AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 9, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F / A-2
(Mark One)
|X| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number
TURBODYNE TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Inapplicable
(Translation of Registrant's name into English)
Province of British Columbia, CANADA
(Jurisdiction of incorporation or organization)
Suite 510, 1090 West Pender Street
Vancouver, British Columbia, Canada V6C 2N7
(Address of principal executive offices)
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2
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Name of each exchange
Title of each class on which registered
Inapplicable
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common shares without par value:
(Title of Class)
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the registrant's classes
of capital or common stock as of the close
of the period covered by the annual report.
Common shares without par value: 23,436,319 as at November 6, 1996
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 X Item 18
Except as otherwise noted, all dollar amounts are presented in Canadian dollars.
Exchange Rates: As at November 7, 1996, the exchange rate of Canadian dollars
into United States dollars was
$$1.3317 Canadian to $1.00 United States.
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3
TABLE OF CONTENTS
Part I
Item 1.
Description of Business.................................... 1-13
Introduction............................................... 1
Registrant and Subsidiary Company's Corporate Background... 1-2
Industry Background and Product ........................... 2-6
Stage of Development...................... 6-8
Development Costs to Date.................... 8-9
Acquisition of Pacific Baja Light Metals Holding, Inc. 10-11
Marketing................................ 11-12
Competition................................... 12-13
1996 Fiscal Year Period Operating Plan......... 13
Employees...................................... 13
Item 2. Description of Property........................... 13-14
Item 3. Legal Proceedings................................. 14
Item 4. Control of Registrant............................. 14-15
Item 5. Nature of Trading Market.......................... 15-16
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders...................... 16-17
Item 7. Taxation.......................................... 17-18
Item 8. Selected Financial Data........................... 18-26
Financial Statements.............................. 18
Statement of Operations Data (Canadian GAAP)...... 19
Balance Sheet Data (Canadian GAAP)................ 20
Statement of Operations Data (U.S. GAAP)............ 21
Balance Sheet Data (U.S. GAAP)...................... 22-23
Financial Statements for Baja....................... 23
Statement of Operations Data (U.S. GAAP) for Baja... 24
Balance Sheet Data (U.S. GAAP) for Baja............. 25
Pro Forma Financial Statement....................... 26
Exchange Rates...................................... 26
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 27-28
Results of Operations............................... 27
Liquidity and Capital Resources..................... 27
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4
TABLE OF CONTENTS
Page No.
Item 11. Compensation of Directors and Officers.......... 28-31
Item 12. Options to Purchase Securities from
Registrant or Subsidiaries...................... 31
Item 13. Interest of Management in Certain Transactions.... 35
Stock Options...................................... 35
Part II
Item 14. Description of Securities to be Registered........ 35-38
Part III
Item 15. Defaults Upon Senior Securities................... 39
Item 16. Changes in Securities and Changes in
Security for Registered Securities................ 39
Part IV
Item 17. Financial Statements.............................. 39
Item 18. Financial Statements.............................. 39
Item 19. Financial Statements and Exhibits................. 39-41
(a) Financial Statements..................... 39
(b) Exhibits................................. 40-41
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1
PART I
Item 1. Description of Business
INTRODUCTION
Turbodyne Technologies Inc. (the "Registrant") is engaged in the business of
developing products to enhance performance and reduce emissions of internal
combustion engines. The Registrant's products employ a technology known as the
Turbodyne Technology which is designed to optimize air flow to both diesel and
gasoline engines resulting in enhanced performance and more efficient fuel
consumption. The Registrant's development of its products is substantially
complete and the Registrant is in the final stages of tooling for commercial
production. While the Registrant has not achieved any significant production or
sales of its products to date, the Registrant anticipates commencing commercial
production by the end of 1996. The Registrant conducts its Turbodyne business
through its subsidiary, Turbodyne Systems, Inc. The Registrant has entered into
an agreement to acquire 100% of Pacific Baja Light Metals Holding, Inc. ("Baja")
which is a manufacturer of aluminum cast products primarily for the automotive
industry. The acquisition of Baja by the Registrant is described in detail below
in Item 1 of this Registration Statement. The acquisition was formally completed
in September, 1996.
REGISTRANT AND SUBSIDIARY COMPANY'S CORPORATE BACKGROUND
The Registrant was incorporated pursuant to the laws of the Province of British
Columbia, Canada on May 18, 1983 as Dundee Resources Corp. By special resolution
dated August 21, 1992 and effective January 20, 1993, the outstanding shares of
the Registrant were consolidated on a 5:1 basis and the Registrant's name was
changed to Clear View Ventures, Inc. By special resolution dated October 8, 1993
and effective April 28, 1994, the Registrant's name was changed to its current
name Turbodyne Technologies Inc. The Registrant has obtained the required
shareholder approval to the continuation of the Registrant under the Canada
Business Corporations Act as a Canadian federal corporation. The Registrant is
in the process of completing this continuation. Upon completion of the
continuation, the Registrant will cease to be a British Columbia company and
will exist as a Canadian federal corporation and will adopt articles of
continuation and by-laws. The continuation will not affect the assets or
liabilities of the Registrant and no new corporate entity will be created by the
continuation. During the period from its incorporation on May 18, 1983 until
July of 1993 when it commenced funding the development of the Turbodyne
Technology, the Registrant was engaged in the
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2
business of mineral exploration. The Registrant no longer holds any interest in
any mineral properties. The Registrant owns 100% of Turbodyne Systems, Inc.
("Turbodyne Systems"). Turbodyne Systems was incorporated pursuant to the laws
of the State of Nevada, USA, on May 21, 1993. Turbodyne Systems acquired the
Turbodyne Technology from Edward M. Halimi, a director, in consideration of the
issue to Mr. Halimi of 100 common shares of Turbodyne Systems, being all of the
issued and outstanding shares of Turbodyne Systems. The Registrant subsequently
acquired ownership of Turbodyne Systems pursuant to an agreement dated July 15,
1993 between the Registrant and Mr. Halimi whereby the Registrant issued
1,000,000 common shares of the Registrant to Edward M. Halimi in consideration
for all of the issued and outstanding shares of Turbodyne Systems. This
transaction is characterized as a reverse takeover transaction and was effected
in accordance with the policies of the Vancouver Stock Exchange. Turbodyne
Systems is the owner of the Turbodyne Technology and carries on the business of
development and manufacturing products incorporating the Turbodyne Technology.
The Registrant incorporated Pacific Baja Acquisition Corp. pursuant to the laws
of the State of Wyoming, USA, on April 15, 1996. Pacific Baja Acquisition Corp.
was incorporated for the purposes of enabling the Registrant to complete the
acquisition of Baja. Pacific Baja Acquisition Corp. had no assets or liabilities
prior to the merger. On completion of the Acquisition of Baja, Pacific Baja
Acquisition Corp. was merged with Baja, with Pacific Baja Light Metals Corp. as
the surviving corporation. The Registrant owns 100% of Pacific Baja Light Metals
Corp.
INDUSTRY BACKGROUND AND PRODUCT
1. Products
The Registrant has developed three principal products employing the Turbodyne
Technology more particularly described as follows:
i. Turbodyne System
The Turbodyne System is an air flow enhancement product designed to improve the
performance of internal combustion engines by increasing air flow to the
cylinders. As a result of increased air flow, more efficient combustion takes
place within the cylinders resulting in increased power for the same amount of
fuel and reduction of engine emissions. In order for combustion to take place in
an internal combustion engine, both oxygen and fuel must be present within the
combustion chamber (cylinder). Typically the vacuum created by the action of the
piston returning to top dead centre position causes air to be sucked into the
engine through the carburetor. The
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3
fuel is supplied to the cylinder under pressure through the action of the fuel
pump and fuel injectors. While engineers attempt to design engines so that
optimal combustion occurs, the variation in the air fuel ratio which occurs as a
result of the difficulty in controlling air intake pressure results in intervals
of inefficient combustion especially during rapid acceleration or deceleration
and on cold start up. These variations in air fuel ratios result in lack of or
inconsistent engine power, fuel wastage and emissions. The two principal
attempts to solve this problem are superchargers and turbochargers. A
supercharger is essentially an air compressor which is driven by a belt from the
engine and supplies positive air intake pressure to the cylinder through the
carburetor. Although superchargers solve most of the air fuel ratio problems
they have become unpopular because they are expensive, rob engine power and
increase fuel consumption. Turbochargers perform the same function as
superchargers by delivering positive air intake pressure through the carburetor
to the cylinders. Unlike superchargers, turbochargers are driven through the
pressure of exhaust gases exiting the engine. Although turbochargers solve many
of the power and fuel consumption problems of superchargers they are designed to
work efficiently at speeds from 30,000 to 120,000 RPM. Until the pressure of
exhaust gases spins the turbine blades of the turbocharger above 30,000 RPM the
air flow to the engine is too slow causing the engine to burn a fuel rich
mixture. This results in the phenomenon known as turbo lag. Turbo lag occurs
during the period from initial acceleration to the time when the turbine blades
spin at full boost (30,000 + RPM). The lack of power during the turbo lag period
presents safety problems due to lurches in the acceleration phase of the driving
cycle. The inefficient operation of the engine during the turbo lag period
increases fuel consumption and maintenance problems and causes an increase in
emissions due to the incorrect air fuel ratio. Although turbochargers solve air
fuel ratio problems during peak operating periods, they actually exacerbate the
problems during the turbo lag period. The Turbodyne System is an add on device
for turbocharged engines which uses an electric motor to drive the turbine and
provide positive intake pressure through the carburetor during the turbo lag
period. The Turbodyne System provides constant speed to turbochargers when
exhaust gases are insufficient to maintain appropriate turbocharger rpms. The
Turbodyne System incorporates brushless electric motors and clutch designs that
eliminate wear problems. The brushless motor and an electronic controller
commute the automotive D.C. power into a three phase power supply and feed-back
circuit. The motor is integrated as part of an air-duct which is attached to the
air intake port of a turbocharger. Rotational power is transmitted through an
automatic Bendix type full disconnecting clutch with a conical clutch interface.
When the electric motor engages and the shaft rotates, the clutch assembly
transmits down the lead screw and engages the turbocharger. Upon acceleration of
the clutch
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4
assembly, radial load is centered using a clutch piloting bore. The motor is
activated by remote sensors that monitor the demand for power and turboboost.
The earliest models of the Turbodyne System were developed primarily for the
purpose of overcoming turbo lag, modulating power delivery and avoiding sudden
power surges which may cause accidents in turbocharged vehicles. The ability of
the Turbodyne System to reduce emissions was discovered during the development
of the Turbodyne System when it was observed that vehicles equipped with the
system did not generate customary smoke during acceleration. The absence of
smoke results from the fact that turbocharger equipped engines are calibrated to
deliver fuel to the engine based on optimal air flow that occurs when the
turbocharger is running at 30,000+ rpms. During the turbolag period the fuel to
air ratio is too rich resulting in inefficient combustion, excessive smoke,
particulate matter emissions and wasted fuel. Initial independent laboratory
results to date indicate that the Turbodyne System reduces fuel consumption and
emissions by providing optimal air fuel ratio for combustion. More efficient
combustion also results in better power delivery and elimination of turbolag.
ii. Turbopac Turbopac applies similar technology as the Turbodyne System to make
combustion more efficient in non-turbocharged vehicles by optimizing air to fuel
ratio. Testing to date indicates that Turbopac extends the same benefits of
increased engine power, reduced fuel consumption and reduced emissions to non
turbocharged vehicles. Turbopac employs a high speed electronically controlled
brushless electric motor which runs continuously once the engine has started,
providing positive air intake pressure to optimize the air to fuel ratio.
Turbopac essentially serves as an electronic supercharger. Turbopac can also be
installed on turbocharger equipped engines. Unlike the Turbodyne System,
Turbopac can be installed by unskilled mechanics without the need for precision
machining of a turbocharger. The most significant aspect of Turbopac is that it
allows the Registrant to target much larger international markets because of its
ease of installation and ability to install on non-turbocharged engines. iii.
Dynacharger The Dynacharger is the Registrant's newest product. It is
essentially a Turbopac built into a turbocharger. It was developed primarily as
a result of feedback from evaluations by potential customers who indicated that
they would prefer to see the Turbodyne Technology built into a turbocharger
rather than provided by an additional component. Its principal advantages over
the Turbodyne System attached to a turbocharger are in cost, weight and space
economies. Unlike the Turbodyne System, it does not switch off after the lag
period but continues to
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provide additional rotational speed to the turbocharger. It is more appropriate
for the original equipment manufacturers market than the after market. The
Registrant has also developed a product described as a motor assisted variable
geometry turbocharging system ("Motoassist") which is essentially a Dynacharger
with a valve system to concentrate exhaust gases resulting in faster turbine
acceleration. 2. Proprietary Protection of Products The Registrant has filed and
will continue to file patent applications for its products and inventions. The
Registrant has made patent applications for its Turbodyne Technology as
described below. Except as indicated below, there is no assurance that patents
will be granted in respect of these patent applications. A U.S. patent
application was made by Edward M. Halimi, as inventor, in 1993 for the
Registrant's original Turbodyne Systems product. This patent application was
assigned by Mr. Halimi to the Registrant pursuant to an asset purchase agreement
between Mr. Halimi and the Registrant dated August 18, 1993. The Registrant has
been advised by the U.S. Patent Office that all claims in respect of this patent
application have been approved. The Registrant has submitted final drawings to
the Patent Office and has paid the patent issuance fee required for the issue of
the formal patent. The issue of the formal patent is subject only to the
acceptance by the Patent Office of the final drawings. No royalty is payable in
respect of this patent. The patent will expire 17 years from the date of formal
issuance. Two U.S. patent applications were submitted by Edward M. Halimi,
William Woolenweber and Ralph Maloof, as inventors, in 1995 in respect of the
Registrant's proprietary Dynacharger products. The U.S. Patent Office has
approved all claims with respect to the earlier of the patent applications. The
Registrant has submitted final drawings in respect of this earlier patent
application and has paid the patent issuance fee required for the issuance of
the formal patent. The issue of the formal patent is subject only to the
acceptance of final drawings by the Patent Office. Patents issued in respect of
the Dynacharger products will expire 20 years from the date of application of
each patent. The inventors have executed formal patent assignment documents in
favour of the Registrant which have been submitted to the U.S. Patent Office for
registration. The Registrant has agreed to pay a royalty to each of the
inventors equal to 1% of the gross revenues directly attributable to the
Dynacharger products, for a total royalty equal to 3% of gross revenues. Two
U.S. patent applications were submitted in late 1995 by Edward Halimi, William
Woolenweber and Ralph Maloof, as inventors, in respect of the Registrant's
Turbopac products. The Registrant has yet to receive any notice from the U.S.
Patent Office approving or disapproving the claims made in these patent
applications. The inventors have executed formal patent assignments in favour of
the Registrant in respect of these patent applications which have been submitted
to the U.S. Patent Office for registration. The Registrant has agreed to pay a
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6
royalty to each of the inventors equal to 1.5% of gross revenues directly
attributable to the Turbopac products, for a total royalty equal to 4.5% of
gross revenues. Application has also been made and will continue to be made
under international Patent Treaties for international patent protection of the
Registrant's Turbodyne Technology as deemed appropriate by the Registrant. The
Registrant's policy is to diligently defend any infringement of its patents. To
date the Registrant has not encountered any challenges or potential challenges
of its patents. The Registrant has not established a fund for defense of its
patents but may do so if significant sales of its products are achieved. The
Registrant also requires all employees, consultants and persons or companies
involved in the testing of the Registrant's products to execute confidentiality
agreements and to agree to keep confidential all proprietary information with
respect to the Registrant's products. 3. Impact of Government Regulation on
Products Emissions standards for diesel engines are imposed in the U.S. by the
US Environmental Protection Agency (the "US EPA) and by other regulatory
agencies such as the California Air Resources Board ("CARB"). Testing indicates
that vehicles equipped with Turbodyne Products meet the US EPA's emissions
standards as specified in the 1990 Clean Air Act Amendments of 1990 (the "Clean
Air Act") which established the US emission standards for on-highway diesel
engines produced through 2001. Insofar as light and medium heavy-duty diesel
engines are concerned, the CARB standards are similar to those adopted by the US
EPA. The current trend towards more stringent government regulation of air
pollution indicates increasing demand for Turbodyne's products, particularly in
the Original Equipment Manufacturing sector. Government regulations, especially
in the environmental and safety areas, have impacted and will continue to impact
trucking operations and equipment specifications. OEM Manufacturers for the
trucking industry will be required to ensure that there products comply with
these regulations. The Registrant believes that the incorporation of Turbodyne's
Technology will enable OEM Manufacturers to meet these requirements for their
products. STAGE OF DEVELOPMENT 1. Status of Commercial Production The Registrant
considers the Turbodyne System, Turbopac and Dynacharger products to be ready
for commercial production. The Registrant has commenced limited scale production
of the products at its facility in Carpinteria, California and is in the final
stages of tooling for commercial production at Baja's facility in La Mirada,
California, which is expected to commence concurrent with completion of the Baja
Acquisition. To date, Baja has been producing housings for the Registrant's
products which are then assembled at the Carpinteria facility.
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Turbopac specification and design is essentially complete. The Registrant's
engineering staff are in the process of finalizing parts and vendor lists and
coordinating delivery schedules for all components. The Registrant plans to
commence commercial production of Turbopac by the end of 1996. Milestones yet to
be completed prior to being ready for commercial production and sale of product
include completion of production equipment procurement and tooling,
establishment of manufacturing and testing standards/procedures, establishment
of the production/assembly lines, creation of installation procedures and
related documentation, and completion of environmental and other performance
tests on the final production units. There is no assurance that commercial
production will be achieved by the end of 1996 or that the products will be
commercially successful. The Registrant is close to completion of specification
and design for its Dynacharger product. As many of the components and vendors
for the Dynacharger are consistent with Turbopac, the Registrant's management
expects to ready the first Dynacharger model for production very shortly after
Turbopac, subject to a commercial order being in place. No assurance can be
given that this product will be produced and if produced that it will be
commercially successful. The Registrant's production plan calls for the
electronic components of Turbopac and Dynacharger to be assembled and tested at
the Registrant's facility in Carpinteria. Final assembly and testing of the
products will be done at the Baja facility in La Mirada. The Registrant has
adequate space at its Carpinteria facility for these purposes and Baja intends
to commit approximately 30,000 square feet at its La Mirada plant for final
assembly and inventory of Turbodyne products. The Registrant expects to
concentrate its production and sales efforts on the Turbopac and Dynacharger
products, although limited sales and production of the Turbodyne System are
expected for customers interested in an add on product for existing turbocharged
vehicles. The Registrant's limited production to date has been for the purposes
of meeting requirements of potential customers and testing agencies undertaking
evaluations of the Registrant's products. The Registrant believes that testing
of its Turbodyne System, Turbopac and Dynacharger products and final production
designs are substantially complete. Evaluations underway are primarily for the
purpose of allowing potential customers to determine the suitability and
performance of the products for their applications with the goal of obtaining
purchase orders. To date, the Registrant has had no significant sales of its
products. 2. Product Evaluations The Registrant is currently completing
evaluation programs and joint development programs with potential OEM
manufacturing customers. The Registrant's goal is to convince OEM Manufacturers
as to the effectiveness of the Turbodyne Technology and to enter into supply
ucontracts with these OEM manufacturers.
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3. Distributorship Agreements
On June 13, 1996, the Registrant entered into an exclusive distributorship
agreement (the "Grand Agreement") with Grand Technologies,
Inc. ("Grand"), formerly Granatelli Performance Technologies, Inc.
of Camarillo, California. Under the terms of the Grand
Agreement, Grand will act as the exclusive worldwide distributor of the
Registrant's Turbopac products for the automotive and motorcycle gasoline engine
performance aftermarket.
The Grand Agreement was originally entered into between Granatelli
Performance Technologies Inc. and the Registrant. Granatelli Performance
Technologies Inc. has changed its name to Grand Technologies Inc. The Grand
Agreement has not been amended in any way since execution other than to reflect
this change of name. Grand has no association with the Andy Granatelli Group of
Companies, Paxton Products, Inc., Vince Granatelli Racing Inc., Andy Granatelli
or any company of which Andy Granatelli is an owner or a principal.
Under the terms of the Grand Agreement, Grand
is required to purchase a minimum of 15,000 units in 1996 at an aggregate cost
of $9,375,000 US and 50,000 units at an aggregate cost of $31,250,000 US in each
subsequent year in order to maintatin its distributorship rights. The Registrant
has agreed that it will not terminate the Grand Agreement for failure to
meet these minimum orders if Grand has been diligent in promoting sales.
The Registrant has received purchase orders from Grand under the Grand
Agreement in excess of $9,000,000 to date. The Registrant has recently completed
the initial delivery of Turbopac products under this Grand Agreement during
the week of October 14 to 18, 1996.
The Grand Agreement does not restrict the Registrant's right to appoint
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other distributors for aftermarket applications other than the automotive and
motorcycle gasoline engine performance aftermarket, or for the original
equipment manufacturer market.
The Grand Agreement is for an initial term of three years and will be
automatically renewed, subject to Grand complying with the terms of the
Grand Agreement, for successive two year periods.
There is no assurance the Registrant will be able to supply the Turbodyne
Products ordered under the Grand Agreement.
Grand is a recently incorporated corporation formed for the purpose of
marketing the Company's Turbopac products under the Grand Agreement and has no
history of prior sales.Grand has no revenue other than any revenue which may
have been received from any sale of the initial delivery of 85 Turbpac
products received from the Registrant. Capitalization of Grand has been
nominal and contribution to Grand from its principals is on an as needed
basis in order to meet necessary obligations and ongoing expenses. The
Registrant does not know of any assets which may be owned by Grand other
than the 85 Turbopac products delivered to Grand by the Registrant and the
interest of Grand in the Grand Agreement.
There is no assurance that Grand will be sufficiently
capitalized to enable Grand to complete its obligations under the Grand
Agreement or any purchase orders delivered by Grand to the Company.
