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Annual Report


									Annual Report

Page 1...........................................................................................Directory

Page 2........................................................................Directors’ Profiles

Page 3........................Directors’ and Chief Executive’s Report

Page 14.......................................................Shareholder Information

Page 16............................................................ Corporate Governance

Page 17.........................................................................Auditors’ Report

Page 18............................ Statements of Financial Performance
                                     Statements of Movements in Equity

Page 19...................................... Statements of Financial Position

Page 20.....................................................Statements of Cash Flows

Page 22.....................................Statement of Accounting Policies

Page 24................................... Notes to the Financial Statements

Directors: ......................................Shawn Beck ~ Chairman
                                                 Dr Ross Green ~ Chief Executive Officer
                                                 Dr Ray Thomson
                                                 Prof Ray Meyer
                                                 Simon Mander

Senior Staff: ...................................New Zealand
                                                 Matthew Cawte ~ Chief Financial Officer
                                                 Bruce Farquharson ~ Vice-President Delivery
                                                 Jamie Wilkinson ~ Group Leader Electronics and Software
                                                 Ron Jackson ~ Accountant/Secretary

                                       International Sales and Operations
                                       Ray Cox ~ Vice-President Sales
                                       David McShane ~ Americas
                                       Dr Ing. Giuliano Bertolazzi ~ Europe
                                       James Bridgeman ~ UK
                                       Ali Karahasanoğlu ~ Turkey

Phone/Fax: ...................................Ph: 64-9-414 6590
                                              Fax: 64-9-414 6591

Internet: .......................................Website:,

Addresses: ................................................13 William Pickering Drive
                                                           North Harbour, Auckland 0632, New Zealand
                                                           PO Box 302-533, North Harbour
                                                           Auckland 0751, New Zealand

Registered Office: ............................13 William Pickering Drive,
                                               North Harbour, Auckland 0632, New Zealand

Auditors: .......................................PricewaterhouseCoopers
                                                 188 Quay Street, Auckland, New Zealand

Bankers: .......................................Bank of New Zealand

Share Registry: ...............................Computershare Investor Services Ltd,
                                               Private Bag 92119, Auckland 1020,
                                               New Zealand

® is a registered Trade Mark of Wellington Drive Technologies Ltd

                                                                                                       Annual Report
                                                                      1                                      2007
Directors’ Profiles

Mr Shawn Beck ~ Chairman
Mr. Beck emigrated to New Zealand from the United States in 1987. From 1989 to 1993 he was an Executive
Director at the Wellington-based investment banking firm, HRL Morrison & Co. Since 1993 he has served as an
Executive Director of Pencarrow Funds Management, a specialist private equity funds management firm which
manages funds on behalf of institutional investors. Mr. Beck currently serves on the boards of several companies,
including Eastern Equities Corporation, Restaurant Brands, Pacific Horizon Holdings, Home Ideas Group and
Kiwi Kat (trading as 360 Discovery).

Dr Ross Green ~ Chief Executive Officer
Dr Green is a professionally qualified electronics engineer. He joined the advanced technology division of
PA Consulting Services (Cambridge, UK) in 1986, undertaking product development assignments for Xerox
Corporation, BP and other companies, and was a founding member of The Technology Partnership Ltd (www., which is Europe’s largest product development company. Dr Green managed several of the
company’s highest-profile assignments, spending three years engaged on programmes with Robert Bosch
GmbH (Stuttgart, Germany, 1988-91), and two years with Nokia Corporation (Finland, 1991-92) amongst other
assignments in Europe and the USA. He founded Wavedriver Ltd (Cambridge, England) in 1993 with financial
backing from PowerGen plc (a European “top 50” company) to develop advanced energy management hardware
and software, and has been Managing Director of Wellington Drive Technologies Ltd since 1998.

Dr Ray Thomson
After graduating with a doctorate in Physics, Dr Thomson worked as an investment analyst in sharebroking
and investment companies from 1979 to 1988. He has served as a director of a number of public and private
companies. He was Executive Chairman of Strathmore Group Ltd from 1988 to 1999. He has been a director of
Wellington Drive Technologies Ltd since 1988.

Professor Ray Meyer ~ Independent Director
Ray Meyer is a Professor Emeritus of the University of Auckland, having been a Professor of Mechanical
Engineering and for a long time Dean and Head of the School of Engineering there. Professor Meyer has
considerable experience as a Director of a number of companies. He was until recently a Director of Auckland
UniServices Ltd and he is currently a Director of FasTec Ltd, Deputy Chairman of New Zealand Oil and Gas
Ltd and a Director of Pike River Coal Ltd. He is a past Director of the Electricity Corporation of New Zealand,
Transpower New Zealand Ltd, Deputy Chairman of Watercare Services Ltd, and Chairman of the New Zealand
Forest Research Institute Ltd.

Simon Mander ~ Independent Director
Mr Mander is a professionally qualified mechanical engineer whose previous positions include Planning
Director with Lion Breweries New Zealand and four years with McKinsey & Company as a strategy management
consultant. He has extensive experience in strategy development and execution at a corporate and industry level
across a number of industries ranging from primary, FMCG, industrial goods, petroleum/petrochemical to heavy
industry within SE Asia, Australia and New Zealand. He has a specialist functional knowledge in manufacturing
and operations, particularly in the area of performance improvement. Currently Mr Mander is the General
Manager of a specialist packaging business that has manufacturing sites in New Zealand and Australia exporting
predominantly to the SEA region. The business also exports a range of capital equipment globally from Australia.
He was appointed a director of Wellington Drive Technologies Ltd in June 2004.

Report of the Directors and Chief Executive
to the Shareholders

Commercial activities increased significantly in the year to 30 June 2007. Particularly notable in the second half
of the financial year were the first major shipments to the United States of our “ECR” electricity-saving motors
for supermarket and vending refrigeration systems. The first shipments of clean room fan-filter unit motors for
semiconductor plants also took place. Total operating revenues, excluding interest, were $10.7 million, up 60%
on the comparable period, with revenues in the second half of the year up
93%. We have focused on driving standard product revenues and volumes
to improve economies of scale and reduce manufacturing costs.

The increased level of deliveries, and the associated revenue increases,
continues to enhance the Company image in major markets. Linked
to this, the excellent performance in service that our products deliver
is the greatest aid to further sales of products and related services in
our conservative marketplace. This approach is beginning to yield
worthwhile results: standard product revenues climbed by 73% for the
full year, including an increase of just over 100% in the second half. In comparison, services revenue, made up of
engineering revenue and license fees, fell short of the results hoped for and was down $0.3 million, or 45%, for the
full year.

Several major Total Integration contracts with excellent medium-term prospects are in progress, although the
process of contracting these under terms that yield short term revenues has proved protracted. Nevertheless,
progress on the contracts front is being made as evidenced by recent announcements, and increasing revenues will
be recognized in the new financial year.

We shipped products to customers in 18 countries during the year. Samples were delivered to 86 prospects in 22
countries, reflecting the growing interest in our standard products and the increasing reach of the Company’s
sales activities.

Supermarket and Vending Refrigeration
During the year we were pleased to add Hill Phoenix (the #2 manufacturer
of supermarket chilled display equipment in the USA) and Kroger
Corporation (the #2 US supermarket chain with 4,276 retail outlets) to our
refrigeration customer list. We are making regular deliveries against supply
contracts with both these companies. We expect to continue supplying each
company for the foreseeable future with increasing numbers of motors as
the steady move to high-efficiency refrigeration systems continues.

The first deliveries of refrigeration motor products were also made to
Mexico, Australia and Poland. The Mexican refrigeration industry has
been highly successful in recent years selling to the United States and
Canada under the North American Free Trade Agreement (NAFTA). For
this reason, considerable effort has been devoted by the Wellington team to
establish sales in Mexico, and the initial successes there are welcome.

Our business in Turkey continues to expand, based on steady business
with the leading refrigeration companies Uğur and Klimasan there. The

                                                                                                Annual Report
                                                           3                                             2007
refrigeration industry in Turkey has been successful in obtaining a growing share of commercial refrigeration
sales in Europe. In many ways the refrigeration industries in Turkey and Mexico appear to be following similar
paths, as suppliers to neighbouring markets that have higher internal costs
of production. Hence, we are confident of continued growth of our business
in both regions.

Our first sales of refrigeration products in Scandinavia were also made
during the year. After the financial year end the first orders were placed by
Federal Industries Inc. of the United States. A large order (400,000 units
over the twelve months beginning January 2008) for ECR motors using our
new Monsoon technology was also placed recently by another major North
American company. All of these orders envisage supply by Wellington
of growing numbers of motors on a long-term basis: none are “one off ”

All of the customers that we are currently supplying were engaged with
us for extended periods in testing and evaluation programmes. The revenues booked in the 2007 financial year
represent only a small proportion of annualized potential of these accounts, given present confirmed order
levels. Furthermore, we expect these customers to require larger volumes from us than they consume now, as
our products are adopted more widely throughout the product ranges of these companies. Hence we believe that
these orders obtained over the past three quarters provide a good foundation for future growth in revenue and
gross profit. In addition, this acceptance of our products – on a substantial scale – by several of the most respected
companies in the international refrigeration industry is expected to speed the uptake by others that are currently
considering purchasing from our Company.

Heat Recovery & Domestic Ventilation Systems
Sales of products for heat recovery and domestic ventilation systems, mainly to The Netherlands and Belgium,
increased by 58% during the year. However, the growth was less than hoped for. Nevertheless, several European
and Scandinavian companies that have been evaluating our products for some time have placed small orders since
the financial year end, and we are confident that sales levels will improve more rapidly going forward.

