TURBODYNE TECHNOLGIES INC, 20-F, 1997-07-15

TURBODYNE TECHNOLGIES INC
20-F, 1997-07-15
MOTOR VEHICLE PARTS & ACCESSORIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 1996
-----------------
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
------------ -----------------
Commission file number 0-21391
-------

TURBODYNE TECHNOLOGIES INC.
- --------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

INAPPLICABLE
- --------------------------------------------------------------------------
(Translation of Registrant's name into English)

CANADA (FEDERAL JURISDICTION)
- --------------------------------------------------------------------------
(Jurisdiction of incorporation or organization)

SUITE 510, 1090 WEST PENDER STREET
VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2N7
- --------------------------------------------------------------------------
(Address of principal executive offices)

<PAGE>

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.

Inapplicable

Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.

COMMON SHARES WITHOUT PAR VALUE
- --------------------------------------------------------------------------
(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: 23,580,098 AS AT DECEMBER 31, 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 X No
------ ------

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 June 30, 1997, the exchange rate of Canadian dollars
into United States dollars was $1.4015 Canadian to $1.00 United States.
<PAGE>

- --------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------

PAGE NO
-------

ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . 1

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . 1
COMPANY AND SUBSIDIARY CORPORATE BACKGROUND. . . . . . . . . . 1
INDUSTRY BACKGROUND AND PRODUCT. . . . . . . . . . . . . . . . 1

ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . 17

ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . .18

ITEM 4. CONTROL OF COMPANY. . . . . . . . . . . . . . . . . . . . . . .18

ITEM 5. NATURE OF TRADING MARKET. . . . . . . . . . . . . . . . . . . .19

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . .20

ITEM 7. TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .21

ITEM 8. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . .22

SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY
FINANCIAL STATEMENTS (CANADIAN GAAP)(CANADIAN $). . . . . . . .22

SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY FINANCIAL
STATEMENTS (U.S. GAAP)(CANADIAN $). . . . . . . . . . . . . . .23

SUMMARY OF FINANCIAL INFORMATION IN PACIFIC BAJA FINANCIAL
STATEMENTS (U.S. GAAP)($U.S.) . . . . . . . . . . . . . . . . .24

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . .25

ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . .29

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . .31

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM COMPANY OR SUBSIDIARIES . .33

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS. . . . . . . . .36

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED. . . . . . . . . . .37

ITEM 15. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . .37

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES . . . . . . . . . . . . . . . . . . . .37

<PAGE>

ITEM 17. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . .37

ITEM 18. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . .37

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS . . . . . . . . . . . . . . .37

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS
-----------------------

INTRODUCTION
- ------------
Turbodyne Technologies Inc. (the "Company") is a Canadian federal
corporation engaged in the following businesses through its U.S.
subsidiaries:

(A) the manufacture of aluminum cast automotive products, including
engine components and speciality wheels (the "Pacific Baja
Business"); and

(B) the development of products to enhance performance and reduce
emissions of internal combustion engines (the "Turbodyne
Business").

COMPANY AND SUBSIDIARY CORPORATE BACKGROUND
- ------------------------------------------
The Company was incorporated under the COMPANY ACT (British Columbia) on
May 18, 1983, under the name "Dundee Resources Corp.", by registration of
its Memorandum and Articles. The name of the Company was changed from
"Dundee Resources Corp." to "Clear View Ventures Inc." on January 20, 1993
and from "Clear View Ventures Inc." to "Turbodyne Technologies Inc." on
April 28, 1994. The Company has continued from British Columbia to the
Canadian federal jurisdiction under the CANADA BUSINESS CORPORATIONS ACT by
the filing of Articles of Continuation. The continuation was effective
December 3, 1996.

The address of the head office of the Company is Suite 510, 1090 West
Pender Street, Vancouver, British Columbia, V6E 2N7. The address of the
registered and records office of the Company is 12th Floor, 1190 Hornby
Street, Vancouver, British Columbia, V6Z 2L3.

The Company has two wholly owned subsidiaries, Turbodyne Systems, Inc.
("Turbodyne Systems") and Pacific Baja Light Metals Corp. ("Pacific Baja
Light Metals").

Turbodyne Systems was incorporated pursuant to the laws of the State of
Nevada, USA, on May 21, 1993. The address of the head office of Turbodyne
Systems, Inc. is 6155 Carpinteria Avenue, Carpinteria, California, 93013.

Pacific Baja Light Metals was incorporated as "Pacific Baja Acquisition
Corp." pursuant to the laws of the State of Wyoming, USA, on April 15,
1996. Pacific Baja Acquisition Corp. merged with Pacific Baja Light
Metals Holding Inc. on September 5, 1996 to form Pacific Baja Light Metals.
The address of the head office of Pacific Baja Light Metals is 15300 Valley
View, La Mirada, California. Pacific Baja Light Metals has two wholly
owned California subsidiaries, Optima Wheel Inc. ("Optima Wheel") and Baja
Pacific Light Metals Inc. ("Baja Pacific"), and a wholly owned Mexican
subsidiary, Baja Oriente S.A. de C.V. ("Baja Oriente").

During the period from its incorporation on May 18, 1983 until July of
1993, when it commenced funding the development of the Turbodyne
Technology, as described herein, the Company was engaged in the business of
mineral exploration. The Company divested itself of any mineral properties
prior to the acquisition of the Turbodyne Technology and no longer holds
any interest in any mineral properties and does not carry on mineral
exploration.

INDUSTRY BACKGROUND AND PRODUCT
- -------------------------------

The Pacific Baja Business is carried on through Pacific Baja Light Metals
from its head office in La Mirada, California. The Turbodyne Business is
carried on through Turbodyne Systems from its head office in Carpinteria,
California. The Pacific Baja Business and the Turbodyne Business are
summarized below.

<PAGE>

1. PACIFIC BAJA BUSINESS
---------------------

Pacific Baja Light Metals is an established manufacturer of aluminum cast
products primarily for the automotive industry. Pacific Baja Light Metals
manufactures turbocharger and compressor housings for Original Equipment
Manufacturers in the automotive industry ("OEMs") and aluminum wheels for
the automotive aftermarket. Pacific Baja Light Metals also manufactures on
a contract basis, the housings for the Turbodyne products manufactured by
Turbodyne Systems, as discussed below in Section 2.2 of this Item 1 (the
"Turbodyne Products").

1.1 ACQUISITION OF PACIFIC BAJA LIGHT METALS BY THE COMPANY
-------------------------------------------------------

The Company acquired Pacific Baja effective July 2, 1996 pursuant to an
acquisition agreement between the Company, Pacific Baja Light Metals
Holding, Inc. ("Pacific Baja") and the principal shareholders of Pacific
Baja (the "Acquisition Agreement"). The Company acquired all of the issued
and outstanding shares of Pacific Baja for total consideration consisting
of a cash payment of US $12,000,670 and the issue of 3,076,923 common
shares of the Company.