DEVELOPMENT COSTS TO DATE
The Registrant has been engaged principally in researching and developing
products incorporating the Turbodyne Technology since the acquisition of the
Turbodyne Technology in April, 1993. The Registrant's research and development
policy is to concentrate the business of Turbodyne Systems exclusively on
research and development of products incorporating the Turbodyne Technology
until such time as the products are ready for commercial production. Turbodyne
Systems will continue research and development of further products incorporating
the Turbodyne Technology once commercial production commences.
The research and development costs incurred during the past three fiscal years
of the Registrant, and from incorporation to June 30, 1996 are as follows:
Inception, April 30, 1993 January 1, 1994 to
to December 31, 1993 December 31, 1994
Capital Assets 44,500 4,315
Product Development Costs 1,326,378 492,982
Operating Costs 112,142 935,992
TOTAL 1,483,020 1,433,289
January 1, 1995 to January 1, 1996 to
December 31, 1995 June 30, 1996
Capital Assets 481,850 499,587
Product Development Costs 2,065,957 1,815,521
Operating Costs 1,527,342 1,081,407
TOTAL 4,075,149 3,396,515
Total From Inception,
April 30, 1993, to
June 30, 1996
Capital Assets 1,030,252
Product Development Costs 5,700,838
Operating Costs 3,656,883
TOTAL 10,387,973
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ACQUISITION OF PACIFIC BAJA LIGHT METALS HOLDING, INC. ("Baja")
The Registrant agreed to acquire all of the issued and outstanding shares of
Baja pursuant to an agreement dated March 15, 1996 (the "Acquisition Agreement")
among the Registrant, Pacific Baja Light Metals Holding, Inc. ("Baja") and
Lenart Renberg, Michael Joyce, Sadayappa Durairaj Family Trust, Naresh Saxena
and Mugerdish Balabanian (the "Principal Shareholders"). Under the terms of the
Acquisition Agreement, the Registrant paid cash consideration to the
shareholders of Baja in the amount of $12,000,670 (U.S.) and issued to the
shareholders of Baja a total of 3,076,923 common shares of the Registrant. The
common shares issued to the shareholders of Baja were not registered under the
Securities Act (1933). For accounting purposes, the total purchase price paid by
the Registrant will be recorded at $15,000,000 (U.S.) based on an independent
valuation report received by the Registrant. The Registrant and Baja have agreed
that all material conditions precedent to completion of the acquisition were
satisfied on July 2, 1996. The acquisition was formally completed in September,
1996.
The Registrant has incorporated a wholly-owned subsidiary under the Wyoming
Business Corporations Act (hereinafter referred to as "Acquisition Corp.") in
order to complete the acquisition. Under the terms of the Acquisition Agreement,
Baja and Acquisition Corp. entered into a merger agreement pursuant to sections
368(1)(A) and 368(a)(2)(D) of the US Federal Internal Revenue Code pursuant to
which Baja and Acquisition Corp. merged to form one corporation. The surviving
corporation is a wholly-owned subsidiary of the Registrant and the share and
cash consideration referred to above has been distributed to the Baja
shareholders as part of the merger.
The Registrant completed its obligation to pay $12,000,670 to the shareholders
of Pacific Baja on completion of the Acquisition Agreement using the proceeds of
its Series 'A' Special Warrant private placement financing. The Series 'A'
Special Warrant private placement financing consisted of the issue by the
Registrant of 3,750,000 Series A Special Warrants at a price of $5.00 per Series
A Special Warrant for total proceeds of $18,750,000, less expenses of the
financing and commissions. The Series 'A' Special Warrant private placement
financing is described in detail in Item 12 'Options to Purchase Securities from
Registrant or Subsidiaries'.
Baja is the owner of two California subsidiaries, Baja Pacific Light Metals,
Inc. and Optima Wheels, Inc. Baja also beneficially owns 100% of Baja Oriente SA
de CV as a Mexican subsidiary through which the group's Mexican operations are
conducted. Formed in 1989, Baja is a manufacturer of permanent mould and sand
cast aluminium products, both machined and raw, for automotive and industrial
applications. Baja produces custom wheels for the automotive aftermarket,
manifolds, compressor housings and pedestals manufactured on a contract basis
for original equipment manufacturers and short productions runs of cast
aluminium products, including prototypes, for a variety of industrial customers.
Its largest operating facility is an Ensenada, Mexico (operating as a
maquiladora) facility providing finished machined and ready to assemble products
to customers. Baja is one of a few aluminium foundries on the west coast of the
United States. Baja employs some 100 people in California and 325 people in
Mexico.
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Baja's U.S. headquarters and domestic production facilities are located in La
Mirada, CA in a 95,000 square foot leased facility. The maquiladora production
is located in Ensenada, Mexico in a 120,000 square foot leased facility which is
owned by certain Pacific Baja's shareholders. The group's assets include full
sand cast and regular cast aluminium foundries in both Ensenada and La Mirada.
Baja owns computer-numerically controlled equipment, transportation equipment
and other machinery necessary for its business. Baja sales are a mix of custom
wheels and other automotive parts for the OEM and aftermarkets. Contract
manufacturing sales are to companies such as Allied Signals, Inc.'s ("Allied
Signals") Garrett division, which manufacturers turbocharger systems for Class 8
trucks, and Navistar International Transportation Corporation ("Navistar").
Approximately 26% of 1995 sales were to Allied Signals and a further 25% were to
a single distribution organization, Itco Tire Company.
Baja's business strategy is to enhance its contract manufacturing operations by
obtaining vehicle- related parts contracts with up to five substantial
organizations. Discussions with Navistar have been ongoing and Baja recently
obtained small production run orders from Navistar. The trend in the automotive
and heavy equipment manufacturing industry is for the consolidation of contract
part manufacturers to several dependable contract manufacturers.
For the six months ended June 30, 1996, Baja had net income (before income tax)
of U.S. $3,157,000 on sales of U.S. $20,024,000. The total purchase price
represents approximately seven times earnings (before income tax and
amortization (depreciation)) and approximately one times sales, based on the
financial statements of Baja for the year ending December 31, 1995. Baja has
been profitable since 1992. The principal reason for the acquisition is to form
an alliance with a manufacturer with a proven track record of volume
manufacturing of quality auto parts, particularly in the turbocharger field. A
number of potential customers who have been evaluating the Registrant's products
have indicated that such an alliance would have a positive impact on their
purchase decision. In addition, the acquisition will bring to the Registrant
personnel experienced in manufacturing and who have contacts with turbocharger
manufacturers and the potential customers for the Registrant's products. Baja
currently manufactures the housings for the Registrant's Turbodyne, Turbopac and
Dynacharger products on a contract basis.
MARKETING
There are essentially two market sectors for the Registrant's products. The
primary market is the OEM (Original Equipment Manufacturer) sector. The
Registrant hopes to convince manufacturers that its solution to turbo-lag and
emissions problems is best. The Registrant would attempt to license the
Turbodyne Technology so that new vehicles would have factory-installed Turbodyne
products. The units could be made by a supplier, or the Registrant itself. The
secondary market is the "aftermarket," i.e., vehicles currently on the road. The
Registrant proposes to sell its Turbodyne System and Dynacharger products as
replacements for worn-out turbos, or as an upgrade to a new vehicle's standard
equipment.
<PAGE>
12
The primary OEM market for Turbodyne System and Dynacharger products are
manufacturers of medium to heavy diesel engine trucks. The Registrant has
entered into a number of evaluation programs and joint development programs with
diesel truck and diesel engine manufacturers with the objective of securing OEM
supply contracts under which the Turbodyne System and the Dynacharger products
will be incorporated directly into new diesel trucks engines. An additional OEM
market consists of small manufacturing companies that convert and upgrade new
vehicles from their original factory standards. This market is anticipated to
grow as governement pollution regulations become more stringent. The Registrant
believes that the key to its success will be obtaining a major contract with an
original equipment manufacturer or aftermarket company. A marketing plan has
been designed to quickly establish a wide distribution of the Turbodyne System
and includes sales materials such as brochures, advertisements and mail-outs.
Trade shows will be attended three or four times per year. Sales will be
solicited through the assistance of marketing departments of target customers
which will be followed by comprehensive technical presentations and
demonstrations to senior management. These efforts will be directed to the
marketing departments on the basis that the product will contribute to vehicle
sales through performance enhancement and the reduction of emissions. In this
way, both the OEM and after- market levels can be pursued. No assurance can be
given that the Registrant's marketing plan will be successful.
COMPETITION
The Registrant's competition to the Turbodyne Technology is summarized as
follows:
a. existing turbocharger technology;
b. existing supercharger technology; and
c. other turbocharger enhancement technologies.
Conventional turbocharging and supercharging systems have achieved commercial
and consumer acceptance and are incorporated into existing automobile and truck
engines. While the Registrant believes that its Turbodyne Technology offers
technical and performance advantages over these existing technologies,
conventional turbocharging and supercharging systems will provide competition
due to current market acceptance and established product lines. In addition,
refinement to current conventional turbocharger and supercharger technology may
provide additional competition. The companies currently manufacturing and
incorporating current conventional turbocharging and supercharging systems have
more resources and are better financed than the Registrant.
The Registrant is unaware of any direct competition to the Turbodyne Technology
in the form of competing turbocharger enhancement technologies, other than from
current turbocharger and
<PAGE>
13
supercharger technology and refinement to the existing technology. There is no
assurance that competition will not enter the industry upon commencement of
commercial production of products incorporating the Turbodyne Technology. New
competition may have greater resources and may be in better financial position
than the Registrant.
1996 FISCAL YEAR PERIOD OPERATING PLAN
The Registrant intends to complete the following during the last six months of
its 1996 fiscal year and the first six months of its 1997 fiscal year:
(a) complete the acquisition of Baja;
(b) commence commercial production of the Registrant's Turbopac products;
(c) commence commercial production of the Registrant's Dynacharger products;
(d) secure contracts with Original Equipment Manufactures and major
retrofitters for
the commercial production and installation of the Registrant's products as
original
equipment on diesel engines and diesel engine turbocharger products;
(e) continue the research and development of the Registrant's products and the
Turbodyne Technology;
(f) continue joint development and evaluation programs with Original Equipment
Manufacturers and major retrofitters with the objective of securing contracts
with
Original Equipment Manufacturers and major retrofitters; and
(g) to manufacture and deliver the Turbopac products required to fill the
purchase
orders received under the Registrant's agreement with Granatelli.
EMPLOYEES
As of October 31, 1996, Turbodyne Systems had 34 full-time employees and 13
consultants and Baja had approximately 425 employees. The Registrant's
relationship with its employees is satisfactory. Item 2. Description of Property
The administrative head office of the Registrant is located in leased premises
at Suite 510, 1090 West Pender Street, Vancouver, British Columbia. The office
is approximately 2,000 square feet and is leased on a month to month basis. The
Registrant's monthly rent is $2,500 (Cdn.). See Item 13 - "Interest of
Management in Certain Transactions".
<PAGE>
14
The Registrant's production and assembly facilities are located in leased
premises at 6155 Carpinteria Avenue, Carpinteria California, USA 93013. The
facilities are approximately 28,000 square feet on 3.17 acres of land and are
leased on a month to month basis from American Appliance Inc. , a private
company controlled by Mr. Halimi. The term of the lease to American Appliance
Inc. expires on January 30, 2005. The Registrant's monthly rent is $15,000
(U.S.) plus operating costs, including taxes, insurance and utilities.
Baja's California manufacturing facility is located in leased premises at 15300
Valley View Avenue, La Mirada, California 90638. The facility is approximately
95,000 square feet. The facility is leased from New England Mutual Life
Insurance Company for a seventy-five month term expiring March 31, 2001. The
rent payable by Baja is $24,269.50 (U.S.) per month, inclusive of taxes, rent
and operating expenses.
Baja's Mexican manufacturing facility is located in leased premises at #700
Miramar Y Calle, 18 Ensenada, Baja California, Mexico. The facility is
approximately 120,000 square feet. The facility is leased from Baja Pacific
Properties for a ten year term expiring September 5, 2005. The rent payable is
$15,000 (U.S.) per month, inclusive of taxes, rent and operating expenses, and
escalates at a rate of 5% per annum during each subsequent year of the lease.
Item 3. Legal Proceedings
There are no material legal proceedings in progress or to the knowledge of the
Registrant, pending or threatened to which the Registrant is a party or to which
any of its properties is subject.
Item 4. Control of Registrant
1. As far as is known to the Registrant, and except as disclosed herein, the
Registrant is not directly or indirectly owned or controlled by any other
corporation or by any foreign government.
2. The following table sets forth as of October 31, 1996, information with
respect to (i) any person who is known to the Registrant to be the owner of more
than 10% of any class of the Registrant's voting securities and (ii) the total
amount of the class of the Registrant's voting securities owned by the officers
and directors and by the directors and officers as a group:
Percent of
Director/Officer Amount Owned Class(1)
Edward Halimi 3,524,800 common shares(2) 15.04%
President & 0 options
Director
Leon Nowek 909,554 common shares(3) 3.88%
Director 0 options
<PAGE>
Daniel Geronazzo 0 common shares 0.00%
Director 115,000 options
Wendell R. Anderson 1,000 common shares 0.005%
Director 50,000 options
Eugene A. Hodgson 1,000 common shares 0.005%
Director 75,000 options
Robert F. Taylor 0 common shares 0.00%
Director 50,000 options
Richard Donaldson 0 common shares 0.00%
Secretary 0 options
Officers and Directors 4,436,354 common shares 18.93%
as a Group (7 persons) 290,000 options
(1) Based upon 23,436,319 common shares issued and outstanding as at
August 13, 1996.
(2) This figure includes 3,250,000 escrow shares held in the name of
March Technologies Inc., a private company controlled by Mr. Halimi.
(3) This figure includes 900,000 escrow shares held in the name of L.N.
Family Holdings Inc., a private company controlled by Mr. Nowek.
As of the date hereof, there are no arrangements known to the Registrant, the
operation of which
may result in a future change of control in the Registrant.
Item 5. Nature of Trading Market
The common shares of the Registrant are listed on the Vancouver Stock Exchange
in British Columbia, Canada. The Registrant's shares are not currently trading
on any United States stock exchange or in the over-the-counter market, and,
accordingly, there is currently no public market for the common stock of the
Registrant in the United States. There can be no assurance that any such market
will develop after the effective date of this Registration Statement.
As of November 6, 1996, the Registrant's share register indicates that 9,272,063
of the issued and outstanding common shares were held by 61 shareholders with
addresses in the United States.
The following table sets forth the reported high and low prices for the common
shares as quoted over the Vancouver Stock Exchange on a quarterly basis for the
most recent two fiscal periods.
<PAGE>
Year and Month High* Low*
July 1, 1996 - September 30, 1996 $12.80 $ 9.00
April 1, 1996 - June 30, 1996 $15.00 $ 8.50
January 1, 1996 - March 31, 1996 $12.875 $ 4.90
October 1, 1995 - December 31, 1995 $ 5.75 $ 4.10
July 1, 1995 - Sept 30, 1995 $ 5.625 $ 3.30
April 1, 1995 - June 30, 1995 $ 6.75 $ 1.21
January 1, 1995 - March 31, 1995 $ 1.90 $ 0.30
October 1, 1994 - December 31, 1994 $ 0.63 $ 0.28
July 1, 1994 - September 30, 1994 $ 0.74 $ 0.37
April 1, 1994 - June 30, 1994 $0.90 $0.45
January 1, 1994 - March 31, 1994 $1.08 $0.36
* As quoted by the Vancouver Stock Exchange. Expressed in Canadian dollars.
Item 6. Exchange Controls and Other
Limitations Affecting Securities Holders
Except as discussed in Item 7, the Registrant is not aware of any Canadian
federal or provincial laws, decrees, or regulations that restrict the export or
import of capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to non- Canadian holders of
the common shares. The Registrant is not aware of any limitations on the right
of non-Canadian owners to hold or vote the common shares imposed by Canadian
federal or provincial law or by the Memorandum or Articles of the Registrant.
The Investment Canada Act (the "Act") governs acquisitions of Canadian business
by a non- Canadian person or entity. The Act provides, among other things, for a
review of an investment in certain Canadian businesses having in excess of $25
million in gross assets.
The Act provides that a United States investor can hold up to 1/3 of the issued
and outstanding capital of a Canadian corporation without being deemed a
"control person", and that a United States investor holding greater than 1/3 but
less than 1/2 of the issued and outstanding capital of a Canadian corporation is
deemed to be a control person subject to a rebuttable presumption to the
contrary (i.e. providing evidence of another control or control group holding a
greater number of shares). If a United States investor wishes to acquire
"control" of a Canadian corporation, such investor is required to obtain
approval if the asset value of the corporation is greater than $25,000,000. If
the asset value of the corporation at the time of the proposed acquisition is
less than $25,000,000, the investor wishing to acquire "control" need only file
a form indicating his or her intentions. The Act also provides that if United
States investors collectively hold greater than 50% of the issued and
outstanding shares of the corporation, there is a rebuttable presumption that
the corporation's status has changed to that of an American corporation. The
effect of the change in status is that if the control of the Registrant is
deemed to be held by United States
<PAGE>
17
investors, and if the Registrant then wished to make investments of greater than
$25,000,000 in Canada, it would need governmental approval.
Item 7. Taxation
Security holders who are residents of the United States and not residents of
Canada ("Non- Resident Security Holders"), and who do not carry on business in
Canada through a permanent establishment or perform independent personal
services from a fixed base in Canada to which the shares of the Non-Resident
Security Holder are effectively connected, will be subject to Canadian income
tax at the rate of 10% on the gross amount of dividends paid by the Registrant
if the Non- Resident Security Holder is a company which owns a least 10% of the
voting stock of the Registrant, and 15% of the gross amount of the dividends in
all other cases. Such tax is deducted at source and remitted to Revenue Canada
on behalf of the Non-Resident Security Holders.
If a Non-Resident Security Holder carries on business in Canada through a
"permanent establishment" or performs independent personal services from a fixed
base in Canada, and the holding of shares in respect of which the dividends are
paid is effectively connected with such permanent establishment or fixed base,
the limitations set out in the preceding paragraph will not apply. Instead, the
dividends will be taxed using the rates and rules of taxation generally
applicable to residents of Canada.
For present purposes, a "permanent establishment" of a Non-Resident Security
Holder can generally be described as a fixed place of business through which the
business of a resident is wholly or partly carried on.
Non-Resident Security Holders who hold shares of the Registrant as capital
property are not subject to Canadian tax on any gain realized on the disposition
of such shares, provided the shares are not "taxable Canadian property". The
shares will be taxable Canadian property if the Non- Resident Security Holder
disposing of such shares, together with parties related to the Non- Resident
Security Holder, have owned more than 25% of the issued shares of the Registrant
in the five years immediately preceding the disposition of the shares. If a
Non-Resident Security Holder together with related parties have owned more than
25% of the shares of the Registrant in the five years immediately preceding the
disposition of such shares, such security holder will be subject to tax on the
capital gain arising on the disposition of the shares under the provisions of
the Income Tax Act (Canada). However, the Canada/United States Income Tax
Convention (1980) (the "Convention") will exempt the Non-Resident Security
Holder from the payment of Canadian income tax arising on the disposition of the
shares provided the Non-Resident Security Holder was not a resident of Canada
for 120 months during the 20 consecutive years preceding the disposition of the
shares, and, if such is the case, the Non-Resident Security Holder was not a
resident of Canada at any time during the 10 years immediately preceding the
disposition of the shares.
If a Non-Resident Security Holder holds shares of the Registrant as capital
property that constitutes taxable Canadian property, and the gains on the
disposition of such property are not protected from Canadian income tax by the
provisions of the Convention, the income of the Non- Resident Security Holder
for the year in Canada will include the gains realized from the disposition of
the shares. The gain is the difference of the proceeds of disposition of the
share and their "adjusted cost base", as determined pursuant to the provisions
of the Income Tax Act (Canada). Three quarters of the gain is taxable.
Item 8. Selected Financial Data
Financial Statements for the Registrant
The following selected financial information is for the completed fiscal periods
following the Registrant's reverse takeover of Turbodyne Systems Inc. This
information should be read in conjunction with such Financial Statements and
notes thereto included elsewhere in this Registration Statement. The
Registrant's Financial Statements are prepared according to Canadian Generally
Accepted Accounting Principles (CGAAP). In addition, the Registrant's
accountants have reconciled the Financial Statements for the periods ending
December 31, 1993, December 31, 1994, December 31, 1995, March 31, 1996 and June
30, 1996 in accordance with U.S. Generally Accepted Accounting Principles (US
GAAP). The reconciliation is contained in the notes to the financial statements.
<PAGE>
Financial statements are given for the period commencing April 30, 1993, being
the effective date of the transfer of the assets comprising the Turbodyne
Technology to Turbodyne Systems from Edward M. Halimi. Turbodyne Systems was
acquired by the Registrant effective March 8, 1994 pursuant to an agreement
between the Registrant and Edward M. Halimi dated July 15, 1993 and amended by
amendment agreements dated October 1, 1993 and December 31, 1993.
To date, the Registrant has not paid any dividends on its common shares. The
Registrant's policy at the present time is to retain earnings for corporate
purposes. The payment of dividends in the future will depend on the earnings and
financial conditions of the Registrant and such other factors as the Board of
Directors of the Registrant may consider appropriate. Since the Registrant is
currently in an expansion stage, it is unlikely that earnings will be available
for the payment of dividends in the near future.
