RNS Number : 8036X
Vectrix Corporation
30 June 2008
Vectrix Corporation
27th June 2008
VECTRIX Corporation
("Vectrix" or "the Company")
Interim Results for the six months ended 31 March 2008
VECTRIX Corporation (AIM:VRX.L) 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 over
60 miles and acceleration of 0-50 mph in 6.8 seconds.
H1 2008 HIGHLIGHTS:
* Delivered 204 bikes to dealers ("Sell In") in 23 countries and sold 129 bikes to consumers ("Sell Out").
* Recognized US$1.9 million in revenues from sales of bikes to end users (H12007: nil), with US$4.5 million in deferred revenues
from sales of bikes to dealers, to be recognized upon final sale to end users
* Secured advanced technology access and a supply contract for lithium batteries with Gold Peak Batteries.
* Slowed cash outflow by renegotiating and delaying supplier shipments and reducing global headcount by 34% with minimal redundancy
costs.
POST PERIOD END HIGHLIGHTS:
* Cumulative Sell In (sales to dealers) since start of H2 FY2008 has been 258 units (H1: 204 units). Sell Out (sales to consumers)
has totalled 111 bikes (H1: 129).
* Secured dealer inventory financing (floor planning) with GE Capital for US and Canadian markets which has accelerated, and is
expected to continue to accelerate dealer acquisition and inventory Sell In.
* Appointed experienced restructuring executive, Michael J. Boyle, as Chief Executive Officer, to speed revenue development and
further reduce costs.
H1 RESULTS SUMMARY:
6 months ended 6 months ended
31 March 2008 31 March 2007
US$ 1,942,922 US$ -
Revenues
Operating Expenses (29,253,873) (13,360,724)
EBIT (35,803,484) (13,360,724)
Net Loss (26,032,045) (24,555,937)
Michael Boyle, Chief Executive Officer, commented "The first half of 2008 marked the Company's gradual transition to a robust focus on
operations, dealer acquisition and increased internal efficiencies. We re-centered our dealer development effort from an Italian centric one
to Northern Europe and the US focus and we have begun to see the results of this effort. We also slowed production significantly to align
inventory with sales."
Enquiries:
VECTRIX Corporation www.vectrix.com
Michael J. Boyle, Chief Executive Officer +1 401 848 9993
Redleaf Communications +44 020 7822 0209
Emma Kane / Paul Dulieu
HSBC +44 020 7991 8888
Nic Hellyer / Nick Donald
This document contains forward looking statements, including, without limitation, statements containing the words "believes",
"anticipates", "expects" and similar expressions. Such forward looking statements involve unknown risks, uncertainties and other factors
which may cause the actual results, financial condition, performance or achievements of the Company, or industry results, to be materially
different from any future results, performance or achievements expressed or implied by such forward looking statements. New factors may
emerge from time to time that could cause the Company's business not to develop as it expects, and it is not possible for the Company to
predict all such factors. Given these uncertainties, investors and prospective investors are cautioned not to place any undue reliance on
such forward looking statements. Except as required by law or the AIM rules, the Company disclaims any obligation to update any such forward
looking statements in this report to reflect future events or developments.
These materials do not constitute an offer to purchase or subscribe for the Company's securities. The Company's common stock has not
been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), and may not be offered,
sold, pledged or otherwise transferred except if such transfer is effected (1) in a transaction meeting the requirements of Regulation S
under the Securities Act, (2) pursuant to an effective registration statement under the Securities Act, or (3) pursuant to an available
exemption from the registration requirements of the Securities Act, in each case in accordance with all applicable securities laws,
including applicable state securities laws of the United States.
Vectrix Corporation
CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW
INTRODUCTION
Although the performance in H1 was disappointing, we saw positive signs that our product is being accepted on a global basis. While it
has taken longer to build out a dealer network than the Company originally anticipated, targeted calling efforts by our expanded sales force
is leading to significant expansion of our dealer network in both the USA and the EU and we expect to have 175 retail points of sale by the
end of FY08. Our continued focus and success in building this distribution network is critical to our long term success.
To support this expanded point of sale network with exciting Zero Emission Vehicles (ZEV), we plan to expand our product portfolio with
the introduction of the 2009 model year in October. This expanded product offering will include a refreshed Maxi Scooter and a new lower
entry point version of the Maxi Scooter. In addition, the introduction of new ZEV models in the equivalent petrol 125cc to 350cc markets
will significantly expand the markets for our dealers. These new offerings will be developed within the reduced cost structure of our R&D
group, capitalizing on existing product technology and lower cost manufacturing options. With our planned new product offerings we expect
the available Scooter/Motorcycle market opportunity will grow from approximately 15% to 40%. This expanded product line creates a Product
Family Strategy that provides consumers an entry level, mid-range and top-of-the-line selection. Vectrix is positioned in the market as a
high end product offering with exceptional technology, performance and quality. Our strategy of a "family of products" will build on the current Vectrix brand image, positioning our products in a
similar way as automotive companies, like BMW and Daimler, have with their family of vehicles.
We are currently utilizing new price points to accelerate sales in the second half of FY08 and to test the positioning of the current
Maxi Scooter to optimize its sales potential prior to the 2009 model announcements. We believe the current pricing strategy will support an
accelerated sales rate throughout the remainder of the current financial year while also conditioning the consumer expectation for the new
2009 model year offerings. I am optimistic that the current sales rates and forecasts for H2 will allow for significant inventory reductions
and a lower unabsorbed cost from our Polish assembly facility. We are also exploring the use of OEM relationships and alternative
manufacturing strategies to reduce time to market and lower product costs.