The principal reason for the acquisition was to form an alliance with a
manufacturer with a proven track record of volume manufacturing of quality
auto parts, particularly in the turbocharger field. The Turbodyne
Products are comprised of precision automotive parts, including cast
aluminum components manufactured by Pacific Baja. Through the acquisition
of Pacific Baja, the Company acquired a proven manufacturer for its
Turbodyne Products. Management viewed the acquisition as a means to
establish the credibility of the Company with potential OEMs as a quality
manufacturer of automotive parts. In addition, the acquisition brought to
the Company personnel experienced in manufacturing and who have contacts
with turbocharger manufacturers and potential customers for the Turbodyne
Products.

1.2 EXISTING PRODUCTS
-----------------

Pacific Baja Light Metals manufactures and markets permanent mold and sand
aluminum castings, both machined and raw, for the automotive aftermarket as
well as automotive and industrial OEM's. Pacific Baja Light Metals has
three operating units: Optima Wheel; Baja Oriente; and Baja Pacific.

Pacific Baja Light Metals' present product lines and business segments
include the following:

(a) CUSTOM WHEELS
-------------

Pacific Baja Light Metals, through its Optima Wheel operating unit,
manufactures and markets styled aluminum road wheels for the automotive
aftermarket. Products consist of one-piece aluminum wheels for passenger
cars, light trucks, and motorcycles, as well as two-piece (steel outer,
aluminum center) wheels for the passenger car replacement wheel market.
Sixty percent (60%) of Pacific Baja Light Metals' custom wheel sales are
private label brands produced for other wheel manufacturers and
distributors with the remaining forty percent (40%) marketed under the
'Optima Wheels' brand name to approximately 25 wholesale distributors
located throughout the United States. As Optima Wheel is not a dominant
aftermarket supplier of aluminum custom wheels and does not expend
significant efforts in connection with marketing and sales of its custom
wheels, there is a risk that revenues from these products will decline as
existing and new companies obtain additional market share. Management
intends to minimize the risk of revenue loss to the Company as a whole by
focusing its efforts to increase revenues in the non-wheel, industrial
products areas.

(b) NON-WHEEL ALUMINUM COMPONENTS
-----------------------------

Pacific Baja Light Metals, through Baja Oriente's facility located in
Ensenada, Baja California, Mexico, casts and machines permanent mold
aluminum parts for the Garrett division of AlliedSignal Automotive, Inc.
("AlliedSignal"), which manufactures turbo-charging systems for Class 8
trucks. Pursuant to its agreement with AlliedSignal, Pacific Baja Light
Metals is the sole source to AlliedSignal for air-to-air heat exchange
manifolds and is one of two aluminum

<PAGE>

foundries manufacturing compressor housings, pedestals, and other aluminum
components for AlliedSignal. Pacific Baja Light Metals manufactures a
ready-to-assemble product for AlliedSignal that is shipped directly to its
plant in Mexicali, Mexico. The supply agreement between AlliedSignal and
Pacific Baja Light Metals commenced on January 1, 1994 for an initial three
year term. Pursuant to a letter agreement, Pacific Baja Light Metals and
AlliedSignal have agreed to renew the supply agreement for an additional
three year term commencing on January 1, 1997 and expiring on December 31,
1999.

Pacific Baja Light Metals, through its Baja Pacific operating unit,
manufactures, short-run sand and permanent mold aluminum castings for
automotive, aerospace, and other industrial applications. Products
manufactured include turbine fan blades for maritime vessels, rotors for
fan blades, and short production runs for existing customers.

1.3 NEW PRODUCT DEVELOPMENT
-----------------------

Pacific Baja Light Metals develops new products in order to respond to
customer requests and to diversify its product lines. Pacific Baja's
engineering team has on-site design and development capabilities that
enable it to design products utilizing computer aided design and computer
aided manufacturing (CAD/CAM) drawings. Pacific Baja Light Metals' new
product development activities among its various product lines are as
follows:

(a) CUSTOM WHEELS
-------------

Pacific Baja Light Metals does not design new and unproven custom aluminum
road wheels. Pacific Baja Light Metals solicits market information from
its customers and attends auto shows to determine which styles are popular,
and uses its CAD/CAM system to make new molds and manufacture those wheels.
Pacific Baja Light Metals typically manufactures approximately ten new
wheel products annually, however based on many factors, including but not
limited to, technological developments and customer demands, Pacific Baja
Light Metals may change the number of new wheels produced annually.

(b) NON-WHEEL ALUMINUM COMPONENTS
-----------------------------

Pacific Baja has implemented a strategy to develop relationships with OEMs
in addition to AlliedSignal in the automotive industry to provide new
non-wheel aluminum components in order to expand its product line.
New products developed by Pacific Baja Light Metals start as short-run
prototypes at the La Mirada facility. Once these products are accepted
by the OEM, production begins at the higher volume foundry in Ensenada, Mexico.

There can be no assurance that Pacific Baja Light Metals will be successful
in establishing relationships with OEMs or if established that Pacific Baja
Light Metals will develop new products or that any new products developed
will be commercially accepted or profitable to Pacific Baja Light Metals.
See "Cautionary Statements and Risk Factors -- Technological Changes" and
"Cautionary Statements and Risk Factors -- Customer Preferences."

1.4 MANUFACTURING
-------------

Pacific Baja Light Metals manufactures products such as manifolds,
compressor housings, and pedestals at its Ensenada foundry, performs its
short-run foundry and prototype production in La Mirada, and manufactures
aluminum cast custom wheels at both locations. The La Mirada and Ensenada
foundries perform manufacturing activities ranging from casting to heat
treating, powder painting (Ensenada only), finished machining, and
packaging.

(a) ENSENADA FOUNDRY
----------------

Pacific Baja Light Metals operates an aluminum permanent mold foundry at
Ensenada, Baja California, Mexico, which occupies approximately 120,000
square feet. The Ensenada facility serves as Pacific Baja Light Metals'
primary long run, high volume casting operation, where custom wheels are
cast, heat treated, painted, machined to a semi-finished state, and shipped
to Pacific Baja Light Metals' La Mirada facility. The Ensenada facility
also houses Pacific Baja Light Metals' Baja Pacific operating unit, which
manufactures aluminum components under contract for AlliedSignal,

<PAGE>

casts, machines, and ships manifolds directly to AlliedSignal's assembly
plant in Mexicali, Mexico and casts, machines and ships compressor housings
and pedestals to their Torrance, California facility. As of December 31,
1996 Pacific Baja Light Metals employed approximately 325 persons at its
Ensenada foundry with two production shifts and one maintenance shift
operating five and one half days a week.