<PAGE>
18
Statement of Operations Data for the Registrant (Canadian GAAP)
January 1/96 to
June 30/96
(Cdn. $)
Gross Revenue nil
Net Loss for $1,081,407
Period
Net Loss Per $0.07
Share
January 1/95 to January 1/94 to
December 31/95 December 31/94
(Cdn. $) (Cdn. $)
Gross Revenue nil nil
Net Loss for $1,527,342 $935,992
Period
Net Loss Per $0.16 $0.18
Share
April 30/93 to
Dec 31/93
(Cdn. $)
Gross Revenue nil
Net Loss for $122,142
Period
Net Loss Per $0.06
Share
<PAGE>
19
Balance Sheet Data for the Registrant (Canadian GAAP)
June 30/96
(Cdn. $)
Total Assets $10,325,940
Working Capital $ 2,198,608
Long Term $ 113,647
Liabilities
Total Liabilities $ 587,849
Shareholder's $9,738,091
Equity
December 31/95 December 31/94
(Cdn. $) (Cdn. $)
Total Assets $5,201,899 $1,899,016
Working Capital $ 82,495 ($426,910)
Long Term $ 20,010 nil
Liabilities
Total Liabilities $503,122 $458,451
Shareholder's $4,698,777 $1,440,565
Equity
<PAGE>
20
Statement of Operations Data for the Registrant (U.S. GAAP)
Jan 1/96 to
June 30/96
(Cdn. $)
Gross Revenue nil
Net Loss for $2,896,928
Period
Net Loss Per $0.19
Share
Jan 1/95 to Jan1/94 to
Dec 31/95 Dec 31/94
(Cdn. $) (Cdn. $)
Gross Revenue nil nil
Net Loss for $3,593,299 $1,428,974
Period
Net Loss Per $0.37 $0.28
Share
April 30/93 to
Dec 31/93
(Cdn. $)
Gross Revenue nil
Net Loss for $ 291,633
Period
Net Loss Per $0.14
Share
<PAGE>
21
Balance Sheet Data for the Registrant (U.S. GAAP)
June 30/96
(Cdn. $)
Total Assets $4,625,102
Working Capital $2,198,608
Long Term $ 113,647
Liabilities
Total Liabilities $ 587,849
Shareholder's $4,037,253
Equity
Dec 31/95 Dec 31/94
(Cdn. $) (Cdn. $)
Total Assets $1,316,572 $ 79,656
Working Capital $ 82,485 ($426,910)
(deficit)
Long Term $ 20,010 nil
Liabilities
Total Liabilities $503,122 $458,451
Shareholder's ($813,460) ($378,451)
Equity (deficit)
<PAGE>
22
Dec 31/93
(Cdn. $)
Total Assets $ 44,500
Working Capital ($336,132)
(deficit)
Long Term nil
Liabilities
Total Liabilities $336,132
Shareholder's ($291,633)
Equity (deficit)
Financial information for the Registrant as of June 30, 1996 is unaudited.
Financial Statements for Baja
The following selected financial information for the completed fiscal periods of
Baja is derived from the Financial Statements of Baja. This information should
be read in conjunction with such Financial Statements and notes thereto included
elsewhere in this Registration Statement. The Registrant's Financial Statements
are prepared according to U.S. Generally Accepted Accounting Principles.
Financial information for Baja as of June 30, 1996 is based on unaudited
financial statements prepared by management of Baja.
<PAGE>
Statement of Operations Data (U.S. GAAP) for Baja
Jan 1/96 to Jan 1/95 to
June 30/96 Dec 31/95
(U.S. $) (U.S. $)
Gross Revenue $20,024,000 $28,986,000
Net Income for $ 1,894,000 $ 815,000
Period
Jan 1/94 to Jan 1/93 to
Dec 31/94 Dec 31/93
(U.S. $) (U.S. $)
Gross Revenue $19,392,000 $13,871,000
Net Income for $ 480,000 $ 245,000
Period
<PAGE>
Balance Sheet Data (U.S. GAAP) for Baja
June 30/96 Dec 31/95
(U.S. $) (U.S. $)
Total Assets $18,773,000 $16,118,000
Working Capital $ 225,000 ($ 1,019,000)
(deficit)
Long Term $ 1,655,000 $ 2,177,000
Liabilities
Total Liabilities $12,028,000 $11,307,000
Shareholder's $ 6,705,000 $4,811,000
Equity
Dec 31/94
(U.S. $)
Total Assets $12,213,000
Working Capital $343,000
Long Term $ 922,000
Liabilities
Total Liabilities $8,217,000
Shareholder's $3,996,000
Equity
<PAGE>
Pro Forma Financial Statement for Registrant
The Registrant's auditors have prepared an unaudited pro-forma balance sheet and
an unaudited pro-forma consolidated statement of operations, reconciled to U.S.
GAAP, for the Registrant and Baja as of June 30, 1996 based on the unaudited
financial statements of each of the Registrant and Baja as of June 30, 1996. The
Pro Forma Financial Statements assume the completion of the acquisition by the
Registrant of Baja and the completion of each of the Series 'A' Special Warrant
and Series 'C' Special Warrant private placement financings as described in Item
12 'Options to Purchase Securities from Registrant or Subsidiaries', on the
basis set forth in Note 1 'Organization and Basis of Presentations' in the notes
to the Pro Forma Financial Statement. Selected financial information from the
consolidated financial statements is summarized below:
June 30, 1996
(U.S.$)
Total Assets $35,470,614
Working Capital $ 6,887,819
Long Term Liabilities $ 1,738,337
Total Liabilities $ 12,459,068
Shareholder's Equity $23,011,096
Net Sales $20,024,000
Net Income (loss) $ (450,766)
Exchange Rates
The following table sets forth, for the periods and dates indicated, certain
information concerning exchange rates of United States and Canadian dollars. All
the figures shown represent noon buying rates for cable transfers in New York
City, certified for customs purposes by the Federal Reserve Bank of New York.
The source of this data is the Federal Reserve Bulletin and Digest.
Period Period End Average
December 1990 1.1635 1.1670 (CDN$/US$)
December 1991 1.1467 1.1460 (CDN$/US$)
December 1992 1.2725 1.2088 (CDN$/US$)
December 1993 1.3308 1.2902 (CDN$/US$)
December 1994 1.3893 1.3659 (CDN$/US$)
December 1995 1.4018 1.3725 (CDN$/US$)
June 30, 1996 1.3637 1.3613 (CDN$/US$)
<PAGE>
26
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the
Financial Statements
and Notes thereto appearing elsewhere in this Registration Statement.
Results of Operations
Since the acquisition of the Turbodyne Technology in April, 1993, Turbodyne
Systems has been engaged principally in researching and developing products
incorporating the Turbodyne Techology to enhance engine perfomance and reduce
emissions of internal combustion engines. The development of the Registrant's
Turbodyne System, Turbopac and Dynacharger products are essentially complete and
the Registrant is now tooling for the commercial production. While the
Registrant has undertaken low volume production of its products, the products
produced have been primarily used for testing and evaluation products with
potential industry Original Equipment Manufacturer and major retrofit customers.
The Registrant does not have any revenues from its products to the date of this
Registration Statement and has expended $10,924,008 to June 30, 1996 as
development costs for the Turbodyne products.
Liquidity and Capital Resources
The operating expenses of the Registrant will increase as the Registrant
finalizes its preparations for commercial production of the Turbodyne products.
The Registrant believes that its working capital upon completion of the
acquisition of Baja will be sufficient to fund carry out its operating plan
through to mid-1997.
The liquidity of the Registrant will be affected if the Registrant is unable to:
(a) finalize agreements with Original Equipment Manufactures and major
retrofitters for the incorporation of its Turbodyne products in new diesel
engines and after- market diesel engine products;
(b) acheive sales of its Turbodyne products directly to after-market customers
at commercially viable rates.
The Registrant is using its best efforts to enter into contracts with Original
Equipment Manufacturers and major retrofitters for the incorporation of its
Turbodyne products. The
<PAGE>
Registrant has received purchase orders in excess of $9,000,000 U.S. for its
after-market products under its distribution agreement with Granatelli. The
liquidity of the Registrant will be affected if the Registrant is unable to
commence commercial production of its products in time to meet these purchase
orders.
The Registrant has financed its operations to date, including research and
development activities, general and administrative expenditures, and evaluation
and joint development programs, from the sale of equity securities. The initial
acquisition of the Turbodyne Technology was completed by reverse takeover
whereby the Registrant issued 1,000,000 common shares to the shareholders of
Turbodyne Systems in order to acquire Turbodyne Systems.
The Registrant's projection of its working capital being sufficient to fund its
operating plan to mid-1997 is exclusive of any funds which may be available from
the business of Baja after completion of the acquisition of Baja. The
Registrant's intent is to keep the cash flow for the Baja business for the
operation and expansion of the Baja business. The Registrant does not intend to
use the cash flow from the Baja business to fund the Turbodyne business.
Item 10. Directors and Officers of the Registrant
The following table sets forth all current directors and executive officers of
the Registrant, with each position and office held by them in the Registrant,
and the period of service as such:
Name and Position
with the Company Age Commencement of Service
EDWARD HALIMI 51 October 18, 1993
Carpinteria, California
President, Director
& Promoter
LEON E. NOWEK 39 October 18, 1993
Surrey, British Columbia
Director
DANIEL GERONAZZO 65 January 24, 1995
Christina Lake, British Columbia
Director
<PAGE>
RICHARD W. DONALDSON 57 October 18, 1993
Palm Desert, California
Secretary
WENDELL R. ANDERSON 63 November 20, 1995
Minneapolis, Minnesota
Director
EUGENE A. HODGSON 40 May 27, 1996
Vancouver, British Columbia
Director
ROBERT F. TAYLOR 56 July 12, 1996
Calgary, Alberta
Director
Edward Halimi is the President and Chief Executive Officer of the Registrant and
has served in those capacities since October 18, 1993. Mr. Halimi is the
developer of the Turbodyne System. He spent 11 years working with FerroPlast
Corporation, an international company specializing in the engineering and
manufacture of diesel engines, pumps, electric motors and farm equipment. As a
Vice-President, Mr. Halimi worked in the engineering and manufacturing divisions
in the Middle East and Europe and was responsible for the home building and
housing operations in the United States. Mr. Halimi was also the President and
Chief Executive Officer of Technodyne Corporation, a manufacturer of heat
management and temperature control units and he is currently the Chief Executive
Officer of Biosonics Corporation, a research and development company in the
fields of ultrasonics, vibration control and semi-conductor research and
electronics.
Leon E. Nowek is a director of the Registrant and has an accounting background
and is responsible for corporate finance, finance reporting and regulatory
compliance. He was appointed as a director of the Registrant in October, 1993.
Mr. Nowek is also a director and senior officer of New Westwin Ventures Inc. Mr.
Nowek has been involved in a similar role with a number of public companies
since 1983.
Daniel Geronazzo is a director of the Registrant. He was appointed as a director
on January 24, 1995. Mr. Geronazzo is an attorney in the Province of British
Columbia and has been in private legal practice for the past 35 years
Mr. Anderson is a director of the Registrant. He was appointed as a director on
November 20, 1995. Mr. Anderson has received his Doctor of Law Degree from the
University of Minnesota Law School in 1960. He has been in private practise
since 1963 and is presently an attorney with the firm of Larkin, Hoffman, Daly
and Lindgren Ltd. of Bloomington, Minnesota. Mr. Anderson has held several
positions of public office. From 1959 to 1963 he was a state representative from
Minnesota and served as state senator from 1963 to 1971. In 1971 Mr. Anderson
was elected as
<PAGE>
Governor of the State of Minnesota. At that time, he was the nation's youngest
governor. In 1977 Mr. Anderson became a United States Senator from the State of
Minnesota. He held office for a period of two years. During his term, he served
on such committees as the environment and public works committee, the budget
committee, the natural resources committee and armed services committee. Mr.
Anderson currently serves as a director of numerous corporations and foundations
including National City Bank Corporation and the University of Minnesota Board
of Trustees.
Richard W. Donaldson is the secretary of the Registrant. He was appointed as the
secretary on October 18, 1993. Mr. Donaldson has been a self-employed private
investor since 1978.
Eugene A. Hodgson is a director of the Registrant. Mr. Hodgson is a
self-employed management consultant. Mr. Hodgson was previously Director of
Corporate Development at Intrawest Corporation, a company listed on the Toronto
Stock Exchange, for a period of five years. Mr. Hodgson is currently Director of
the Vancouver Board of Trade and Chair of its communications committee. He is
also currently treasurer of the Liberal Party of Canada (British Columbia). Mr.
Hodgson has held a number of positions in both the British Columbia and Yukon
governments.
Robert F. Taylor is a director of the Registrant. Mr. Taylor is also a director
of Shell Canada Products. Mr. Taylor is a chartered accountant and is a member
of the Institute of Chartered Accountants of Alberta, Canada. Mr. Taylor was
appointed president of Shell Canada Products in 1993 and has served in various
capacities with Shell since 1967 in Calgary, Toronto and London, England.
Edward M. Halimi and Leon E. Nowek presently devote 100% of their time to the
business of the Registrant. Daniel Geronazzo, Richard W. Donaldson and Robert F.
Taylor devote such percentage of their time as is required by the Registrant to
the business of the Registrant. Eugene A. Hodgson devotes a majority of his
business time to the business of the Registrant.
Directors may be appointed at any time and are then re-elected annually by the
Stockholders. Directors receive no compensation for serving as such, other than
stock options. Officers are elected annually by the Board of Directors and serve
at the discretion of the Board.
MICHAEL J. JOYCE. Michael J. Joyce (52) is employed as President of Pacific Baja
Light Metals Corp. Mr. Joyce graduated from Kent State University with a BA in
Physics and from Ohio State University with an MBA and has over 25 years of
manufacturing and management experience. He has 15 years of experience in the
aluminum casting and machining industry as a supplier to both automotive OEM's
and aftermarket companies. Prior to joining Baja in 1990, Mr. Joyce was Group
President of a major automotive supplier.
<PAGE>
LENNERT RENBERG. Lennert Renberg (52) is the production and operations manager
of Pacific Baj Light Metals Corp. Mr. Renberg possesses over 30 years experience
in both the "tool and die" industry as well as aluminum foundry. Mr. Renberg
owned and operated a tool and die business and an aluminum foundry in the Los
Angeles area.
Item 11. Compensation of Directors and Officers
The Registrant does not compensate directors for acting solely as directors.
The Registrant pays a salary of $60,000 per year to Mr. Edward M. Halimi as
President of the Registrant. Mr. Halimi was paid a salary of $60,000 per year in
1994 and 1995 and was granted options to purchase 500,000 shares of the
Registrant in 1995. The options granted to Mr. Halimi were granted in accordance
with the policies of the Vancouver Stock Exchange at a price equal to the 10 day
average trading price of the Registrant's shares for the period immediately
prior to granting of the options. Mr. Halimi did not receive any share purchase
options in 1994.
The Registrant is party to a management services agreement with Seeds Investment
Corporation ("Seeds") whereby the Registrant pays to Seeds a total of $2,500 per
month in consideration of Seeds providing the management services of Leon E.
Nowek to the Registrant. Seeds is a private British Columbia company controlled
by Leon E. Nowek, a director of the Registrant.
In aggregate, the Registrant and its subsidiary, Turbodyne Systems, paid a total
of $90,000 to its directors and officers for services in all capacities during
its last fiscal year of the Registrant, ending December 31, 1995.
Item 12. Options to Purchase Securities
from Registrant or Subsidiaries
As at October 31, 1996 the Registrant had outstanding options to purchase common
shares as follows:
Number of Shares Exercise Price Expiry Date
80,000 $1.65 April 20, 1997
265,000 $4.20 July 28, 1997
424,000 $4.66 December 27, 1997
250,000 $4.75 August 17, 1997
531,500 $7.13 February 27, 1998
475,000 $ 9.00 September 3, 1998
305,000 $ 9.00 September 9, 1998
<PAGE>
The officers and directors as a group hold an aggregate of 290,000 options to
purchase common shares.
The granting of options by the Registrant to its employees, officers and
directors is governed by the policies of the Vancouver Stock Exchange (the
"VSE") which require that a company not grant options at a price less than the
average 'Market Price' of the company's shares for the ten trading days prior to
granting of the options and delivery of notice to the VSE. The 'Market Price' is
determined as the closing price of the company's shares as listed on the VSE.
The Registrant has outstanding as of October 31, 1996, non-transferable warrants
to purchase 476,518 common shares. These warrants were issued pursuant to
various private placement subscription agreements and are subject to various
hold periods. The following are the particulars of the warrants issued in
connection with such private placements, with reference to the number of common
shares of the Registrant issuable upon the exercise of the warranty in
connection with each private placement:
Number of Shares Exercise Price of Warrants Warrants Expiry Date
30,000 $4.27 Nov 24/96
24,752 $4.14 Dec 1/96
30,000 $3.89 Dec 5/96
27,027 $3.80 Dec 7/96
25,000 $4.10 Dec 18/96
23,530 $4.35 Jan 2/97
23,529 $4.35 Jan 18/97
23,529 $4.35 Jan 22/97
23,529 $4.35 Feb 1/97
19,047 $5.35 Feb 12/97
31,348 $6.48 Feb 23/97
15,873 $6.40 Feb 28/97
14,925 $6.80 Mar 5/97
15,948 $6.37 Mar 12/97
43,416 $7.01 Mar 15/97
13,793 $7.35 Mar 18/97
45,368 $7.55 Mar 19/97
12,562 $8.06 Mar 21/97
33,333 $9.00 Sept 3/97
None of the warrants described above have been exercised as of the date of this
Registration Statement. All of the above-referenced options and warrants are
currently exercisable.
The Registrant has completed a private placement of Series "A" special warrants,
as described below, in order to complete the acquisition of Pacific Baja. The
Series "A" Special Warrant
<PAGE>
Private Placement was a brokered private placement, the terms of which were
determined by negotiation between the Registrant and its underwriters, subject
to the policies of the Vancouver Stock Exchange. The proceeds of the Series "A"
Special Warrant private placement in the amount of $18,750,000 were held in
escrow by the Registrant's registrar and transfer agent, Montreal Trust Company
of Canada, pending completion of the acquisition of Pacific Baja by the
Registrant in accordance with the terms of the Acquisition Agreement. The
proceeds of the Series "A" Special Warrant private placement, less expenses of
the underwriters, were released to the Registrant on completion of the
acquisition of Baja and were used to pay the cash portion of the acquisition
price to the Baja shareholders.
The securities issued pursuant to the Series "A" Special Warrant private
placement consisted of a total of 3,750,000 Series "A" Special Warrants issued
by the Registrant at a price of $5.00 per Series "A" Special Warrant for total
proceeds of $18,750,000. Each Series "A" Special Warrant is exercisable into one
unit (an "A-Unit") of the Registrant for no additional consideration at any time
prior to July 2, 1997. Each A-Unit consists of one common share of the
Registrant and one transferable share purchase warrant (an "A-Warrant"). Each
whole A-Warrant entitles the subscriber to purchase a further common share of
the Registrant for a price of $5.50 per share at any time prior to July 2, 1997.
The price of the Series 'A' Special Warrants was determined by negotiations
between the Registrant and its underwriters on November 1, 1995. The negotiated
price was in compliance with the policies of the Vancouver Stock Exchange which
required the price to be no less than 15% less than the closing price of the
Company's shares, as traded on the VSE, on the day prior to the private
placement announcement. The Registrant is obligated to use its best efforts to
qualify the distribution of the Series 'A' Special Warrants by the filing of a
prospectus in the Provinces of British Columbia, Manitoba and Ontario.
The Series "A" Special Warrants will be deemed to be exercised on the earlier
of:
(a) the fifth business day following the date a receipt is issued by the
applicable regulatory authorities for a prospectus qualifying the distribution
of the A-Units in the Provinces of British Columbia, Manitoba and Ontario; and
(b) the first anniversary of the closing of the financing.
The Registrant intends to file a prospectus with the securities commissions in
the Provinces of British Columbia, Manitoba and Ontario in order to qualify for
re-sale within these provinces of the 4,125,000 common shares and 4,125,000
A-Warrants to be issued to the subscribers of the Registrant's Series 'A'
Special Warrant private placement upon conversion of the Series "A" Special
Warrants . Upon issue of a final prospectus receipt by each of the above
securities commissions, the 4,125,000 common shares and 4,125,000 A-Warrants
will be freely tradable within the Provinces of British Columbia, Manitoba and
Ontario, subject to additional restrictions under applicable securities
legislations. If receipts for a final prospectus are not obtained, the 4,125,000
common shares and 4,125,000 A-Warrants will be subject to a hold period and
additional restrictions under applicable securities legislation until at least
July 2, 1997. As the Registrant was unable to qualify the distribution of the
common shares and A-Warrants by October
<PAGE>
2, 1996, by the filing of a prospectus, as described above, the Series "A"
Special Warrants are convertible into one common share and one whole A-Warrant.
If the Registrant had been able to qualify the Series "A" Special Warrants by
the filing of a prospectus, as described above, by September 30, 1996, the
Series "A" Special Warrants would have been convertible into one common share
and one-half of one A-Warrant.
At the election of the underwriters who completed the Registrant's special
warrant private placement, a total of 375,000 Series "A" Special Warrants were
issued to the underwriters in lieu of cash commissions payable on completion of
the private placement. A total of 375,000 common shares and 375,000 A-Warrants
may be issued by the Registrant to the underwriters upon the conversion of the
Series "A" Special Warrants by the underwriters.
On April 2, 1996, the Registrant announced a private placement of 155,000 Series
'B" special warrants at a price of $12.00 per Series "B" Special Warrant, based
on the closing price of the Registrant's shares prior to announcement of the
private placement. The private placement of Series 'B' special warrants did not
complete due to the exercise by the subscribers of certain retraction rights
negotiated between the Registrant and its underwriters.
On August 19, 1996, the Registrant announced a private placement of 500,000
Series 'C' Special Warrants to be issued by the Registrant at a price of $9.00
per Series 'C' Special Warrant for a total proceeds of $4,500,000. Each Series
'C' Special Warrant will be exercisable into one unit (a 'C-Unit') of the
Registrant for no additional consideration at any time prior to the one year
anniversary of the issue of the Series 'C' Special Warrant. Each C-Unit shall
consist of one Common Share of the Registrant and one half of one transferable
share purchase warrant (a 'C- Warrant'). Each whole C-Warrant will entitle the
subscriber to purchase a further Common Share of the Registrant at the price of
$9.50 per share at any time prior to the one year anniversary of the issue of
the Series 'C' Special Warrants. At the option of the Agent who will be
completing the Registrant's Series 'C' Special Warrant Private Placement, a
total of up to 50,000 Series 'C' Special Warrants may be issued to the Agent in
lieu of cash commission payable on completion of the private placement. In the
event the Agent elects to receive payment in Series 'C' Special Warrants, a
total of 50,000 Common Shares of the Registrant and 50,000 C-Warrants may be
issued by the Registrant upon exercise of the Series 'C' Special Warrants.