We expect our cash position to remain stable in the second half of the year with an expectation that it will remain so into the first
half of FY2009 when we expect to begin to see results from our expanded product line. We have also taken additional restructuring actions in
the manufacturing, R&D and corporate headquarters groups to reduce cash consumption. These latest restructuring actions will further reduce
headcount by 15% for a cumulative reduction in personnel costs of 49% since the beginning of the current fiscal year. As we complete the
second half of the year, I will keep you updated on this and other matters that might affect our cash position.
In conclusion, these are exciting times at Vectrix and I am optimistic that the cost reductions we are making, the acceleration we have
seen in Sell In as a result of our expanded sales group and the product strategy we are putting in place will stabilize our business in the
months ahead.
FINANCIAL REVIEW
In the period, we delivered 204 bikes to dealers ("Sell In") in 20 countries and consumers purchased 111 bikes ("Sell Out"). Cumulative
units sold to dealers worldwide since the beginning of production in April 2007 are 666 at the end of the period, and 924 to date. For the
six months ended 31 March 2008, we recognized revenues of US$1.9 million from sales of bikes to end users, with an amount of US$4.5 million
held on the balance sheet in deferred revenues from sales of bikes to dealers, which will be recognized upon final sale to end users. This
is compared to no recognized revenue in the same six month period in 2007 and deferred revenue of US$4.1 million.
As a result of initiating production and sales operations in the US and the EU and growing the business, operating expenses for the six
months have risen from US$13.4 million to US$29.3 million, which has slightly increased the net loss for the six months ended 31 March 2008
to US$26.0 million (H12007: net loss of US$24.6 million). The increase in operating expenses was primarily the result of the significant
expansion in the size of the sales, marketing and manufacturing organizations, increased stock-based compensation costs, and increased
expenses associated with the Company's status as a public entity since May 2007. This increase in operating expenses was largely offset by a
reduction in financing and other non-operating expenses; from a consolidated expense of US$11.0 million in H1 2007 (principally related to
interest expense) to a net gain of US$9.6 million in H1 2008 (principally foreign currency translation gain).
The Company's cash position at 31 March 2008 was US$22.7 million in cash and cash equivalents. The cash used in operating activities
during the six months ended 31 March 2008 was US$21.3 million. Cash attributable to investment and financing activities totalled a net
inflow of US$0.8 million during the six months ended 31 March 2008 and, with the effects of exchange rates resulting in US$1.2 million, net
cash outflow for the six months ended 31 March 2008 was US$21.7 million. While the Company has taken steps to reduce cash expenditures and
believes it has adequate funds to meet its current strategic goals, there can be no guarantees and the Company may need additional financing
to achieve its plans.
PRODUCTION REVIEW
In the first half of the year we manufactured 244 vehicles. We anticipate commencing 2009 model year build in the latter part of the
current financial year. In order to maintain our listing status with National Automobile Dealers Association we are required to show
continuous production and product models.
At period end, we have aligned production with our growing distribution network. Based on our reduced production plan for the balance of
FY2008 and our accelerating dealer sales, we expect inventories to reduce significantly by year end.
MARKET AND PRODUCT DEVELOPMENTS
At period end, Vectrix had 79 retail points of sale in 20 countries and as of today we have 103 retail points of sale in 24 countries.
Vectrix continues to receive significant media coverage and high profile celebrity support. We currently have contact with over 500
journalists on a monthly basis and we receive overwhelmingly positive coverage and product reviews from media of record as well as
specialist publications.
We are encouraged by early results in our fleet business. While volumes remain small, we are seeing good uptake in the "Authority"
market dominated by police and campus security groups. To date we have delivered bikes for sale to Los Angeles Port Police, City of
Sacramento, Hong Kong Police, Kent Police, Strathclyde Police and deliveries for test to New York City Police Department. We have also
entered into an agreement with Leasys, Italy's largest leasing company, to offer leasing of Vectrix vehicles.
We are continuing to support a political advocacy program in the US and UK to capitalize on existing and emerging government mandates,
refunds and/or tax credits for individual purchasers and municipal state and national fleets to acquire and operate "Green" vehicles.
To broaden the appeal of our product, Vectrix is completing the design, testing and homologation of optional features which include a
sport windscreen, mirror extensions, narrower seat and center stand. In addition, we are preparing an expanded line up of products for Model
Year 2009.
At the end of H1 we entered into a strategic agreement with GP Batteries International Limited (GP Batteries) of Singapore. The
agreement provides that GP Batteries will develop and be able to supply by the end of 2008 lithium ion batteries for future Vectrix ZEV
models. Vectrix will be the exclusive GP Batteries' customer for the class of lithium ion batteries to be developed for use in two and
three-wheel ZEV's. We currently have prototypes of these batteries and early testing is providing positive performance results. In addition
to our GP lithium program, Vectrix continues to evaluate, test and develop on board energy systems which will enhance the performance and
value of our products to our customers.
It is the Company's intention to use multiple battery technologies to provide our customers with both cost efficiency and performance.