(b) LA MIRADA FOUNDRY
-----------------

Pacific Baja Light Metals operates a sand and permanent mold 95,000 square
foot foundry facility at La Mirada, California. In addition, Pacific
Baja Light Metals's corporate offices and distributing facility are located
in the La Mirada building. The La Mirada facility receives semi-finished
custom wheels, shipped from the Ensenada foundry, which are finished,
packaged, and prepared for shipment to Pacific Baja Light Metals private
label customers and Optima Wheel distributors. The La Mirada facility also
facilitates short-run and prototype aluminum casting production for
customers and serves as Pacific Baja Light Metals' 'feeder' operation for
longer run production in Ensenada, Mexico. As of December 31, 1996,
Pacific Baja Light Metals employed approximately 100 persons at its La
Mirada facility working two shifts, five days a week.

Pacific Baja Light Metals outsources the chrome plating and polishing of
its custom wheels due to the presence of hazardous materials associated
with this process and the resulting risk of environmental liabilities.

1.5 SUPPLIERS
---------

The raw materials used in Pacific Baja Light Metals' production of cast
aluminum custom wheels for the automotive aftermarket and cast aluminum
parts for automotive and industrial OEMs consist primarily of aluminum and
sand. Aluminum ingots are purchased from aluminum suppliers such as TST
Inc., Vista Corporation, and Noranda Company and are melted, poured into
sand and/or permanent mold castings, heat treated, machined, and finished
into the final product. Aluminum purchases are based predominantly on
price and typically net 60 days. Pacific Baja Light Metals does not expect
any disruption in its ability to obtain aluminum in the foreseeable future.

Sand is used in manufacturing the cores that are placed within permanent
molds prior to pouring aluminum and is used in sand aluminum castings
produced by Pacific Baja Light Metals. Pacific Baja Light Metals purchases
approximately 90% of its sand from one supplier. However, in the event
this supplier is unable to meet the needs of Pacific Baja Light Metals, the
Company does not anticipate any significant additional cost or time delays
to procure sand from another party.

Pacific Baja Light Metals' two-piece composite steel wheels are supplied by
American Wheel, a division of Titan Wheel Corporation, and are fitted with
aluminum centers manufactured at Pacific Baja Light Metals' facility in
Ensenada, Mexico. Two-piece composite custom wheels comprise approximately
15% of total custom wheel revenues.

Pacific Baja Light Metals' facility in Ensenada, Mexico is supplied with
raw materials which are purchased in, and delivered from, the United
States. This arrangement is intended to insulate Pacific Baja Light Metals
from adverse foreign exchange fluctuations.

1.6 MANAGEMENT
----------

Key personnel of Pacific Baja Light Metals are summarized as follows:

(a) MICHAEL J. JOYCE, PRESIDENT
---------------------------

Mr. Joyce, 52, 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

<PAGE>

to joining Pacific Baja Light Metals in 1990, Mr. Joyce was Group President
of Western Wheel Corporation, a major automotive supplier for 13 years.

(b) MR. LENNART RENBERG, EXCLUSIVE CONSULTANT
-----------------------------------------

Mr. Renberg, 52, possesses over 30 years experience in both the 'tool and
die' industry as well as the aluminum foundry industry. Mr. Renberg owned
and operated a tool and die business and an aluminum foundry in the Los
Angeles area. Mr. Renberg's services are provided pursuant to a consulting
agreement between Lykar Specialties Inc. and Pacific Baja Light Metals
pursuant to which Lykar Specialties Inc. provides the consulting services
of Mr. Renberg to Pacific Baja Light Metals. The consultant agreement
obligates Lykar Specialties Inc. to provide the full-time services of Mr.
Renberg on a day to day basis in connection with management of the
operations of Pacific Baja Light Metals for a three year term commencing
September 5, 1996.

Mr. Zastera, 58, earned a BS degree in Business Administration from the
University of Nebraska. Mr. Zastera worked as controller for several
foundry related companies, including 15 years with Western Wheel
Corporation as National Credit Manager from 1979 to 1990. He joined
Pacific Baja Light Metals in 1990.

The involvement of the Company's directors and officers in the day to day
operations of Pacific Baja Light Metals is limited to fundamental decisions
materially affecting the business of Pacific Baja Light Metals and to
discussions as to the production by Pacific Baja Light Metals of parts for
the Turbodyne Products. Management of Pacific Baja Light Metals reports to
the Company as to the financial and operational conditions of the Pacific
Baja Business on a monthly basis and as otherwise required. Day to day
management of the Pacific Baja Business is the responsibility of management
of Pacific Baja Light Metals.

1.7 BAJA ORIENTE
------------

Baja Oriente is incorporated under Mexican law and is 100% beneficially
owned by Pacific Baja Light Metals. Ownership of Baja Oriente by its U.S.
parent is permitted under an exemption to Mexican foreign investment law
for "maquiladora" ventures. Baja Oriente operates as a maquiladora
pursuant to a maquiladora license granted by the Mexican Ministry of
Commerce. As a maquiladora, Baja Oriente is able to import raw material
from the U.S. and export final products to Pacific Baja Light Metals in the
U.S. without being subject to import and export duties levied under Mexican
Federal Customs law. Baja Oriente purchases raw materials and receives
payment for its products in U.S. currency and accordingly is insulated from
fluctuations in the exchange rate of the Mexican peso in respect of its
purchases of raw materials and sales revenues.

1.8 COMPETITION
-----------

Pacific Baja Light Metals faces significant competition in both the cast
aluminum wheels automotive aftermarket industry and cast aluminum product
industry. In general, the barriers to entry to the aluminum foundry
business are not prohibitive as capital costs are less than those
associated with steel mills in large part because foundry operations
incorporate little high technology. The competition in each industry
segment is summarized as follows:

(a) CAST ALUMINUM WHEELS FOR AUTOMOTIVE AFTERMARKET
-----------------------------------------------

Pacific Baja Light Metals faces competition in the United States from
approximately 85 wheel companies of which approximately one-third have
manufacturing capability. Pacific Baja Light Metals limits its sales of
aftermarket wheels to the North American automotive market.

<PAGE>

(b) CAST ALUMINUM PRODUCTS FOR OEM'S
--------------------------------

Pacific Baja Light Metals faces competition in the cast aluminum product
manufacturing industry from a large number of competitors which have
greater revenues and financial resources than Pacific Baja Light Metals.

Barriers to entry for the cast aluminum product industry for automotive and
industrial OEMs are significantly higher than the barriers to entry for
cast aluminum wheels as OEMs impose high standards of quality control.

The Mexican manufacturing facility of Pacific Baja Light Metals operated by
Baja Oriente provides Pacific Baja Light Metals with a cost advantage over
competitors with operations in the U.S.

The sales of the cast aluminum products to OEMs by Pacific Baja Light
Metals is limited to OEMs operating within the United States.

1.9 CAUTIONARY STATEMENTS AND RISK FACTORS
--------------------------------------

Several of the matters discussed in this document contain forward looking
statements that involve risks and uncertainties. Factors associated with
the forward looking statements which could cause actual results to differ
materially from those projected in the statements appear below. In
addition to the other information contained in this document, readers
should carefully consider the following cautionary statements and risk
factors.