The difference in the offering price of the Series 'A', Series 'B' and Series
'C' special warrant private placements announced by the Registrant is accounted
for by the variations of the Registrant's share price as traded on the Vancouver
Stock Exchange. The policies of the Vancouver Stock Exchange require that a
company listed on the Vancouver Stock Exchange not announce private placements
at a price less than the closing price of the Company's shares on the trading
day immediately prior to the announcement of the private placement, less an
applicable discount. The maximum discount available to the Registrant is 15%
from the market price of the Registrant's shares, assuming the Registrant's
shares are trading at a price greater than $2.00 per share.
<PAGE>
Item 13. Interest of Management in Certain Transactions
Material Agreements
Edward M. Halimi, a director of the Registrant, transferred all assets
comprising the Turbodyne Technology, as of the date of the transfer, to
Turbodyne Systems in consideration for the issue to Halimi of 100 common shares
of Turbodyne Systems, being all of the issued and outstanding shares of
Turbodyne Systems. The Registrant acquired all of the issued and outstanding
shares in Turbodyne Systems from Halimi pursuant to an agreement dated July 15,
1993 and amended by amendment agreements dated October 1, 1993 and December 31,
1993 whereby the Registrant issued 1,000,000 common shares to Halimi.
Pursuant to an agreement between the Registrant and Centrepoint Equities Inc.
("Centrepoint"), the Registrant pays Centrepoint $2,500 per month in
consideration of Centrepoint providing office space and secretarial and
reception services to the Registrant. During the fiscal year ended December 31,
1995 a total of $30,000 was paid or is payable to Centrepoint pursuant to this
agreement. Centrepoint is a non-reporting British Columbia company, the shares
of which are owned by Leon E. Nowek, a director of the Registrant.
For the year ended December 31, 1995, the Registrant also paid a total of
$30,000 to Seeds Investment Corporation ("Seeds"), in consideration of Seeds
providing management services to the Registrant at a salary of $2,500 per month.
Seeds is a private British Columbia company controlled by Leon E. Nowek, a
director of the Registrant.
Stock Options
Management has an interest in the stock options and share purchase warrants
described under Items 4 and Items 12 of this Registrations Statement.
PART II
Item 14. Description of Securities to be Registered
The class of capital stock of the Registrant being registered hereby is the
Registrant's common shares.
The issued and outstanding share capital of the Registrant is summarized as
follow:
SHARE CAPITAL STRUCTURE
<PAGE>
The authorized capital of the Registrant consists of 100,000,000 common shares
without par value, 100,000,000 Class A preference shares with a par value of $10
per share and 100,000,000 Class B preference shares with a par value of $50 per
share. As of June 30, 1996, being the date of the most recent balance sheet of
the Registrant included in this Registrant, 20,218,566 of the Registrant's
common shares have been issued and are outstanding. As of November 6, 1996,
23,436,319 of the Registrant's common shares have been issued and are
outstanding. None of the Registrant's Class A or Class B preference shares have
been issued or are outstanding.
Each of the common shares has equal dividend, liquidation and voting rights.
Holders of the common shares are entitled to one vote per share on all matters
that may be brought before them. Holders of the common shares are entitled to
receive dividends when declared by the Board of Directors from funds legally
available therefor. The common shares are not redeemable, have no conversion
rights and carry no pre-emptive or other rights to subscribe for additional
shares. The outstanding common shares are fully paid and non-assessable. The
Articles of the Registrant contain provisions granting certain priorities over
the holders of the common shares to the holders of the classes of preference
shares in the event of liquidation, dissolution or winding-up of the Registrant.
As a reporting issuer in British Columbia listed on the Vancouver Stock
Exchange, the Registrant is governed by securities laws and regulations
applicable in British Columbia and the policies of the Vancouver Stock Exchange.
Certain regulations of British Columbia and the Vancouver Stock Exchange set
forth distinctions between "free trading common shares" and common shares
required to be placed in escrow or in a "pool". Free trading common shares are
not subject to any restrictions on resale, and can be traded without regulatory
approval. Free trading shares are generally qualified by way of prospectus and
issued to the public. Conversely, shares issued by way of "private placement" to
certain investors and not the public, are usually subject to a one- year hold
period and cannot be traded until the relevant hold period has expired. Once the
hold period expires, the shares would then become free trading shares. Under the
policies of the Vancouver Stock Exchange, a listed company is entitled to sell
"performance shares" to its principals at a minimum price of $0.01 per share on
its original organization, or if the company is inactive, then upon a reverse
takeover transaction or a substantial corporate reorganization, provided that
the number of performance shareholders not exceed 65% of the issuer's shares
then outstanding. The principals of the company receiving performance shares
must pay for the performance shares at the price approved by the company and the
Vancouver Stock Exchange. The shares are then placed in escrow with the
company's escrow agent and released in accordance with certain earnings
performance criteria to be met by the company. Any of these escrow shares that
are not released within 10 years of issuance are cancelled.
As of November 6, 1996, the Registrant's issued and outstanding common shares
consist of the following:
a. none of the Registrant's shares were held in pool;
<PAGE>
b. 4,150,000 of the Registrant's common shares are held in escrow as
performance shares;
c. 18,809,801 common shares were free-trading common shares; and
d. 476,518 common shares were subject to varying hold terms pursuant to the
policies of the Vancouver Stock Exchange.
The Registrant issued the 4,125,000 performance shares at a price of $0.01 per
common share at the time of the completion of the Registrant's reverse takeover
of Turbodyne Systems (the "Reverse Take Over"). The performance shares are owned
as follows:
March Technologies Inc.* 3,250,000
L.N. Family Holdings Inc.** 900,000
* All of the voting shares of March Technologies Inc. are beneficially owned by
Edward Halimi, President, Chief Executive Officer and Director of the
Registrant.
** All of the voting shares of L.N. Family Holdings Inc. are beneficially owned
by Leon E. Nowek, a Director of the Registrant.
The performance shares described above are subject to an escrow agreement dated
March 17, 1994 among the Registrant, Montreal Trust Company of Canada Limited,
as escrow agent, and March Technologies Inc. and Leon E. Nowek, as principals of
the Registrant. The Registrant's performance shares described above can only be
released in compliance with Local Policy Statement 3-07 of the British Columbia
Securities Commission. Under this Local Policy Statement, releases of
Registrant's performance shares from escrow shall be made on the basis of a
pro-rata release of that number of escrow shares determined as follows:
Number of Performance Amount of Cumulative Cash Flow
Shares to be Released = not Previously Applied to a Release
Earn Out Price
"Cumulative Cash Flow" means at any time, the aggregate Cash Flow of the
Registrant up to that time from a date no earlier than the Registrants financial
year-end and immediately preceding the date of the completion of the Reverse
Take Over, net of any negative Cash Flow.
(a) depreciation;
(b) amortization of goodwill and amortization of research and
development, excluding
general and administrative costs;
(c) expended research and development costs, excluding general
and administrative costs;
<PAGE>
(d) any other amounts permitted or required by the British
Columbia Securities Commission.
"Earn Out Price" means the price of the Registrant's common shares at the time
of the agreement for the Reverse Take Over was executed multiplied by the Earn
Out Factor.
"Earn Out Factor" means the number obtained by squaring the Escrow Share
Percentage expressed as a decimal and multiplying by four.
"Escrow Share Percentage" means the percentage that the issued performance
shares are of the total issued and outstanding voting securities of the
Registrant, determined on the date of the completion by the Registrant of the
Reverse Take Over.
The performance shares issued by the Registrant were issued upon completion by
the Registrant of the Reverse Take Over. The escrow share percentage applicable
to these performance shares is 49.5%, based on 8,738,052 common shares of the
Registrant being outstanding on completion of the Reverse Take Over.
Accordingly, the Earn Out Factor is 0.9801. The price of the registrant's common
shares used to determine the Earn Out Price is $0.35 per common share based on
the trading price of the Registrant's common shares on the Vancouver Stock
Exchange at the time the agreement for the Reverse Take Over was executed.
Accordingly, the number of performance shares to be released is calculated as
follows:
Number of Performance Amount of Cumulative Cash Flow Shares to be Released = Not
Previously Applied to a Release 0.35 x (0.495)2 x 4
Number of Performance Amount of Cumulative Cash Flow Shares to be Released = Not
Previously Applied to a Release 0.343
The number of performance shares will be for an applicable fiscal year of the
Registrant. For subsequent financial periods, only Cumulative Cash Flow not
previously applied to a release of performance shares may be used to determine
subsequent releases of performance shares.
The transfer agent and registrar for the common shares of the Registrant is
Montreal Trust Company of Canada of 2nd Floor, 510 Burrard Street, Vancouver,
British Columbia, V6C 3B9.
<PAGE>
PART III
Item 15. Defaults Upon Senior Securities
Inapplicable
Item 16. Changes in Securities and Changes in Security for
Registered Securities
Inapplicable
PART IV
Item 17. Financial Statements
See "Item 19. Financial Statements and Exhibits" for a list of those Financial
Statements of the Registrant which follows.
Item 18. Financial Statements
Inapplicable
Item 19. Financial Statements and Exhibits
(a) INDEX TO FINANCIAL STATEMENTS
(a) Unaudited Financial Statements of the Registrant as at June 30, 1996
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of cash flows
- Consolidated Statement of Shareholders Equity
(b) Audited Financial Statements of the Registrant as at December 31, 1995,
December 31, 1994 and December 31, 1993:
- Auditors Report
- Consolidated Balance Sheet
<PAGE>
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of cash flows
- Consolidated Statement of Shareholders Equity
(c) Auditors Report for Pacific Baja as at December 31, 1995:
- Consolidated balance sheet as at December 31, 1994 and 1995
- Consolidated statements of income for the years ended 1993, 1994 and 1995
- Consolidated Statements of Shareholders Equity
- Consolidated Statements of cash flow for years ending 1993, 1994, and 1995
(d) Unaudited financial statements of Pacific Baja as at June 30, 1996 and
June 30, 1995
(e) Pro-Forma Consolidated Balance Sheet and Pro-Forma Consolidated Statement
of Operations for the Registrant as at June 30, 1996.
(f) Consent letters of Morgan & Company and McGladrey & Pullen, LLP, in regard
to the inclusion of Independent Auditors' Reports in the Registration
Statement.
(b) EXHIBITS
1(a) Certificate of Incorporation of Dundee Resources Corp.
dated May 18, 1983.
1(b) Articles of Dundee Resources Corp.
1(c) Memorandum of Dundee Resources Corp.
1(d) Certificate of Name Change from Dundee Resources Corp. to
Clear View Ventures
Inc. dated January 20, 1993.
1(e) Amended Memorandum of Clear View Ventures Inc.
1(f) Certificate of Name Change from Clear View Ventures Inc. to
Turbodyne
Technologies Inc. dated April 28, 1994.
1(g) Amended Memorandum of the Registrant.
1(h) Articles of the Registrant.
1(i) Proposed Articles of Continuation of the Registrant
<PAGE>
1(j) Proposed By-laws of the Registrant to be adopted upon
Continuation
2(a) Specimen Common Share Certificate.
3(i) Employment Agreement between the Registrant and Edward M. Halimi.
3(ii) Management Agreement between the Registrant and Seeds
Investment Corporation.
3(iii) Sub-Lease between American Appliance, Inc. and Carole D.
King dated December 1, 1994 for Carpinteria Property.
3(iv) Distribution Agreement between Turbodyne Systems and
Granatelli Performance Technologies Inc.
3(v) Acquisition Agreement between the Registrant, Pacific Baja
Light Metals Holding Inc., and Lenart Renberg, Michael Joyce,
Sadayappa Durairaj Family Trust, Naresh Saxens and Mugerdish
Balabanian dated March 15, 1996 (the "Acquisition Agreement")
3(vi) Amendment Agreement between the Registrant, Pacific Baja
Light Metals Holding Inc., and Lenart Renberg, Michael Joyce,
Sadayappa Durairaj Family Trust, Naresh Saxens and Mugerdish
Balabanian dated June 14, 1996
<PAGE>
issued by the Registrant upon exercise of the Ser5ies "C" Special Warrants.
Item 13. Interest of Management in Certain Transactions
Material Agreements
Edward M. Halimi, a director of the Registrant, transferred all assets
comprising the Turbodyne Technology, as of the date of the transfer, to
Turbodyne Systems in consideration for the issue to Halimi of 100 common shares
of Turbodyne Systems, being all of the issued and outstanding shares of
Turbodyne Systems. The Registrant acquired all of the issued and outstanding
shares in Turbodyne Systems from Halimi pursuant to an agreement dated July 15,
1993 and amended by amendment agreements dated October 1, 1993 and December 31,
1993 whereby the Registrant issued 1,000,000 common shares to Halimi.
Pursuant to an agreement between the Registrant and Centrepoint Equities Inc.
("Centrepoint"), the Registrant pays Centrepoint $2,500 per month in
consideration of Centrepoint providing office space and secretarial and
reception services to the Registrant. During the fiscal year ended December 31,
1995 a total of $30,000 was paid or is payable to Centrepoint pursuant to this
<PAGE>
33
agreement. Centrepoint is a non-reporting British Columbia company, the shares
of which are owned by Leon E. Nowek, a director of the Registrant.
For the year ended December 31, 1995, the Registrant also paid a total of
$30,000 to Seeds Investment Corporation ("Seeds"), in consideration of Seeds
providing management services to the Registrant at a salary of $2,500 per month.
Seeds is a private British Columbia company controlled by Leon E. Nowek, a
director of the Registrant.
Stock Options
Management has an interest in the stock options and share purchase warrants
described under Items 4 and Items 12 of this Registrations Statement.
<PAGE>
34
PART II
Item 14. Description of Securities to be Registered
The class of capital stock of the Registrant being registered hereby is the
Registrant's common shares.
The issued and outstanding share capital of the Registrant is summarized as
follow:
SHARE CAPITAL STRUCTURE
The authorized capital of the Registrant consists of 100,000,000 common shares
without par value, 100,000,000 Class A preference shares with a par value of $10
per share and 100,000,000 Class B preference shares with a par value of $50 per
share. As of June 30, 1996, being the date of the most recent balance sheet of
the Registrant included in this Registrant, 20,218,566 of the Registrant's
common shares have been issued and are outstanding. As of September 3, 1996,
20,255,566 of the Registrant's common shares have been issued and are
outstanding. None of the Registrant's Class A or Class B preference shares have
been issued or are outstanding.
Each of the common shares has equal dividend, liquidation and voting rights.
Holders of the common shares are entitled to one vote per share on all matters
that may be brought before them. Holders of the common shares are entitled to
receive dividends when declared by the Board of Directors from funds legally
available therefor. The common shares are not redeemable, have no conversion
rights and carry no pre-emptive or other rights to subscribe for additional
shares. The outstanding common shares are fully paid and non-assessable. The
Articles of the Registrant contain provisions granting certain priorities over
the holders of the common shares to the holders of the classes of preference
shares in the event of liquidation, dissolution or winding-up of the Registrant.
Certain regulations of British Columbia and the Vancouver Stock Exchange set
forth distinctions between "free trading common shares" and common shares
required to be placed in escrow or in a "pool". Free trading common shares are
not subject to any restrictions on resale, and can be traded without regulatory
approval. Free trading shares are generally qualified by way of prospectus and
issued to the public. Conversely, shares issued by way of "private placement" to
certain investors and not the public, are usually subject to a one-year hold
period and cannot be traded until the relevant hold period has expired. Once the
hold period expires, the shares would then become free trading shares. Under the
policies of the Vancouver Stock Exchange, a listed company is entitled to sell
"performance shares" to principals of the Registrant at a minimum price of $0.01
per share on its original organization, or if the company is inactive, then upon
a reverse takeover transaction or a substantial corporate reorganization,
provided that the number of performance shareholders not exceed 65% of the
issuer's shares then outstanding. The shares
<PAGE>
35
are then placed in escrow and released in accordance with certain earnings
performance criteria to be met by the Registrant. Any of these escrow shares
that are not released within 10 years of issuance are cancelled.
As of September 3, 1996, none of the Registrant's shares were held in pool,
4,150,000 of the Registrant's common shares were held in escrow, 15,614,893
shares were free-trading and 490,673 shares were subject to varying hold terms
pursuant to the policies of the Vancouver Stock Exchange.
The holders of the escrow shares are as follows:
March Technologies Inc.* 3,250,000
L.N. Family Holdings Inc.** 900,000
* All of the voting shares of March Technologies Inc. are beneficially owned
by Edward Halimi, President, Chief Executive Officer and Director of the
Registrant.
** All of the voting shares of L.N. Family Holdings Inc. are beneficially
owned by Leon E. Nowek, a Director of the Registrant.
The escrow shares described above can only be released in complance with Local
Policy Statement 3-07 of the British Columbia Securities Commission. Under this
Local Policy Statement, releases of escrow shares from escrow shall be made on
the basis of a pro-rata release of that number of escrow shares equal to:
Amount of Cumulative Cash Flow
not Previously Applied to a Release
-----------------------------------
Earn Out Price
"Cumulative Cash Flow" means at any time, the aggregate cash flow of the
Registrant up to that time from a date no earlier than the Registrants's
financial year-end and immediately preceding the date of its initial public
offering, net of any negative cash flow. "Cash Flow" means the net income or
loss of the Registrant before tax, adjusted to add the following expeneses:
(a) depreciation;
(b) amortization of goodwill and amortization of research and development,
excluding general and administrative costs;
(c) expended research and development costs, excluding general and
administrative costs;
(d) any other amounts permitted or required by the Manitoba Securities
Commission.
"Earn Out Price" means the inital public offering price multiplied by the Earn
Out Factor. "Earn Out Factor" means the number obtained by squaring the escrow
share percentage expressed as a decimal and multiplying by four. The number of
escrow shares releasable from escrow during subsequent periods will be computed
by using the Escrow Release Formula (calculated above) provided that Cumulative
Cash Flow per share shall be for the period which has not already been
<PAGE>
36
included in a previous computation which resulted in a release of a certain
number of escrow shares.
None of the Escrowed Shares will be released from escrow until all applicable
escrow terms are satisfied.
The transfer agent and registrar for the common shares of the Registrant is
Montreal Trust Company of Canada of 2nd Floor, 510 Burrard Street, Vancouver,
British Columbia, V6C 3B9.
<PAGE>
37
PART III
Item 15. Defaults Upon Senior Securities
Inapplicable
Item 16. Changes in Securities and Changes in Security for Registered Securities
Inapplicable
<PAGE>
38
PART IV
Item 17. Financial Statements
See "Item 19. Financial Statements and Exhibits" for a list of those Financial
Statements of the Registrant which follows.
Item 18. Financial Statements
Inapplicable
Item 19. Financial Statements and Exhibits
(a) INDEX TO FINANCIAL STATEMENTS
(a) Unaudited Financial Statements of the Registrant as at June 30, 1996
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of cash flows
- Consolidated Statement of Shareholders Equity
(b) Audited Financial Statements of the Registrant as at December 31,
1995, December 31, 1994 and December 31, 1993:
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of cash flows
- Consolidated Statement of Shareholders Equity
(c) Auditors Report for Pacific Baja as at December 31, 1995:
- Consolidated balance sheet as at December 31, 1994 and 1995
- Consolidated statements of income for the years ended 1993, 1994
and 1995
- Consolidated Statement of Shareholders Equity
- Consolidated Statement of cash flow for years ending 1993, 1994,
and 1995
(d) Unaudited financial statements of Pacific Baja as at June 30, 1996 and
June 30, 1995
(e) Pro Forma Consolidated Balance Sheet and Pro-Forma Consolidated
Statement of Operations for the Registrant as at June 30, 1996
(f) Consent letters of Morgan & Company and McGladrey & Pullen, LLP, in
regard to the inclusion of Independent Auditors' Reports in the
Registration Statement.
<PAGE>
39
(b) EXHIBITS
1(a) Certificate of Incorporation of Dundee Resources Corp. dated May 18,
1983.
1(b) Articles of Dundee Resources Corp.
1(c) Memorandum of Dundee Resources Corp.
1(d) Certificate of Name Change from Dundee Resources Corp. to Clear View
Ventures Inc. dated January 20, 1993.
1(e) Amended Memorandum of Clear View Ventures Inc.
1(f) Certificate of Name Change from Clear View Ventures Inc. to
Turbodyne Technologies Inc. dated April 28, 1994.
1(g) Amended Memorandum of the Registrant.
1(h) Articles of the Registrant.
1(i) Proposed Articles of Continuation of the Registrant
1(j) Proposed By-laws of the Registrant to be adopted upon Continuation
2(a) Specimen Common Share Certificate.
3(i) Employment Agreement between the Registrant and Edward M. Halimi.
3(ii) Management Agreement between the Registrant and Seeds Investment
Corporation.
3(iii) Sub-Lease between American Appliance, Inc. and Carole D. King dated
December 1, 1994 for Carpinteria Property.
3(iv) Distribution Agreement between Turbodyne Systems and Granatelli
Performance Technologies Inc.