We are currently in discussion with a major European ventilation industry organization regarding distribution
arrangements for some of our products that, if negotiations are completed satisfactorily, will substantially
improve our market access. The proposed arrangement particularly addresses the needs of smaller companies
that require from several hundred to a few thousand motors per year – and are willing to pay higher unit prices
in consequence. The overheads associated with servicing the large number of companies that fall into this
category are substantial, offsetting the higher unit prices available, to the extent that we believe working with an
established organization is the most appropriate way forward.

As previously announced, our acceleration plan was initiated in the first half of the 2007 calendar year, and
continues through to early 2008. The acceleration plan entails a substantial increase in sales and sale support
personnel in international markets, together with improvement of the Company’s rapid prototyping facilities to
speed engineering development and enhance the revenue-generating capability of our engineering team. Progress
is on track in all areas with sales appointments made in the United States, Turkey, Singapore, Italy and Mexico,
and the rapid prototyping capability delivering the first tangible results in the final quarter of the financial year.
The increase in the number of sales staff in-market substantially lifted customer inquiry levels, particularly in the
last quarter of the financial year: the new sales people were in post in time to make an impact with our customers
and prospects before the Northern Hemisphere summer vacation period, which was most pleasing. Response
times and customer service levels have improved significantly with the new appointments, enabling a wider range
of customers and prospects to be addressed.

Technology research and development continues at a similar pace to the previous two years, with the focus

continuing to move to product commercialization, customization of designs for customers (our “Total Integration”
service) and cost reduction of standard product lines, primarily through process improvement, sourcing and
supply initiatives. These engineering activities have already benefited noticeably from the infrastructure
investments, with completion time on major internal developments reducing markedly compared to previous
years. Linked to these improvements, the time to introduce cost-down measures to production has also reduced
substantially, particularly in the last quarter of the financial year, with benefits on achieved production margins
already beginning to show through. We expect both these trends to continue.

The Company continues to focus its efforts on core materials science, motor control and control software research.
Our underlying research and development efforts continue to deliver world-class results, with several new patents
being issued during the financial year. The first application filings for three new patent families, covering certain
motor control and motor manufacturing techniques, were also made. These applications are now being pursued
internationally under the Patent Cooperation Treaty (PCT).

Financial Review
Group revenue was up 60% to $10.7 million, with product revenues up 73% to $10.2 million and engineering and
license revenues down 45% to $0.3 million. Other revenue lines, mainly grant income, were steady at $0.2 million.

The consolidated loss before tax was $6.3 million for the year to 30th June 2007, up from $4.5 million in the
previous period. Operating Loss was $5.9 million, up from $4.9 million in the year to 30th June 2006. This was
$0.5 million higher than we were forecasting earlier in the year due to three principal factors: the higher New
Zealand dollar reducing margin improvement, a small write-off of stock not fully compliant with the European
Reduction of Hazardous Substances (ROHS) regulations and overheads slightly higher than forecast earlier in the
year due mostly to early success in recruiting overseas sales personnel.

The overall 2007 loss before tax was adversely impacted by $0.7 million due to unrealised revaluation of US dollar
denominated assets, namely cash and receivables. Currency movements reduced our reported revenue growth,
and decreased margins as – despite most sales being Euro and US dollar denominated and most components and
materials being purchased in US dollars – we carry our stock on our books in New Zealand dollars. The exposure
to exchange rate variations will decrease as the headline revenue figures continue to improve, and stock and
receivables ratios to revenue also improve.

As noted above, the unfavorable movements in the New Zealand dollar negatively impacted margin improvement,
particularly in the last three months of the financial year, as a steadily climbing New Zealand dollar against the
US dollar resulted in stock being bought at a less favorable rate than when billings were made. Nevertheless,
product margins still improved markedly during the year in New Zealand dollar terms, though the fall in
engineering revenues and the stock write off of non-compliant ROHS materials reduced total gross margins
improvement below our targets. Despite these impacts, gross margins were significantly ahead of the prior year,
and we expect the improvement to continue.

Overheads continue to be managed well throughout the Group and ended the year exactly as per our plans – an
increase of 40% over the prior year, with spend outside New Zealand doubling and New Zealand based costs
managed to less than a 20% increase. The higher New Zealand dollar had a small favorable impact in this area,
given the growth in staff costs in the United States.

The Company marginally increased its net capitalization of development assets, which are amortised through
Operating Expenses, by $0.1m during the financial year as research and development effort continues in line with
the level of previous years.

The June 2007 1:3 rights issue raised $7.6m and was completed successfully, with application for oversubscription
in excess of 20%.

Cash balance at year end was $13.1 million (excluding funds of $1.6m for oversubscription applications, returned
in July 2007). Year end cash benefited from some improvement in working capital.

                                                                                                Annual Report
                                                           5                                              2007
Stock on hand at year end was worth $3.5 million, up from $2.7 million in the prior year, but down from $4.2
million at 31st December 2006 as reported in our Interim Result. This highlights the lumpy requirements of
working capital as the company works through early growth of new accounts and product lines. Receivables were
steady at $2.5 million and creditors up $0.3 million on the prior year to $1.6 million.

Net Fixed Assets increased during the year to $2.2 million, primarily due to execution of the engineering and
rapid prototyping investments of our acceleration plan. The majority of fixed asset spend for the acceleration
plan has now been made and is expected to be completed by the end of the 2007 calendar year.

The Growing Business

Acceleration Plan

Expansion of Sales Activities
The key focus of the acceleration plan is to increase the level of sales activity, and conversion of sales leads to
revenue, across the Company’s target markets. In the last 12 months the total Company headcount increased
from 53 to 72, including 5 full time paid agents. Of the 19 new staff, 15 were international, with 11 being sales
and sales support staff. The Company now has 20 staff outside New Zealand and a total sales team of 19.

The main result of this increase has been a substantial lift in direct customer activities (visits, leads, sample
programs). Customers and prospects considering electricity-saving motors for their product lines appear to place
a high value on the level of customer service that we are now beginning to provide. We expect that expansion of
direct customer related activities, through increasing sales headcount and improved territory management, will be
areas of emphasis for us for the foreseeable future.

As well as having subsidiaries in the United States, Turkey, Italy and Singapore, the Company also has in-market
presence in the UK, The Netherlands and Mexico.

Completion of Investment in Engineering and Rapid Prototyping
Key milestones have been reached with the investments in engineering
and rapid prototyping, with the Auckland facilities completed
close to planned time scales and within budget. This investment
significantly enhances the engineering team’s productivity; the Board
and management believe this gives Wellington a useful competitive

Our engineering team is now resourced with excellent rapid prototyping
and flexible short-run production facilities. Capabilities now include:

   • Polymer (plastic) rapid prototyping using fused deposition
     modeling (FDM).

   • Multiaxis computer numerically controlled (CNC) machining.

   • Plasma erosion equipment capable of machining some ceramics,
     particularly used for rapid prototyping of ceramic magnets for
     new motor designs.

   • Precision gauging equipment, used primarily for evaluation and
     approval of subcontractor-produced components for acceptance
     for production and on-going quality control.

   • An in-house automated electronics production facility for development and
     early production, prior to transfer to established contractors offshore.

   • Computer aided manufacturing (CAM) software enabling good integration
     of the new facilities with our existing computer aided design (CAD) suite,
     minimizing engineering time requirements.

Although the investments associated with these facilities have been substantial,
the team is able to complete developments in typically one third the time required
hitherto. These gains are achieved by the elimination of scheduling and transport
delays that were associated with outsourcing the specialized services that can now
be carried out in-house. The improvements in timing that have been achieved are
dramatic, especially when the required services are not readily available in New
Zealand, as was the case with some of the services that we need. Furthermore,
most investments made in this respect show a simple payback of around one year,
compared to the significant costs of purchasing similar services from external

Working Capital
Though the year ended well in terms of working capital usage, this was mainly a timing effect, with stock balances
down due to the natural order and delivery cycle, in addition to careful management. Over the medium term
we expect that the cash requirements around working capital will show a relative improvement compared to
revenues, although investment in working capital will remain substantial for some time.

Manufacturing Improvement Programme
Margin improvement during the year in US Dollar terms was significant, although the full effects are not seen
in our results, due to the movements in the New Zealand dollar as noted above. The improvement is the result
of a major and on-going programme of cost reduction activities, initially focused on our air movement products
(predominantly sold in Europe) and now beginning across our refrigeration product lines. Activities across this
area have been coordinated by our Design for Manufacturing and Assembly (‘DFMA’) team based in Singapore
and Auckland.

The ability to place steady, and growing, orders into our Asian contract manufacturers over the past few months
has greatly assisted the progress of cost-down initiatives overall, and has been helpful to our medium and longer
term production planning discussions with suppliers and subcontractors.

We expect to see good progress on cost reduction continue in the second half of calendar 2007 and beyond. Much
scope remains for manufacturing costs to be reduced further, along with improved purchasing opportunities as
production volumes increase.

Sales Success
Sales growth has been pleasing with a strong performance in the second six
months. Most notable were our refrigeration product lines. In particular the
“ECR” electricity-saving fan motor product line for supermarket and vending
refrigeration use was up by 70%, The ECR range continues to build on solid
sales established in late 2005, and since early in calendar year 2007 sales have
become more regular. We expect to see a continuation and acceleration of ECR
sales: 44 companies ordered ECR samples during the year, a good indicator of
future sales growth.

Overall, the Company delivered in excess of 350,000 motors in the 12 months
to 30th June 2007, a 75% increase on prior year. We have now shipped over

                                                                                               Annual Report
                                                          7                                             2007
700,000 motors in aggregate, and we expect to ship our millionth motor during the 2007 calendar year. These
delivery levels and milestones, although satisfying, represent a tiny portion of the annual demand worldwide for
motors in the size ranges that we sell, so there are great opportunities for growth.