COMPETITION. The industry in which Pacific Baja Light Metals operates is
highly competitive and subject to technological change. Certain existing
and potential competitors of Pacific Baja Light Metals have greater
financial, marketing and other resources than Pacific Baja Light Metals.
Increased competition could result in price reductions, reduced margins and
loss of market share, all of which could materially adversely effect
Pacific Baja Light Metals.

LIMITED NUMBER OF CUSTOMERS. A large proportion of Pacific Baja Light
Metals' sales are concentrated in a small number of major customers. Loss
of any major customer, or a significant decrease in product shipment to, or
an inability to collect amounts due from, or any deterioration of the
relationship with, or any change in the financial circumstances of, any of
these customers could have an adverse effect on Pacific Baja Light Metals'
business and operating results.

CUSTOMER PREFERENCES. Some of Pacific Baja Light Metals' products are
subject to short term changes in consumer preferences and demands. Changes
in consumer preferences could render existing products or products under
development unmarketable which could adversely effect the sales and results
of operations of Pacific Baja Light Metals.

INTERNATIONAL RISKS. A significant amount of Pacific Baja Light Metals'
production takes place at the Ensenada facility and is imported into the
United States under favorable trade agreements negotiated between the
governments of the United States and Mexico. Changes in these trade
arrangements and in North American trade agreements generally could
adversely affect the production costs and profitability of Pacific Baja
Light Metals. In addition, changes in the foreign exchange rates for
Mexican Peso's and US Dollars or changes in economic conditions in Mexico
could adversely affect certain operating costs and the results of
operations of Pacific Baja Light Metals.

RAW MATERIALS. Pacific Baja Light Metals buys the raw aluminum material
for its products at market prices. Changes in demand and price of aluminum
could affect Pacific Baja Light Metals' ability to deliver products
pursuant to its contractual commitments and could materially adversely
effect results of operations.

TECHNOLOGICAL CHANGES. Technological changes in aluminum casting and
machining technology could affect Pacific Baja Light Metals's
competitiveness or require Pacific Baja Light Metals to make significant
expenditures on new plant and equipment all of which could adversely affect
Pacific Baja Light Metals' operating costs and results of operations.
There can be no assurance that in the event of technological changes,
Pacific Baja Light Metals will remain competitive.

<PAGE>

DEPENDENCE ON KEY PERSONNEL. Pacific Baja Light Metals is dependent upon
the efforts and commitment of Michael Joyce and Lennart Renberg. The loss
of the services of either Mr. Joyce or Mr. Renberg could adversely impact
on the business of Pacific Baja Light Metals.

2. TURBODYNE BUSINESS
------------------

Turbodyne Systems develops products to enhance performance and reduce
emissions of internal combustion engines. The Turbodyne Technology is
designed to optimize air flow to internal combustion engines resulting in
efficient fuel combustion in both diesel and gasoline engines.

2.1 ACQUISITION OF THE TURBODYNE SYSTEMS
------------------------------------

Turbodyne Systems was acquired by the Company pursuant to an agreement
between the Company and Edward M. Halimi dated July 15, 1993 and amended by
amendment agreements dated October 1, 1993 and December 31, 1993. The
Company issued 1,000,000 common shares of the Company 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.

Prior to the acquisition by the Company, 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.

2.2 PRODUCTS
--------

Turbodyne Systems has developed three principal products employing the
Turbodyne Technology more particularly described as follows:

(a) 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
causes air to be sucked into the engine through the carburetor. The 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
turbocharger. A supercharger is essentially an air compressor which is
driven by 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. Turbocharger
perform the same function as superchargers by delivering positive air
intake pressure through the carburetor to the cylinders. Unlike
superchargers, turbocharger are driven through the pressure of exhaust
gases exiting the engine. Although turbocharger solve many of the power
and fuel consumption problems of superchargers they are designed to work
efficiently at relatively high speeds. Until the pressure of exhaust gases
spins the turbine blades of the turbocharger above relatively high speeds,
there is insufficient air flow to the engine 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 inefficient
operation of the engine during the turbo lag period

<PAGE>

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
turbocharger 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 increases the speed of the turbocharger when exhaust
gases are insufficient to maintain appropriate turbocharger speed. The
Turbodyne System incorporates brushless electric motors and clutch designs
that eliminate wear problems. The brushless motor and an electronic
controller convert 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 is engaged and the shaft rotates, the clutch assembly engages the
motor with the turbocharger rotor. Upon acceleration of the clutch and
rotor assembly, radial load is entered using a clutch piloting bore. The
motor is activated by remote sensors that monitor the demand for power and
turbo boost.

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 turbo-lag 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 during acceleration.
More efficient combustion also results in better power delivery and
elimination of turbolag.

Management of Turbodyne Systems views the Turbodyne System as a prototype
product which was fundamental in establishing the technical viability of
the Turbodyne products. The technology employed in the Turbodyne System
has been incorporated into the Turbopac and Dynacharger products
subsequently developed by Turbodyne Systems, as discussed below. The
Company believes that the technology employed in the Turbopac and
Dynacharger products supersedes the Turbodyne System for a majority of
applications in the automotive industry. There may remain limited
applications within the automotive industry and general applications
outside the automotive industry where the Turbodyne System may be
commercially employed.

(b) TURBOPAC
--------

Turbopac applies technology similar to the Turbodyne System to make
combustion more efficient in both turbocharged and non-turbocharged
gasoline and diesel engines by optimizing the air to fuel ratio. The
Turbopac products are designed to provide an air boost into the engine in-
take manifold during the acceleration phase. Testing to date indicates that
Turbopac extends the benefits of the Turbodyne System 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 without the need for
precision machining of a turbocharger. The Company believes that the most
significant aspect of Turbopac is that it allows Turbodyne Systems to
target much larger international markets because of its ability to be
installed on non-turbocharged engines.

Turbodyne Systems plans to design and produce three separate Turbopac
models which may be installed on both turbocharged and non-turbocharged
engines:

<PAGE>

(1) the Turbopac 1200 model for naturally aspirated (ie. carburetted)
two-cycle gasoline engines installed in motorcycles, water-ski
jets and snowmobiles;

(2) the Turbopac 1500 model for cars, performance vehicles and light
trucks with either fuel injected or naturally aspirated gasoline
engines and with displacements up to 3.5 litres;

(3) the 2200 Turbopac model for cars, performance vehicles and light
trucks with either fuel injected or carburetted engines with
displacements greater than 3.5 litres;

(4) the Turbopac 2500 model for heavy duty trucks and buses for
either fuel injected or naturally aspirated diesel engines.

Turbodyne Systems has completed development and commenced production of the
1500 Turbopac model. Development of each of the 1200 Turbopac, 2200
Turbopac and the 2500 Turbopac models is in progress. Due to unanticipated
production delays, production of the 1200 Turbopac model initially intended
to commence in June, 1997 currently is scheduled to commence by the end of
September, 1997. Production of the 2200 Turbopac also is anticipated to
commence in September, 1997 and production of the 2500 Turbopac model is
anticipated to commence in December 1997.

