116)
--------------------------------
Cash flows from investing activities
Purchase of fixed assets (8,991) (1,550)

Increase in restricted cash (219)

Purchases of investments (6,066) (50)
--------------------------------
Net cash used in investing activities (15,276) (1,600)
--------------------------------

Cash flows from financing activities
Proceeds from issuance of notes payable and warrants
to stockholders, net of issuance costs 26,353 15,841
Proceeds from private issuance of common stock,
net of issuance costs 23,245 3,500
Bank overdraft (784)
Proceeds from public issuance of common stock,
net of issuance costs 68,347 793
Repayment of capital lease obligation (84) (16)
--------------------------------
Net cash provided by financing activities 117,077 20,118
--------------------------------
Effect of exchange rate changes on cash (5,246) 189
--------------------------------
Net increase (decrease) in cash 42,199 (1,409)
Cash and cash equivalents at beginning of period 2,133 3,542
--------------------------------
Cash and cash equivalents at end of period 44,332 2,133
--------------------------------

1. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial information is presented in accordance with
accounting principles generally accepted in the United States of America (U.S.
GAAP).

Consolidation

The unaudited condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, VectrixEurope S.r.l., Vectrix
Europe Limited, Vectrix (UK) Limited and Vectrix sp. z o.o. All inter-company
transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and in
accordance with Statement of Financial Accounting Standards ("SFAS") 48 -
Revenue Recognition When Right of Return Exists. Revenue is realized or
realizable and earned when all of the following criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services have
been rendered; (3) the seller's price to the buyer is fixed or determinable; and
(4) collectibility is reasonably assured. SFAS 48 states that revenue from sales
transactions where the buyer has the right to return the product shall be
recognized at the time of sale only if (1) the seller's price to the buyer is
substantially fixed or determinable at the date of sale, (2) the buyer has paid
the seller, or the buyer is obligated to pay the seller and the obligation is
not contingent on resale of the product, (3) the buyer's obligation to the
seller would not be changed in the event of theft or physical destruction or
damage of the product, (4) the buyer acquiring the product for resale has
economic substance apart from that provided by the seller, (5) the seller does
not have significant obligations for future performance to directly bring about
resale of the product by the buyer, and (6) the amount of future returns can be
reasonably estimated.

2. Notes to financial statements

NOTE 1 - Inventory Revaluation (LCM)

The Company performed a detailed assessment of inventory and purchase
commitments at the Balance Sheet date, which included a review of, among other
factors, demand requirements and market conditions. U.S. GAAP requires that our
demand forecasts consider historical sales figures and observed sales trends.
Accordingly, the Company recorded adjustments to reflect inventory at the lower
of cost or market, and to write down products and materials which were not
forecasted to be used in production to meet such demand forecasts.

As a result, in the year ended 30 September 2007, the Company incurred US$3.2
million of inventory valuation charge, related to finished goods (scooters).

Should demand for the Company's products differ from the Company's current
forecast, the amount of realizable value of these inventories could change.

NOTE 2 - Battery Excess Inventory Charge (related to inventory)

The Company performed a detailed assessment of inventory and purchase
commitments at the Balance Sheet date, which included a review of, among other
factors, demand requirements and market conditions. U.S. GAAP requires that our
demand forecast consider historical sales figures and observed sales trends.
Accordingly, the Company recorded adjustments to reflect inventory at the lower
of cost or market, and to write down products and materials which were not
forecasted to be used in production to meet such demand forecasts. Accordingly,
the Company recorded adjustments to reflect inventory at the lower of cost or
market, and to write down products and materials which were not forecasted to be
used in production to meet such demand forecasts.

As a result, in the year ended 30 September 2007, the Company incurred US$1.9
million, related to GP batteries in Vectrix inventory at fiscal year-end.

Should demand for the Company's products differ from the Company's current
forecast, the amount of realizable value of these inventories could change.

NOTE 3 - Battery Excess Purchase Commitments

The Company reserved an additional US$4.0 million for excess non-cancellable
purchase commitments for nickel batteries from GP. In calculating this amount,
the Company included an amount of batteries that may not be used under
reasonable circumstances, based on our current sales forecast. Our current sales
forecast is based on historical sales figures and observed sales trends. Should
actual sales differ from the Company's current forecast, the amount of
realizable value of these batteries could change.