Available in the market today we feel we have a breadth in battery chemistry to match the mission and scope of use designed into our family
of scooters. In some cases using SLA (sealed lead acid) with new silicone electrolyte that is more environmentally friendly provides a
superior price performance option. In other cases technologies including NiMH and Lithium will offer the best price performance. Longer term
we see Hybrid battery technology using combinations of battery technology and ultra capacitors to produce lower cost, lower weight and
higher performance.
SUBSEQUENT EVENTS
As of this date, cumulative Sell In since the start of H2 FY2008 is 258 and since inception is 924. We added 24 new retail points of
sale thus far in the second half of the financial year.
In March, we secured a Dealer Finance Program with GE Capital Solutions' Commercial Distribution Finance to provide inventory floor
planning for North American Vectrix dealers. GE's Commercial Distribution Finance, a leader in Powersports financing, now offers selected
Vectrix dealers an inventory floor planning program allowing them the capability of having on hand an inventory of Vectrix ZEV's in
showrooms for sale to consumers. This program has accelerated and is expected to continue to accelerate dealer acquisition and inventory
Sell In.
On 23 April 2008 we announced that Andrew MacGowan, the Company's Chairman, President and Chief Executive Officer, had informed the
Board that he would not offer himself for re-election as a Director of the Company at the Annual General Meeting ("AGM"), that was to be
held on 1 May 2008, and that he would step down from his roles effective upon conclusion of the AGM. The Board of Directors named Michael
Boyle as the Company's President and Chief Executive Officer and elected Mr. Robert Bond as Chairman of the Board.
Effective 27 June 2008 the Company accepted the resignation of its Chief Financial Officer and Director Christopher Moe. The Company has
named John McGuiness as the newly created Chief Accounting Officer effective 7 July 2008. Mr. McGuiness has extensive experience in the US
public market serving as CAO and he is a Certified Public Account.
OUTLOOK
In the last decade, the price for a barrel of oil has risen from $10 to $140, and that trend appears to be accelerating not abating.
Emissions from internal combustion engine motorcycles and scooters pollute the atmosphere and continue to be a key contributor to global
warming. Peak oil prices are driving change, creating unprecedented shifts in use and value. Miles driven in the US are declining at an
unprecedented rate and dramatic declines in residual values of less fuel efficient vehicles (SUV's) are making alternative technology more
acceptable to consumers. In addition, a barrage of regulations supports alternative technology.
The US is requiring a 26% improvement in fuel economy by 2015; 40% by 2020. California and 14 states that mirror California could impose
even more aggressive fuel economy standards. Europe is demanding 28% improvement by 2012. France, Austria, Cyprus, Denmark, Finland,
Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK and Israel are implementing taxes on less fuel efficient
vehicles and/or bonuses for more fuel efficient vehicles. Singapore, Stockholm, Velletta, Milan, Santiago, Oslo, London, Durham, Berlin,
Rome and Bologna have implemented, or are implementing congestion charges; charges are generally lower (or waived) for high fuel efficiency
vehicles. Shanghai and Beijing have banned petrol powered 2-wheelers completely.
We believe that creating an alternative to petrol or petrol-based hybrids for private transportation is imperative. Vectrix remains the
only two wheel Zero Emission Vehicle (ZEV) in production, homologated for most of the world's roads and available at dealers. Consumers and
fleet owners continue to grow in awareness of the impact the Vectrix ZEV can have in reducing CO2 emissions and as the only low cost
substitute for petrol powered vehicles. We believe that the automotive /motorcycle industry is about to experience profound accelerated
change. As we continue to build our dealer network worldwide and reduce the internal cost of doing business and position the Vectrix product
efficiently in the market, we believe Vectrix will be able to capitalize of this change.
Finally, we would like to take this opportunity to thank all the employees and key stakeholders in Vectrix for their continued
dedication and commitment to the Company and its mission of providing low emission, low carbon and high efficiency vehicles. We look forward
to your support in building for the future success of the Company.
ROBERT W. BOND MICHAEL J. BOYLE
Chairman Chief Executive Officer
Vectrix Corporation
Consolidated Balance Sheet (Unaudited)
31 March 30 September
2008 2007
Assets
Current assets
Cash and cash equivalents US$ 22,678,692 US$ 44,332,096
Short-term investments - 6,066,000
Accounts receivable 2,410,252 4,457,416
Inventories in custody of dealers 4,410,116 3,892,388
Inventories 17,884,753 19,288,739
VAT receivable 3,874,274 5,932,677
Prepaid expenses 1,040,097 776,969
Other current assets 1,087,373 -
Total current assets 53,385,557 84,746,285
Property and equipment, net 11,025,418 10,248,136
Restricted cash 3,523,107 235,112
Other assets 609,612 307,507
Total assets US$ 68,543,694 US$ 95,537,040
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities
Accounts payable US$ 4,173,996 US$ 6,667,017
Accrued liabilities 2,464,153 1,250,973
Due to related parties 285,961 528,441
Accrued compensation 721,323 756,077
Bank overdraft - 784,219
Current portion of capital lease 51,373 44,000
obligation
Short-term notes payable 32,677 52,195
Adverse purchase commitment - 3,979,500
Deferred revenue 4,468,093 4,074,223
Other current liabilities 201,598 450,694
Total current liabilities 12,399,174 18,587,339
Capital lease obligation, less current 185,860 153,388
portion
Other long term liabilities 286,151 74,362
Total liabilities 12,871,185 18,815,089
Stockholders' equity (deficit)
Common stock, US$0.10 par value; 27,445,522 25,945,521
435,000,000 shares authorized;
274,455,217 and 259,455,215 shares
issued and outstanding at 31 March 2008
and 30 September 2007, respectively
Additional paid-in capital 174,142,621 169,455,857
Deficit accumulated during development (144,294,930) (118,262,885)
stage
Accumulated other comprehensive loss (1,620,704) (416,542)
Total stockholders' equity (deficit) 55,672,509 76,721,951
Total liabilities and stockholders' US$ 68,543,694 US$ 95,537,040
equity (deficit)
The accompanying notes are an integral part of these
consolidated financial statements.