The Dynacharger is Turbodyne Systems's newest product. It is essentially
the Company's Turbopac product incorporated into a turbocharger.
Dynacharger was developed primarily as a result of feedback from
evaluations conducted by potential customers who indicated that they would
prefer to see the Turbodyne Technology built into a turbocharger rather
than provided by an additional external component. Its principal
advantages over the Turbodyne System attached to a turbocharger are in
cost, weight and space economies. Operation of the Dynacharger is similar
to the Turbodyne System, except that the electric motor is part of the
internal design of the turbocharger and does not require a clutch to attach
it to the turbocharger's rotating assembly. The Dynacharger can be
interchangeable with an original equipment turbocharger, thus making it
appropriate for sale to both the original equipment manufacturer's market
and the after market. Turbocharger incorporating the Dynacharger products
can be installed on both fuel injected and naturally aspirated (I.E.,
carburetted) diesel and gasoline engines.

Turbodyne Systems also has designed a product described as a Motor-Assisted
Variable Geometry Turbocharging System ("Motoassist") which is a
Dynacharger with a valve system to concentrate exhaust gases resulting in
faster turbine acceleration.

2.3 STATUS OF PRODUCT DEVELOPMENT
-----------------------------

The Turbodyne System, 1200 Turbopac, 2200 Turbopac and Dynacharger products
are not yet commercially produced. Turbodyne Systems has commenced
preliminary commercial production of the 1500 Turbopac products at its
facility in Carpinteria, California. Pacific Baja Light Metals produces
housings for Turbodyne Systems prototype products which are then assembled
at the Carpinteria facility. It has commenced preliminary commercial
production of the housing for the 1500 Turbopac product.

Turbopac specification and design for the 1500 Turbopac products is
essentially complete. Turbodyne Systems' engineering staff is in the
process of finalizing parts and vendor lists and coordinating delivery
schedules for all components. Milestones yet to be completed prior to
commencing full-scale 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 in the foreseeable future or at all or that
the products will be commercially successful. In addition, no commercial
order is currently in place and there is no assurance that the Company will
ever receive such an order.

<PAGE>

Turbodyne Systems expects to complete specification and design for its
Dynacharger product in late 1997. Turbodyne Systems' management
expects to ready the first Dynacharger model for production at the end of
1997, 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.

Turbodyne Systems' production plan calls for the electronic components of
Turbopac and Dynacharger to be assembled and tested at Turbodyne Systems'
facility in Carpinteria. Final assembly and testing of the products is
scheduled to occur at the La Mirada facility. Turbodyne Systems has
adequate space at its Carpinteria facility for these purposes and Pacific
Baja Light Metals intends to commit approximately 30,000 square feet at its
La Mirada plant for final assembly and inventory of Turbodyne products.
Turbodyne Systems 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.

Turbodyne Systems' limited production to date has served to meet the
requirements of potential customers and testing agencies retained by the
Company undertaking evaluations of Turbodyne Systems' products.
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,
Turbodyne Systems has had no significant sales of its products other than
sales to Grand Technologies. See "Distribution Agreements -- Grand
Agreement."

Turbodyne Systems has spent approximately $8,705,000 developing the
Turbodyne System, Turbopac and Dynacharger products to date. Management
anticipates that an additional $1,500,000 will be spent in connection with
research and development efforts in order to bring all Turbopac models and
the Dynacharger product into full scale commercial production. This is a
forward looking statement however and the actual amounts spent on research
and development activities may differ. See "Cautionary Statements and Risk
Factors -- Product Development."

2.4 MARKETING OF THE TURBOPAC PRODUCTS
----------------------------------

The Company is undertaking the marketing efforts described below. There is
no assurance this marketing will result in commercial sale of the Company's
products.

(a) TURBODYNE SYSTEM
----------------

The Company is not currently marketing the Turbodyne System as it believes
that the Turbopac and Dynacharger products, each of which incorporate the
technology developed in the Turbodyne System, have superseded the Turbodyne
System and are more marketable products.

(b) TURBOPAC PRODUCTS
-----------------

The Company is marketing its Turbopac products in both the OEM sector and
the aftermarket installation sector.

The Company is providing each Turbopac product to OEMs, including Navistar,
AlliedSignal, Volkswagen and MANN, for testing in an attempt to convince
these manufacturers as to the performance and marketability of the Turbopac
products. These evaluation programs are long-term and, accordingly, the
Company does not anticipate a contract with an OEM for its Turbopac
products until 1998 at the earliest. The Company hopes to enter into joint
venture manufacturing agreements with the OEMs who agree to purchase the
Turbopac products.

The Company is marketing the 1500 Turbopac product in the aftermarket
automobile markets pursuant to the Grand Distribution Agreement (see
"Distribution Agreements--Grand Agreement"). Grand has yet to achieve
significant sales of the 1500 Turbopac product due to delays in full scale
production of the product by Turbodyne Systems.

The Company intends to market the 2500 Turbopac product for the heavy duty
trucks and bus aftermarket installation market. The 2500 Turbopac product
is undergoing final testing at Southwest Research Laboratories for
compliance with the pollution standards imposed by the U.S. Environmental
Protection Agency for the U.S. Urban Bus Retrofit program.
The Company hopes to receive certification of the 2500 Turbopac product
during the third quarter of 1997 at which time it will commence
marketing activities. The

<PAGE>

Company may produce the 2500 Turbopac product alone or under a joint
venture relationship with an existing retrofitter in the truck and bus
industry.

The Company intends to pursue evaluation programs with OEMs upon completion
of the development of the Dynacharger product. As with the Turbopac
products, the Company intends to secure OEM supply contracts pursuant to
which the Dynacharger products will be incorporated directly into OEM
products. The Company anticipates that it will commence these evaluation
programs in early 1998.

(d) GEOGRAPHICAL MARKET
-------------------

Initially, the Company is targeting OEMs in the United States and Europe
who are involved in automobile and truck and related parts manufacture.
The ultimate consumers of these products may be located worldwide.

The Company's geographical market for aftermarket products initially is the
United States and the U.S. urban bus retrofit market. (See "Distribution
Agreements--Grand Agreement").

2.5 COMPETITION
-----------

While the Company believes there is no direct competition to the Turbodyne
Technology, competition to the Turbodyne Technology exists from competing
technologies marketed by companies who may have more resources and who may
be better financed than the Company. In addition, there is no assurance
that new competitors will not attempt to enter the industry.

Competition for the Turbopac Products is expected from improvements and
refinement to conventional internal combustion engines which may be able to
increase fuel efficiency and decrease emissions. The cost of incorporating
these improvements and refinements into existing internal combustion
engines may be less than the cost of installing a Turbopac Product. In
addition, improvements and modifications to existing technology may be more
readily accepted by OEMs and consumers.