Operational Review
With the shift of the majority of production capacity to Asia, the supply chain is now stable, and additional
orders are providing the Company with some improvements in buying power. We are currently reviewing our
arrangements for manufacturing stators , a key part of all our motors and the component in which a substantial
part of our intellectual property (IP) is embodied. The key objective with stator manufacturing is to offer a
flexible manufacturing service to customers, while achieving scale economies and enhancing the protection of our
IP. The first stages of the review have been completed, and proposals for future stator manufacturing plans will be
presented to the Board soon.

We are currently engaged on major development programmes with several of the world’s leading appliance and
appliance component manufacturers. As reported previously, most of these programmes envisage and are working
towards Wellington-based products produced in several million units annually. They all have substantial medium
and long term revenue and profit prospects for our Company. However, the contractual negotiations associated
with these programmes have proved to be both difficult and protracted, principally due to the novelty of both the
products being developed and the variety of commercial arrangements that may be appropriate for delivering
commercial numbers of the developed items.

Concluding several of these arrangements to the point where revenues were yielded during the financial year
just completed proved elusive. The negotiation process was noticeably affected by the diversion of management
time during the failed investment by Source Vortex in the first half of the financial year. We chose, in discussion
with our customers, to continue work on some of these contracts – in effect at our own risk – in advance of full
commercial agreement. This accounted for the reduction in services revenues reported for the financial year.

We anticipate that decision will ultimately improve the yield from these contracts, by strengthening our level of
ownership of the products and technology that is being developed.

Since the financial year end, negotiations were concluded regarding the next major stage of development of one of
these programmes, resulting in the placement by the customer of an order for a substantial amount of engineering
work that will be completed (and deliver revenues) during the current (2008) financial year: we expect the
experience with the other programmes will be similar. For reasons of commercial confidentiality, details of these
programmes cannot be released.

Carbon Emissions and Sustainability
We are working to develop clear messages concerning the potential environmental and sustainability advantages
of our electricity-saving motor products and technologies. Interest in the electricity savings that high-efficiency
motors offer in high and continuous use applications (like commercial refrigeration and domestic ventilation)
continues to grow. There are some signs, for example, that a complete switch to electricity saving motors in
commercial refrigeration may soon start: if so, the demand for our ECR products will be many times larger than it
is today.

The obvious economic advantages of electricity-saving motors in commercial refrigeration operations, where
motors typically run for 24 hours per day, 7 days per week to keep food products in peak condition, are being
increasingly acknowledged. Electricity is one of the largest costs for a supermarket, for instance, and the cost
savings enabled by our ECR motors are substantial.

For example, we recently announced the sale of four hundred thousand Wellington ECR motors to a major
North American manufacturer of commercial refrigeration equipment. When in service, these motors will save
    The “stator” is fixed, or stationary, part of a motor. Magnetic forces between it and the “rotor” (the rotating part) produce the familiar rotational
    movement that is the motor’s purpose. The stator is usually the most complex mechanical part of the motor.

electricity worth approximately $US40 million each year. These annual savings are several times the value of
the motors themselves, so the investment case is beginning to become compelling in this particular market area,
which accounts for the signs that a market shift is
in progress. In the Northern Hemisphere countries
where most of these motors will be used, these
electricity savings are equivalent to reducing carbon
emissions by at least 100,000 tonnes each year,
approximately the same effect as taking 50,000 cars
off the road.

It is worth noting that 400,000 motors is the
quantity required by our customer for a single
year’s production. However, this customer intends to buy this number, and potentially many more, from us every
year for the foreseeable future. The electricity and emissions savings from placing these motors in service are
cumulative, and aggregate to very substantial levels over a few years only.

The sheer numbers of smaller motors in service offer great electricity savings potential in aggregate. For
perspective, 400,000 motors represents less than 2% of the annual market worldwide for small refrigeration
motors, in itself only a small part of the wider market for small motors as such.

Overall, small electric motors account for 25% of residential electricity and more than 11% of all electricity
consumed in the USA. It is a surprising fact that small motors in our target markets consume together more
electricity than the combined use of large motors (rated from several kilowatts {kW} to many hundreds of kW).
Today, in most developed countries, large motors are regulated to have high efficiency, and it is possible to achieve
acceptable efficiency performance using conventional motor technology without electronic control and software
being needed, without unacceptable cost increases; low efficiency designs are hence no longer permitted.

This is not the case with small motors: in part, this is the reason that the opportunity for our Company exists.
Despite consuming more electricity in aggregate, smaller motors are not yet so regulated. Obtaining efficiency
improvements, while maintaining acceptable prices, appears to have proved difficult for the established motor
industry and we believe that fundamental technical reasons underlying the designs used by our competitors are
the root cause of this. We believe that regulations will follow once a technology for achieving improved small
motor efficiency proves its commercial viability through widespread market success – and our goal is to be the
provider of that technology to markets worldwide.

The simple example above illustrates that, over time, improved efficiency performance from small motors
could have significant macroeconomic and environmental benefits – and under the Kyoto protocol there are
arrangements whereby electricity saving products, such as motors, can attract carbon credits. These possibilities
are being investigated.

In order to better align our sales cycle with the operational management of the Company, the Board and
Management is proposing to change our corporate balance date from 30th June to 31st December. A request is
currently in progress with the Inland Revenue Department as the normal first step in the process.

The Company will implement IFRS accounts starting in the new financial year, with the year to 30th June 2007
taken as the comparative period.

                                                                                                Annual Report
                                                           9                                              2007
In the last quarter of the financial year we released samples of our first products that use our new “Monsoon”
motor, electronics and software system. The Monsoon system offers the electricity-saving performance that is
increasingly becoming in demand for many basic light industrial and domestic appliances – at a price point that
we believe to be acceptable for mass-market adoption. Some early orders for
Monsoon-based products have been received since the financial year end.

In line with customer requests, the engineering team has also been developing
several enhancements to our current ventilation products range, focusing
particularly on features needed for premium market segments including a
variety of software-based facilities and performance enhancements. Some
work has been devoted to packaging some of our products in a way suitable for
specific market segments that we do not currently address.

Several projects that introduce new manufacturing technology to enable cost reduction are nearing conclusion.
The new methods are expected to be used in our manufacturing operations during the current financial year.
These involve both new materials and/or new processes and some are the subjects of patent applications. Further
initiatives in the general area of manufacturing cost reduction are planned.

Several extensions to the basic Monsoon system have been investigated, and some are currently being tested.
We have plans for further development of the Monsoon technology, with the intention of expanding the range of
applications it can usefully service, enhancing its performance and reducing costs. We expect this work to yield
additional patent applications in due course.

With the increase in the sales force establishing a stronger and more visible in-market commercial presence, the
bedding down of the investments in engineering and rapid prototyping, and the strong progress of cost down and
product development initiatives, the Company is well placed for continuing rapid growth.

Revenues are expected to increase significantly and, though they will continue to become more predictable (as
seen over the past two years) as the customer base develops, volatility will remain as new customers are introduced
and the order profile continues to evolve.

The Company will continue to add to the international sales force, to expand its cost reduction initiatives and its
logistics capacity, and to build its manufacturing capability, particularly around its novel stator technology. It is
also planning to invest in system improvements for customer management, supply chain visibility and financial

Good sales growth was achieved in the last year and, overall, prospects continue to improve. Although future
results remain difficult to predict with any certainty, Directors believe that the Company will move into
profitability in the second half of the 2008 calendar year. The prospects for profit growth beyond that remain

Directors have resolved that no dividend be declared payable.

Audit fees received or due and receivable by PricewaterhouseCoopers are $50,000 (2006 - $40,000).

The Company does not have a credit rating.

Directors and Employees
The Directors express their appreciation to the staff of the Company for their commitment and effort in
commercialising and promoting Wellington's motor technologies and products over the past year.

In accordance with the Company’s Constitution, Mr Shawn Beck and Professor Ray Meyer retire, and, being
eligible, offer themselves for re-election at the Annual Meeting. As of the date of this Annual Report no other
director nominations have been received.

Remuneration of Directors
During the year the following remuneration was paid or payable to directors:

                                                                                                                  2007            2006
       Mr S. R. Beck                                                                                            $22,500         $20,000
       Dr R. M. Green                                                                                          $283,250        $241,500
       Mr S. J. Mander                                                                                          $20,000         $20,000
       Professor R. F. Meyer                                                                                    $20,000         $20,000
       Dr. R. J. Thomson                                                                                        $20,000         $20,000
       # Paid to Greenstone Fund Ltd/Pencarrow Private Equity Ltd for services rendered by Mr S.R. Beck as a director of the Company.

Interested Transactions
The Directors have disclosed the following transactions with the Company:

   • Interested Transactions – There have been no transactions during the year with interested or related

   • Directors’ Remuneration – Remuneration details of Directors are provided above.

   • Indemnification and insurance of officers and directors – The Company indemnifies directors and
     executive officers of the Group against all liabilities which arise out of the performance of their normal
     duties as director or executive officer, unless the liability relates to conduct involving lack of good faith.
     To manage this risk, the Group has indemnity insurance. The total cost of this insurance expensed during
     the financial year was $20,000 (2006 - $16,000).

   • Share Transactions – In November 2006 the Shawn Beck Trust purchased 50,000 shares for $24,000. Also
     in November 2006 Prof R. Meyer purchased 40,000 shares for $19,200.

       In March 2007 the Shawn Beck Trust purchased 50,000 shares for $23,000.