3(v) Acquisition Agreement between the Registrant, Pacific Baja Light
Metals Holding Inc., and Lenart Renberg, Michael Joyce, Sadayappa
Durairaj Family Trust, Naresh Saxens and Mugerdish Balabanian dated
March 15, 1996 (the "Acquisition Agreement")
<PAGE>
40
3(vi) Amendment Agreement between the Registrant, Pacific Baja Light
Metals Holding Inc., and Lenart Renberg, Michael Joyce, Sadayappa
Durairaj Family Trust, Naresh Saxens and Mugerdish Balabanian dated
June 14, 1996
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
JUNE 30, 1996
-------------
(Stated in Canadian Dollars)
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 1
---------------------------
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
---------------------------
(Stated in Canadian Dollars)
June 30, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
CURRENT
Cash $ 2,399,937 $ 308,634
GST refund receivable 82,354 51,264
Advances receivable 51,134 112,514
Prepaid expenses and deposits 139,385 93,185
---------- ---------
2,672,810 565,597
CAPITAL ASSETS (Note 3) 1,239,001 524,143
DEFERRED ACQUISITION COSTS 713,291 226,842
PROJECT DEVELOPMENT COSTS 5,700,838 3,885,317
---------- ---------
$ 10,325,940 $ 5,201,899
========== =========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 434,336 251,215
Loans payable (Note 4) 5,634 223,304
Current portion of long term debt 34,232 8,593
---------- ---------
474,202 483,112
LONG TERM DEBT (Note 5) 113,647 20,010
---------- ---------
587,849 503,122
---------- ---------
<PAGE>
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6)
Authorized:
100,000,000 Common shares without par value
100,000,000 Class A preference shares with a par value of $10
100,000,000 Class B preference shares with a par value of $50
Issued and outstanding
20,218,566 Common shares (of which
4,150,000 are held in escrow) at
June 30, 1996 and 16,542,121
common shares (of which 4,150,000 shares
are held in escrow) at December 31,
1995 13,722,260 7,139,209
Add share subscriptions received
0 shares at June 30, 1996 and
129,767 shares at December 31, 1995 - 462,330
DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE (3,984,169) (2,902,762)
---------- ---------
9,738,091 4,698,777
---------- ---------
$ 10,325,940 $ 5,201,899
========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 2
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
1996 1995
---- ----
EXPENSES
Advertising and trade shows $ 26,689 $ 23,862
Bank charges, interest and exchange, net 4,401 82,260
Consulting fees 93,612 38,108
Depreciation 7,560 -
Finders' fees - 42,000
Filing and transfer fees 35,871 21,423
Fiscal agency fees 82,350 -
Investor relations 57,822 36,591
Management fees 15,000 15,000
Office rent, administration and sundry 177,041 100,391
Printing 16,549 58,834
Professional fees 186,724 132,300
Salaries and employee benefits 212,512 66,017
Telephone 24,590 18,515
Travel and business development 140,686 146,852
--------- ---------
LOSS FOR THE PERIOD (1,081,407) (782,153)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (2,902,762) (1,375,420)
--------- ---------
ACCUMULATED DEFICIT, END OF PERIOD $(3,984,169) $(2,157,573)
========= =========
LOSS PER SHARE $(0.07) $(0.09)
==== ====
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 15,689,098 8,278,646
========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 3
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
Inception
April 30,
1993 to
June 30,
1996
----
EXPENSES
Advertising and trade shows $ 120,809
Bank charges, interest and exchange, net 164,597
Consulting fees 370,494
Depreciation 14,082
Finders' fees 42,000
Filing and transfer fees 74,039
Fiscal agency fees 82,350
Investor relations 236,493
Management fees 70,000
Office rent, administration and sundry 536,066
Printing 120,035
Professional fees 527,635
Salaries and employee benefits 469,283
Telephone 73,777
Travel and business development 755,223
---------
LOSS FOR THE PERIOD $ 3,656,883
=========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 4
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(Stated in Canadian Dollars)
Number of
Shares Amount
-------- ------
Balance at date of inception, April 30, 1993 - $ -
Issuance of stock for project development costs 100 1,146,887
Net loss - -
---------- ----------
Balance December 31, 1993 100 1,146,887
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. (100) -
Turbodyne Technologies Inc. 1,078,052 -
Issuance of stock to acquire subsidiary
Common stock 1,100,000 -
Escrow performance stock 4,000,000 40,000
Issuance of common stock 4,485,000 1,629,098
Net asset deficiency of legal parent
at date of reverse take-over transaction - -
Net loss - -
---------- ----------
Balance December 31, 1994 10,663,052 2,815,985
<PAGE>
Issuance of common stock 5,879,069 4,323,224
Share subscriptions received 129,767 462,330
Net loss - -
---------- ----------
Balance December 31, 1995 16,671,888 7,601,539
Issuance of common stock 3,546,678 6,120,721
Net Loss
---------- ----------
Balance June 30, 1996 20,218,566 $ 13,722,260
========== ==========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 5
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(Stated in Canadian Dollars)
Accumulated
Deficit Total
----------- -----
Balance at date of inception, April 30, 1993 $ - $ -
Issuance of stock for project development
costs - 1,146,887
Net loss (112,142) (112,142)
--------- ---------
Balance December 31, 1993 (112,142) 1,034,745
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. - -
Turbodyne Technologies Inc. - -
Issuance of stock to acquire subsidiary
Common stock - -
Escrow performance stock - 40,000
Issuance of common stock - 1,629,098
Net asset deficiency of legal parent at
date of reverse take-over transaction (327,286) (327,286)
Net loss (935,992) (935,992)
-------- --------
Balance December 31, 1994 (1,375,420) 1,440,565
Issuance of common stock - 4,323,224
Share subscriptions received - 462,330
Net loss (1,527,342) (1,527,342)
--------- ---------
Balance December 31, 1995 (2,902,762) 4,698,777
Issuance of common stock 6,120,721
Net Loss (1,081,407) (1,081,407)
--------- ---------
Balance June 30, 1996 $(3,984,169) $ 9,738,091
========= =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 6
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
1996 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $(1,081,407) $ (782,153)
--------- ---------
ADJUSTMENTS TO RECONCILE LOSS TO NET
CASH USED BY OPERATING ACTIVITIES
Depreciation 7,560 -
Change in GST refund receivable (31,090) -
Change in advances receivable 61,380 -
Change in prepaid expense (46,200) (10,000)
Change in accounts payable 183,121 (383,596)
--------- ---------
TOTAL ADJUSTMENTS 174,771 (393,596)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (906,636) (1,175,749)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation
allocated to project development costs) (722,418) (232,103)
Project development costs (1,815,521) (803,435)
Deferred acquisition costs (486,449) -
Net asset deficiency of legal parent
transaction at date of reverse
take-over transaction - -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (3,024,388) (1,035,538)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 6,120,721 3,061,337
Change in loan payable (217,670) 182,220
Change in long term debt 119,276 -
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,022,327 3,243,557
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,091,303 1,032,270
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 308,634 -
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,399,937 $ 1,032,270
========= =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 7
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
Inception,
April 30,
1993 to,
June 30,
1996
----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $(3,656,883)
----------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Depreciation 14,082
Change in GST refund receivable (82,354)
Change in advances receivable (51,134)
Change in prepaid expense (139,385)
Change in accounts payable 434,336
----------
TOTAL ADJUSTMENTS 175,545
----------
NET CASH USED IN OPERATING ACTIVITIES (3,481,338)
----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation allocated
to project development costs) (1,253,083)
Project development costs (5,700,838)
Deferred acquisition costs (713,291)
Net asset deficiency of legal parent transaction
at date of reverse take-over transaction (327,286)
----------
NET CASH USED IN INVESTING ACTIVITIES (7,994,498)
----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 13,722,260
Change in loan payable 5,634
Change in long term debt 147,879
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,875,773
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,399,937
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -
----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,399,937
==========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 8
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of June 30, 1996 and 1995
included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with Canadian generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. It is
suggested that these financial statements be read in conjunction with the
December 31, 1995 audited consolidated financial statements and notes
thereto.
2. a) NATURE OF OPERATIONS
Development Stage Activities
The Company, through its subsidiary Turbodyne Systems, Inc., is engaged
in the development, production and sales of a device (the "Turbodyne
System") designed to eliminate turbo-lag and reduce black smoke emissions
in turbocharged engines. The Turbodyne System consists primarily of a
high speed electric motor coupled to the turbocharger at the intake by
means of a unique proprietary combination of one-way bearing or magnetic
clutches. The development and commercialization of this device is the
principal business of the Company and its subsidiary, Turbodyne Systems,
Inc.
b) SIGNIFICANT ACCOUNTING POLICIES
i) Consolidation
These financial statements include the accounts of the Company and
its wholly owned U.S. subsidiary Turbodyne Systems, Inc.
ii) Depreciation
Depreciation is calculated on a straight-line basis at the rate of
20% per annum.
iii) Deferred Acquisition Costs
The Company is deferring all direct costs incurred in connection
with the anticipated acquisition of Pacific Baja Light Metal
Holdings Inc.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 9
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
iv) Project Development Costs
The Company is deferring all engineering, design consulting and
other costs directly related to the ongoing development and
commercialization of its "Turbodyne System" to be amortized against
related revenues when production commences.
v) Leases
Leases are classified as capital or operating leases. Leases which
transfer substantially all of the benefits and risks incident to
ownership of property are accounted for as capital leases. Assets
acquired under capital leases are amortized on a straight-line
method at the rate of 20%. All other leases are accounted for as
operating leases and the related lease payments are charged to
expense as incurred.
vi) Non-Monetary Transactions
Shares of common stock of the Company issued for non-monetary
consideration are valued at the quoted market price per share at
the close of trading on the day of completion of the transaction
except for those circumstances where, in the opinion of the Company
and due to the nature of the transaction, the trading price does
not fairly represent the value of the transaction. In such
circumstances, the value of the shares is determined based on the
estimated fair value of the consideration received. To date there
has been no non-monetary transactions where the Company has
determined that the quoted market price per share is not the more
appropriate method of valuation.
vii) Statement of Cash Flows
The statement of cash flows has been prepared in accordance with
U.S. generally accepted accounting principles.
viii) Foreign Currency Translation
Transactions recorded in foreign currencies have been translated
into Canadian dollars using the Temporal Method as follows:
i) monetary items at the rate prevailing at the balance sheet
date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the average rate in effect during the
applicable accounting period.
Gains or losses arising on translation are included in the results
of operations.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 10
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
ix) Cash Equivalents
The Company considers all highly liquid financial instruments purchased
with an original maturity of three months or less to be cash equivalents.
x) Income Taxes
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" (SFAS 109). This standard
requires the use of an asst an liability approach for financial accounting and
reporting on income taxes. It is more likely than not that some portion of all
of a deferred tax asset will not be realized, a valuation allowance is
recognized.
xi) Loss Per Share
Loss per share is based on the weighted average number of common shares
outstanding during the year. Since the Company's stock options, warrants and
escrow shares are anti-dilutive, they have not been included in the
calculation. There were no stock options, warrants or escrow shares
outstanding prior to the December 31, 1994 fiscal year.
xii) Basis of Presentation
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada. Had they been prepared in accordance
with accounting principles generally accepted in the United States, the
following differences in the measurement of income, results of operations
and shareholders' equity would have resulted:
a) The $1,146,887 value attributed to the 100 shares of Turbodyne
Systems, Inc., issued in consideration of the accumulated time and out-of-
pocket expenditures incurred in the development of the "Turbodyne System" prior
to its acquisition by Turbodyne Systems, Inc. would have been charged to
shareholders' equity, not capitalized as project development costs.
b) Ongoing project development costs would have been charged to
expense as incurred not capitalized on the balance sheet.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
As such, these financial statements would be changed as follows:
Consolidated Statement of Operations and Deficit:
1996 1995
---- ----
Loss for the period shown on the
financial statements $ (1,081,407) $ (782,153)
Increase in loss resulting from
charging project development
costs to expense (1,815,521) (803,435)
---------- --------
Loss according to generally
accepted accounting principles
in the U.S. (2,896,928) (1,585,585)
Accumulated deficit, beginning
of period (6,788,079) (3,194,780)
---------- ---------
Accumulated deficit end of period
according to generally accepted
accounting principles
in the U.S. $ (9,685,007) $(4,780,365)
========== =========
Loss per share - U.S. GAAP $(0.19) $(0.19)
==== ====
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 12
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
June 30, December 31,
1996 1995
---- ----
Consolidated Balance Sheet:
Project development costs as shown
on the balance sheet $ 5,700,838 $ 3,885,317
Change as a result of (a) above
Reverse capitalization of project
development costs acquired for shares (1,146,887) (1,146,887)
Change as a result of (b) above
Reverse capitalization of ongoing project
development costs (4,553,951) (2,738,430)
---------- ---------
Project development costs according to
generally accepted accounting principles
in the U.S. $ - $ -
========== =========
Accumulated deficit as shown on the balance
sheet $(3,984,169) $(2,902,762)
Change as a result of (a) above
Charge value attributed to project
development costs acquired for shares
to shareholders' equity (1,146,887) (1,146,887)
Change as a result of (b) above
Charge ongoing project development costs
to expense (4,553,951) (2,738,430)
Accumulated deficit according to generally
accepted accounting principles in the U.S. $ (9,685,007) $(6,788,079)
========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 13
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
NUMBER
OF SHARES AMOUNT
--------- ------
Balance June 30, 1996 as shown on the
consolidated financial statements 20,218,566 $13,722,260
Project development costs acquired for shares - -
Increase in net loss due to charging
ongoing project development costs to expense - -
Balance June 30, 1996, according to
generally accepted accounting principles
in the U.S. $ 20,218,566 $ 13,722,260
========== ==========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 14
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
ACCUMULATED
DEFICIT TOTAL
------- -----
Balance June 30, 1996 as shown on the
consolidated financial statements $ (3,984,169) $ 9,738,091
Project development costs acquired for shares (1,146,887) (1,146,887)
Increase in net loss due to charging
ongoing project development costs to expense
(4,553,951) (4,553,951)
----------- -----------
Balance June 30, 1996, according to
generally accepted accounting principles
in the U.S. $ (9,685,007) $ 4,037,253
=========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 15
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
3. CAPITAL ASSETS
June 30, December 31,
1996 1995
-------- -----------
Net Book Net Book
Value Value
-------- ----------
Office equipment $ 172,202 $ 123,883
Machinery 424,205 210,754
Leasehold improvements 124,858 106,090
Automobiles 156,764 83,416
Machinery under construction 222,831 -
--------- -------
1,100,860 524,143
Assets Under Capital Lease:
Machinery 85,531 -
Automobiles 52,610 -
--------- -------
$ 1,239,001 $ 524,143
========= =======
The Company was committed to purchase tooling machinery at June 30, 1996 of
$442,460.
4. LOANS PAYABLE
June 30, December 31,
1996 1995
---- ----
a) Promissory note, repayable at
$517 per month, including interest
at 10% per annum. $ 5,634 $ 11,279
b) Short term interest free loan,
secured by the personal guarantee
of two of the Company's director.
As additional consideration for
the loan, the Company issued 233,333
shares at a deemed value of $0.36
per share and agreed to pay a royalty
of $5 U.S. on each Turbodyne unit sold
to a maximum of $1,000,000 U.S. A
finder's fee of 116,667 common shares at
a deemed value of $0.36 per share was
issued in connection with the loan. - 212,025
----- -------
$ 5,634 $ 223,304
===== =======
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 16
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
5. LONG TERM DEBT
June 30, December 31,
1996 1995
---- ----
Bank term loan
Repayable at $720 per month, including
interest at 11% per annum, due
October 11, 1998, secured by an
automobile. $ 24,172 $ 28,603
Capital lease obligations 123,707 -
------- ------
147,879 28,603
Less: current portion 34,232 8,593
------- ------
$ 113,647 $ 20,010
======= ======
The Company leases machine tooling equipment and an automobile under the
terms of a capital lease. The following is a schedule of future minimum
lease payments over the life of the lease:
1997 39,642
1998 48,667
1999 29,790
2000 32,272
-------
150,371
Less amount representing interest
ranging from 9.3% to 11.0% 26,664
-------
Balance of obligation $ 123,707
=======
6. SHARE CAPITAL
a) Of the Company's issued and outstanding shares 4,150,000 are held in
escrow to be released in accordance with a formula based on
cumulative cash flow of the Company. When these shares are released
from escrow, compensation expense will be recognized for shares
issued to those shareholders who have held or then hold positions that
could affect the financial results of the Company including
employees, officers, directors and others.
b) As at June 30, 1996 the Company had 490,673 outstanding share
purchase warrants.
The exercise prices and expiry dates range from $3.89 to $8.06 and
October 16, 1996 to March 21, 1997, respectively.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 17
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
6. SHARE CAPITAL (Continued)
c) In accordance with the policy of the Vancouver Stock Exchange, all
incentive stock options are granted at fair market value. As at
June 30, 1996 the Company had 1,937,500 outstanding incentive stock
options to directors and employees.
The exercised prices and expiry dates range from $1.65 to $11.70 and
April 20, 1997 to May 22, 1998, respectively. Subsequent to June 30,
1996, 37,000 incentive stock options were exercised for consideration
totalling $99,410.
d) On July 2, 1996 the Company closed into escrow, brokered private
placements of 3,750,000 Series A special warrants at a price of $5.00
per special warrant and 155,000 Series B special warrants at a price
of $12.00 per special warrant for gross proceeds of $20,610,000. All
of the proceeds are held in escrow by the Company's transfer agent
Montreal Trust Company pending expiry of retraction rights which may
arise based on the agent's final due diligence reviews by August 16,
1996 or in the event that the Company's acquisition of Pacific Baja
Light Metal Holdings, Inc. does not close within 120 days of July 2,
1996.
Commissions to the brokers will be 10% of the gross proceeds and the
brokers may elect to receive the commission in cash or special
warrants.
Each special warrant can be exercised into one unit of the Company
for no additional consideration. Each unit will consist of one
common share and one-half non-transferable share purchase warrant.
Each whole non-transferable Series A and Series B share purchase
warrants will entitle the holder to purchase one common share at
$5.50 and $13.00 respectively for a period of one year.
The Company has agreed to use its best efforts to file and obtain a
receipt for a final prospectus qualifying the distribution of the
Series A and Series B units on the exercise of the Series A and B
special warrants, within 90 days from July 2, 1996. In the event
that the prospectus is not receipted in the 90 day period, then the
Series A and B units will consist of one common share and one whole
transferable warrant.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 18
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
7. COMMITMENTS
a) Subject to final due diligence requirements and regulatory approvals,
the Company has entered into an acquisition agreement with the
shareholders of Pacific Baja Light Metals Holdings Inc. ("Baja") for
the acquisition of 100% of the issued and outstanding shares of Baja.
Under the terms of the agreement, the Company will pay $12,000,670
U.S. cash and $18,000,000 U.S. by way of issuance to the shareholders
of Baja 3,076,923 common shares at a deemed price of $5.85 U.S.
(approximately $8.00 Cdn.) per share.
b) The Company has entered into a Fiscal Agency Agreement with Pecunia
GmbH as its exclusive European agent. The Fiscal Agency Agreement is
for a term expiring on the earlier of 30 days, following the closing
of the Company's acquisition of Baja Pacific Light Metal Holdings Inc.
or March 31, 1996. The Company is committed to pay the agent a fee of
$10,000 U.S. per month commencing November 1, 1995. During the
period, the Company has exercised its option to extend the Fiscal
Agency Agreement by an additional 12 months, to March 31, 1997.
c) The Company's subsidiary has entered into contractual commitments for
assistance in management development, international marketing,
licensing and financing, technical and educational services.
The commitment under these contracts for the next five years is as
follows:
1997 $ 325,996
1998 $ 240,064
1999 $ 163,680
2000 $ 163,680
2001 $ 163,680
The management training agreement is payable at $10,000 U.S. per month
and continues indefinitely until either party terminates the agreement
in writing with three months advance notice. Subject to regulatory
approval, the Company is to grant additional consideration of 200,000
common shares as part of the management training agreement.
d) The Company's subsidiary has entered into an agreement to lease
additional office premises in Encinitas, California, U.S.A. until May,
2000. The annual rent of the premise consists of a minimum rent plus
realty taxes and utilities. Minimum rent payable for the premise for
each of the next four years is as follows:
1997 $ 36,150
1998 $ 37,780
1999 $ 39,420
2000 $ 37,510
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 19
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
7. COMMITMENTS (Continued)
The Company's head office and factory premises are rented on a month to
month basis.
e) As part of the consideration for short term financing during 1994, the
Company has a commitment to pay a royalty of $1 U.S. on each Turbodyne
unit sold, to a maximum of $500,000 U.S.
8. RELATED PARTY TRANSACTIONS
a) During the period the Company made payments to related parties as
follows:
1996 1995
---- ----
Project Management Fees $ 40,800 $ 41,316
====== ======
Consulting Fees $ 68,386 $ -
====== ======
Management Fees $ 15,000 $ 15,000
====== ======
Rent and Administrative Services $ 38,000 $ 15,000
====== ======
b) As at June 30, 1996 accounts payable and accrued liabilities in the
amount of $13,495 (December 31, 1995 - $Nil) were owed to related
parties.
c) As at June 30, 1996, advances receivable from a director in the amount
of $51,134 (December 31, 1995 - $112,514) were interest free and
payable on demand.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
<PAGE>
----------------------------------------
MORGAN & COMPANY
----------------------------------------
Chartered Accountants
----------------------------------------
P.O. Box 10007, Pacific Centre
Suite 1730 - 700 West Georgia Street
Vancouver, B.C. V7Y 1A1
Telephone (604) 687-5841
Fax (604) 687-0075
----------------------------------------
AUDITORS' REPORT
To the Shareholders
Turbodyne Technologies Inc.
(formerly Clear View Ventures Inc.)
We have audited the consolidated balance sheets of Turbodyne Technologies Inc.
(formerly Clear View Ventures Inc.) (A Development Stage Company) as at December
31, 1995 and 1994 and the consolidated statements of operations and deficit,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994 and the period ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1995
and 1994 and the results of its operations and its cash flows for the years
ended December 31, 1995 and 1994 and the period ended December 31, 1993 in
accordance with Canadian generally accepted accounting principles. As required
by the British Columbia Company Act, we report that, in our opinion, these
principles have been applied on a consistent basis.