Competition for the Dynacharger products is expected from improvements and
refinements to existing turbocharger technology. Turbocharger
incorporating improvements and refinements to existing turbocharger
technology may be less expensive than turbocharger incorporating the
Dynacharger products. In addition, OEMs and consumers may be more willing
to accept improvements and refinements to existing turbocharger technology
than turbocharger installed with the Dynacharger product.

Both the Turbopac and Dynacharger products may realize competition from
existing products manufactured by OEMs who do not incorporate Turbodyne
products into their final products. A relatively small number of OEMs have
a significant share of the automotive market and accordingly an OEM's
failure to incorporate the Turbodyne products into its product lines could
pose a significant barrier to entry to the Company.

2.6 IMPACT OF GOVERNMENT REGULATION
-------------------------------

As pollution standards increase, the automotive market is expected to
increase its demand for technical improvements to existing internal
combustion engine technology in order to meet these standards.
Accordingly, an imposition of increased pollution standards by government
regulatory agencies is expected to cause an increase in demand for the
Turbodyne Products, assuming these products had been commercially developed
and accepted.

In the United States, emissions standards for diesel engines are imposed
by the US Environmental Protection Agency (the "US EPA") and by other
regulatory agencies such as the California Air Resources Board ("CARB").
The Company believes, based on its testing, that vehicles equipped with
Turbodyne Products meet the US EPA's emissions standards as specified in
the 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. There can be no

<PAGE>

assurance that the government will not increase emission standards to a
level that the Turbodyne Products currently do not satisfy, in which event,
the Company may be required to expend significant amounts to develop and
incorporate the technology necessary to meet these standards. Any such
expenditure and any delays in product development or sales as a result of
more stringent emission standards could have a material adverse effect on
the results of operations of the Company.

2.7 PROPRIETARY PROTECTION OF PRODUCTS
----------------------------------

Turbodyne Systems has filed and will continue to file patent applications
for its products and inventions. Turbodyne Systems has made patent
applications for its Turbodyne Technology as described below. Except as
indicated, 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 Turbodyne Systems' original Turbodyne Systems product. This
patent application was assigned by Mr. Halimi to Turbodyne Systems pursuant
to an asset purchase agreement between Mr. Halimi and Turbodyne Systems
dated August 18, 1993. Turbodyne Systems has been advised by the U.S.
Patent Office that all claims in respect of this patent application have
been approved. Turbodyne Systems 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 Turbodyne
Systems' proprietary Dynacharger products. The U.S. Patent Office has
approved all claims with respect to the earlier of the patent applications
and a formal patent has been issued in the name of the inventors. With
respect to the second of the patent applications, the U.S. Patent Office
has approved 40 out of 42 claims and a formal patent has been issued in the
name of the inventors. In respect of the first patent which has been
issued, this patent will expire on July 28, 2015. In respect of the second
patent, this patent will expire on September 18, 2015. The inventors have
executed formal patent assignment documents in favour of Turbodyne Systems
for each of the issued patents. Turbodyne Systems 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 Turbodyne
Systems' Turbopac products and were re-filed with additional disclosed
embodiments in late 1996 in conjunction with international patent
applications filed pursuant to the Patent Cooperation Treaty (the "PCT").
Examination of the international patent applications has been requested by
Turbodyne Systems. The inventors have executed formal patent assignments
in favour of Turbodyne Systems in respect of these patent applications
which have been submitted to the U.S. Patent Office for registration.
Turbodyne Systems has agreed to pay a 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.

Turbodyne Systems also has made patent applications for recognition of each
of the patent applications for the Turbopac and Dynacharger products with
each country that is a party to the PCT in order to secure international
patent protection of Turbodyne Systems' Turbodyne Technology.

Turbodyne Systems' policy is to diligently defend any infringement of its
patents. To date Turbodyne Systems has not encountered any challenges or
potential challenges of its patents. Turbodyne Systems has not established
a fund for defense of its patents but may do so if significant sales of its
products are achieved.

Turbodyne Systems also requires all employees, consultants and persons or
companies involved in the testing of Turbodyne Systems' products to execute
confidentiality agreements and to agree to keep confidential all
proprietary information with respect to Turbodyne Systems' products.

<PAGE>

2.8 EMPLOYEES
---------

In addition to Edward Halimi, who serves as President of Turbodyne Systems
and whose qualifications are discussed in "Directors and Officers of the
Company," the following are considered to be the key employees of Turbodyne
Systems:

(a) KIM MCDANIEL - VICE PRESIDENT, LEGAL
------------------------------------

Mr. McDaniel received his juris doctorate from the University of Puget
Sound School of Law, from which he graduated with honours. He also holds a
B.A. in Political Science and Economics from the California State
University at San Diego. He was Senior Counsel at Nestle Beverage Company
in San Francisco from 1992 until joining Turbodyne in 1996. Prior thereto
he was an Associate with the law firm of Brobeck, Phleger & Harrison in San
Francisco.

(b) DR. WILLIAM E. WOOLLENWEBER - VICE PRESIDENT, TURBOCHARGER TECHNOLOGY
---------------------------------------------------------------------

Dr. Woollenweber has a Bachelors degree in Mechanical Engineering from Yale
University and Masters and PhD degrees in Mechanical Engineering from
California Coast University. He has been granted over 25 patents, primarily
on turbocharger and turbo machinery and has authored several articles on
these subjects. Prior to joining Turbodyne Systems in 1995 he served as
President of Turbo Design Inc. of Carlsbad, California, a technical
consulting firm specializing in turbocharger and superchargers. He is a
former executive director of Cummins Engine Company, Inc., a former Vice-
President of Holset Corporation, a former Managing Director of BHD
Engineers and former Vice-President of Schwitzer Corporation.

Mr. Maloof is a professional engineer with degrees in Mechanical and
Aeronautical Engineering. Prior to joining Turbodyne in 1994 he was an
engineering consultant in private practise. He was formerly Senior Program
Manager and Manager of Manufacturing Research with Lockheed Aircraft
Corporation.

(d) DR. ANATOLY MEZHERITSKY - VICE PRESIDENT, EMISSIONS TECHNOLOGY AND
TURBOCHARGER
------------------------------------------------------------------

Dr. Mezheritsky holds M.Sc, Ph.D. and D.Sc. degrees in Mechanical
Engineering from the University of Transport Machine Production in the
former U.S.S.R. Prior to joining Turbodyne Systems in 1996 he served as
President of M.A. Turbo/Engine Design. He formerly served as a senior
mechanical engineer with Vicmar Engineering Ltd. He was formerly
Department Manager, the All Union Design and Technical Institute of Power
Engineering in Leningrad, U.S.S.R. He formerly served as a professor with
the U.S.S.R. Navy Higher Academy and the High Marine Engineering Academy in
Murmansk, U.S.S.R. He began his career in the 1950's as an engineer
researcher in a Turbine Engineering Plant in Leningrad, U.S.S.R. He has
published 9 books and 76 articles in the field of mechanical engineering
and holds 8 U.S.S.R. patents and one U.S. patent.

