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Vycon Inc (VYCO)

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Friday 31 August, 2007

Vycon Inc

Interim Results

Vycon Inc
31 August 2007


                                                                 31 August 2007

                                        Vycon, Inc

               Interim results for the six months ended 30 June 2007

Vycon Inc ('Vycon' or the 'Company'), the designer and manufacturer of
high-speed flywheel based energy storage systems, today announces its results
for the six months ended 30 June 2007. These are Vycon's first results since its
admission to trading on AIM in March 2007.

Financial highlights

  • Total revenue of U$252,260 (2006: US$8,006) driven by sales of UPS and
    crane units.
  • Net loss of US$ (3,160,441) (2006: US$(3,857,113)) due to lower expenses.
  • Strong balance sheet with cash of US$14.4 million.

Operational highlights

  • New customer wins with Hutchison Port Holdings (China), Incheon
    Container Terminal Co. Ltd. (Korea), Long Beach Container Terminal (US) and
    Children's Hospital (US).
  • Established a strategic alliance with MGE UPS Systems to provide
    advanced, green tech, VDC flywheel based energy systems as an alternative to
    battery back up systems.
  • Entered into a Memorandum of Understanding with Fantuzzi Group, a
    leading crane manufacturer, to market and supply REGEN flywheel systems for
    both new cranes as well as retrofit applications.
  • Completed California Air Resources Board (CARB) emissions testing and
    submitted its application to CARB for a formal verification certificate.
  • Strengthened the management team with the appointment of Mr. Pana Shenoy
    to Vice President of Engineering.
  • Strengthened the Board of Directors with the appointment of Mr. David
    Potter as a Non-Executive Director who has extensive experience with UK
    listed companies.
  • Relocated the Company's headquarters to a new 35,000 square foot
    manufacturing facility to support growth in production and the development
    and testing of larger flywheel products.
  • Since the period end, approved by the Port of Los Angeles to receive
    funding under the Air Quality Mitigation Incentive Program for flywheel
    systems to be installed at three different port operation sites in Los
    Angeles.


John Uttley, Chairman, commented:

'At this stage in a company's development, Vycon's business model remains robust
despite encountering frustrating delays, which are not uncommon, in the
marketing of its major products. Significant progress has been made in the
development of our products and in the expansion of our distribution and
marketing channels. We remain confident that this solid platform will deliver
both growth and value as these initiatives begin to take effect and as sales of
our products gain further momentum.'



Enquires:

Vycon Inc                           Tony Aoun              001 714 308 0388
                                    Dennis Whittler        001 714 386 3800

Smith & Williamson                  Nick Reeve             +44 (0) 117 933 3344
Corporate Finance Limited           Martyn Fraser
                                    
Cardew Group                        Rupert Pittman         +44 (0) 20 7930 0777
                                    Shan Shan Willenbrock
                                    Emma Consett



Chief Executive Officer's Statement:

We continue to make significant progress towards achieving our strategic
objectives in our target markets, by strengthening infrastructure and developing
new flywheel products. While sales of $252,260 for the six month period ended 30
June 2007 increased from the previous six months, they did not materialise at
the rate previously anticipated. Sales were impacted by two primary factors; the
delay of orders from our crane customers and a merger between MGE, Vycon's
channel partner, and another large UPS competitor.

Despite this however, in the first half of 2007, flywheel products were shipped
to high-potential, targeted customers, including some of the largest port
operators in the world, for testing purposes. An agreement with one of the
worlds leading crane manufacturers, to supply flywheel systems for both new
cranes as well as retrofit applications, was also entered into.

We remain positive in terms of market opportunities and believe that there is
significant future potential and demand for our products. In addition, Vycon
completed an AIM listing in March 2007, which is providing the financial
resources required to pursue our strategic objectives.