Vectrix Corporation
Consolidated Statements of Operations (Unaudited)
Period from
inception
Six Months Ended 31 March (6 March 1996)
to 31 March
2008 2007 2008
Revenue US$ 1,942,922 US$ - US$ 2,761,740
Cost of Goods Sold
Inventory revaluation 5,655,703 - 8,829,220
Battery excess charge - - 1,949,500
Adverse purchase commitment 229,000 - 4,208,500
Other cost of goods sold 2,607,830 - 3,427,653
Total cost of goods sold 8,492,533 - 18,414,873
Gross loss (6,549,611) (15,653,133)
Operating Expenses
Research and development 4,481,449 7,198,710 45,476,194
General and administrative 12,583,389 3,412,354 54,968,645
Selling and marketing 8,326,797 2,749,660 19,110,923
Acquired technology 3,584,549 - 4,541,272
Disposal of asset 277,689 - 277,689
Start up cost - - 730,923
Impairment charge - - 3,690,000
Loss from operations (35,803,484) (13,360,724) (144,448,779)
Other income (loss), net 114,945 (14,342) 1,164,497
Interest expense (8,139) (11,058,401) (15,314,909)
Interest income 686,919 51,717 1,660,935
Foreign exchange gain 8,816,363 - 12,905,525
Loss before provision for (26,193,396) (24,381,750) (144,032,731)
income taxes
Tax benefit (provision) 161,351 (174,187) (262,199)
Net loss US$ (26,032,045) US$ (24,555,937) US$ (144,294,930)
Basic and diluted net loss per US$ (0.10) US$ (0.37)
share
Weighted average shares 248,509,403 66,438,733
outstanding Basic and diluted
The accompanying notes are an integral part of these
consolidated financial statements.
Vectrix Corporation
Consolidated Statements of Operations (Unaudited)
Period from
inception
Six Months Ended 31 March (6 March 1996)
to 31 March
2008 2007 2008
Other comprehensive income (loss)
Net loss US$ (26,032,045) US$ (24,555,937) US$ (144,294,930)
Unrealized gain on money 99,059 - 230,450
market and time deposit
accounts
Cumulative foreign currency (1,303,220) 256,671 (1,851,153)
translation adjustment
Comprehensive loss US$ (27,236,206) US$ (24,299,266) US$ (145,915,633)
The accompanying notes are an integral part of these
consolidated financial statements.
Vectrix Corporation
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended Six Months Ended Period from
31 March 2008 31 March 2007 Inception
(6 March 1996) to 31
March 2008
Cash flows from operating
activities
Net loss US$ US$ (24,555,937) US$ (144,294,930)
(26,032,045)
Adjustments to reconcile net
loss to cash used in operating
activities
Depreciation and 1,262,044 223,602 3,814,028
amortization
Gain on foreign exchange (6,755,423) - (6,755,423)
translation
Acquired technology in 3,813,549 - 3,813,549
strategic agreement
Noncash charges related to - 6,033,179 7,973,326
issuance of warrants
Stock-based compensation and 4,168,465 1,423,807 9,479,722
expenses
Impairment of joint venture - - 3,690,000
Noncash interest on notes - 3,778,907 7,131,026
Warrants issued in exchange - - 85,044
for cancellation of royalty
agreements
Accretion of debt discount - 16,000
Loss on disposal of fixed 251,084 - 251,084
assets
Write-off of acquired - - 956,723
in-process research and
development
Changes in assets and
liabilities
Accounts receivable 2,267,954 - (1,980,033)
Other receivables (1,395,297) (26,076,660) (1,395,297)
Prepaid expenses and other (102,550) (5,962,251) (956,970)
current assets
Inventory 1,949,896 (1,741,514) (15,939,777)
Debt issuance costs - - (270,938)
Inventory in the custody of (106,421) - (3,742,830)
distributors
Input VAT 2,748,310 - (2,723,457)
Accounts payable and accrued (3,281,083) (1,918,195) 4,277,478
expenses
Adverse purchase commitment - - 3,979,500
Deferred revenue (89,851) - 3,759,515
Net cash used in operating (21,301,368) (48,795,062) (128,832,660)
activities
Cash flows from investing
activities
Redemption of short term 6,066,000 - 6,066,000
investments
Purchase of short term - - (6,066,000)
investments
Acquisition of business - - (75,000)
Purchase of fixed assets (1,162,826) (2,430,046) (13,080,084)
Restricted cash (3,260,965) - (3,479,908)
Investment in joint venture - - (3,690,000)
Net cash provided by (used in) 1,642,209 (2,430,046) (20,324,992)
investing activities
The accompanying notes are an integral part of these
consolidated financial statements.