Vancouver, Canada
/s/ Morgan & Company
April 26, 1996 Chartered Accountants
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(Stated in Canadian Dollars)
1995 1994
---- ----
ASSETS
CURRENT
Cash $ 308,634 $ --
GST refund receivable 51,264 --
Advances receivable 112,514 --
Prepaid expense 93,185 31,541
---------- ----------
565,597 31,541
CAPITAL ASSETS (Note 3) 524,143 48,115
DEFERRED ACQUISITION COSTS 226,842 --
PROJECT DEVELOPMENT COSTS 3,885,317 1,819,360
---------- ----------
$5,201,899 $1,899,016
========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 251,215 413,451
Loans payable (Note 4) 223,304 45,000
Current portion of long term debt 8,593 --
---------- ----------
483,112 458,451
LONG TERM DEBT (Note 5) 20,010 --
---------- ----------
503,122 458,451
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6)
Authorized:
100,000,000 Common shares without par value
100,000,000 Class A preference shares with a par value of $10
100,000,000 Class B preference shares with a par value of $50
Issued and outstanding
16,542,121 Common shares (of which
4,150,000 are held in escrow) at
December 31, 1995 and 10,663,052
common shares (of which 4,150,000
shares are held in escrow) at December 31,
1994 7,139,209 2,815,985
Add share subscriptions received
(Note 6(e)) 129,767 common shares at
December 31, 1995 and 0 at
December 31, 1994 462,330 --
DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE (2,902,762) (1,375,420)
---------- ----------
4,698,777 1,440,565
---------- ----------
$5,201,899 $1,899,016
========== ==========
Approved by the Board of Directors:
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in Canadian Dollars)
Year Ended Year Ended
December 31, December 31,
1995 1994
---- ----
EXPENSES
Advertising and trade shows $ 40,716 $ 49,115
Bank charges, interest and exchange 115,315 40,877
Consulting fees 163,051 111,356
Depreciation 5,822 700
Finders' fees 42,000 --
Filing and transfer fees 30,362 7,806
Investor relations 103,312 75,359
Management fees 30,000 25,000
Office rent, administration and sundry 187,284 148,247
Printing 103,486 --
Professional fees 194,089 136,782
Salaries and employee
benefits 127,652 86,465
Telephone 42,549 5,272
Travel and business development 336,811 245,297
Vehicle 4,893 3,716
----------- -----------
LOSS FOR THE YEAR (1,527,342) (935,992)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (1,375,420) (112,142)
----------- -----------
(2,902,762) (1,048,134)
NET ASSET DEFICIENCY OF LEGAL PARENT AT DATE OF
REVERSE TAKE-OVER TRANSACTION -- (327,286)
----------- -----------
ACCUMULATED DEFICIT, END OF PERIOD $(2,902,762) $(1,375,420)
=========== ===========
LOSS PER SHARE $ (0.16) $ (0.18)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,805,870 5,106,385
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in Canadian Dollars)
Period from
Date of Inception,
Incorporation, April 30,
April 30, 1993 1993 to,
to December 31, December 31,
1993 1995
---- ----
EXPENSES
Advertising and trade shows $ 4,289 $ 94,120
Bank charges, interest and exchange 4,004 160,196
Consulting fees 2,475 276,882
Depreciation -- 6,522
Finders' fees -- 42,000
Filing and transfer fees -- 38,168
Investor relations -- 178,671
Management fees -- 55,000
Office rent, administration and sundry 23,494 359,025
Printing -- 103,486
Professional fees 10,040 340,911
Salaries and employee benefits 42,654 256,771
Telephone 1,366 49,187
Travel and business development 23,820 605,928
Vehicle -- 8,609
----------- -----------
LOSS FOR THE YEAR (112,142) $(2,575,476)
===========
ACCUMULATED DEFICIT, BEGINNING OF PERIOD --
-----------
(112,142)
NET ASSET DEFICIENCY OF LEGAL PARENT AT DATE OF
REVERSE TAKE-OVER TRANSACTION --
ACCUMULATED DEFICIT, END OF PERIOD $ (112,142)
===========
LOSS PER SHARE $ (0.06)
===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,028,052
===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in Canadian Dollars)
Number of
Shares Amount
------ ------
Balance at date of inception, April 30, 1993 -- $ --
Issuance of stock for project development costs 100 1,146,887
Net loss -- --
----------- -----------
Balance December 31, 1993 100 1,146,887
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. (100) --
Turbodyne Technologies Inc. 1,078,052 --
Issuance of stock to acquire subsidiary
Common stock 1,100,000 --
Escrow performance stock 4,000,000 40,000
Issuance of common stock 4,485,000 1,629,098
Net asset deficiency of legal parent at
date of reverse take-over transaction -- --
Net loss -- --
----------- -----------
Balance December 31, 1994 10,663,052 2,815,985
Issuance of common stock 5,879,069 4,323,224
Share subscriptions received 129,767 462,330
Net loss -- --
----------- -----------
Balance December 31, 1995 16,671,888 $ 7,601,539
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in Canadian Dollars)
Accumulated
Deficit Total
------- -----
Balance at date of inception, April 30, 1993 $ -- $ --
Issuance of stock for project development
costs -- 146,887
Net loss (112,142) (112,142)
----------- -----------
Balance December 31, 1993 (112,142) 1,034,745
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. -- --
Turbodyne Technologies Inc. -- --
Issuance of stock to acquire subsidiary
Common stock -- --
Escrow performance stock -- 40,000
Issuance of common stock -- 1,629,098
Net asset deficiency of legal parent at date
of reverse take-over transaction (327,286) (327,286)
Net loss (935,992) (935,992)
----------- -----------
Balance December 31, 1994 (1,375,420) 1,440,565
Issuance of common stock -- 4,323,224
Share subscriptions received -- 462,330
Net loss (1,527,342) (1,527,342)
----------- -----------
Balance December 31, 1995 $(2,902,762) $ 4,698,777
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in Canadian Dollars)
Year Ended Year Ended
December 31, December 31,
1995 1994
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $(1,527,342) $ (935,992)
----------- -----------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Depreciation 5,822 700
Change in GST refund receivable (51,264) --
Change in advances receivable (112,514) --
Change in prepaid expense (61,644) (31,541)
Change in accounts payable (162,236) 77,318
----------- -----------
TOTAL ADJUSTMENTS (381,836) 46,477
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,909,178) (889,515
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation
allocated to project development costs) (481,850) (4,315)
Project development costs (2,065,957) (492,982)
Deferred acquisition costs (226,842) --
Net asset deficiency of legal parent
at date of reverse take-over transaction -- (327,286)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,774,649) (824,583)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 4,323,224 1,669,098
Share subscriptions received 462,330 --
Change in loan payable 178,304 45,000
Change in long term debt 28,603 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,992,461 1,714,098
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 308,634 --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 308,634 $ --
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in Canadian Dollars)
Period from
Date of Inception,
Incorporation, April 30,
April 30, 1993 1993 to,
to December 31, December 31,
1993 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $ (112,142) $(2,575,476)
----------- -----------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Depreciation -- 6,522
Change in GST refund
receivable -- (51,264)
Change in advances
receivable -- (112,514)
Change in prepaid expense -- (93,185)
Change in accounts payable 336,133 251,215
----------- -----------
TOTAL ADJUSTMENTS 336,133 774
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 223,991 (2,574,702)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation
allocated to project development costs) (44,500) (530,665)
Project development costs (1,326,378) (3,885,317)
Deferred acquisition costs -- (226,842)
Net asset deficiency of legal parent
at date of reverse take-over transaction -- (327,286)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,370,878) (4,970,110)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 1,146,887 7,139,209
Share subscriptions received -- 462,330
Change in loan payable -- 223,304
Change in long term debt -- 28,603
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,146,887 7,853,446
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS -- 308,634
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 308,634
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Stated in Canadian Dollars)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Period from
Date of Inception
Incorporation April 30,
Year Ended Year Ended April 30, 1993 1993 to,
December 31, December 31, to December 31, December 31,
1995 1994 1993 1995
---- ---- ---- ----
Interest $ 84,000 $ 8,917 $ 2,110 $ 95,027
====== ===== ===== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Effective March 8, 1994, Turbodyne Technologies Inc. acquired 100% of the
issued and outstanding shares of Turbodyne Systems, Inc. by issuing
5,100,000 common shares.
During the year ended December 31, 1994, the Company paid a loan bonus in
the amount of $20,000 by issuing 25,000 common shares.
During the year ended December 31, 1995 the Company made loan bonus
payments totalling $94,000 by issuing 258,333 common shares, paid a
finder's fee of $42,000 by issuing 116,667 common shares and settled debts
totalling $157,006 by issuing 301,933 common shares.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
1. a) NATURE OF OPERATIONS
Development Stage Activities
The Company, through its subsidiary Turbodyne Systems, Inc., is
engaged in the development, production and sales of a device (the
"Turbodyne System") designed to eliminate turbo-lag and reduce black
smoke emissions in turbocharged engines. The Turbodyne System consists
primarily of a high speed electric motor coupled to the turbocharger
at the intake by means of a unique proprietary combination of one-way
bearing or magnetic clutches. The development and commercialization of
this device is the principal business of the Company and its
subsidiary, Turbodyne Systems, Inc.
b) SIGNIFICANT ACCOUNTING POLICIES
i) Consolidation
These financial statements include the accounts of the Company
and its wholly owned U.S. subsidiary Turbodyne Systems, Inc.
ii) Depreciation
Depreciation is calculated on a straight-line basis at the rate
of 20% per annum.
iii) Deferred Acquisition Costs
The Company is deferring all direct costs incurred in connection
with the anticipated acquisition of Pacific Baja Light Metal
Holdings Inc. (Note 10(a)).
iv) Project Development Costs
The Company is deferring all engineering, design consulting and
other costs directly related to the ongoing development and
commercialization of its "Turbodyne System" to be amortized
against related revenues when production commences.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
v) Non-Monetary Transactions
Shares of common stock of the Company issued for non-monetary
consideration are valued at the quoted market price per share at
the close of trading on the day of completion of the transaction
except for those circumstances where, in the opinion of the
Company and due to the nature of the transaction, the trading
price does not fairly represent the value of the transaction. In
such circumstances, the value of the shares is determined based
on the estimated fair value of the consideration received.
To date there have been no non-monetary transactions where the
Company has determined that the quoted market price per share
is not the more appropriate method of valuation.
vi) Statement of Cash Flows
The statement of cash flows has been prepared in accordance
with U.S. generally accepted accounting principles.
vii) Foreign Currency Translation
Transactions recorded in foreign currencies have been translated
into Canadian dollars using the Temporal Method as follows:
i) monetary items at the rate prevailing at the balance sheet
date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the average rate in effect during the
applicable accounting period.
Gains or losses arising on translation are included in the
results of operations.
viii) Cash Equivalents
The Company considers all highly liquid financial instruments
purchased with an original maturity of three months or less to be
cash equivalents.
ix) Income Taxes
During 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 - "Accounting for Income Taxes"(SFAS
109). This standard requires the use of an asst and liability
approach for financial accounting and reporting on income taxes.
It is more likely than not that some portion of all of a deferred
tax asset will not be realized, a valuation allowance is
recognized.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
x) Loss Per Share
Loss per share is based on the weighted average number of common
shares outstanding during the year. Since the Company's stock
options, warrants and escrow shares are anti-dilutive, they have
not been included in the calculation. There were no stock
options, warrants or escrow shares outstanding prior to the
December 31, 1994 fiscal year.
xi) Basis of Presentation
These financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Had they been
prepared in accordance with accounting principles generally
accepted in the United States, the following differences in the
measurement of income, results of operations and shareholders'
equity would have resulted:
a) The $1,146,887 value attributed to the 100 shares of
Turbodyne Systems, Inc., issued in consideration of the
accumulated time and out-of-pocket expenditures incurred in
the development of the "Turbodyne System" prior to its
acquisition by Turbodyne Systems, Inc. would have been
charged to shareholders' equity, not capitalized as project
development costs.
b) Ongoing project development costs would have been charged to
expense as incurred not capitalized on the balance sheet.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
As such, these financial statements would be changed as follows:
Consolidated Statement of Operations and Deficit:
1995 1994
---- ----
Loss for the period shown on the
financial statements $(1,527,342) $ (935,992)
Increase in loss resulting from
charging project development
costs to expense (2,065,957) (492,982)
----------- -----------
Loss according to generally
accepted accounting principles
in the U.S. (3,593,299) (1,428,974)
Accumulated deficit, beginning
of period (3,194,780) (1,438,520)
----------- -----------
(6,788,079) (2,867,494)
Attributed value of project
development costs acquired
for shares -- --
Net asset deficiency of legal
parent at date of reverse
take-over transaction -- (327,286)
----------- -----------
Accumulated deficit end of year
according to generally accepted
accounting principles
in the U.S. $(6,788,079) $(3,194,780)
=========== ===========
Loss per share - U.S. GAAP $ (0.37) $ (0.28)
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
As such, these financial statements would be changed as follows:
Consolidated Statement of Operations and Deficit:
1993
----
Loss for the period shown on the
financial statements $ (112,142)
Increase in loss resulting from
charging project development
costs to expense (179,491)
-----------
Loss according to generally
accepted accounting principles
in the U.S. (291,633)
Accumulated deficit, beginning
of period --
-----------
(291,633)
Attributed value of project
development costs acquired
for shares (1,146,887)
Net asset deficiency of legal
parent at date of reverse
take-over transaction --
-----------
Accumulated deficit end of year
according to generally accepted
accounting principles
in the U.S. $(1,438,520)
===========
Loss per share - U.S. GAAP $ (0.14)
===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
1995 1994
---- ----
Consolidated Balance Sheet:
Project development costs as shown
on the balance sheet $ 3,885,317 $ 1,819,360
Change as a result of (a) above
Reverse capitalization of project
development costs acquired for shares (1,146,887) (1,146,887)
Change as a result of (b) above
Reverse capitalization of ongoing project
development costs (2,738,430) (672,473)
----------- -----------
Project development costs according to
generally accepted accounting principles
in the U.S. $ -- $ --
=========== ===========
Accumulated deficit as shown on the balance
sheet $(2,902,762) $(1,375,420)
Change as a result of (a) above
Charge value attributed to project
development costs acquired for shares
to shareholders' equity (1,146,887) (1,146,887)
Change as a result of (b) above
Charge ongoing project development costs
to expense (2,738,430) (672,473)
Accumulated deficit according to generally
accepted accounting principles in the U.S. $(6,788,079) $(3,194,780)
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
NUMBER
OF SHARES AMOUNT
--------- ------
Balance December 31, 1995 as shown on the
consolidated financial statements 16,671,888 $ 7,601,539
----------- -----------
Balance December 31,
1995, according to
generally accepted
account principles
in the U.S. $16,671,888 $ 7,601,539
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
ACCUMULATED
DEFICIT TOTAL
------- -----
Balance December 31, 1995 as shown on the
consolidated financial statements $(2,902,762) $ 4,698,777
Project development costs acquired
for shares (1,146,887) (1,146,887)
Increase in net loss due to charging
ongoing project development costs to
expense (2,738,430) (2,738,430)
------------ ------------
Balance December 31, 1995, according to
generally accepted accounting
principles in the U.S. $(6,788,079) $ (813,460)
============ ============
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
2. ACQUISITION OF SUBSIDIARY
Effective March 8, 1994 Turbodyne Technologies Inc. acquired 100% of the
issued and outstanding shares of Turbodyne Systems Inc. by issuing
5,100,000 common shares. Since the transaction resulted in the former
shareholders of Turbodyne Systems Inc. owning the majority of the issued
shares of Turbodyne Technologies Inc., the transaction, which is referred
to as a "reverse take-over" has been treated for accounting purposes as an
acquisition by Turbodyne Systems Inc. of the net assets and liabilities of
Turbodyne Technologies Inc. Under this purchase method of accounting the
results of operations of Turbodyne Technologies Inc. are included in these
financial statements from March 8, 1994.
Turbodyne Technologies Inc. had a net asset deficiency at the acquisition
date therefore 1,100,000 of the 5,100,000 shares issued on acquisition were
issued at an ascribed value of $Nil with the net asset deficiency of
$327,286 charged to deficit. The balance of the shares, subject to
performance and escrow provisions were issued for cash consideration of
$40,000. Turbodyne Systems Inc. is deemed to be the purchaser for
accounting purposes. Accordingly, its net assets are included in the
balance sheet at their previously recorded values.
The acquisition is summarized as follows:
Current assets $ 301,319
Capital assets 1,747 $ 303,066
-----------
Current liabilities 300,352
Share subscriptions received 330,000 630,352
----------- -----------
Net asset deficiency $ (327,286)
3. CAPITAL ASSETS
1995 1994
--------- --------
Net Book Net Book
Value Value
--------- --------
Office equipment $ 123,883 $ 28,138
Machinery 210,754 19,977
Leasehold improvements 106,090 --
Automobiles 83,416 --
--------- --------
$ 524,143 $ 48,115
========= ========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
4. LOANS PAYABLE
1995 1994
----------- -----------
a) Short term interest free loan,
secured by the personal guarantee
of two of the Company's director
As additional consideration for
the loan, the Company issued 233,333
shares at a deemed value of $0.36
per share and agreed to pay a royalty
of $5 U.S. on each Turbodyne unit sold
to a maximum of $1,000,000 U.S. A
finder's fee of 116,667 common shares at
a deemed value of $0.36 per share was
issued in connection with the loan $ 212,025 $ --
b) Promissory note payable repayable at
$517 per month, including interest
at 10% per annum 11,279 --
c) Short term interest free loan. As
additional consideration for the loan,
the Company issued 25,000 shares at a
deemed value of $0.40 per share and
agreed to pay a royalty of $1 U.S. on
each Turbodyne unit sold, to a maximum
of $500,000 U.S. -- 45,000
----------- -----------
$ 223,304 $ 45,000
=========== ===========
5. LONG TERM DEBT
1995 1994
----------- -----------
Bank term loan
Repayable at $720 per month, including
interest at 11% per annum, due
October 11, 1998, secured by an
automobile $ 28,603 $ --
Less: current portion 8,593 --
----------- -----------
$ 20,010 $ --
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
6. SHARE CAPITAL
a) Of the Company's issued and outstanding shares 4,150,000 are held in
escrow to be released in accordance with a formula based on cumulative
cash flow of the Company. When these shares are released from escrow,
compensation expense will be recognized for shares issued to those
shareholders who have held or then hold positions that could affect
the financial results of the Company including employees, officers,
directors and others.
b) As at December 31, 1995 the Company had 2,710,790 outstanding share
purchase warrants.
The exercise prices and expiry dates range from $0.60 to $4.27 and
February 10, 1996 to November 24, 1996, respectively. Subsequent to
the year end, 2,282,153 share purchase warrants were exercised for
consideration totalling $1,627,825.
c) In accordance with the policy of the Vancouver Stock Exchange, all
incentive stock options are granted at fair market value.
As at December 31, 1995 the Company had 1,621,500 outstanding
incentive stock options to directors and employees as follows:
The exercise prices and expiry dates range from $0.55 to $4.75 and
September 22, 1996 to December 20, 1997, respectively. Subsequent to
the year end, 545,500 incentive stock options were exercised for
consideration totalling $1,666,325.
d) Subject to regulatory approval, the Company has negotiated a brokered
private placement of up to 3,750,000 special warrants at a price of
$5.00 per special warrant, for gross proceeds of $18,750,000. Each
special warrant can be exercised into one unit of the Company for no
additional consideration. Each unit will consist of one common share
and one-half non-transferable share purchase warrant. Each whole
non-transferable share purchase warrant will entitle the holder to
purchase one common share at $5.50 for a period of one year.
Commissions to the broker will be 10% of the gross proceeds and the
broker may elect to receive the commission in cash or special
warrants.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
6. SHARE CAPITAL (Continued)
e) The Company has arranged private placements totalling 129,767 units
for total consideration of $513,700 less finders' fees of $51,370. The
exercise price of the units range from $3.70 to $4.35 per unit. The
exercise price of the warrants range from $3.80 to $4.45 per warrant.
Each unit consists of one share and one non-transferable share
purchase warrant for the purchase of an additional share for a period
of one year. The expiry dates of the warrants range from October 25,
1996 to December 18, 1996.
Subsequent to December 31, 1995, the Company has issued 129,767 units
pursuant to these private placement agreements.
7. INCOME TAXES
At December 31, 1995, the Company and its subsidiary have approximately
$6,636,000 in net operating loss carryforwards available to offset future
taxable income. These carryforwards, if unused, will expire from 2001 to
2010. Due to net losses the Company did not record a provision for income
taxes in 1995, 1994 or 1993.
8. COMMITMENTS
a) During the year, the Company entered into a Fiscal Agency Agreement
with Pecunia GmbH as its exclusive European agent. The Fiscal Agency
Agreement is for a term expiring on the earlier of 30 days, following
the closing of the Company's acquisition of Baja Pacific Light Metal
Holdings Inc. or March 31, 1996. The Company is committed to pay the
agent a fee of $10,000 U.S. per month commencing November 1, 1995.
b) During the year, the Company's subsidiary entered into a consultant
agreement for assistance in international marketing, licensing and
financing. The consultant agreement is for a term of three years,
payable at $7,000 U.S. per month, commencing March 1, 1995.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
9. RELATED PARTY TRANSACTIONS
a) During the year the Company made payments to related parties as
follows:
1995 1994
---- ----
Project Management Fees $ 80,253 $ 93,455
======== ========
Consulting Fees $ - $ 34,529
======== ========
Management Fees $ 30,000 $ 25,000
======== ========
Rent and Administrative Services $ 30,000 $ 68,924
======== ========
b) As at December 31, 1995 accounts payable and accrued liabilities in
the amount of $Nil (1994 - $72,082) were owed to related parties.
c) As at December 31, 1995, advances receivable from a director in the
amount of $112,514 (1994 - $Nil) were interest free and payable on
demand.