Operational Review

Crane

Customer Testing

During the six months ended 30 June 2007, three REGEN 120 flywheel systems were
shipped to high-potential customers in the US, China and Korea for validation
testing. Two additional REGEN units are undergoing long-term testing at port
operation sites in the US. Based on positive preliminary results, testing for
some of the REGEN units has been expanded to evaluate the use of the REGEN units
with smaller generator sets, which are expected to produce even greater fuel
savings and emissions reductions. While these tests are taking longer than
anticipated, positive results are expected to help establish Vycon's REGEN unit
in the crane market and to deliver future sales opportunities. Additionally,
experience gained through integration with major brand name diesel engines and
crane control systems, during the testing process, from such manufacturers as
ABB, Fuji and Siemens, have improved Vycon's flywheel efficiency, further
enhancing our future sales opportunities.

Environment

In June 2007, the completion of rigorous testing by the University of
California, Riverside (CE-CERT), on behalf of the California Air Resources Board
(CARB) was announced. CE-CERT verified the emissions reducing aspect of the
REGEN system and, based upon the results, an application was submitted to CARB
for a formal verification certificate. The award of the CARB verification
certificate will be a major step forward in California and worldwide as CARB is
an internationally recognised authority in emissions controls. This award will
represent another validation of REGEN technology and its ability to reduce
emissions and provide improved fuel economy.

Since the period end, notification has been received from the Port of Los
Angeles ('POLA') that funds will be provided for the purchase of flywheel
systems under the Air Quality Mitigation Incentive Program. POLA has committed
to spending in excess of $20 million over a five year period on quality
mitigation projects that will reduce emissions associated with port operations
in nearby communities, and for research and development of specific technologies
that will reduce emissions. We expect to install our flywheel systems at three
different port operation sites in Los Angeles, the funding of which will be
provided under the program.

Sales Channels

During the first half of 2007, negotiations were entered into with Fantuzzi
Reggiane Group ('Fantuzzi'), a leading crane manufacturer that delivers
container handling equipment to port authorities around the world. Since the
period end, Fantuzzi and Vycon have completed an agreement (Memorandum of
Understanding). Fantuzzi is now the first authorised VYCON representative to
offer the REGEN system on new Rubber-Tired Gantry (RTG) cranes. Additionally,
Fantuzzi will promote the REGEN system as a retrofit technology with all
existing Fantuzzi crane customers. Fantuzzi, with its subsidiary company, Noell
Crane Systems (China) Ltd, has a production capacity of approximately 120 new
RTG cranes each year and there are currently over 1,100 units in operation
around the world.

UPS

In January 2007, a strategic alliance was entered into with MGE UPS Systems,
Inc., a market leader in the UPS industry, to provide VDC flywheel based energy
storage systems. These systems were to be integrated with MGE's Comet and Galaxy
PW models. However, a subsequent merger of MGE with another large, battery-based
UPS competitor, and the integration of the merged companies, resulted in the
disruption of our efforts to sign up and train manufacturers' representatives
and distributors in the UPS sales channel. The disruption resulted in the delay
of orders for our UPS products and consequently, substantially lower than
anticipated sales were experienced in the six months ended 30 June 2007.
Subsequently, we have refocused our UPS sales efforts on continuing to train
remaining, and signing on new, manufacturers' representatives and distributors.
Testing has also begun with another major brand UPS manufacturer with strong
sales distribution capabilities in Europe and MEA. In addition, we are planning
to strengthen our direct sales force working through existing sales channels
improving the selling process and also developing new channels and applications
for the Company's products.

Financial Review

Total revenue for the six months ended 30 June 2007 was $252,260 compared to
total revenue for a similar period ended 30 June 2006 of $8,006. This increase
was driven by UPS and crane unit sales. During the period ended 30 June 2006,
the Company was primarily engaged in product development activities.