Vectrix Corporation
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended Six Months Ended 31 Period from
31 March March Inception
(6 March 1996)
to 31 March
2008 2007 2008
Cash flows from financing activities
Proceeds from issuance of common stock (net of - 27,541,724 90,648,856
issuance costs)
Proceeds from private issuance of common stock (net - - 34,211,112
of issuance costs)
Proceeds from issuance of notes payable and warrants - 25,050,000 45,110,460
to stockholders (net of issuance costs)
Bank overdraft (784,219) - -
Repayments of notes payable to stockholders - - (451,359)
Proceeds from issuance of redeemable convertible - - 3,423,730
preferred stock (net of issuance costs)
Collection of stock subscription receivable - - 1,869
Proceeds from exercise of warrants - - 1,365,498
Repayment of capital lease obligation (31,957) (9,935) (162,143)
Net cash provided by (used in) financing activities (816,176) 52,581,789 174,148,023
Effect of exchange rate changes (1,178,069) (496,250) (2,311,679)
Net increase (decrease) in cash and cash equivalents (21,653,404) 860,431 22,678,692
Cash and cash equivalents at beginning of period 44,332,096 2,132,645 -
Cash and cash equivalents at end of period US$ 22,678,692 US$ 2,993,076 US$ 22,678,692
The accompanying notes are an integral part of these
consolidated financial statements.
Vectrix Corporation
Notes to the Condensed Consolidated Financial Statements (Unaudited)
31 March 2008 and 2007
1. 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. At 31 March 2008, the Company had wholly-owned subsidiaries in Italy, Ireland, 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 marketing the Company's products,
dependence upon key individuals, competition from larger, more financially independent competitors and the need to obtain adequate financing
to fund future operations.
The consolidated balance sheets and the related consolidated statements of operations, of comprehensive loss and of cash flows (the
"consolidated financial statements") of the Company are unaudited and have been prepared on a basis consistent with the Company's audited
financial statements for the fiscal year ended 30 September 2007. These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information. Consequently, these
statements do not include all disclosures normally required by generally accepted accounting principles for annual financial statements.
These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the
fiscal year ended 30 September 2007. The unaudited consolidated financial statements, in the opinion of management, reflect all adjustments
necessary for a fair statement of the financial position, operations and cash flows presented. The balance sheet at 30 September 2007 has been derived from the audited consolidated financial statements
as of that date. The results of operations for the interim periods are not necessarily indicative of the results of operations to be
expected for any other interim period or for the full fiscal year ending 30 September 2008.
The Company's financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses
and negative cashflows from operations since inception. While the Company has taken steps to reduce cash expenditures and believes it has
adequate funds to meet its current strategic goals, there can be no guarantees and the Company may need additional financing to achieve its
plans.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial information is presented in accordance with accounting principles generally accepted
in the United States of America for interim financial information.
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 intercompany 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.
Segment Information
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, ("SFAS
No. 131") establishes standards for reporting information regarding operating segments and establishes standards for related disclosures
about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making
decisions regarding resource allocation and assessing performance. See note 6 for detailed segment information.
Accounting for Stock-Based Compensation
Effective 1 October 2006, the Company adopted the provisions of SFAS No. 123(R), Share Based Payment ("SFAS No. 123(R)"), which requires
the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on the
estimated fair values of the underlying instruments. Accordingly, stock based compensation cost is measured at grant date, based upon the
fair value of the award, and is recognized as expense on a straight line basis over the requisite employee service period.
SFAS No. 123(R) permits companies to select the option pricing model that best fits their particular set of circumstances, provided such
valuation model (i) is applied in a manner consistent with the fair value measurement objective required under SFAS No. 123(R), (ii) is
based on established principles of financial economic theory, and (iii) reflects all substantive characteristics of the underlying
instrument. In recognition of these standards and after consideration of various relevant factors, including option plan design, data
availability and cost-benefit analysis, the Company has selected the Black-Scholes option pricing model to value its options.
The weighted average estimated fair value per share of employee stock options granted during the six months ended 31 March 2008 was
determined to be US$0.10 using the Black-Scholes model with the following underlying assumptions:
Expected volatility 85%
Weighted average-risk-free interest rate 4.02%
Expected dividend yield None
Weighted average expected life (in years) 3.5 years
The Company has estimated its expected stock price volatility based on historical volatility calculators for a group of peer comparable
companies. The weighted average risk free interest rate reflects the ratios of US government securities appropriate for the term of the
Company's stock options at the time of grant. The weighted average expected life of 3.5 years is based on the average of the vesting term
and the 7 year contractual lives of all options awarded after 1 October 2007.
Stock based compensation expense recognized in the unaudited consolidated statement of operations for the six months ended 31 March 2008
is based on awards ultimately expected to vest. SFAS No. 123(R) requires forfeitures to be estimated at the time of initial grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates forfeitures based on
its historical activity, as it believes that this forfeiture rate is indicative of its expected forfeitures rate. No provision for
forfeitures has been recorded for the six months ended 31 March 2008 and 31 March 2007.
During the six month period ended 31 March 2008, the Company granted 345,000 options with an estimated total fair market value at grant
date of approximately US$34,500.