       In April 2007 the Shawn Beck Trust purchased 100,000 shares for $43,000. Also in April The Green Family
       trust sold 600,000 shares for $240,000 to interests associated with the Thomson family.

       In May 2007 the Shawn Beck Trust purchased 87,500 shares from the Green Family Trust for $35,000.
       Also in May the Green Family Trust sold a further 87,500 shares to interests associated with the Thomson
       family for $35,000. In May 2007 interests associated with Dr R.J. Thomson sold a net of 200,000 shares at
       40 cents each to other Thomson family interests.

                                                                                                                   Annual Report
                                                                     11                                                       2007
         In June 2007 all directors interests exercised their rights in accordance with the Prospectus and Investment
         Statement dated 18 May 2007 and subscribed for the following shares at 10 cents each: The Green Family
         Trust – 923,808 shares; Gurkha Trust and Waikiwi Trust (trusts in which Dr R.J. Thomson has interests) –
         5,155,272 shares; Prof R. Meyer – 20,278 shares; and The Shawn Beck Trust – 149,999 shares.

         No other directors acquired or disposed of any shares in the Company during the year.

    • Directors’ Loans - There were no loans by the Company to Directors.

The Board received no notices during the year from directors requesting to use Company information received in
their capacity as directors which would not otherwise have been available to them.

Directors’ Shareholding
                                                                  30 June 2007                           30 June 2006
Ordinary shares                                        Total Relevant          Direct         Total Relevant          Direct
                                                          Interest        Relevant Interest      Interest        Relevant Interest
Dr R. M. Green                                          3,695,230                -             3,546,422                -
Dr R. J. Thomson                                       20,165,837                -            15,210,565                -
Prof R. F. Meyer                                            -                 79,326               -                 19,048
Mr S.R. Beck                                             687,499                 -              250,000                 -
   • Dr R.M. Green has a direct interest in 2,000,000 share options granted in June 2007 – see note 11 for
      further details.

    • Dr R.J. Thomson has interests in shareholders * listed on page 14.

    • Mr S. R. Beck is an executive director of Pencarrow Funds Management, the manager of Greenstone Fund
      Ltd. Greenstone Fund Ltd had shareholding interests in the Company – see page 15.

The number of employees, other than Directors, within the Group receiving remuneration and benefits above
$100,000, as is required to be disclosed in accordance with section 211(1)(g) of the Companies Act 1993, is
indicated in the following table.

                                                                                                         GROUP & PARENT
                                                                                                       2007         2006
         $100,000 - $109,999                                                                            1            1
         $110,000 - $119,999                                                                            1            1
         $120,000 - $129,999                                                                            2             -
         $130,000 - $139,999                                                                            1            1
         $200,000 - $209,999                                                                             -           1
         $260,000 - $269,999                                                                            1             -

NZX Waivers
In accordance with NZ Stock Exchange Listing Rule 10.5.3(f) disclosure of waivers granted by the NZ Exchange
during the last year is made:

      • November 2006: Source Vortex – Listing Rule 7.3.2. To enable the Company to grant 35,000,000 warrants
        to purchase shares in Wellington at 60 cents if certain conditions were met. Further details of this
        waiver can be viewed on the website of the Company at: The
        transaction did not proceed.

      • May 2007: Prospectus – Listing Rule 7.10.5. To enable the Company to give shareholders the right to
        apply for more new shares than their entitlement, to the extent of any shortfall in the issue. The waiver
        was subject to certain conditions being met. Further details of this waiver can be found on page 20 of
        the Prospectus & Investment Statement dated 18 May 2007 which can be viewed on the website of the
        Company at:

In accordance with Section 200 of the Companies’ Act 1993, the auditors, PricewaterhouseCoopers, continue in

For and on behalf of the Board

.....................................                    .....................................
Mr S.R. Beck                                             Dr R.J. Thomson
Chairman                                                 Director
19 September 2007                                        19 September 2007

                                                                                                 Annual Report
                                                           13                                             2007
Shareholder Information

As at 30 June 2007 there were 2,081 shareholders.

Share Issues
In December 2006 the Company issued 30,000,000 new shares to professional investors at 40 cents per share
raising $11,781,000.

On 18 May 2007 the Company registered a Short Form Prospectus and Investment Statement. Under the terms
of this document, a renounceable offer to existing shareholders was made of one ordinary share for every three
ordinary shares held, up to a maximum of 76,520,232 ordinary shares at 10 cents each. The offer closed on 22
June 2007, fully subscribed. This issue raised $7,591,000.

At 11 September 2007 there were 306,080,927 shares on issue.

Shareholder Details
The ordinary shares of Wellington Drive Technologies Limited are listed on the New Zealand Stock Exchange.
The information in the disclosures below have been taken from the Company’s registers at 11 September 2007:

20 largest shareholders
            1.      N.Z. Central Securities Depository Ltd                  145,631,363
            2.      Waikiwi Trust*                                           13,285,948
            3.      Norwood Investments Ltd                                   8,844,516
            4.      Tane Nui Family Trust                                     6,988,103
            5.      Gurkha Trust*                                             6,879,889
            6.      Jarden Custodians Ltd                                     5,549,313
            7.      Green Family Account                                      3,841,062
            8.      L.F. St.Clair Rodgers                                     3,400,346
            9.      K.F. Bennett                                              3,364,504
            10.     R.B. Whale Trust                                          3,346,320
            11.     A.J.J. & D.J. Agar                                        3,307,376
            12.     J. Whale Family Trust                                     3,000,000
            13.     Jangada Trust                                             2,679,468
            14.     FNZ Custodians Ltd                                        2,583,498
            15.     S.C. & L.M. Hodgson and G.M. Bilkey                       2,403,220
            16.     The Belvedere Trust                                       2,322,430
            17.     N.G.R. & L.M. Hodgson & G.M. Bilkey                       2,138,127
            18.     M.J. Springford                                           2,099,279
            19.     Graham Trustees Ltd                                       1,880,819
            20.     Meta Capital Ltd                                          1,838,829

Note 1. NZ Central Deposit Securities Depository Limited hold shares on trust for 18 different shareholders. The largest
of these are: Citibank Nominees (N.Z.) Ltd – 54,595,791 shares; HSBC Nominees (N.Z.) Ltd – 32,944,965 shares; Accident
Compensation Corporation – 14,798,400 shares; National Nominees N.Z. Ltd – 10,791,384 shares; Cogent Nominees Ltd
– 8,693,295 shares; Custody & Investment Nominees Ltd – 6,501,425 shares; T.E.A. Custodians Ltd – N.Z. Equities Trust –
4,406,893 shares; T.E.A. Custodians Ltd – 3,532,544 shares; N.Z. Guardian Trust Investment Nominees Ltd – 3,500,000 shares;
Westpac NZ Shares 2002 Wholesale Trust – 2,213,279 shares; and Premier Nominees Ltd –Armstrong Jones N.Z. share Fund

* Dr R.J. Thomson (a director) has interests in the above shareholders.

Distribution of Equity Securities
                                                                        Shareholders           Fully Paid Ordinary Shares
Size of Holdings (at 11 September 2007)                             Number           %         Number               %
       1            -      999                                            57       2.73          33,786           0.01
       1,000        -      1,999                                         149       7.15         218,140           0.07
       2,000        -      4,999                                         422      20.25       1,340,637           0.44
       5,000        -      9,999                                         428      20.54       2,926,885           0.96
       10,000       -      49,999                                        708      33.97      15,718,776           5.13
       50,000       -      99,999                                        149       7.15      10,208,131           3.34
       100,000      -      499,999                                       122       5.85      24,639,992           8.05
       500,000      -      999,999                                        17       0.82      11,091,651           3.62
                  over     1,000,000                                      32       1.54     239,902,929          78.38
                                                                       2,084     100.00     306,080,927        100.00

1,983 (or 95.17%) of the number shareholders, holding 303,131,624 shares (or 99.02%) reside in New Zealand.

Substantial Security Holders
Pursuant to section 26 of the Securities Markets Act 1988, details of substantial security holders and their total
relevant interests as per their most recent notices are::

                                                                                      Number of         Date of
       Name                                                                            shares           Notice
       R.J. Thomson                                                                  15,010,565     1 May 2007
       AXA SA and AXA Asia Pacific Holdings Limited                                  38,566,498     24 Apr 2007
       G.A. Thomson                                                                  12,884,196     11 Apr 2007
       Hunter Hall Investment Management                                             39,187,500      3 Apr 2007
 Number of shares is taken from notices received. No adjustments have been made for changes that may have
subsequently occurred from the dates of notices stated. The definition of “relevant interest” in the Securities
Markets Act 1988 provides that more than one relevant interest can exist in respect of the same securities.

Both Greenstone Fund Limited and Pencarrow Funds Management Limited filed notices on 3 April 2007 stating
their shareholding interests in the Group were sold and are no longer substantial security holders.

Shareholder Enquires
Shareholders should send changes of address to Computershare Investor Services Limited at the address noted
in the Directory on page 1. Notification must be in writing. Questions relating to shareholdings should also
be addressed to Computershare Investor Services Limited. For information about the group please contact the
Company at the registered office by sending an email to or visit our website

Announcements to Shareholders
The Company has established an email list of shareholders that want to receive announcements made by
Wellington Drive to the N.Z. Exchange. Announcements are emailed to shareholders who wish to receive them
shortly after they are released. This will include the Annual Meeting addresses. If you want to be added to
this listing please email and advise us of your email address. Your email details will be kept

Announcements are also posted on our website normally the day after they are released.