Gross profit (loss) for the six months ended 30 June 2007 was $(757,938)
compared to a gross profit for a similar period ended 30 June 2006 of $846. This
loss was primarily due to the low volume of sales relative to the Company's
fixed manufacturing infrastructure costs and the classification of indirect and
fixed manufacturing costs as costs of goods sold. Also, beginning in 2007, the
Company transitioned from a development stage into the production stage and such
costs incurred to support the assembly and test of developmental and beta units
were classified as operating expenses for the period ended 30 June 2006. The
overall gross loss for the six months ended 30 June 2007 was comprised of a
gross profit of $44,332 from sales less direct product costs and a loss of $
(802,270) attributable to indirect and fixed manufacturing infrastructure costs
that were in excess of net realisable value due to the low sales volume.

Operating expenses for the six months ended 30 June 2007 were $2,276,051
compared to operating expenses for a similar period ended 30 June 2006 of
$3,332,255. These lower operating expenses resulted from a reclassification of
costs associated with the assembly and testing of developmental and beta units
from operating expenses to cost of sales as discussed above, and a reduction in
legal expenses. Also, during the period under review, higher engineering
expenses, relating to the Company's large flywheel development project, were
offset by the capitalisation of about $444,669 in development costs under IAS 38
(Intangible Assets).

The loss for the period attributable to equity shareholders for the six months
ended 30 June 2007 was $(3,160,441) compared to a loss for a similar period
ended 30 June 2006 of $(3,857,113). This reduction in loss was due to lower
legal expenses and lower interest expenses related to the Company's outstanding
preferred stock. All the Company's outstanding preferred stock was converted to
common stock effective at the time of the Company's AIM listing in March 2007.

The loss per share for the six months ended 30 June 2007 was $(0.14) compared to
a loss for a similar period ended 30 June 2006 of $(0.77). The reduction in the
loss per share was due to a lower net loss and also due to a greater number of
total shares outstanding. Shares issued in conjunction with a Series B Preferred
offering in 2006 and shares issued in conjunction with the Company's AIM listing
in 2007, resulted in this greater number of total shares outstanding.

Cash and cash equivalents as of 30 June 2007 were $14,402,952 compared to cash
and cash equivalents as of 30 June 2006 of $1,185,839. This increase in cash was
primarily due to the receipt of proceeds from the AIM listing in March 2007 and
proceeds from the Series B Preferred Stock offering closed in September 2006.

Facilities Relocation

In May 2007, a five year lease was signed and Vycon headquarters relocated to a
35,000 square foot manufacturing facility in Yorba Linda, California. The new
manufacturing facility provides sufficient space to support the expected growth
in production and the development and testing of larger flywheel products.

Key Appointments

In March 2007, Mr. Pana Shenoy was appointed as Vice President of Engineering.
Mr. Shenoy is responsible for the end product development role for the
engineering team and complements the core flywheel expertise of the Company's
Chief Technical Officer, Mr. Pat McMullen. Mr. Shenoy has over 20 years
experience in the power industry and a solid track record in successful product
launches; he joins Vycon from Liebert Corporation, a division of Emerson, where
he was Manager of Power Technology.

In May 2007, Mr. David Potter joined the Vycon Board as a Non-Executive
Director. Mr. Potter has extensive experience within UK listed companies, having
held a number of senior board positions. His appointment further strengthens our
Board following Vycon's admission to AIM in early 2007.

Outlook

I would like to thank Vycon shareholders for their continued support and
commitment. Currently we are engaged in a number of new initiatives including a
marketing agreement with a leading crane manufacturer, helping to expand our
market reach, and a development project for larger products, which are expected
to have a positive impact on the Company. These initiatives, combined with the
recent move to our new facility, which has substantially increased manufacturing
capacity, means we remain confident in our ability to negotiate attractive sales
and distribution agreements.