(e) DR. DORRIAH L. PAGE - VICE-PRESIDENT, EMISSION TECHNOLOGY AND
ENVIRONMENTAL COMPLIANCE
-------------------------------------------------------------
Dr. Page holds a Ph.D. and M.Sc. in Transportation Engineering from the
University of California. She also holds a B.Sc (Biology) and a B.A.
(Political Science). Prior to joining Turbodyne Systems in 1995 she was an
independent Air Quality and Environmental Research Consultant. She has
authored numerous papers on air quality and engine performance subjects and
is an executive member of several transportation and emission related
boards and organizations.

(f) LENARD WEDMAN - VICE-PRESIDENT, ELECTROMAGNETICS AND MOTOR TECHNOLOGY
---------------------------------------------------------------------

Mr. Wedman holds a B.Sc. in Electrical Engineering from the University of
Alberta and a M.Sc. in Electrical Engineering from the University of
British Columbia.

<PAGE>

(g) DAVID WILLETT - VICE-PRESIDENT, ELECTRONICS AND CONTROL TECHNOLOGY
------------------------------------------------------------------

Mr. Willett holds a B.Sc. degree in Electrical Engineering from the
University of California and a M.Sc. degree in Electrical Engineering from
the University of Wisconsin. Prior to joining Turbodyne Systems in 1996,
he was Engineering Design Manager with Pacific Scientific Company where he
was employed in various engineering capacities since 1987.

As of June 30, 1997, Turbodyne Systems had 47 full-time employees and 3
consultants.

2.9 DISTRIBUTORSHIP AGREEMENTS
--------------------------

a. GRAND AGREEMENT
---------------

On June 13, 1996, Turbodyne Systems 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 Turbodyne Systems' Turbopac
products for the automotive and motorcycle gasoline engine performance
aftermarket.

Under the terms of the Grand Agreement, Grand was 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 maintain its distributorship rights. Turbodyne Systems
completed the initial delivery of 85 Turbopac products under the Grand
Agreement during the week of October 14 - 18, 1996. These units were not
recorded as sales as they were delivered for product evaluation purposes.
Turbodyne Systems completed a subsequent delivery of 125 Turbopac products
during the period ending December 31, 1996, which deliveries also were not
recorded as sales. The Turbopac products shipped were produced in limited
scale production runs at Turbodyne Systems' Carpenteria facility. While
Grand did not meet the minimum purchase requirement of 15,000 units in
1996, Turbodyne Systems elected not to terminate the Grand Agreement for
failure to meet the minimum distribution requirement in 1996 as Turbodyne
Systems has been satisfied with the marketing efforts of Grand to date and
because Turbodyne Systems commenced limited production of the 1500 Turbopac
Product in late 1996. Through June 30, 1997, Grand has not made any
significant additional purchases from Turbodyne Systems. There is no
assurance that Grand will satisfy its purchase obligations for 1997 or in
subsequent years or that Turbodyne Systems will realize these revenues.
Turbodyne Systems 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.

Grand was recently incorporated for the purpose of marketing the Company's
Turbopac products under the Grand Agreement and has no history of prior
sales. The principals of Grand include Mr. Harry Hibler, an automotive
publisher, and Mr. George Fencl, a director of Vector Automobiles Company.
Mr. Hibbler was formerly Director of Sales and Marketing for Specialty
Events for Peterson Publishing Co. from 1994 to 1996. During this time,
Mr. Hibbler was publisher of Event Scene Magazine. Mr. Hibbler was
publisher of Hot Rod Magazine from 1980 to 1985 and from 1987 to 1994 and
publisher of Car Craft Magazine from 1976 to 1980. Vector Automobile
Company is a manufacturer of limited production high performance
automobiles. Each of Mr. Fencl and Mr. Hibbler have in excess of 20 years
experience in the automobile industry.

Grand has no revenue other than revenue which may be received from the sale
of Turbopac products delivered by the Company. 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.
Grand has indicated to the Company that it intends to expend $250,000 U.S.
to $300,000 U.S. on advertising and promotion of Turbopac products in the
first six months of 1997. The Company does not know of any assets which
may be owned by Grand other than the Turbopac products delivered to Grand
by the Company and the interest of Grand in the Grand Agreement.

Turbodyne Systems entered into the Grand Agreement based on the experience
and reputation of Mr. Hibbler and Mr. Fencl. While there is a risk that
Grand will not be able to complete its obligation under the Grand
Agreement, Turbodyne Systems has the right to terminate the Grand Agreement
for cause, as defined in the Grand Agreement, or without cause upon
delivery of 90 days notice. If the Grand Agreement is terminated, all
rights of Grand to distribute Turbopac products terminate. Grand is an
independent contractor under the Grand Agreement and will not become an
agent or consignee of Turbodyne Systems. Any product ordered by Grand will
be purchased by Grand

<PAGE>

from Turbodyne Systems. Turbodyne Systems is not obligated to fund the
operations of Grand or to provide any personnel or material to Grand under
the Grand Agreement.

At the time the Grand Agreement was entered into, Grand was known as
Granatelli Performance Technologies Inc. Granatelli Performance
Technologies Inc. subsequently changed its name to Grand Technologies Inc.
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.

The Grand Agreement is for an initial term of three years and automatically
will be renewed, subject to Grand's compliance with the terms of the Grand
Agreement, for successive two year periods.

The Grand Agreement does not restrict Turbodyne Systems' right to appoint
other distributors for aftermarket applications other than the automotive
and motorcycle gasoline engine performance aftermarket, or for the OEM
market.

Under the Grand Agreement, Turbodyne Systems will offer a limited warranty
for each Turbopac unit sold by Grand. The warranty obligates Turbodyne
Systems to replace any defective Turbopac unit. The warranty is limited to
the expiry of a two year period from purchase or 50,000 miles of use,
whichever is earlier.

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.

b. VIESSMAN WERKE
--------------

The Company has been advised by Viessman Werke GmbH & Company of Allendorf,
Germany that Viessman has received favorable results from its performance
evaluations of the Company's Turbopac products. The evaluations were
completed by Viessman pursuant to a development and supply proposal agreed
to between the Company and Viessman in January, 1996. The proposal
contemplated the supply of approximately 200,000 Turbopac units per year
upon completion of successful evaluations by Viessman.

There is no assurance that the Company and Viessman will enter into a
formal supply contract for the 200,000 Turbopac units, as contemplated in
the proposal, and to date, the Company has not received any purchase orders
from Viessman.

c. KUHNLE, KOPP AND KAUSCHE AG
---------------------------

The Company has entered into an agreement in principle with Kuhnle, Kopp
and Kausche AG ("3K"), dated for reference April 11, 1997, for the design,
development and manufacture of a prototype line of turbocharger
incorporating the Company's technology and manufactured by 3K. It is
anticipated that the prototype turbocharger will be developed for 3K's
major customers in the European automotive market. 3K is owned by the
Penske Automotive Organization and is the largest manufacturer of
turbocharger in Germany.