10. SUBSEQUENT EVENTS
a) Subject to due diligence requirements, regulatory and shareholder
approvals, the Company has entered into an acquisition agreement with
the shareholders of Pacific Baja Light Metals Holdings Inc. ("Baja")
for the acquisition of 100% of the issued and outstanding shares of
Baja. Under the terms of the agreement, the Company will pay
$12,000,670 U.S. cash and $18,000,000 U.S. by way of issuance to the
shareholders of Baja 3,076,923 common shares at a deemed price of
$5.85 U.S. (approximately $8.00 Cdn.) per share.
b) Subject to regulatory approval, the Company has negotiated a brokered
private placement of up to 500,000 special warrants at a price of
$12.00 per special warrant, for gross proceeds of $6,000,000. Each
special warrant can be exercised into one unit of the Company for no
additional consideration. Each unit will consist of one common share
and one-half non-transferable share purchase warrant. Each whole
non-transferable share purchase warrant will entitle the holder to
purchase one common share at $13.00 for a period of one year.
Commissions to the broker will be 10% of the gross proceeds and the
broker may elect to receive the commission in cash or special
warrants.
c) Subject to regulatory approval, the Company has granted incentive
stock options to directors and employees for the purchase of up to
550,000 shares at $7.13 per share to February 27, 1998.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
10. SUBSEQUENT EVENTS (Continued)
d) Subsequent to December 31, 1995, the Company has arranged, subject to
regulatory approval, private placements totalling 306,397 units for
total consideration of $1,838,000 less finders' fees of $183,800. The
exercise price of the units range from $3.70 to $4.35 per unit. The
exercise price of the warrants range from $3.80 to $4.45 per warrant.
Each unit consists of one share and one non-transferable share
purchase warrant for the purchase of an additional share for a period
of one year.
The expiry dates of the warrants range from January 2, 1997 to March
21, 1997.
<PAGE>
PACIFIC BAJA LIGHT METALS
HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
CONTENTS
Page
- ------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS 1
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3
Consolidated statements of stockholders' equity 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6-15
- ------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENT SCHEDULE 16
- ------------------------------------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and qualifying
accounts - allowance for doubtful accounts 17
- ------------------------------------------------------------------------------
<PAGE>
[LOGO]
MCGLADREY & PULLEN, LLP
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS
To the Board of Directors
Pacific Baja Light Metals Holding, Inc.
Santa Fe Springs, California
We have audited the accompanying consolidated balance sheets of Pacific Baja
Light Metals Holding, Inc. and Subsidiaries as of December 31, 1995 and 1994 ,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pacific Baja Light
Metals Holding, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995, 1994 and 1993 in conformity with generally accepted accounting
principles.
As described in No. 14 to the consolidated financial statements, the Company
changed its method of accounting for "free" rent and for recording the benefits
realized for net operating loss carryforwards arising prior to the date of the
quasi-reorganization.
/s/ McGladrey & Pullen, LLP
Anaheim, California
May 15, 1996
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 279,000 $ 39,000
Accounts receivable, less allowance for doubtful
accounts
of $97,000 in 1995 and $30,000 in 1994 (Notes 4 and 9) 4,358,000 3,333,000
Inventories (Notes 2 and 4) 3,080,000 2,526,000
Prepaid expenses 201,000 464,000
Deferred tax asset (Note 6) 193,000 357,000
----------------------------
TOTAL CURRENT ASSETS 8,111,000 6,719,000
Property, Plant and Equipment, net (Notes 3 and 4) 7,978,000 5,466,000
Other Assets 29,000 28,000
----------------------------
$ 16,118,000 $ 12,213,000
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------
Current Liabilities
Notes payable (Note 4) $ 3,480,000 $ 2,218,000
Current maturities of long-term debt (Note 4) 762,000 462,000
Accounts payable 3,619,000 2,942,000
Accrued Compensation 610,000 565,000
Accrued Other 659,000 189,000
----------------------------
TOTAL CURRENT LIABILITIES 9,130,000 6,376,000
----------------------------
Long-Term Debt, less current maturities (Note 4) 1,161,000 922,000
----------------------------
Deferred Tax Liability (Note 6) 1,016,000 919,000
----------------------------
Commitments (Notes 5 and 7)
Stockholders' Equity (Notes 6 and 7)
Common stock, no par value; authorized 5,000,000
shares; issued and outstanding 1,131,247 shares 2,386,000 2,386,000
Additional Paid-in capital 492,000 492,000
Retained earnings, since January 1, 1992 1,933,000 1,118,000
----------------------------
4,811,000 3,996,000
----------------------------
$ 16,118,000 $ 12,213,000
----------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales (Note 9) $ 28,986,000 $ 19,392,000 $ 13,871,000
Cost of Goods Sold (Note 14) 23,333,000 15,583,000 11,370,000
-----------------------------------------
GROSS PROFIT 5,653,000 3,809,000 2,501,000
Operating Expenses 3,644,000 2,608,000 1,533,000
-----------------------------------------
OPERATING INCOME 2,009,000 1,201,000 968,000
Nonoperating Income (Expense)
Interest (expense) (Note 4) (519,000) (355,000) (293,000)
Other 16,000 17,000
-----------------------------------------
INCOME BEFORE INCOME
TAXES (NOTE 2) 1,506,000 863,000 675,000
Income Tax Expense (Notes 6 and 14) 691,000 383,000 430,000
-----------------------------------------
NET INCOME $ 815,000 $ 480,000 $ 245,000
=========================================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993
<TABLE>
<CAPTION>
Retained
Earnings
Additional Since
Common Paid-In January 1,
Stock Capital 1992 Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ 2,311,000 $ 16,000 $ 393,000 $ 2,720,000
Issuance of 7,500 shares of
common stock with a stated
value of $10 a share 75,000 75,000
Net income, December 31, 1993 245,000 245,000
Additional paid-in capital
arising from "free" rent 180,000 180,000
(Note 14)
-------------------------------------------------
Balance, December 31, 1993 2,386,000 196,000 638,000 3,220,000
Net income, December 31, 1994 480,000 480,000
Utilization of net operating
loss
carryovers (Note 6) 116,000 116,000
Additional paid-in capital
arising from "free" rent 180,000 180,000
(Note 14)
-------------------------------------------------
Balance, December 31, 1994 2,386,000 492,000 1,118,000 3,996,000
Net income 815,000 815,000
-------------------------------------------------
Balance, December 31, 1995 $ 2,386,000 $ 492,000 $ 1,933,000 $ 4,811,000
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to $ 815,000 $ 480,000 $ 245,000
net
cash provided by operating activities:
Depreciation 927,000 662,000 526,000
Deferred income taxes 262,000 367,000 348,000
Rent expense recorded for "free" rent 180,000 180,000
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivables (1,025,000) (598,000) (213,000)
Inventories (554,000) (471,000) (441,000)
Prepaid expenses 265,000 (282,000) (5,000)
Increase in:
Accounts payable 677,000 313,000 277,000
Accrued expenses 515,000 290,000 26,000
Other 34,000 17,000
-----------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,916,000 941,000 960,000
-----------------------------------------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (3,493,000) (1,632,000) (1,342,000)
Other 16,000 (49,000) 42,000
-----------------------------------------
NET CASH (USED IN) INVESTING
ACTIVITIES (3,477,000) (1,681,000) (1,300,000)
-----------------------------------------
Cash Flows from Financial Activities
Net borrowings under line of credit 1,262,000 318,000 650,000
agreements
Proceeds from long-term borrowings 1,475,000 473,000 236,000
Proceeds from issuance of common stock 75,000
Principal payments on long-term (936,000) (51,000) (718,000)
borrowings
-----------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,801,000 740,000 243,000
-----------------------------------------
NET INCREASE (DECREASE) IN CASH 240,000 (97,000)
Cash
Beginning 39,000 39,000 136,000
-----------------------------------------
Ending $ 279,000 $ 39,000 $ 39,000
=========================================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT POLICIES
NATURE OF BUSINESS:
The Company manufactures and distributes, on credit terms determined for each
customer, after-market automotive wheels, compressor housings, and manifolds to
wholesale distributors and original equipment manufacturers in the United States
and abroad and castings prepared to customer specifications on a contract basis.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
two 100% owned subsidiaries (Optima Wheel, Inc. and Baja Pacific Light Metals,
Inc.) and one 96% owned subsidiary (Baja Oriente S.A. de C.V.). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents:
For the purpose of reporting cash flows, the Company considers all time
deposits, certificates of deposit and highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost of market. For the materials portion
of inventories, the cost is determined using the LIFO (last-in, first-out)
method during 1995 and 1994. During 1993, the cost of the materials portion of
the inventory was determined using the FIFO (first-in, first-out) method (see
Note 2). For the other components of inventories (labor and overhead) the cost
is determined using the FIFO (first-in, first-out) method.
6
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT POLICIES (CONTINUED)
Depreciation:
Property, plant and equipment is recorded at its historical cost and is being
depreciated using the straight-line method over their estimated useful lives.
Leasehold improvements are depreciated over the lesser of its useful life or the
life of the lease. The following is a summary of depreciable life by asset type:
- -------------------------------------------------------------------------------
Building 30 years
Furniture and fixtures 5 - 10 years
Machinery and equipment 7 - 15 years
Transportation equipment 5 years
Leasehold improvements 8 - 20 years
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Foreign operations:
Baja Oriente S.A. de C.V. operates in Ensenada, Mexico and its functional
currency is the U.S. dollar. The foreign currency gain for 1995, 1994 and 1993
is approximately $7,000, $79,000, and $10,000, respectively, and is included in
operating expenses. Subsequent to December 31, 1995, the exchange rate has
changed from approximately 7.684 Mexican Pesos to $1.00 U.S. at December 31,
1995 to approximately 7.419 Mexican Pesos to $1.00 U.S. at May 15, 1996.
The net monetary liabilities denominated in Mexican Pesos as of December 31,
1995 is $322,000 (in U.S. dollars).
7
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments:
Financial Accounting Standards Board (FASB) Statement No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial intruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value or other valuation
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments for which it is practicable to
estimate that value:
Notes payable: The fair value of the Company's notes payable is estimated
based on the current rates offered to the Company for debt of the same
remaining maturities with similar collateral requirements. For variable rate
instruments, the fair market value approximates the carrying value. For fixed
rates instruments, the market value approximates the carrying value based
upon the maturity date of these instruments and their risk factors.
Seniority premiums and severance payments:
Seniority premiums, to which employees located in Mexico are entitled upon
retirement after fifteen years or more of service, in accordance with the
Mexican Federal Labor Law, are recognized as expenses in the years in which
services are rendered, based on Company estimates.
Any other payments to which employees may be entitled in the event of
separation, disability or death are charged to operations in the year in which
paid.
8
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
Note 2. INVENTORIES
1995 1994
- --------------------------------------------------------------
Finished goods $ 1,187,000 $ 751,000
Work-in-process 484,000 766,000
Raw materials 1,409,000 1,009,000
----------------------------
$ 3,080,000 $ 2,526,000
----------------------------
During 1994, the method of determining the cost of the materials portion of
inventories was changed from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method. The change was made because management
believes the statement of income would more clearly report operations by
matching current costs with current revenue.
The use of the LIFO method of determining the cost of the materials portion of
inventories had the effect of decreasing reported inventories at December 31,
1995 and 1994 by $384,000 and $416,000 and increasing (decreasing) net income
before income taxes for 1995 by $32,000 and 1994 by (416,000) as compared to
what they would have been under the FIFO method.
NOTE 3. Property, Plant and Equipment
1995 1994
- --------------------------------------------------------------
Land $ 60,000 $ 60,000
Buildings 60,000 60,000
Furniture and fixtures 238,000 136,000
Machinery and equipment 8,161,000 6,144,000
Transportation equipment 266,000 217,000
Leasehold improvements 2,535,000 1,296,000
----------------------------
11,320,000 7,913,000
Less accumulated depreciation 3,342,000 2,447,000
----------------------------
$ 7,978,000 $ 5,466,000
----------------------------
Of the property, plant and equipment listed above, the assets located at the
production facility in Ensenada, Mexico, have a net book value of approximately
$4,678,000 and $3,676,000 at December 31, 1995 and 1994, respectively.
9
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Notes Payable and Long-Term Debt
1995 1994
- -------------------------------------------------------------------------
Notes payable:
Line of credit (A) $ 2,040,000 $ 1,721,000
Line of credit (B) 1,440,000 497,000
----------------------------
$ 3,480,000 $ 2,218,000
============================
(A) As of December 31, 1995, Optima Wheels, Inc. has a $3,000,000 line of
credit agreement with a bank, secured by all receivables, inventory and
equipment. The borrowings bear interest at the bank's prime rate (8.5% at
December 31, 1995) plus 1% and are limited to 30% of eligible inventory
and 80% of eligible accounts receivable. The agreement expires in
September 1996; is guaranteed by certain stockholders; and contains
certain liquidity and net worth covenants.
(B) At December 31, 1995, Baja Pacific Light Metals Holding, Inc. has a
$1,500,000 line of credit agreement with a bank, secured by all
receivables, inventory and equipment. The borrowings bear interest at the
bank's prime rate (8.5% at December 31, 1995) plus 1% and are limited to
80% of eligible accounts receivable. The agreement expires in September
1996; is guaranteed by certain stockholders; and contains certain
liquidity and net worth covenants. At December 31, 1995, Pacific Baja
Light Metals Holding, Inc. was in violation of certain covenants.
10
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Note 4. Notes Payable and Long-Term Debt (Continued)
1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt:
Notes payable, interest ranging from 8.6% to 14.4, with
monthly installments of $22,403, including interest,
secured by equipment, maturing at various dates through
2000 $ 760,000 $ 531,000
Notes payable to a bank, interest at prime rate (8.5%
at December 31, 1995) plus 1%, with monthly
installments of $13,889, including interest,
secured by equipment, maturing September 1997 292,000 459,000
Notes payable, interest ranging from 7% to 15%, with
monthly installments of $29,829, including interest,
secured by equipment, maturing at various dates
through 1999 265,000 -
Note payable, interest at 8%, principle, due December 31, 250,000 368,000
1997
Note payable to a bank, interest at prime rate (8.5% at
December 31, 1995) plus 1%, with monthly installments of
$5,694, including interest, secured by equipment, maturing
September 1998 188,000
Note payable to stockholder due on demand, interest at 10%, 93,000
unsecured, interest payable annually
75,000 26,000
Other ------------------------
1,923,000 1,384,000
Less current maturities 762,000 462,000
-------------------------
$ 1,161,000 $ 922,000
=========================
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1995 are as follows:
1996 $762,000; 1997 $684,000; 1998 $243,000; 1999 $170,000; 2000 $64,000 (total
$1,923,000).
During 1995, 1994 and 1993, approximately $103,000, $18,000 and $34,000,
respectively, in interest was incurred on the notes payable to stockholders.
11
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LEASE COMMITMENTS AND RELATED PARTY TRANSACTION
The Company leases its California facility under a lease agreement which expires
in 2001. This agreement requires the Company to pay all property taxes, normal
maintenance and insurance on the property and contains a five year renewal
option. The Company leases its facilities in Ensenada, Mexico from certain
stockholders of the Company on a month-to-month operating lease requiring
monthly payments of $15,000 beginning in 1995. The Company recorded rent expense
of $15,000 per month for 1993 and 1994, offset by increases to paid-in capital
for the estimated fair value of the "free rent" (Note 14). The Company is in the
process of entering into a long-term lease on this facility. At December 31,
1995, the Company has leasehold improvements with a net book value of $1,622,000
on the Ensenada facility. These leasehold improvements are being amortized over
an 8 - 20 year period due to management's belief that the Company will be able
to enter into a satisfactory long-term lease arrangement and remain in this
facility long enough to recover the leasehold improvements.
Rent expense for 1995, 1994 and 1993 was approximately $517,000; $368,000 and
$303,000, respectively (including $180,000 per year on the Ensenada facility).
The total minimum lease commitments at December 31, 1995 is as follows: 1996
through 2000 $304,000 per year and thereafter $101,000 (total $1,621,000).
NOTE 6. INCOME TAX MATTERS
The components of the provision for income tax are as follows:
1995 1994 1993
- ---------------------------------------------------------------------
Current $ 348,000 $ 16,000 $ 3,000
Deferred 262,000 367,000 348,000
Foreign 81,000 79,000
-----------------------------------------
$ 691,000 $ 383,000 430,000
-----------------------------------------
Total tax expense differs from the expected tax expense due to the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Computed "expected" tax expense $ 512000 $ 293000 $ 230000
State taxes, net of federal tax benefit 90000 63000 51000
Foreign taxes 81000
Non-deductability of "free" rent 61000 61000
Other 8000 (34000) 9000
$ 691000 $ 383000 $ 430000
</TABLE>
12
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAX MATTERS (CONTINUED)
Net deferred income taxes consist of the following at December 31,:
1995 1994
- -------------------------------------------------------------------------
Deferred Tax Assets
Inventories $ 71,000 $ 47,000
Net operating loss carryovers 214,000
Reserves for doubtful accounts 39,000 12,000
Accrued expenses 32,000 49,000
Investment tax credit 51,000 35,000
----------------------------
TOTAL CURRENT DEFERRED TAX ASSET $ 193,000 $ 357,000
============================
Long-Term Deferred Tax Liability, property,
plant and equipment $ 1,016,000 $ 919,000
============================
On January 1, 1992, the Company affected a quasi reorganization. Benefits
realized from the net operating loss carryforwards arising prior to the date of
the quasi reorganization are recorded as additions to paid-in capital in the
year recognized in net deferred tax assets. During 1994, $116,000 of these
benefits were realized. The Company has no unused operating loss carryforwards
at December 31, 1995. The investment tax credit carryforward of $51,000 expires
in 2005.
NOTE 7. STOCK OPTIONS
Officers, stockholders and employees of the Company have unexpired options to
purchase 92,000 shares of common stock of the Company. All options are currently
exercisable except for an option to purchase 75,000 shares at $1 which are
exercisable upon sale of the Company (see Note 10). The remaining options were
granted at prices ranging from $3 to $10 per share, which approximated the
market value at the dates of the grants.
In addition, the Company has granted an option to its president to purchase
shares of company stock at $3 per share. The agreement calls for options to be
issued totaling 5,000 shares for each $1 per share sales price of the Company.
These options are issuable only upon sale of the Company. If the sale discussed
in Note 10 is completed, the agreement will require options to be issued
totaling approximately 110,000 shares.
13
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. STOCK OPTIONS (CONTINUED)
Options for 5,000 shares at $7 per share were granted during 1994. No options
were granted in 1995 or 1993. No options were exercised or expired during 1995;
1994; or 1993.
NOTE 8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for 1995; 1994 and 1993 totaled $624,000; $297,000
and $276,000, respectively. Cash payments for income taxes for 1995; 1994 and
1993 totaled $96,000; $3,000 and $37,000, respectively.
NOTE 9. CONCENTRATIONS
Major customers:
Net sales for the years ended December 31, 1995, 1994 and 1993 include sales to
the following major customers, together with the accounts receivable due
from those customers at December 31, 1995 and 1994:
Amount of Net Sales Accounts Receivable
Year Ended December 31, December 31,
Customer 1995 1994 1993 1995 1994
Customer A $7,651,000 $5,034,000 $944,000 $270,000 $422,000
Customer B 7,178,000 4,699,000 2,644,000 962,000 555,000
Collective bargaining agreements:
The Company participates in collective bargaining agreements with unionized
employees in its Ensenada, Mexico facility. Eighty percent of the Company's
total labor force is covered by the agreements. None of the agreements are due
to expire within one year.
NOTE 10. SUBSEQUENT EVENT AND ACQUISITION AGREEMENT
On March 15, 1996, the Company signed an acquisition agreement to merge with a
company that is publicly traded on the Vancouver stock exchange.
NOTE 11. RECLASSIFICATIONS
Certain items on the financial statements for the years ended December 31, 1994
and 1993 have been reclassified to be consistent with the classifications of the
year ended December 31, 1995. These reclassifications had no effect on net
income or net shareholders' equity.
14
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. QUASI-REORGANIZATION
The Company effected a quasi-reorganization as of January 1, 1992 at which time
the Company eliminated a deficit of $1,312,000.
NOTE 13. RECENT ACCOUNTING PRONOUNCEMENT
In 1995 the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123, establishes financial accounting and reporting
standards for stock-based employee compensation plans such as stock option
plans. The Statement generally suggests, but does not require, employee
stock-based compensation transactions be accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. An enterprise may continue to
follow the requirements of Accounting Principles Board (APB) Opinion No. 25, for
employee based transactions, which does not require compensation to be recorded
if the consideration to be received is at least equal to the fair value at the
measurement date. If an enterprise elects to follow APB Opinion No. 25, it must
disclose the proforma effects on net income as if compensation were measured in
accordance with the suggestions of Statement No. 123. All stock based
transactions with non-employees entered into after December 15, 1995 must be
accounted for at the fair value of the instrument. The Company has not yet
determined if it will continue to follow APB Opinion No. 25, for employee based
transactions, or will adopt Statement No. 123. The Company does not believe
adoption of this pronouncement in 1996 will have a material impact on the
financial statements.
NOTE 14. ACCOUNTING CHANGE
In 1995 the Company changes its method of accounting for the "free" rent
provided on its Ensenada facility. In 1994 and 1993, the Company was not charged
rent on its Ensenada facility which is owned by certain stockholders of the
Company and did not record rent expense for this "free" rent. In 1995, the
Company changed its method of accounting and recorded $180,000 in 1994 and 1993
in rent expense (the estimated fair value of the leased facilities) offset by an
increase in paid-in capital.
In addition, the Company changed its method of accounting for tax benefits
arising prior to the date quasi-reorganization. Previously the Company recorded
the benefit realized from the net operating loss carryforwards as a reduction of
income tax expense. The Company changed it method of accounting to record these
benefits realized as additions to paid-in capital.
15
<PAGE>
[LOGO]
MCGLADREY & PULLEN, LLP
--------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S REPORT ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Pacific Baja Light Metals, Holding, Inc.