Tony Aoun
President and Chief Executive Officer


Operating Statements
                                                                   For the 12
                                     For the six months ended    months ended 
                                                      30 June     31 December
                               -----------------------------------------------
                                           2007             
                                     (unaudited)         2006            2006
                                           US $          US $            US $
                               -----------------------------------------------

Revenue                                 252,260         8,006         193,006

Cost of sales                         1,010,198         7,160        (177,159)
                               -----------------------------------------------
Gross profit                           (757,938)          846          15,847

Operating expenses                    2,276,051     3,332,255       6,316,023
                               -----------------------------------------------
Operating loss                       (3,033,989)   (3,331,409)     (6,300,176)

Other gains and losses                  (12,040)        9,289           4,616
Finance costs                          (113,612)     (534,193)     (1,212,094)
                               -----------------------------------------------
Loss before tax                      (3,159,641)   (3,856,313)     (7,507,654)

Tax                                         800           800             800
                               -----------------------------------------------
Loss for the period
attributable to equity
shareholders                         (3,160,441)   (3,857,113)     (7,508,454)
                               ===============================================

Loss per share: Basic
and diluted                               (0.14)        (0.77)          (1.47)
                               ===============================================


Balance Sheets

                                                                        As of 
                                               As of 30 June      31 December
                               -----------------------------------------------
                                           2007             
                                     (unaudited)         2006            2006
                                           US $          US $            US $
                               -----------------------------------------------
Assets
Non-current assets
Property, plant and equipment           775,877       335,728         280,103
Capitalized development costs           444,669             -               -
                               -----------------------------------------------
                                      1,220,546       335,728         280,103
Current assets
Inventories                           1,764,025       886,523       1,253,020
Trade receivables                       197,871             -         196,200
Deferred offering costs and 
other prepaid expenses                  145,941       762,644         966,671
Cash and cash equivalents            14,402,952     1,185,839       1,589,354
                               -----------------------------------------------
                                     16,510,789     2,835,006       4,005,245
                               -----------------------------------------------

Total assets                         17,731,335     3,170,734       4,285,348
                               ===============================================

Liabilities
Current liabilities
Trade and other payables              1,600,740     1,293,083       1,343,324
Obligations under finance leases         52,439        36,458          38,762
                               -----------------------------------------------
                                      1,653,179     1,329,541       1,382,086
                               -----------------------------------------------
Non-current liabilities
Obligations under finance 
leases                                   68,734        51,477          31,504
Series A convertible 8% 
preferred stock                               -    11,624,310      12,095,612
Series B convertible 8% 
preferred stock                               -     3,063,301       7,146,369
                               -----------------------------------------------
                                         68,734    14,739,088      19,273,485
                               -----------------------------------------------

Total liabilities                     1,721,913    16,068,629      20,655,571
                               -----------------------------------------------

Equity
Share capital                             3,025           503             533
Share premium                        36,271,279       554,702         733,685
Retained deficit                    (20,264,882)  (13,453,100)    (17,104,441)
                               -----------------------------------------------

Total equity deficit                 16,009,422   (12,897,895)    (16,370,223)
                               -----------------------------------------------

Total equity and liabilities         17,731,335     3,170,734       4,285,348
                               ===============================================


Statements of Cash Flow
                                                                   For the 12
                                     For the six months ended    months ended 
                                                      30 June     31 December
                               -----------------------------------------------
                                           2007             
                                     (unaudited)         2006            2006
                                           US $          US $            US $
                               -----------------------------------------------

Cash out flow from operating
activities                           (2,870,858)   (2,909,410)     (7,024,553)

Investing activities
Proceeds on disposal of
property and equipment                        -        24,164          24,164
Purchase of property and
equipment                              (509,282)      (36,956)        (80,290)
                               -----------------------------------------------
Net cash used in investing
activities                             (509,282)      (12,792)        (56,126)
                               -----------------------------------------------

Financing activities
Capital lease payments                  (20,370)      (16,057)        (33,726)
Proceeds from the issue of
series B convertible 8%
preferred stock                               -     2,476,311       6,905,972
Proceeds from the issue of
Common Shares                        16,214,108             -         150,000
                               -----------------------------------------------
Net cash from financing
activities                           16,193,738     2,460,254       7,022,246
                               -----------------------------------------------
Net (decrease)/increase in 
cash and cash equivalents            12,813,598      (461,948)        (58,433)
Cash and cash equivalents at
beginning of period                   1,589,354     1,647,787       1,647,787
                               -----------------------------------------------
Cash and cash equivalents at 
end of period                        14,402,952     1,185,839       1,589,354
                               ===============================================


Notes

1.   General


The condensed financial statements have been prepared in accordance with
International Accounting Standards. The accounting polices adopted are
consistent with those followed in the preparation of the Company's annual
financial statements for the year ended 31 December 2006.