                                                                                                  Annual Report
                                                           15                                                2007
Corporate Governance

The Board of Wellington Drive Technologies Limited is committed to acting with integrity and expects high
standards of behaviour and accountability from all its officers and staff. The governance principles adopted
by the Board are designed to meet best practice. Generally Wellington Drive follows the N.Z. Stock Exchange
Corporate Governance Best Practice Code, except in the area of Board committees as detailed further below.

Role of the Board
The Board’s primary objective is the enhancement of shareholder value by following appropriate strategies,
and ensuring effective and innovative use of available Company resources. The Board are responsible for the
management, supervision, and direction of the Group. Day-to-day management of the Group is delegated to the
Chief Executive.

Board Meetings
The Board normally meets nine to eleven times each year for scheduled meetings. Additional meetings are held
where specific matters require attention between scheduled meetings. Board meetings are used to monitor,
challenge, develop, and fully understand business and operational issues.

Composition of the Board
The Constitution provides that there will be not less than three and not more than eight directors. N.Z. Stock
Exchange requirements are that at least two directors or one-third, are independent directors. The Board
considers that four to five Directors plus the Chief Executive is currently desirable for effective decision making.
Profiles of Directors are given on page 2.

Criteria for Board Membership
When a vacancy arises, the Board identifies candidates with a mix of capabilities and perspectives considered
necessary for the Board to carry out its responsibilities effectively. A Director appointed by the Board must stand
for election at the next Annual Meeting. At each Annual Meeting one-third of directors (excluding the Chief
Executive) must retire by rotation. Retiring directors are eligible for re-election.

Board Committees
The Board have established one Committee – the Audit and Risk Committee. This Committee operates under
a charter approved by the Board and is accountable to the Board for: the business’s relationship with, and the
independence of, the external auditors; the reliability and appropriateness of the disclosure of the financial
statements and external financial communication; and the maintenance of an effective business risk management
framework including compliance and internal controls. The Committee is composed of at least three non-
executive directors, two of which are independent.

The N.Z. Stock Exchange Corporate Governance Best Practice Code recommends establishment of committees for
remuneration (of directors) and (director) nominations to the Board. These functions have been retained by the
Board as a whole.

Trading in shares
Wellington Drive has a detailed insider trading policy applying to all Directors and employees. A procedure must
be followed to obtain consent to trade in the Company’s shares at all times. Generally trading is permitted from
the release of the interim results until 30 April and from release of the final results until 30 November. Directors
and employees are not able to trade in Company shares, if they are in possession of unpublished price sensitive

Auditors’ Report to the Shareholders of
Wellington Drive Technologies Limited
We have audited the financial statements on pages 18 to 30. The financial statements provide information about the past
financial performance and cash flows of the Company for the year ended 30 June 2007 and its financial position as at that
date. This information is stated in accordance with the accounting policies set out on pages 22 to 23.
The Company’s Directors are responsible for the preparation and presentation of the financial statements which give
a true and fair view of the financial position of the Company as at 30 June 2007 and its financial performance and
cash flows for the year ended on that date.
We are responsible for expressing an independent opinion on the financial statements presented by the Directors and
reporting our opinion to you.
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial
statements. It also includes assessing:
(a)     the significant estimates and judgements made by the Directors in the preparation of the financial statements; and
(b) whether the accounting policies are appropriate to the circumstances of the Company, consistently applied and
    adequately disclosed.
We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned
and performed our audit so as to obtain all the information and explanations which we considered necessary to
provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements.
We have no relationship with or interests in the Company other than in our capacity as auditors and tax advisers.
We have obtained all the information and explanations we have required.
In our opinion:
(a)     proper accounting records have been kept by the Company as far as appears from our examination of those
        records; and
(b) the financial statements on pages 18 to 30:
        (i)     comply with generally accepted accounting practice in New Zealand; and
        (ii) give a true and fair view of the financial position of the Company as at 30 June 2007 and its financial
             performance and cash flows for the year ended on that date.
Our audit was completed on 19 September 2007 and our unqualified opinion is expressed as at that date.

Chartered Accountants

                                                                                                   Annual Report
                                                             17                                              2007
Statements of Financial Performance
for the year ended 30 June 2007

                                                             CONSOlIDATED               PARENT COMPANY
                                                Note      2007          2006          2007          2006
                                                          $000s         $000s         $000s         $000s
    Product sales & fees                                   10,549         6,424       10,231          6,565
    Royalties & licensing income                               58            74           58             74
    Interest                                                  302           184          299            184
    Grants                                                    149           166          149            166
    Exchange gains                                            102           214            -            214
    Other income                                               16             -           14              -
                                                          $11,176        $7,062      $10,751         $7,203

Less: Operating expenses                            1     (17,438)     (11,589)      (17,019)      (11,724)
Net loss before Taxation                                   (6,262)      (4,527)       (6,268)       (4,521)
    Taxation expense                                3            -              -           -               -
Deficit attributable to the shareholders of
Wellington Drive Technologies limited                      (6,262)      (4,527)       (6,268)       (4,521)
    Accumulated deficit at beginning of year              (27,937)     (23,410)      (27,931)      (23,410)
Accumulated Deficit at end of year                       ($34,199)    ($27,937)     ($34,199)     ($27,931)
    Basic earnings per share (cents)                        (2.88)       (2.53)

Statements of Movements in Equity
for the year ended 30 June 2007

                                                             CONSOlIDATED               PARENT COMPANY
                                                Note      2007          2006          2007          2006
                                                          $000s         $000s         $000s         $000s
Equity as at beginning of year                              8,497         7,705         8,503         7,705
    Net loss for year                                      (6,262)      (4,527)       (6,268)       (4,521)
    Currency translation movements                  12          6               -           -               -
    Total recognised revenue & expenses                    (6,256)      (4,527)       (6,268)       (4,521)
    Increases in paid up capital                    11     19,372         5,319       19,372          5,319
Equity at end of year                                     $21,613        $8,497      $21,607         $8,503

Statements of Financial Position
as at 30 June 2007

                                                                 CONSOlIDATED                     PARENT COMPANY
                                             Note             2007          2006                2007          2006
                                                              $000s         $000s               $000s         $000s
      Cash on hand & at bank                                     3,016                   444      2,808           444
      Bank call deposits                                         9,203                 1,161      9,203         1,161
      Bank short term deposit                                    2,525                    89      2,525            89
      Trade accounts receivable                                  2,347                 1,959      1,996         1,805
      Other receivables & prepayments                              725                   385        582           385
      Taxation refund due                     3                      -                     1          -             1
      Inventories                             4                  3,579                 2,693      3,029         2,511
                                                               21,395                  6,732     20,143         6,396
      Fixed assets                            5                  2,244                 1,530      2,149         1,530
      Development costs                       6                  2,495                 2,059      2,495         2,059
      Trade marks                                                  124                    37         62            37
      Shares in subsidiaries                  7                      -                     -          -             -
      Advances to subsidiaries                8                      -                     -        807             -
                                                                 4,863                 3,626      5,513         3,626
                                                             $26,258                 $10,358    $25,656      $10,022
      Accounts payable & accruals             9                  2,047                 1,840      1,895         1,498
      Shareholder oversubscriptions                              1,638                     -      1,638             -
      Bank finance facilities (secured)      10                    960                     -        516             -
      Deferred landlord rental charges                               -                    21          -            21
                                                                 4,645                 1,861      4,049         1,519
      Paid in capital                        11                55,806                  36,434     55,806       36,434
      Accumulated deficit                                    (34,199)                (27,937)   (34,199)     (27,931)
      Foreign currency translation reserve                          6                       -          -            -
      Total equity                                             21,613                  8,497     21,607         8,503
                                                             $26,258                 $10,358    $25,656      $10,022

For & on behalf of, the Board

................................                  ................................
Director                                          Director
19 September 2007                                 19 September 2007

                                                                                                 Annual Report
                                             19                                                            2007
Statements of Cash Flows
for the year ended 30 June 2007

                                                  CONSOlIDATED           PARENT COMPANY
                                               2007          2006      2007          2006
                                               $000s         $000s     $000s         $000s
Cash Flow from Operating Activities
Cash was provided from:
   Receipts from customers                      10,522         5,376    10,468         5,376
   Interest received                               302           184       299           184
   Tax refunded                                      1             -         1             -
                                                10,825         5,560    10,768         5,560
Cash was applied to:
   Payments to suppliers                       (13,122)      (8,324)   (13,066)      (8,324)
   Payments to employees                        (3,162)      (2,807)    (2,892)      (2,807)
   GST paid / (received)                          (149)           14       (21)           14
   RWT deducted from interest income                  -          (1)          -          (1)
   Interest paid                                   (77)            -       (58)            -
                                               (16,510)     (11,118)   (16,037)     (11,118)
Net cash flow from operating activities         (5,685)      (5,558)    (5,269)      (5,558)

Cash Flow from Investing Activities
    Purchase of fixed assets                    (1,252)        (513)    (1,139)        (513)
    Development costs                             (928)        (759)      (928)        (759)
    Trade mark intangibles                         (94)         (37)       (25)         (37)
    Advances to subsidiaries                          -            -      (807)            -
Net cash flow from investing activities         (2,274)      (1,309)    (2,899)      (1,309)

Cash Flow from Financing Activities
Cash was provided from:
   Cash proceeds from share issues              19,371         5,319    19,371         5,319
   Shareholder oversubscriptions                 1,638             -     1,638             -
Net cash flow from financing activities         21,009         5,319    21,009         5,319
Net (Decrease) / Increase in Cash Held          13,050       (1,548)    12,841       (1,548)
    Add opening cash brought forward             1,694         3,242     1,694         3,242
Ending Cash carried forward                    $14,744        $1,694   $14,535        $1,694