From time to time, the Company grants restricted stock and units to certain employees, subject to restrictions. During the six months
ended 31 March 2008, the Company granted 700,000 shares of US$0.10 par value common stock to employees. No restricted units were offered
during the reporting period. As of 31 March 2008, there were 11,727,781 shares of restricted stock and 3,583,011 restricted units
outstanding.
Compensation expense related to stock-based awards recognized under SFAS No. 123(R) was:
Six Months Ended Six Months Ended
31 March 2008 31 March 2007
Research and development US$ 496,487 US$ 62,929
Selling and marketing US$ 2,289,093 US$ -
General and administrative US$ 1,382,885 US$ 280,878
US$ 4,168,465 US$ 343,807
We expect compensation expense related to stock-based awards to increase over the next two years due to continued vesting of existing
awards. We have not yet recognized compensation expense relating to these unvested awards of approximately $7.9 million in the aggregate,
which will be recognized over a weighted-average future period between 0.17 - 2.67 years.
Amounts include compensation expense pertaining to the share-based payment awards granted subsequent to 30 September 2006, based on the
grant date fair value estimated in accordance with SFAS No. 123(R).
Accounting for Uncertainty in Income Taxes
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes; an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 describes a recognition threshold and a measurement attribute to
determine the impact of the tax position reported in the financial statements. FIN 48 also provides guidance as to the subsequent
recognition, de-recognition and measurement thereof when the more-likely-than-not determination changes. This Interpretation is effective
for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN 48 on 1 October 2007. As of the date of adoption, the Company had unrecognized tax benefits of
US$ 0 and did not record any cumulative effect adjustment to retained earnings as a result of adopting FIN 48. The Company does not expect
to recognize any of its previously unrecognized tax benefits during 2008. The Company has not recorded any accrued interest and penalties
for the period under review but will classify these as income taxes if incurred in the future.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance for using fair value to measure assets
and liabilities. SFAS No. 157 references fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants in the market in which the reporting entity transacts. The Statement applies whenever
other standards require (or permit) assets or liabilities to be measured at fair value. The Statement does not expand the use of fair value
in any new circumstances. It is effective for financial statements issued for fiscal years beginning after 15 November 2007, and interim
periods within those fiscal years.
In February 2008, the FASB issued a FASB Statement of Position that amends SFAS No. 157 to delay its effective date for all
non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after 15 November 2008. The adoption of SFAS No. 157 did not have a material impact on our financial and
non financial statements or financial assets and liabilities.
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 by dividing the weighted average number of shares of common stock outstanding
during the period into the net loss attributable to common stockholders.
Six Months Six Months
Ended Ended
31 March 31 March
2008 2007
Net loss US$ ( 26,032,046) US$ (24,555,937)
Basic and diluted shares
Weighted average common shares 248,509,403 66,438,733
outstanding used in computing basic
and diluted net loss
Basic and diluted net loss per share US$ (0.10) US$ (0.37)
There were 34,144,116 antidilutive shares at 31 March 2008 related to options, warrants and restricted awards. These shares have not
been included in the determination of basic and diluted loss per share since their inclusion would be antidilutive.
4. Common Stock
As of 31 March 2008, pursuant to its amended Certificate of Incorporation filed in April 2007, the Company had authorized 435,000,000
shares of common stock with a US$0.10 par value per share. Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends, if any, as may be declared by the
Board of Directors.
During the six month period ended 31 March 2008, the Company entered into an agreement to settle outstanding purchase commitments and a
strategic agreement to develop lithium battery technology and production capability, the "Lithium Agreement", with a battery manufacturer.
Under the settlement agreement, the Company agreed to pay consideration of US$4,208,500 to settle its adverse purchase commitment. Of this
amount, US$3,979,500 was recorded as an adverse purchase commitment in the fiscal year ended 30 September 2007 and the US$229,000 was
recorded as an adverse purchase commitment in the six months ended 31 March 2008. This amount was settled through the payment of
US$3,090,500 for NiMH batteries and delivery of Vectrix Maxi Scooters valued at US$1,118,000. At 31 March 2008, the Company had a balance of
US$1,118,000 in Accrued Liabilities representing the amount of the undelivered inventory. Based on the terms of the lithium agreement, the
Company issued 15 million new common shares valued at US$ 2,020,049, the price at the date of this transaction, to the battery manufacturer. In addition to the common shares issued, the battery
manufacturer was released from its liability related to a prepayment of US$ 1,564,500 made by the company for NiMH batteries. The total
amount of the consideration, US$3,584,549 has been recorded as Acquired Technology expense for the six months ended 31 March 2008.
As of 31 March 2008, the Company had 18,928,324 shares of its common stock reserved for issuance upon the exercise of stock options and
warrants and 4,283,011 shares of its common stock reserved for issuance of restricted stock grants approved by the Board and upon vesting of
restricted stock units.