NOTE 4 - Asset Impairment (Nickel Battery Joint-Venture Write-off)

In September 2007, the Board of Directors of the Company resolved to dissolve
the joint venture company formed with GP, which had been intended to produce
nickel batteries for the bike. In light of GP's ability to meet the Company's
battery requirements from its existing production facilities, the joint venture
had not become operational or established the contemplated battery production
line. On 15 October 2007, GP and the Company signed a settlement agreement and
release relative to the joint venture arrangements. The Company had advanced
US$5.7 million towards joint venture activities, which was used to modify GP's
existing production line to meet the Company's battery requirements. Of this
amount, US$2.0 million was expensed in fiscal year 2006. The remaining US$3.7
million was fully impaired in fiscal year 2007 as it is not expected to generate
any future economic benefits. The amount is included in the Income Statement in
accordance with SFAS 144 "Accounting for the Impairment and Disposal of
Long-Lived Assets".

NOTE 5 - Interest Expense

Interest expense for the twelve months ended 30 September 2007 was US$11.0
million as compared to US$3.2 million for the same twelve months period in 2006,
an increase of US$7.8 million. This increase resulted primarily from:

(i) non-cash expense related to the warrants issued in conjunction with
convertible debt; and
(ii) debt issuance costs on convertible notes.

NOTE 6 - Accounts Receivable

The amount of US$4.4 million in Accounts Receivable is related to amounts owed
to the Company by dealers in countries where bikes are sold. The largest amounts
are related to sales to U.S. dealers (US$1.1 million), Australian dealer (US$1.1
million), Italian dealers (US$0.9 million), Spanish dealer (US$0.7 million), and
dealers in other countries (US$0.6 million).

NOTE 7 - Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market
and includes materials (finished goods, components and spare parts, including
batteries and accessories), labour and manufacturing overhead. The Company
performs a detailed assessment of excess and obsolete inventory and purchase
commitments at each Balance Sheet date, which includes a review of, among other
factors, demand requirements and market conditions.

NOTE 8 - Deferred Cost of Goods Sold

The amount of US$3.9 million of Deferred Cost of Goods Sold (reported under the
Current Assets section of the Balance Sheet) is related to bikes sold to dealers
(and removed from Vectrix inventory and transferred to dealers' inventory),
which have not been sold to end users.

NOTE 9 - Input VAT

The VAT amount of US$5.9 million represents amounts owed to Vectrix entities
from VAT offices in countries outside of the U.S. Vectrix Poland sp. z o.o. was
owed US$4.7 million, VectrixEurope (Italy) S.r.l was owed US$0.7 million and
Vectrix Corporation (USA), registered for VAT in Poland, was owed US$0.5 million
at fiscal year end. All amounts are expected to be collected from the Polish VAT
offices or offset against future taxes and VAT payables by the end of fiscal
year 2008. A portion of the amount payable by the Italian VAT office is expected
to be offset against future taxes and VAT payables by the end of fiscal year
2008. The Vectrix Poland sp. z o.o. VAT receivable balance is mostly related to
purchases of components and materials (including batteries) from its suppliers.
The Vectrix Corporation VAT receivable is related to intra-EU sales of bikes.

NOTE 10 - Adverse Purchase Commitment

The amount of US$4.0 million of Adverse Purchase Commitment is related to firm
obligations that the Company had to its battery supplier (GP) at fiscal year end
and represents batteries produced for Vectrix by GP under firm purchase orders
where legal title to the goods had not yet transferred to Vectrix (under proper
Incoterms).

NOTE 11 - Deferred Revenue

The amount of US$4.1 million of deferred revenue is related to sales of bikes to
dealers (under binding contracts, supported by firm purchase orders without
right of return) without corresponding resale of the bikes to end users by
fiscal year end.

3. Net Loss Per Common Share

Basic and diluted net loss per share is presented in conformity with SFAS No.
128, Earnings Per Share, for all periods presented. In accordance with SFAS 128,
basic and diluted net loss per share is computed by dividing the weighted
average number of shares of common stock outstanding during the period into the
net loss attributable to common stockholders.

(numbers in thousands)
For Year Ending
30 September
2007 2006
----------- -----------

Net loss (US$'000) (54,161) (24,395)
Basic and diluted shares
Weighted average common shares outstanding
used in computing basic and diluted net loss 151,269 52,663
Basic and diluted net loss per share US$ (0.36) US$ (0.46)

4. Segments

The Company manages the business as one segment and conducts operations in the
United States, Italy, United Kingdom and Poland.

The following table summarizes the location of the Company's long-lived assets,
by country:
30 September
(numbers in thousands) 2007 2006
--------------------------
US$'000 US$'000

United States 2,725 1,012
Italy 2,455 540
Poland 4,875 654
United Kingdom 194

Total long-lived assets 10,248 2,206
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This information is provided by RNS
The company news service from the London Stock Exchange

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FR GUUBPGUPRUAA