Represented by:
    Cash on hand & at bank                       3,016           444     2,808           444
    Bank call deposits                           9,203         1,161     9,203         1,161
    Bank short term deposits                     2,525            89     2,525            89
                                               $14,744        $1,694   $14,536        $1,694

Statement of Cash Flows
for the year ended 30 June 2007

                                                      CONSOlIDATED            PARENT COMPANY
                                                   2007          2006       2007          2006
                                                   $000s         $000s      $000s         $000s

Reported net loss after taxation                    (6,262)      (4,527)     (6,268)      (4,521)
Items not involving cash flows:
   Depreciation                                        533           479        515           479
   Development costs amortised                         492           372        492           372
   Intangibles amortised                                 8             -          -             -
   Loss on disposal of fixed assets                      5             1          5             1
   Asset purchase accrued                                -             6          -             6
Impact of changes in working capital items:
   Accounts receivable                               (728)       (1,828)      (388)       (1,674)
   Tax refunds due                                       1            (1)         1            (1)
   Inventories                                       (886)       (1,069)      (518)         (887)
   Accounts payable & accruals                       1,167         1,060        913           718
   Deferred landlord rental charges                   (21)          (51)       (21)          (51)
   Currency translation adjustment                       6              -         -              -
Net cash flow from operating activities            ($5,685)     ($5,558)    ($5,269)     ($5,558)

                                                                             Annual Report
                                              21                                       2007
Statement of Accounting Policies for the year ended 30 June 2007

The financial statements for the “Parent” are for Wellington Drive Technologies Limited as a separate legal entity.
The consolidated financial statements for the “Group” are for the economic entity comprising Wellington Drive
Technologies Limited, its subsidiaries and associates.

Wellington Drive Technologies Limited is a company registered under the Companies Act 1993 and is an issuer in
terms of the Securities Act 1978.
The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act
1993 and the Companies Act 1993.

The financial statements have been prepared on the historical cost basis.

The financial statements are prepared in accordance with New Zealand generally accepted accounting practice.
The accounting policies that materially affect the measurement of financial performance, financial position and
cash flows are set out below.
(a) Group financial statements
    The Group financial statements consolidate the financial statements of subsidiaries, using the purchase method.
    Subsidiaries are entities that are controlled, either directly or indirectly, by the Parent.
    All material transactions between subsidiaries or between the Parent and subsidiaries are eliminated on
    The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of
    financial performance from the date of acquisition up to the date of disposal.
(b) Revenue
    Revenue comprises the amounts received and receivable by the Group for goods and services supplied to
    customers in the ordinary course of business.
    Interest income and royalties income are accounted for as earned.
    Grants received are recognised in the Statement of Financial Performance when the requirements under the
    grant agreement have been met.
(c) Income Tax
    Income tax expense recognised for the year is based on the accounting surplus, adjusted for permanent
    differences between accounting and tax rules.
    The impact of all timing differences between accounting and taxable income is recognised as a deferred tax
    liability or asset. This is the comprehensive basis for the calculation of deferred taxation under the liability
    method. A deferred tax asset, or the effect of losses carried forward, is recognised in the financial statements
    only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised.
(d) Goods and Services Tax (GST)
    The statement of financial performance and statement of cash flows have been prepared so that all components
    are stated exclusive of GST. All items in the statements of financial position are stated net of GST, with the
    exception of receivables and payables, which include GST invoiced.
(e) Foreign currencies
    Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rates in
    effect at the date of the transaction.
    Monetary assets and liabilities arising from trading transactions or overseas borrowings are translated at closing
    rates. Gains and losses due to currency fluctuations on these items are included in the Statement of Financial
    Revenues and expenses of independent foreign operations are translated to New Zealand dollars at the exchange
    rates in effect at the date of the transaction, or rates approximating them. Assets and liabilities are converted to
    New Zealand dollars at the rates of exchange ruling at balance date.
    Exchange differences arising from the translation of independent foreign operations are recognised in the
    foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary
    liabilities that are identified as hedges against these operations.

Statement of Accounting Policies (Continued)
(f) Equity share issue costs
     Costs associated with the issue of shares are recognised as a reduction of the amount collected per share.
     No compensation expense is recognised in respect of share options granted pursuant to the Wellington
     Employees Share Option Plan, if the exercise price is equal to or greater than the market price of the shares on
     the date that the options are granted.
(g) Fixed Assets
     The cost of purchased property, plant and equipment is the value of the consideration given to acquire the assets
     and the value of other directly attributable costs which have been incurred in bringing the assets to the location
     and condition necessary for their intended service.
     The cost of self constructed assets includes the cost of all materials used in construction, direct labour on the
     project and an appropriate portion of variable and fixed overheads. Costs cease to be capitalised as soon as the
     asset is ready for productive use and do not include any inefficiency costs.
(h) Depreciation
     Depreciation of property, plant and equipment is calculated on a straight line basis so as to expense the cost of
     the assets to their residual values over their expected useful lives as follows:
          Plant and Equipment                                3-15 years
          Office Furniture, Equipment and Fittings           3-15 years
(i) Leased assets
     Operating leases
     Leases that are not finance leases are classified as operating leases. Operating lease payments are recognised as
     an expense in the periods the amounts are payable.
 (j) Investments
     Investments in subsidiaries are stated at the lower of cost and Directors’ assessment of net realisable value.
(k) Research, development and patent costs
     All costs incurred on research, development and patenting are written off as incurred, except when a project
     reaches a stage where it is reasonably certain that expenditure can be recovered through the processes or
     products produced. Such costs are capitalised as a development asset to the extent such costs are expected
     to be recoverable. Capitalised research and development costs are then amortised (once the product has
     been launched), on a straight line basis, over the period of expected benefit up to a maximum of five years.
     Capitalised patent costs are amortised, on a straight line basis, over the period of expected benefit not longer
     than the life of the patent, up to a maximum of 20 years.
(l) Accounts receivable
     Accounts receivable are stated at estimated realisable value after providing against debts where collection is doubtful.
(m) Impairment
     Annually, the Directors assess the carrying value of each asset. Where the estimated recoverable amount of
     the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the
     statement of financial performance.
(n) Inventories
     Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost
     is determined on a first in, first out basis and, in the case of manufactured goods, includes direct materials,
     labour, and production overheads.
(o) Employee entitlements
     Employee entitlements to salaries and wages, annual leave, long service leave and other benefits are recognised
     when they accrue to the employees. The liability for employee entitlements is carried at the present value of
     estimated future cash outflows.
(p) Warranties
     A liability is recognised for the expected value of claims on product sales that are still under warranty at balance date.
(q) Statement of Cash Flows
     The following are the definitions of the terms used in the Statement of Cash Flows:
     (i) Cash is considered to be cash on hand, current accounts in banks net of bank overdrafts, and call and short
           term bank deposits.
     (ii) Operating activities include all transactions and other events that are not investing or financing activities.
     (iii) Investing activities are those activities relating to the acquisition, holding and disposal of fixed assets and
           of investments.
     (iv) Financing activities are those activities which result in changes in the size and composition of the capital
           structure. This includes both equity and debt not falling within the definition of cash.
(r) Financial instruments
     Financial instruments carried on the statement of financial position include cash and bank balances,
     investments, receivables and trade creditors. The particular recognition methods adopted are disclosed in the
     individual policy statements associated with each item.

There have been no changes in accounting policies this year.

                                                                                                         Annual Report
                                                                23                                                  2007
Notes to the Financial Statements for the year ended 30 June 2007

                                                                       CONSOlIDATED                PARENT COMPANY
                                                                    2007          2006           2007          2006
1. OPERATING EXPENSES                                               $000s         $000s          $000s         $000s
   Operating expenses include:
   Auditors’ fees & expenses - PricewaterhouseCoopers                    50               40          50               40
   Accounting fees & tax - PricewaterhouseCoopers                        10                -          10                -
     – plant and equipment                                              391           346           380            346
     – office equipment, furniture & fittings                           142           133           135            133
   Development costs amortised                                          492           372           492            372
   Directors fees                                                        83            80            83             80
   Exchange losses                                                      631             -           601              -
   Increase in provisioning for doubtful debts                           38             -            38              -
   Increase in provisioning for subsidiary advances                       -             -           285              -
   Increase in provisioning for subsidiary investments                    -             -            81              -
   Intangibles amortised                                                  8             -             -              -
   Interest expense                                                      77             -            58              -
   Loss on disposal of assets                                             5             1             5              1
   Patent fees                                                            6             5             6              5
   Rental & operating lease costs                                       368           265           318            263
   Research & development expensed                                      106           145           106            145
   Warranty costs expensed                                               19           175            19            175

   The financial statements have been prepared on a historical cost basis, the validity of which depends on the
   ability of the Company to maintain sufficient capital resources to fund the fixed asset and working capital
   investment, operating costs and ongoing development for the twelve months from the date of the Annual
   Report. The Directors remain confident that the Company will maintain sufficient capital resources for the
   next twelve months from the date of the Annual Report.

   No taxation is payable (2006 - nil), as the Company and Group has tax losses available to carry forward and
   offset against current year taxable income. The Company and Group does not recognise possible income tax
   losses as a future income tax benefit due to the uncertainty of their recoverability in the immediate future.
   The losses available to be carried forward are subject to the shareholder continuity requirements of the
   Income Tax Act 1994. The estimated amount of losses available to carry forward to future years are as follows:
                                                                       CONSOlIDATED                PARENT COMPANY
                                                                    2007          2006           2007          2006
                                                                    $000s         $000s          $000s         $000s
   Net loss before tax for year                                      (6,262)      (4,527)        (6,268)       (4,521)
   Less non deductible expenses                                           33            1             33             1
   Less unrecognised timing differences                                (250)         (25)          (159)          (25)
   Net loss for tax purposes                                        (6,479)       (4,551)        (6,394)       (4,545)
   Losses carried forward from prior years                         (24,871)      (19,875)       (21,109)      (16,564)
   Exchange variance on Wellington Electric
            losses from beginning of year                               269         (445)              -                -
   Losses available to carry forward to future years              ($31,081)     ($24,871)      ($27,503)     ($21,109)
   Of the total consolidated losses available to carry forward to future years, $2,913,000 (2006 -$3,268,000) arises
   in the U.S.A. and are subject to their tax continuity requirements.