5. Stock Option Plans
In 1999, the Company adopted the 1999 Employee Stock Option Plan (the "1999 Plan") and the 1999 Non-employee Directors' Stock Option
Plan (the "Director Plan," and together with the 1999 Plan, the "Option Plans"). The 1999 Plan as originally adopted authorizes the Company
to grant incentive stock options and nonqualified stock options for up to 3,150,000 shares to employees, consultants and directors. The
Board of Directors is responsible for administration of the 1999 Plan. The Board of Directors determines the term of each option, the option
exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. Options granted
before 2005 vested over three to five years; substantially all options granted in 2005 vested immediately or within one year. Incentive
stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on
the date of the grant (not less than 110% of fair value in the case of holders of more than ten percent of the Company's voting stock) and with a term not to exceed ten years from the date of the
grant (five years for incentive stock options granted to holders of more than 10% of the Company's voting stock). In December 2000, the
number of shares reserved for issuance under the 1999 Option Plan was increased to 4,150,000. In January 2005, stockholders approved an
amendment to the 1999 Plan, increasing the total number of shares authorized for issuance pursuant to grants under the 1999 Plan to the
greater of 14,000,000 or 20% of the common stock outstanding from time to time.
The Director Plan authorized the Company to issue nonemployee director options for up to 350,000 shares of common stock. Each
nonemployee director who was a director on 3 November 1999 and had been a director since 30 June 1998 received an option for 60,000 shares
and each newly elected director prior to the termination of the Director Plan in 2005, received an option for 5,000 shares. Nonemployee
directors received an annual option grant in January of each year for the number of common shares equal to 1,000 multiplied by the number of
Board and Committee meetings attended during the prior calendar year up to a maximum of 5,000 shares per year. Options were granted at an
exercise price equal to the market value of the common stock on date of grant and vest immediately. Options expire on the earlier of ten
years from the date of grant or 24 months following termination of Board service. During April 2005, the Director Plan was terminated. All
of the previously issued options remain exercisable in accordance with the terms of the Director Plan. As of 31 March 2008 there remain 123,000 options outstanding related to the Director Plan.
In April 2007 the Board of Directors amended and restated the 1999 Plan, renamed the Equity Incentive Plan, to cap the maximum number of
shares issuable pursuant to awards granted under the Plan to the lesser of 40,000,000 or 20% of the number of shares outstanding on the date
of grant. The amendment also allowed for the grant of restricted stock and restricted unit awards.
Activity under the Option Plans for the six months ended 31 March 2008 was as follows:
Six Months Ended 31 March
2008
Average
Number Exercise
of Shares Price
Outstanding at beginning of period 14,706,768 US$ 0.67
Granted 345,000 US$ 1.03
Exercised -
Cancelled (440,000) (US$ 0.77)
Outstanding at end of the period 14,611,768 US$ 0.67
Options exercisable at end of period 13,811,768
Weighted average fair value of options granted US$ 0.10
during the period
Options available for future grant 9,769,208
Information regarding stock options outstanding at 31 March 2008 is as follows:
Options Outstanding Options Exercisable
Weighted
Average
Remaining Weighted
Contractual Average
Exercise Shares Life Number Exercise
Price Outstanding (In Years) Exercisable Price
US$0.46 - US$0.50 4,817,038 5.88 4,767,038 US$ 0.49
US$0.69 - US$0.70 8,376,764 6.66 8,046,764 US$ 0.70
US$0.90 - US$1.03 883,833 5.68 463,833 US$ 0.93
US$1.38 - US$1.50 534,133 2.33 534,133 US$ 1.43
14,611,768 13,811,768 US$ 0.66
6. 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 Company's long-lived assets, by country:
31 March 30 September
2008 2007
Long-lived assets
United States US$ 3,689,149 US$ 2,724,958
Italy 712,655 2,454,758
Poland 6,336,277 4,874,858
United Kingdom 287,337 193,562
Total long-lived assets US$ 11,025,418 US$ 10,248,136
7. Subsequent Events
On 1 May 2008, the Company's CEO, Mr. Andrew McGowan resigned from the organization and was replaced by Mr. Michael Boyle. As part of
his Severance Agreement, Mr. MacGowan was allowed to exchange his 3,146,461 common stock options for 1 million of common shares, to be
restricted from sale for one year from the date of issuance in addition to other cash compensation allowed under his employment contract.
Mr. Michael Boyle was awarded 1.5 million incentive stock options and 4 million shares of restricted stock, vesting over a three year
period.
On 1 May, 2008 at the Annual General Meeting of Shareholders ("AGM"), the shareholders approved an amendment, authorizing a 10-1 reverse
stock split of the Company's common stock to be implemented at the discretion of the Board of Directors at any time prior to next AGM.
Vectrix Corporation
Management's Discussion and Analysis of Financial Condition and Results of Operations for the six months ended 31 March 2008
Revenues
Total revenues for the six months ended 31 March 2008 were US$1.9 million as compared to no revenue for the same six month period in
2007. Revenues are still based on recognizing revenue only once the product has sold through to the end consumer, with sales to the
Company's dealers held in deferred revenue on the Balance Sheet.
Cost of Goods Sold
Total cost of goods sold for the six months ended 31 March 2008 were US$8.3 million. This included a charge related to the write down of
the 2007 finished goods by US$ 5.7 million to reflect a fair value related to the discounting of the goods.
Operating Expenses
1. Research and Development
Research and development expenses consist of costs associated with the product research, product development and various, non-recurring
engineering projects, conducted mostly from the Company's New Bedford, Mass (U.S.A.) location. Research and Development costs were US$ 4.5
million for the six months ended 31 March 2008 as compared to US$ 7.2 million for the same six month period in 2007. An additional cost of
US$ 3.6 million which is stated separately is related to the development of new lithium batteries and the supply thereof by GP Batteries.