This financial information has been presented in United States dollars, the
currency of the primary economic environment in which the Company operates.

The interim results for the six months ended 30 June 2006 and the year-end
results for the year ended 31 December 2006 are audited and the interim results
for the six months ended 30 June 2007 are unaudited.

2.   Loss per share

The calculation of basic and diluted loss per share is based on the following
data:

                                                                   For the 12
                                     For the six months ended    months ended 
                                                      30 June     31 December
                               -----------------------------------------------
                                           2007             
                                     (unaudited)         2006            2006
                                           US $          US $            US $
                               -----------------------------------------------
Loss for the period 
attributable to equity
stockholders                         (3,160,441)   (3,857,113)     (7,508,454)
                               ===============================================

                                         Number        Number          Number
                               -----------------------------------------------
Weighted average number of 
common shares in issue               21,940,661     5,031,295       5,117,000
                               ===============================================

                                           US $          US $            US $
                               -----------------------------------------------
Basic and diluted loss per 
share                                      (.14)         (.77)          (1.47)
                               ===============================================

Basic loss per share is calculated by dividing the loss for the year
attributable to equity shareholders by the weighted average number of shares in
issue during the year.

Diluted loss per share is calculated by dividing the loss for the year
attributable to equity shareholders by the weighted average number of shares in
issue plus the number of shares which could be issued on conversion of dilutive
instruments. Diluted loss per share is the same as basic loss per share as the
dilutive instruments have been excluded due to their anti-dilutive effect.

3.   Net cash flow from operating activities

                                                                   For the 12
                                     For the six months ended    months ended 
                                                      30 June     31 December
                               -----------------------------------------------
                                           2007             
                                     (unaudited)         2006            2006
                                           US $          US $            US $
                               -----------------------------------------------

Loss before tax                      (3,159,641)   (3,856,313)     (7,507,654)
Depreciation and amortization           102,782        94,960         194,150
Stock compensation                       86,082         9,950          38,963
Net gain on disposal of fixed 
assets                                   12,041        (9,289)         (4,416)
Interest converted to series 
A and B 8% preferred stock              333,477       544,102       1,255,804
                               -----------------------------------------------
Operating loss before changes
in working capital                   (2,625,259)   (3,216,590)     (6,023,153)
Decrease/(increase) in trade/
other receivables                        (1,671)      (78,020)       (135,848)
Decrease/(increase) in deferred
offering costs and other prepaid
expenses                                820,730             -        (942,399)
Inventory                              (511,005)     (205,745)       (572,242)
Increase in capitalized 
development costs                      (444,669)            -               -
Trade and other accrued payables       (108,184)      591,745         649,889
Tax paid                                   (800)         (800)           (800)
                               -----------------------------------------------
Cash outflow from operating
activities                           (2,870,858)   (2,909,410)     (7,024,553)
                               ===============================================

4.   Share Capital

During the period under review the Company issued 10,307,292 common shares
pursuant to its admission to trading on AIM. At the time of listing outstanding
shares were comprised of 5,331,295 shares of common stock, 9,606,769 shares of
Series A preferred stock and 4,999,989 shares of Series B preferred stock, which
were converted to 19,938,053 shares of the new common stock.

At 30 June 2007 the Company's issued share capital comprised 30,245,345 common
shares with a par value of US$0.0001 each.

5.   Dividends

In line with the policy set out at the time of admission to AIM, no dividend has
been proposed at this time.







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