                                                                      CONSOlIDATED                     PARENT COMPANY
                                                                   2007          2006                2007          2006
                                                                   $000s         $000s               $000s         $000s
   Tax Refund/Imputation Credits
   Balance as at beginning of year                                           1                -             1               -
   RWT deducted from interest income                                         -                1             -               1
   Tax refunds received                                                    (1)                -           (1)               -
   Balance receivable at end of year                                       $-                $1            $-              $1
   At 30 June 2007 the Imputation Credit Account had a credit balance of nil (2006 - $1,000) and the movements
   in the Account during the year are reflected in the above statement.

                                                                      CONSOlIDATED                     PARENT COMPANY
                                                                   2007          2006                2007          2006
4. INVENTORIES                                                     $000s         $000s               $000s         $000s
   Raw materials                                                       419               852             350           841
   Work in progress                                                    703               553             703           553
   Finished goods                                                    2,457             1,288           1,976         1,117
                                                                   $3,579            $2,693           $3,029        $2,511

5. FIXED ASSETS                                                       CONSOlIDATED
                                                      2007                                            2006
                                         Cost     Accumulated      Book              Cost         Accumulated      Book
                                                  depreciation     value                          depreciation     value
                                        $000s        $000s         $000s             $000s           $000s         $000s
   Plant & equipment                      3,133       (1,453)        1,680             2,287         (1,085)         1,202
   Office equipment,
    furniture & fittings                  1,334         (770)          564                  964        (636)           328
                                         $4,467      ($2,223)      $2,244            $3,251         ($1,721)        $1,530

                                                      2007                                            2006
                                         Cost     Accumulated      Book              Cost         Accumulated      Book
                                                  depreciation     value                          depreciation     value
                                        $000s        $000s         $000s             $000s           $000s         $000s
   Plant & equipment                      3,075       (1,444)        1,631             2,287         (1,085)         1,202
   Office equipment,
    furniture & fittings                  1,281         (763)          518                  964        (636)           328
                                         $4,356      ($2,207)      $2,149            $3,251         ($1,721)        $1,530

                                                                                                   CONSOlIDATED & PARENT
                                                                                                    2007           2006
6. DEVElOPMENT COSTS                                                                                $000s          $000s
   Development costs recognised as an asset from previous year                                         2,059         1,672
   Current year development costs recognised as an asset                                                 928           759
   Amortisation this year                                                                              (492)         (372)
   Net development costs                                                                              $2,495        $2,059
   At year-end the Company had developed four motor styles (DE066, DD, ECR and Monsoon styles) and six
   controllers to an advanced stage. Four further variants of these motor styles have also been developed or are
   under development.
   The DD motor, its controller and variants of this motor and controller, first commenced sales in commercial
   quantities in Europe from June 2004. Amortisation of the costs in respect of this motor and controller is in
   progress. Some costs were recognised this year for variants of these motors and controllers packaged in revised
   formats meeting the needs of certain market niches.

                                                                                                     Annual Report
                                                          25                                                     2007
   The ECR motor, variants of it, and its related controller first commenced sales in commercial quantities from
   March 2005. Amortisation of the costs in respect of this motor and controller is in progress. The motor, and
   its related controller, have been further developed to enable sales in additional markets (most particularly
   North America and Asia). Several special-purpose variants of the motor and controller have been and are
   being developed to meet the requirements of specific application areas.
   Development costs were recognised for the CH350 controller this year. Commercial sales began during the
   year and the controller has been further developed to meet specific demands in certain international markets.
   Additional development costs were recognised for the company’s Monsoon control system which is targeted
   at mainstream market areas. The Monsoon system comprises controller hardware, and software. It can be
   used with Wellington motors already developed (e.g. DD and ECR), although modifications to those motors
   are needed for optimum performance and cost. Further development of those motor types will be recognised
   separately. The Monsoon system also benefits from a unique motor style. Some costs in respect of the
   development of that motor style have also been recognised. Sample quantities of Monsoon-based products
   were delivered during the financial year, and the first major orders were received subsequent to the year end.
   Further investments in two new materials technologies and related processing systems were recognised this
   year. Both methods were used in Total Integration development programmes during the year, and are planned
   for introduction in the Company’s standard product lines during the current financial year.
   The cost of motor and controller developments have been capitalised to 30 June 2007 and these are expected to
   be amortised against future revenues from these new products, over the period of benefit, up to a maximum of
   five years.
   Net capitalised patent costs total $347,000 at 30 June 2007 (2006 - $299,000). Capitalised patent costs are
   amortised, on a straight line basis, over the period of expected benefit not longer than the life of the patent, up
   to a maximum of 20 years.

   AirMoVent limited
   Wellington Drive Technologies Limited has a 100% shareholding in AirMoVent Limited. AirMoVent Limited
   is currently non-trading. Prior to January 2000 this company operated in New Zealand developing and
   manufacturing motor drive solutions for customer applications utilising Wellington’s patented technology.
   The company has a 30 June balance date.
   Shares in Wellington Drive Technologies US, Inc
   Wellington Drive Technologies US, Inc (formerly Wellington Electric Company) is incorporated in
   Connecticut, U.S.A. In April 2007 this Company recommenced operations in the U.S.A. marketing
   applications utilising Wellington’s patented technology. Prior to April 2007 the Company had not traded for a
   number of years. The Company became a wholly owned subsidiary of Wellington Drive Technologies Limited
   from 31 March 2003.
   Shares in Wellington Motor Tecnolojileri San Tic ltd Sti
   Wellington Motor Technologies Industry and Trading Ltd Co was incorporated in Turkey in June 2006. It
   operates in Turkey manufacturing, importing, exporting, distributing and marketing products on behalf of
   Wellington Drive Technologies Limited. The Company is a 99.4% owned subsidiary by Wellington Drive
   Technologies Limited.
   Shares in Wellington Italia Srl
   Wellington Drive Technologies Limited acquired 100% of Wellington Italia Srl (previously a shell Company)
   in March 2007. Wellington Italia commenced trading in April 2007 in Italy, marketing applications utilising
   Wellington’s patented technology.
                                                                        CONSOlIDATED              PARENT COMPANY
                                                                     2007          2006         2007          2006
8. ADVANCES TO SUBSIDIARIES                                          $000s         $000s        $000s         $000s
   Advances to subsidiaries                                                -                -     1,466           374
   Provision for losses on advances to subsidiaries                        -                -     (659)         (374)
                                                                          $-               $-      $807               $-
   Advances to subsidiary and associated companies are stated at estimated realisable value in the Parent
   Company accounts.

                                                                              CONSOlIDATED                PARENT COMPANY
                                                                           2007          2006           2007          2006
9. ACCOUNTS PAYABlE & ACCRUAlS                                             $000s         $000s          $000s         $000s
   Trade creditors                                                           1,406         1,364          1,283         1,022
   Directors entitlements                                                      135            61            135            61
   Employee entitlements                                                       260           214            254           214
   Accrued expenses and provisions                                              89            63             66            63
   Provision for warranty costs                                                157           138            157           138
                                                                            $2,047        $1,840        $1,895         $1,498

                                                                              CONSOlIDATED                PARENT COMPANY
                                                                           2007          2006           2007          2006
10. BANK FINANCE FACIlITIES                                                $000s         $000s          $000s         $000s
   Trade Credit Finance Advances (secured)                                   $960                $-       $516                $-
   The advances are secured by way of a debenture security over the company’s assets. Interest is payable at
   EURO bank rates plus 1.25%.
   Wellington has provided a guarantee to Yapi Kredi Bank, Turkey. Yapi Kredi Bank provides a credit line of
   up to US$500,000 to Wellington Motor Teknolojileri San Tic Ltd Sti.