This was primarily a non cash agreement utilizing common stock issued and a release of prepaid amounts for batteries.
2. Sales and Marketing
Sales and marketing expenses were related to initial costs of launching business development and sales activities in various markets,
including costs of sales personnel, various fees and charges related to trade shows and other marketing activities, sales commissions paid
and other branding and promotional activities undertaken in selected markets. Sales and marketing costs were US$ 8.3 million for the six
months ended 31 March 2008 compared to US$ 2.7 million in the same period in 2007 as a result of this increased activity. Included in 2008
is a stock based award expense of US$2.3 million.
3. General and Administrative
General and Administrative expenses consist of costs incurred in connection with finance and administrative activities in various
locations, including personnel costs, various consulting and professional services fees, facilities and general corporate expenses. General
and Administrative expenses were US$ 12.6 million for the six months ended 31 March 2008, as compared to US$ 3.4 million for the same six
month period in 2007. This increase resulted primarily from:
* an increase in headcount in various locations, as required to grow business activities of the Company in different functions;
* an increase in related employment costs, travel and entertainment and office costs;
* costs of growing the US operations;
* increased legal and other administrative costs;
* costs related to audit, tax and other consulting engagements; and
* stock based award expense of US$1.4 million.
4. Liquidity and Capital Resources
As of 31 March 2008, the Company had US$22.7 million of cash and cash equivalents and US$ 18.3 million in net working capital (excluding
cash and cash equivalents, restricted cash as well as short term investments). Cash and cash equivalents decreased by US$ 21.7 million
relative to corresponding amounts as of 31 March 2007, primarily as result of increased operations and the commercialization of the product.
The majority of working capital is tied up in inventories of finished product and components that are expected to reduce going forward as
the company's rate of sales increases. While the Company has taken steps to reduce cash expenditures and believes it has adequate funds to
meet its current strategic goals, there can be no guarantees and the Company may need additional financing to achieve its plans.
5. Cash Used in Operations
Net cash used in operating activities was US$ 21.3 million for the six months ended 31 March 2008, attributable primarily to a net loss
of US$26.0 million, adjusted for non-cash charges related to depreciation and amortization expenses of US$ 1.3 million, non-cash stock
compensation of US$4.2 million, intercompany gain on foreign exchange translations of US$6.8 million, the net effect of the strategic supply
contract for lithium batteries of $3.8 million.
Also affecting net cash used in operations in 2008 were:
* a decrease in inventory of US$ 1.9 million
* a decrease in VAT receivable of US$ 2.7 million;
* a decrease in receivables of US$ 0.9 million; and
* a decrease in accounts payable and accrued expenses of US$ 3.3 million.
Net cash used in operating activities was US$ 48.8 million for the six months ended 31 March 2007, attributable primarily to a net loss
of US$ 24.6 million, adjusted for non-cash charges related to $ 26.1 million in subscription receivable for private placement of common
shares (in escrow account as of 31 March 2007), depreciation and amortization expenses (including debt issuance costs) of US$ 0.2 million,
non-cash interest expense on notes of US$ 3.8 million, non-cash interest expense on issued warrants of US$ 6.0 million, non-cash stock
compensation of US$1.1 million and stock option expense of US$ 0.3 million.
6. Cash Provided by Investing Activities
Net cash provided by investing activities was US$ 1.6 million for the six months ended 31 March 2008 and primarily reflects the
purchases of fixed assets related to the improvement of Research & Development facilities of US$ 1.2 million, the requirement of restricted
cash of US$ 3.3 million related to GE financing, and offset by the maturity of prior money market investments of US$ 6.1 million.
Net cash used in investing activities was US$ 2.4 million for the six months ended 31 March 2007 and primarily reflects the purchase of
fixed assets in Poland, related to the launch of commercial production of scooters in Poland.
7. Cash Used in Financing Activities
Net cash used in financing activities was US$0.8 million for the six months ended 31 March 2008 and related to the settlement of a bank
overdraft facility.
Net cash provided by financing activities was US$ 52.6 million for the six months ended 31 March 2007 and resulted primarily from:
* the Company's issuance of common stock (net of issuance costs) of US$ 27.5 million,
* proceeds from sale of notes payable to current shareholders of the Company at the time of sale (net of issuance costs) of US$ 6.6
million; and
* proceeds from notes payable from other parties (net of issuance costs) of US$ 18.5 million.
8. Outlook
Moving into second half of fiscal year 2008, the Company expects to continue its build out of the dealer network in North America and
Europe, as well as continuing the development of the fleet business. Further actions were taken to right size the organization, including
further reductions in headcount, slower pace of spending in Southern Europe and selective investment in new R&D.
Management took further actions to improve the product and quality of offered bikes, and major actions were undertaken in marketing and
sales to accelerate the sales of the bikes to dealers to improve asset turnover and cash flow management. The Company has experienced an
increased level of interest from new North American dealers that wanted to purchase bikes under a GE Capital inventory financing option,
which was combined with new lower price offered to all dealers on 2007 model bikes.
Management believes that the Company's cash, cash equivalents and short-term investments at 27 June 2008, coupled with improved
operating performance, will be sufficient to meet its anticipated cash requirements for operating and working capital purposes. While the
Company has taken steps to reduce cash expenditures, there can be no guarantees and the Company may need additional financing to achieve its
plans.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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