Santa Fe Springs, California
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
Anaheim, California
May 15, 1996
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - ALLOWANCE FOR DOUBTFUL
ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Write Offs Period
- --------------------------------------------------------------------------------
Years ended December 31,
1993 $ $ 95,000 $ (26,000) $ 69,000
===============================================================
1994 $ 69,000 $ 111,000 $ (150,000) $ 30,000
===============================================================
1995 $ 30,000 $ 84,000 $ (17,000) $ 97,000
===============================================================
17
<PAGE>
PACIFIC BAJA LIGHT METALS
HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
Unaudited
JUNE 30, 1996
<PAGE>
CONTENTS
Page
- --------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheet 1
Consolidated statements of income 2
Consolidated statements of cash flows 3
Notes to consolidated financial statements 4-6
- --------------------------------------------------------------
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
JUNE 30, 1996
ASSETS
- ----------------------------------------------------------------------
Current Assets
Cash $ 441,000
Accounts receivable, less allowance for
doubtful accounts of $97,000 6,722,000
Inventories 2,585,000
Prepaid expenses 657,000
Deferred tax asset 193,000
----------------
TOTAL CURRENT ASSETS 10,598,000
Property, Plant and Equipment, net 8,135,000
----------------
$ 18,733,000
================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------
Current Liabilities $ 4,485,000
Notes payable
Current maturities of
long-term debt (Note 4) 572,000
Accounts payable 3,533,000
Accrued compensation 417,000
Accrued other 261,000
Income taxes payable 1,105,000
----------------
TOTAL CURRENT LIABILITIES 10,373,000
----------------
Long-Term Debt, less current maturities (including
$76,000 due to stockholders) 630,000
----------------
Deferred Tax Liability 1,025,000
----------------
Stockholders' Equity
Common stock, no par value; authorized
5,000,000 shares; issued and
outstanding 1,131,247 shares 2,386,000
Additional Paid-in capital 492,000
Retained earnings, since January 1, 1992 3,827,000
----------------
6,705,000
----------------
$ 18,733,000
================
See Notes to Consolidated Financial Statements.
1
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
- --------------------------------------------------------------------------
Net Sales $ 20,024,000 $ 14,661,000
Cost of Goods Sold 14,892,000 11,671,000
----------------------------
Gross profit 5,132,000 2,990,000
Operating Expenses 1,686,000 1,563,000
----------------------------
Operating income 3,446,000 1,427,000
Nonoperating Income (Expense)
Interest expense (including $4,000
in 1996 and $17,000 in 1995 paid (248,000) (232,000)
to stockholders)
Other (41,000) (89,000)
----------------------------
Income before income taxes 3,157,000 1,106,000
Income Tax Expense 1,263,000 442,000
----------------------------
Net income 1,894,000 664,000
============================
See Notes to Consolidated Financial Statements.
2
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
- ------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 1,894,000 664,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 553,000 418,000
Deferred income taxes 9,000 (15,000)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivables (2,364,000) (1,051,000)
Inventories 495,000 (954,000)
Prepaid expenses (456,000) (316,000)
Increase in:
Accounts payable (86,000) 562,000
Accrued expenses (591,000) 405,000
Income taxes payable 1,105,000 442,000
Other 29,000 28,000
-------------------------
Net cash provided by operating
activities 588,000 183,000
-------------------------
Cash Flows from Investing Activities
Net cash (used in) purchase of property,
plant and equipment (710,000) (1,199,000)
-------------------------
Cash Flows from Financial Activities
Net borrowings under line of credit
agreements 1,005,000 1,157,000
Proceeds from long-term borrowings 771,000
Principal payments on
long-term borrowings (1,492,000) (63,000)
-------------------------
Net cash provided by financing
activities 284,000 1,094,000
-------------------------
Net increase in cash 162,000 78,000
Cash
Beginning 279,000 39,000
-------------------------
Ending 441,000 117,000
=========================
See Notes to Consolidated Financial Statements.
3
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1. Nature of Business and Significant Policies
Nature of Business:
The Company manufactures and distributes, on credit terms determined for each
customer, after-market automotive wheels, compressor housings, and manifolds to
wholesale distributors and original equipment manufacturers in the United States
and abroad and castings prepared to customer specifications on a contract basis.
A summary of the Company's significant accounting policies is as follows:
Unaudited interim information:
In the opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal adjustments, necessary to present fairly
the financial position of Pacific Baja Light Metals Holding, Inc. and
subsidiaries at June 30, 1996 and the results of operations and cash flows for
the six months ended June 30, 1996 and 1995 in conformity with generally
accepted accounting principles.
These interim financial statements are not intended to include all disclosures
required under generally accepted accounting principles and should be read in
conjunction with the Company's financial statements for the year ended December
31, 1995.
NOTE 2. Inventories
June 30,
1996
- ------------------------------------------------------
Finished goods $ 778,000
Work-in-process 748,000
Raw materials 1,059,000
----------
$2,585,000
==========
During 1994, the method of determining the cost of the materials portion of
inventories was changed from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method. The change was made because management
believes the statement of income would more clearly report operations by
matching current costs with current revenue.
The use of the LIFO method of determining the cost of the materials portion of
inventories had the effect of decreasing reported inventories at June 30, 1996
by $460,000 and increasing (decreasing) net income before income taxes for the
six months ended June 30, 1996 and 1995 by ($56,000) and $-0-, respectively, as
compared to what they would have been under the FIFO method.
4
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 3. Notes Payable
June
30,
1996
- --------------------------------------------------------------------------------
Line of credit (A) $ 3,239,000
Line of credit (B) 1,246,000
-----------
$ 4,485,000
===========
(A) As of June 30, 1996, Optima Wheel, Inc. has a $3,500,000 line of
credit agreement with a bank, secured by all receivables, inventory
and equipment. The borrowings bear interest at the bank's prime rate
(8.25% at June 30, 1996) plus 1% and are limited to 30% of eligible
inventory and 80% of eligible accounts receivable. The agreement
expires in September 1996; is guaranteed by certain stockholders; and
contains certain liquidity and net worth covenants.
(B) At June 30, 1996, Baja Pacific Light Metals Holding, Inc. has a
$1,500,000 line of credit agreement with a bank, secured by all
receivables, inventory and equipment. The borrowings bear interest at
the bank's prime rate (8.25% at June 30, 1996) plus 1% and are limited
to 80% of eligible accounts receivable. The agreement expires in
September 1996; is guaranteed by certain stockholders; and contains
certain liquidity and net worth covenants.
At June 30, 1996, the Company was in violation of the covenants relating
to minimum working capital and minimum tangible net worth. The company
is negotiating with the bank regarding these lines of credit, and has a
tentative agreement to increase the overall avaialability to a combined
amount of $8,000,000 with interest at the bank's prime plus .25%.
NOTE 4. Lease Commitments and Related Party Transaction
The Company leases its California facility under a lease agreement which expires
in 2001. This agreement requires the Company to pay all property taxes, normal
maintenance and insurance on the property and contains a five year renewal
option. The Company leases its facilities in Ensenada, Mexico from certain
stockholder's of the Company on a month-to-month operating lease requiring
monthly payments of $15,000. On September 5, 1996, the Company entered into a
ten year lease on the Ensenada, Mexico facility. The lease requires monthly
payments of $15,000 with annual increases of 5% per year. Beginning on
September 5, 1996, the leasehold improvements associated with this lease will
be amortized over the shorter of the remaining life of the asset or ten years.
Rent expense for the six months ended June 30, 1996, and 1995 was approximately
$282,000 and $277,000, respectively (including $90,000 and $75,000,
respectively, on the Ensenada facility).
5
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 5. Stock Options
Officers, stockholders and employees of the Company have unexpired options to
purchase 92,000 shares of common stock of the Company. All options are
currently exercisable except for an option to purchase 75,000 shares at $1 which
are exercisable upon sale of the Company (see Note 10). The remaining options
were granted at prices ranging from $3 to $10 per share, which approximated the
market value at the dates of the grants.
In addition, the Company has granted an option to its president to purchase
shares of company stock at $3 per share. The agreement calls for options to be
issued totaling 5,000 shares for each $1 per share sales price of the Company.
These options are issuable only upon sale of the Company. If the sale discussed
in Note 10 is completed, the agreement will require options to be issued
totaling approximately 110,000 shares.
When the options are granted, the difference between the fair market value of
the option and the option price will be charged against income during that
period.
Options for 5,000 shares at $7 per share were granted during 1994. No options
were granted in 1995 or 1993. No options were exercised or expired during 1995;
1994; or 1993.
NOTE 6. Acquisition Agreement
On March 15, 1996, the Company signed an acquisition agreement to merge with a
company that is publicly traded on the Vancouver stock exchange.
<PAGE>
TURBOYDYNE TECHNOLOGIES INC.
----------------------------
INTRODUCTION TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------
AS AT JUNE 30, 1996 AND
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------
AND THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Stated in U.S. Dollars)
The following unaudited pro-forma consolidated balance sheet and pro-forma
consolidated statements of operations and explanatory notes give effect to the
proposed acquisition of Pacific Baja Light Metals Holding, Inc. by Turbodyne
Technologies Inc. and is based on the estimates and assumptions set forth in the
explanatory notes. This pro-forma consolidated balance sheet and these pro-
forma consolidated statements of operations have been prepared utilizing the
historical financial statements of Turbodyne Technologies Inc. and Pacific Baja
Light Metals Holding, Inc. and should be read in conjunction with the historical
financial statements and notes thereto included elsewhere in this registration
statement.
These pro-forma consolidated statements of operations have been prepared as if
the acquisition of Pacific Baja Light Metals Holding, Inc. by Turbodyne
Technologies Inc. had been consummated on January 1, 1995 under the purchase
method of accounting and carried through to June 30, 1996. The pro-forma
balance sheet has been prepared as if the acquisition was consummated on June
30, 1996. In addition, the unaudited pro-forma consolidated balance sheet and
pro-forma consolidated statements of operations have been prepared as if the
brokered private placements had closed effective January 1, 1995.
This pro-forma financial data is provided for comparative purposes only and does
not purport to be indicative of the actual financial position or results of
operations had the transaction occurred at the beginning of the fiscal period
presented, nor are they necessarily indicative of the results of future
operations.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET
------------------------------------
JUNE 30, 1996
-------------
(Stated in U.S. Dollars)
<TABLE>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
ASSETS
CURRENT
<S> <C> <C> <C> <C>
Cash $ 1,759,872 $ 441,000 {$ 17,051,250 (b) $ 7,251,452
{ (12,000,670) (a)
Accounts
receivable 60,390 6,722,000 6,782,390
Advances
receivable 37,497 - 37,497
Inventories - 2,585,000 2,585,000
Prepaid
expenses 102,211 657,000 759,211
Deferred tax
asset - 193,000 193,000
---------- ---------- ----------
1,959,970 10,598,000 17,608,550
CAPITAL ASSETS 908,558 8,135,000 9,043,558
GOODWILL - - 8,818,056 (a) 8,818,056
DEFERRED
ACQUISITION
COSTS 523,056 - (523,056) (a)
---------- ---------- ----------
$ 3,391,584 $ 18,733,000 $ 35,470,164
========== ========== ==========
<CAPTION>
LIABILITIES
CURRENT
<S> <C> <C> <C> <C>
Notes
payable $ - $ 4,485,000 $ 4,485,000
Accounts
payable and
accrued
liabilities 318,498 4,211,000 4,529,498
Loans payable 4,131 - 4,131
Current portion
of long term
debt 25,102 572,000 597,102
Income taxes
payable - 1,105,000 1,105,000
---------- ---------- ----------
347,731 10,373,000 10,720,731
LONG TERM DEBT 83,337 630,000 713,337
DEFERRED TAX
LIABILITY - 1,025,000 1,025,000
---------- ---------- ----------
431,068 12,028,000 12,459,068
---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
------------------------------------------------
JUNE 30, 1996
-------------
(Stated in U.S. Dollars)
<CAPTION>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
SHAREHOLDER'S EQUITY
<S> <C> <C> <C> <C>
SHARE CAPITAL 10,062,523 2,386,000 {(1,705,125) (c)
(27,970,489) { 1,705,125 (c)
Common {17,051,250 (b)
shares) { 2,999,330 (a)
{(2,386,000) (a) 30,113,103
ADDITIONAL PAID
IN CAPITAL - 492,000 (492,000) (a)
RETAINED EARNINGS
(DEFICIT) (7,102,007) 3,827,000 (3,827,000) (a) ( 7,102,007)
---------- ---------- ----------
2,960,516 6,705,000 23,011,096
---------- ---------- ----------
$ 3,391,584 $ 18,733,000 $ 35,470,164
========== ========== ==========
</TABLE>
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Stated in U.S. Dollars)
Pacific Baja
Turbodyne Light Metals
<TABLE>
<CAPTION>
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ - $ 20,024,000 $ 20,024,000
COST OF GOODS
SOLD - 14,892,000 14,892,000
--------- ---------- ----------
GROSS PROFIT - 5,132,000 5,132,000
OPERATING
EXPENSES 2,124,315 1,686,000 220,451 (d) 4,030,766
--------- ---------- ------- ----------
OPERATING
INCOME (LOSS) (2,124,315) 3,446,000 1,101,234
NON OPERATING
EXPENSES
Interest
expense - (248,000) (248,000)
Other - (41,000) (41,000)
--------- ---------- ------- ----------
INCOME (LOSS)
BEFORE
INCOME TAXES (2,124,315) 3,157,000 812,234
INCOME TAX
EXPENSE - (1,263,000) (1,263,000)
--------- ---------- ----------
NET INCOME
(LOSS) $(2,124,315) $ 1,894,000 $ (450,766)
========= ========== ==========
NET INCOME
(LOSS)
PER SHARE $(0.02)
====
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING 23,441,021
==========
</TABLE>
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ - $ 28,986,000 $ 28,986,000
COST OF GOODS
SOLD - 23,333,000 23,333,000
--------- ---------- ----------
GROSS PROFIT - 5,653,000 5,653,000
OPERATING
EXPENSES 2,634,962 3,644,000 440,902 (d) 6,719,864
--------- ---------- ----------
OPERATING
INCOME (LOSS) (2,634,962) 2,009,000 (1,066,864)
NON OPERATING
EXPENSES
Interest
expense - (519,000) (519,000)
Other - 16,000 16,000
--------- ---------- ------- ----------
INCOME (LOSS)
BEFORE
INCOME TAXES (2,634,962) 1,506,000 (1,569,864)
INCOME TAX
EXPENSE - (691,000) (691,000)
--------- ---------- ----------
NET INCOME
(LOSS) $(2,634,962) $ 815,000 $ (2,260,864)
========= ========== ==========
NET INCOME
(LOSS)
PER SHARE $(0.13)
====
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING 17,557,793
==========
</TABLE>
<PAGE>
TURBOYDYNE TECHNOLOGIES INC.
----------------------------
NOTES AND ASSUMPTIONS TO THE UNAUDITED CONSOLIDATED
---------------------------------------------------
PRO-FORMA BALANCE SHEET AND PRO-FORMA STATEMENTS OF OPERATIONS
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
AND THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Stated in U.S. Dollars)
1. ORGANIZATION AND BASIS OF PRESENTATION
The unaudited pro-forma consolidated balance sheet and pro-forma
consolidated statements of operations have been prepared based on historical
financial information, using U.S. generally accepted accounting principles,
of Turbodyne Technologies Inc. and Pacific Baja Light Metals Holding, Inc.
for the year ended December 31, 1995 and the six months ended June 30, 1996,
considering the effects of the following transactions:
i) for purposes of the pro-forma consolidated statements of operations the
acquisition of Pacific Baja Light Metals Holding, Inc.
("Pacific Baja") was completed effective January 1, 1995 and for the
purposes of the pro-forma consolidated balance sheet the
acquisition of Pacific Baja was completed effective June 30, 1996, and
that Pacific Baja had a fair market value of the U.S. $15,000,000
and that goodwill arising on acquisition will be amortized on a
straight line basis over 20 years;
ii) that brokered private placements of 3,750,000 special warrants at U.S.
$3.667 per special warrant and 500,000 special warrants at U.S. $6.60
per special warrant had closed effective January 1, 1995.
iii) that the 10% commission paid on the brokered private placements
referred to above were in the form of units for the 500,000 special
warrants at U.S. $6.60 per unit and for the 3,750,000 special warrants
at U.S. $3.667 per unit.
2. ASSUMPTION
The number of shares used in the calculation of the pro-forma net income per
share data is based on the weighted average number of shares outstanding
during the period adjusted to give effect to shares assumed to be issued had
the transactions referred to above been consummated January 1, 1995.
3. PRO-FORMA ADJUSTMENTS
a) Record acquisition of Pacific Baja Light Metals Holding, Inc. and
resulting goodwill arising on acquisition.
b) Record special warrant private placements.
c) Record commissions paid in connection with the special warrant private
placements.
d) Record amortization of goodwill.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act 0f
1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
TURBODYNE TECHNOLOGIES, INC.
/s/ Edward M. Halimi
President and Director
DATED: December 3, 1996
<PAGE>
Morgan & Company
P.O. Box 10007, Pacific Centre
Suite 1730 - 700 West Georgia Street
Vancouver, BC V7Y 1A1
Telephone (604) 687-5841
Fax: (604) 687-0075
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated April 26, 1996 on the
consolidated financial statements of Turbodyne Technologies Inc. for the year
ended December 31, 1995 in Amendment No. 2 to the Company's Form 20F
Registration Statement. We also consent to application of such report to the
financial information in Amendment No.2 to the Form 20F Registration Statement,
when such financial information is read in conjunction with the financial
statements referred to in our report.
Morgan & Company
Chartered Accountants
Vancouver, Canada
December 9, 1996
<PAGE>
McGladrey & Pullen, LLP
Suite 800
222 South Harbor Boulevard
P.O. Box 200
Anaheim, California 92815-0200
(714) 520-9561
Fax: (714) 520-0898
To the Board of Directors
Pacific Baja Light Metal Holdings, Inc.
Santa Fe Springs, California
We hereby consent to the use in this Amendment No. 2 to Form 20-F Registration
Statement being submitted by Turbodyne Technologies, Inc. of our report,
dated May 15, 1996, relating to the consolidated financial statements of
Pacific Baja Light Metal Holdings, Inc. and subsidiaries.
McGladrey & Pullen, LLP
Anaheim, California
Dated: December 9, 1996
<PAGE>
December 9, 1996
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, DC
20549
Attention: Mr. William Tolbert, Jr.
Dear Sirs:
RE: TURBODYNE TECHNOLOGIES INC. (the "Company")
- Form 20-F
Thank you for your letter dated November 20, 1996. We write to address the
issues raised in your letter. The Registrant's Form 20-F has been revised to
address these concerns. An amended Form 20-F is enclosed, with blacklining to
show changes. We also enclose copies of the amended financial statements of the
Registrant for the period ending June 30, 1996 and December 31, 1995 and the
amended financial statements for Pacific Baja for the period ended June 30,
1996. These changes will be incorporated in the Company's Form 20-F/A-2 which is
to be filed electronically with the SEC as early as possible.
The Registrant replies as follows, with reference to the appropriate paragraph
of your letter dated November 20, 1996:
1. Paragraph 1.
The Form 20-F has been amended to expand on the disclosure to provide a
description of the operations of Grand Technologies, Inc. The amended Form 20-F
reflects the disclosure that Grand Technologies is a recently incorporated
company with very limited revenues and assets. The Registrant is not aware of
any assets of Grand Technologies other than the 85 Turbopac products which have
been delivered by the Registrant and its interest in the distributorship
agreement with the Registrant. The only revenues of Grand Technologies of which
the Registrant is aware would be any revenues from the 85 Turbopac products
delivered by
<PAGE>
-2-
Registrant to Grand Technologies.
The Form 20-F has also been revised to confirm that there is no association
between Grand Technologies and Andy Granatelli or any companies affiliated with
Andy Granatelli.
2. Paragraph 2.
The Form 20-F has been amended to confirm that the 85 Turbopac products were
delivered during the week of October 14, 1996. Additionally, the Form 20-F has
been amended to confirm that the only amendment to the Distribution Agreement
since execution has been to reflect the change of the name of Grand
Technologies, Inc. from Granatelli Performance Technologies Inc.
3. Paragraph 3.
The Registrant's financial statements for the periods ending December 31, 1995
and June 30, 1996 have been revised to confirm that there have been no monetary
transactions where management has determined that the quoted market price per
share is not a more appropriate method of valuation.
4. Paragraph 4.
The Registrant's financial statements for the periods ending December 31, 1995
and June 30, 1996 have been revised to disclose that the Registrant will record
a compensation expense upon the release of the performance shares from escrow
for US GAAP purposes.
5. Paragraph 5.
The notes to the financial statements for Pacific Baja for the period ending
June 30, 1996 have been revised to disclose that a lease agreement with a ten
year term has been executed and that the leasehold improvements are being
amortized as an expense over the ten year period of the lease.
6. Paragraph 6.
The Registrant is of the view that the amount of $15 million is a more
appropriate value for the fair market value of the acquired company, Pacific
Baja, as supported by the independent valuation received by the Registrant.
<PAGE>
-3-
valuation report of Pacific Baja provides a more appropriate valuation than the
total of the cash paid and the market value of the securities issued.
1. The share price of Turbodyne technologies Inc. has been volatile.
2. The Turbodyne Technologies Inc. shares issued in connection with the Pacific
Baja acquisition are subject to a two year trading restriction in the USA.
3. The Turbodyne Technologies Inc. business is subject to risks associated with
developing companies including initial losses, uncertainty of revenue, markets
and profitability, and the necessity of additional funding. The Turbodyne
products are not in the production state, and unexpected problems and changes to
specifications frequently arise in the development and production of new
products. There is an element of risk that bringing the product to commercial
production, for any number of reasons, will be unexpectedly delayed or halted.
We trust the above amendments satisfy the concerns of the SEC.
Yours truly,
MICHAEL H. TAYLOR
MHT/ado
cc. Turbodyne Technologies Inc.
Attention: Edward M. Halimi
<PAGE>
(Exhibit 3(IV))
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed as of the Commencement Date set forth above.
TURBODYNE SYSTEMS, INC.
Signature: /s/ Edward M. Halimi
Name: Edward M. Halimi
Title: President
Date: June 12, 1996
GRANATELLI PERFORMANCE TECHNOLOGIES, INC.
Signature: /s/ George Fencl
Name: George Fencl
Title: Vice President
Date: June 12, 1996
<PAGE>