                                                                                                       CONSOlIDATED & PARENT
                                                                                                        2007           2006
11. PAID UP CAPITAl                                                                                     $000s          $000s
   Issued and paid in capital:
   1 July 2006 – 199,560,695 (2005 - 155,449,156) ordinary shares                                       36,434         31,115
   December 2006 issue for cash – 30,000,000 at 40 cents                                                11,781              -
   June 2007 rights issue for cash – 76,520,232 at 10 cents                                              7,591              -
   November 2005 issue for cash – 4,200,000 at 33 cents                                                      -          1,383
   December 2005 rights issue for cash – 39,911,539 at 10 cents                                              -          3,936
   Balance as at 30 June 2007 – 306,080,927 (2006 - 199,560,695) shares                                $55,806       $36,434
   All shares rank equally and carry equal rights in respects of voting, dividend payments and distributions.
                                                                                                       CONSOlIDATED & PARENT
   Share Options (numbers)                                                                              2007           2006
   Balance at beginning of year                                                                       2,800,000     2,950,000
   Granted                                                                                            6,900,000       500,000
   Exercised                                                                                                  -             -
   Lapsed                                                                                             (700,000)     (650,000)
   Balance at end of year                                                                             9,000,000     2,800,000

                       Vesting      Expiry      Exercise    Outstanding      Granted     Exercised      lapsed     Outstanding
                        Date         date     price (cents) at June 2006                                           at June 2007
   ESOP               8 Sep 03    30 Oct 06      57.35        700,000              -             -    (700,000)            -
   ESOP               29 Nov 04   21 Jan 08       44.0      1,600,000              -             -            -    1,600,000
   ESOP               28 Oct 05   9 Dec 08        31.7        500,000              -             -            -      500,000
   ESOP               13 Mar 07   27 Apr 10       50.4                     4,900,000             -            -    4,900,000
   ESOP               20 Jun 07   30 Jul 10       49.4                     2,000,000             -            -    2,000,000
                                                            2,800,000 6,900,000                  -    (700,000)    9,000,000

1. The Wellington Employees Share Option Plan (ESOP) was originally approved by shareholders at the
   General Meeting held on 28 November 2000. In accordance with the ESOP share options may be issued by
   the Directors to employees (including executive directors). Subsequently in the General Meeting held on 14
   November 2006 shareholder approval was granted to increase the number of options under the ESOP from
   3,000,000 to 10,000,000 options. All options are exercisable 3 years after the vesting date (i.e. the date an offer
   to an employee to take up options is made) and must be exercised within 30 business days after the expiry
   of the 3 year period. The price at which options can be exercised under the ESOP is the weighted average

                                                                                                        Annual Report
                                                               27                                                 2007
   market price for the 10 trading days on the N.Z. Stock Market prior to the date on which the offer is made
   plus a premium of 30%.
2. The stated exercise price has been adjusted for the effect of the cash issues in December 2005 and June 2007 in
   accordance with the terms of the Wellington Employees Share Option Plan.

                                                                                                          CONSOlIDATED & PARENT
                                                                                                           2007           2006
12. FOREIGN CURRENCY TRANSlATION RESERVE                                                                   $000s          $000s
   Net exchange differences on translation of overseas subsidiaries                                              6                    -
   Balance at end of year                                                                                       $6                $-

                                                                             CONSOlIDATED                    PARENT COMPANY
                                                                          2007          2006               2007          2006
13. OPERATING lEASE COMMITMENTS                                           $000s         $000s              $000s         $000s
   Obligations payable after balance date on non-cancellable operating leases are as follows:
   Within one year                                                              305             81             203                81
   One to two years                                                             305              -             203                 -
   Two to five years                                                            801              -             680                 -
                                                                              $1,411           $81         $1,086                $81
   The Group lease premises and plant and equipment. Operating leases held over premises rented by the Group
   are subject to periodic review of rental charges in accordance with the lease agreement.

   The Group has contingent liabilities in respect of bank and other guarantees and other matters arising in the
   ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent li-
   abilities (2006 – nil).

   There are no capital commitments outstanding and unrecognised at 30 June 2007 (2006 - nil).

   Wellington Drive Technologies Limited is a technology owning company operating in a single industry
   segment developing, manufacturing and marketing its brushless electric motors for worldwide use. It is New
   Zealand based and had subsidiaries operating in Turkey (from mid June 2006), Italy (from March 2007) and
   USA (recommenced operations from April 2007).
   Geographic Segments           New Zealand                 Turkey                    Eliminations                   Total
                             2007          2006      2007             2006         2007           2006        2007            2006
                             $000s         $000s     $000s            $000s        $000s         $000s        $000s           $000s
   Assets                     26,656      10,022      1,084              337       (1,482)          (1)       26,258           10,358
   Revenue                    10,765       7,203      2,138              156       (1,727)        (297)       11,176            7,062
   Result                    (6,510)     (4,521)       (95)               (6)          343            -      (6,262)          (4,527)

   Wellington Motor Tecnolojileri San Tic Ltd Sti was incorporated in Turkey in June 2006. The results above
   cover trading for the full 2007 financial year and the comparative figures cover trading for the two week period
   from incorporation to 30 June 2006 only.
   Both Wellington Drive Technologies US, Inc and Wellington Italia Srl are not presently considered foreign
   geographic segments.
   Inter-segment pricing is determined on an arm’s length basis.

                                                                                             CONSOlIDATED & PARENT
                                                                                              2007           2006
17. RElATED PARTY TRANSACTIONS                                                                  $             $
   Directors fees is made up of:
   Professor R. F. Meyer                                                                       20,000        20,000
   Mr. S. J. Mander                                                                            20,000        20,000
   Mr. R. J. Thomson                                                                           20,000        20,000
   Greenstone Fund Limited*                                                                    15,000        20,000
   Pencarrow Private Equity Limited*                                                            7,500             -
   *Directors’ fees includes $15,000 paid Greenstone Fund Limited and $7,500 payable to Pencarrow Private
   Equity Limited in which Mr S.R. Beck is an interested party.
   No related party debts have been written off or forgiven.

   On 13 August 2007 Wellington Drive Technologies Limited acquired 100% of the share capital of Wellington
   Drive Technologies Pte Limited, a Singapore company engaged in marketing of Wellington® electric motors.
   The purchase consideration was $10 which is also the fair value of net identifiable assets acquired.
   The following figures have been determined on a provisional basis. The assets and liabilities arising from the
   acquisition on 13 August 2007 are as follows:
   Cash and cash equivalents                                        39,198
   Receivables                                                      21,246
   Plant, furniture and fittings                                    49,564
   Trade payables                                                 (45,569)
   Advance from Wellington Drive Technologies Ltd                 (64,429)
   Net identifiable assets acquired                                     10
   Goodwill on acquisition                                               -
   Bank balances to be acquired with subsidiary                     39,198
   Net cash impact of acquisition                                  $39,188
   The financial effects of the above transaction have not been brought into account at 30 June 2007. The
   operating results and assets and liabilities of the Company will be consolidated from the point which control
   was transferred, 13 August 2007.

   (a) Nature of activities and management policies with respect to financial instruments.
     (i) Foreign Exchange
     The Company undertakes transactions denominated in foreign currencies from time to time and resulting
     from these activities, exposures in foreign currency arise. As these exposures have not been significant to
     date, the Company has not sought to hedge foreign currency risks as they arise.
     (ii) Credit
     In the normal course of business the Company incurs credit risk from trade debtors. The Company has a
     credit policy that is used to manage this exposure to credit risk, which results in exposures being monitored
     on a regular basis.
     (iii) Interest Rate
     The Company has short term deposits and call funds used to fund ongoing activities. Those funding
     requirements are closely monitored by management who endeavour to minimise interest rate risk inside the
     demand for cash resources.
     (b) Fair Values
     The fair values of the Company’s financial assets & liabilities are the carrying values stated in Statement of
     Financial Position.

                                                                                               Annual Report
                                                         29                                              2007
   In December 2002, the Accounting Standards Review Board announced that New Zealand Equivalents to
   International Financial Reporting Standards (NZ IFRS) will apply to all New Zealand entities for periods
   commencing on or after 1 January 2007, with earlier adoption for periods starting on or after 1 January 2005
   Wellington Drive Technologies Limited intends to adopt a 31 December balance date. The comparative
   figures for the first NZ IFRS compliant financial statements will be for the year ended 30 June 2007. These
   comparative figures will need to be restated and an opening position prepared using NZ IFRS as at 1 July 2006.
   Although early implementation was an option, the Board of Directors have determined that Wellington Drive
   Technologies Limited and subsidiaries will adopt NZ IFRS for the first time in its reports to shareholders for
   the six month period ended 31 December 2007.
   An assessment has been performed to determine the differences between the current key accounting policies of
   Wellington Drive Technologies Limited and current NZ IFRS with the material differences set out below. The
   differences below should not be regarded as a complete list of changes in accounting policies resulting from
   the transition to NZ IFRS as NZ IFRS and related interpretations may change between the issue date of these
   financial statements and the Group’s first balance date reported under NZ IFRS being 31 December 2007.
   The aim of the following disclosure is to highlight the major impacts the Group expects as a result transitioning
   to NZ IFRS. The expected material adjustments arising from differences between the current key accounting
   policies of Wellington Drive Technologies Limited and NZ IFRS identified to date are outlined in the
   appropriate paragraphs below. Where a reliable estimate of the impact is possible, it has been quantified. All
   adjustments noted below will be recognised through an adjustment to opening retained earnings or another
   component of equity as appropriate.
   (a) Deferred Taxation
   Under NZ FRS the Group does not recognise its considerable tax losses as a future income tax benefit due to
   the uncertainty of their recoverability in the immediate future. NZ IFRS requires the recognition of unused
   tax losses (to the extent that it is probable that a future benefit will be available) as a deferred tax asset. When
   it is considered the “probable test” under NZ IFRS is satisfied the recognition of the tax losses as a deferred tax
   benefit will result in a material increase in equity reported under NZ IFRS.
   (b) Share Based Payments
   There is currently limited guidance on how to account for share based payments under NZ FRS. NZ IFRS 2 –
   Share Based Payments requires equity settled transactions, such as the issue of share options to employees, to be
   recognised at fair value in the financial statements. The Company does not issue share options at a discount to
   market, hence no material impact is expected on the financial statements. An exercise is being undertaken to
   determine this impact.
   (c) Functional Currency
   NZ IAS 21 – The Effects of Changes in Foreign Exchange Rates, requires the functional currency of the group
   and parent to be determined. The currency of Wellington Drive Technologies Limited primary economic
   environment is the functional currency and this drives how foreign exchange gains and losses are determined.
   Group operations are funded largely by equity raised in NZ dollars. The Board have considered the impact
   of NZ IFRS as regards the appropriate functional currency for Wellington Drive Technologies Limited and
   determined that it should continue to use NZ dollars as its functional currency when it adopts NZ IFRS.

                                                  Annual Report


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