The agreement in principle contemplates the formation of a joint venture
pursuant to which the Company will grant to the joint venture an exclusive
license of its Turbodyne technology for the design, manufacture and sale of
motor-driven turbocharger in Europe for auto and truck manufacturers and
such other territories as the parties agree. 3K will have overall
responsibility for marketing and sales of the joint venture products
through 3K's established distributor and dealer network. The Company will
not receive any royalty from its license to the joint venture and will
participate in joint venture profits to be shared pursuant to a formula
based on cost contributions. The agreement in principle also provides 3K
with the option to continue to use any technology licensed to the joint
venture for a period of three years after termination of the joint venture
relationship, in consideration for the payment of a royalty in an amount to
be agreed upon.

<PAGE>

There is no assurance that the agreement in principal between the Company
and 3K will result in the execution of a joint venture agreement between
the Company and 3K. In addition, there is no assurance that a joint
venture between the Company and 3K will achieve sales of the turbocharger
incorporating the Company's Turbodyne Technology or that the Company will
ever realize any profits from the joint venture.

2.10. DEVELOPMENT COSTS TO DATE
-------------------------

Since the acquisition of the Turbodyne Technology, Turbodyne Systems has
principally engaged in the research and development of products that
incorporate the Turbodyne Technology. The Company concentrates the
business of Turbodyne Systems exclusively on research and development of
products incorporating the Turbodyne Technology. At such time as these
products are ready for commercial production, Turbodyne Systems intends to
engage in research and development of additional products incorporating the
Turbodyne Technology.

The research and development costs incurred during the past three fiscal
years of the Company, and from incorporation to December 31, 1996 are as
follows:
<TABLE>
<CAPTION>

Inception
April 30, 1993 January 1, 1994 to January 1, 1995 to January 1, 1996 to
TO DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Product
Development Costs $ 1,124,198 $ 629,959 $ 2,016,726 $ 4,934,490
=========== ============ =========== ===========

Total From Inception,
April 30, 1993, to
DECEMBER 31, 1996
-----------------
Product
Development Costs $ 8,705,373
============
</TABLE>

2.11 CAUTIONARY STATEMENTS AND RISK FACTORS
--------------------------------------

NO HISTORY OF PRODUCT SALES. The Turbodyne Business has not yet achieved
commercial production of its Turbodyne Products, other than the limited
scale production of Turbopac products, and is being financed by equity and
debt. Turbodyne Systems has had no significant sales to date.
Accordingly, the Company is subject to risks associated with start-up
companies, including initial losses, uncertainty of revenues, markets and
profitability and the necessity of additional funding.

PRODUCT DEVELOPMENT. The Turbodyne System, Turbopac and Dynacharger
products have yet to be commercially produced and unexpected problems and
changes to specifications may arise in the development of these products.
These problems or changes may affect the overall feasibility of the
product, or could delay completion time and increase costs of development.
Additionally, as product evaluations are not complete, the Company cannot
predict market acceptance of the Turbodyne Products.

RAW MATERIALS. Turbodyne Systems is primarily dependent upon outside
suppliers for manufacturing components. There is no assurance that these
suppliers will be able to meet all the demands of the Company or that price
increases in raw materials can be passed on to the Company's customers
through increases in product prices.

COMPETITION. The Company is not aware of any product directly competitive
with the Turbodyne System; however, indirectly competitive products
currently are sold in the marketplace. Other products or technologies may
be developed and may make Turbodyne Products less competitive or even
obsolete over time. Certain existing

<PAGE>

competitors and organizations researching and selecting solutions to turbo-
lag and unacceptable emissions have greater financial, managerial and
technical resources, operating histories and name recognition than the
Company. There can be no assurance that the market will consider the
Turbodyne Products to be superior to existing or future competitive
products, or that the Company will be able to adapt to evolving markets and
technologies, develop new products or achieve or maintain technological
advantages.

PROPRIETARY PROTECTION. The Company has filed patent applications in the
United Sates and in certain foreign jurisdictions relating to Turbodyne
Technology. Application for a patent offers no assurance that a patent
will be issued or issued without material modification. Moreover, there
can be no assurance that patents will be issued, that issued patents will
not be circumvented or invalidated, that proprietary information can be
maintained as such or that the Company will be able to achieve or maintain
a technological advantage. Insofar as the Company relies on trade secrets
and proprietary know-how to achieve and maintain a competitive position,
there can be no assurance that others may not independently develop similar
or superior technologies or gain access to the Company's trade secrets or
know-how.

PRICING STRATEGY. The Company has developed a pricing strategy and price
lists for its products in relation to retail selling prices of indirectly
competitive products and on estimated costs of producing the Turbodyne
System. Market acceptance of the Turbodyne products will be heavily
dependent on the pricing policy established by the Company and the cost-
benefit of the Turbodyne Products. There is no assurance that established
pricing levels will be accepted by the marketplace or that the cost-benefit
to manufacturers will be sufficient to encourage mass purchase of the
Turbodyne Products.

DEPENDENCE ON KEY PERSONNEL. Turbodyne Systems is dependent upon the
personal efforts and commitment of the management team, particularly Mr.
Halimi who is responsible for the development of current and future
products. In the event management's services become unavailable, the
Company would need to recruit, retain and motivate other skilled
executives, sales and technical personnel to manage and operate the
business. There can be no assurance that the Company will be successful in
locating new management or retaining them. In the case of Mr. Halimi, the
loss of his services would adversely affect development of the business and
its likelihood of continuing operations.

INSURANCE. The Company plans to carry product liability, business
interruption and keyman life insurance, but, to date, such insurance is not
in place.

CHANGING INDUSTRY ENVIRONMENT. The Turbodyne Business may be affected by
other factors beyond its control. For example, engine and turbocharger
configurations may change, the demand for turbocharged engines may diminish
regardless of the benefits of the Company's products, and the compartments
in which engines are installed might not offer sufficient space to install
the Company's Turbodyne products.

ITEM 2. DESCRIPTION OF PROPERTY
-----------------------

The administrative head office of the Company 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 Company's monthly rent is $2,500 (Cdn.). See Item 13 -
"Interest of Management in Certain Transactions."

Turbodyne Systems' 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 Company's monthly
rent is $16,850 (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

<PAGE>

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
-----------------

The Company is a party to an action commenced in the Supreme Court of
British Columbia on October 2, 1996 by Brad Holt seeking specific
performance and/or damages for breach of an alleged agreement by the
Company to grant to Brad Holt options to purchase an aggregate of 650,000
common shares of the Company at prices varying from $3.50 per share to
$7.50 per share. The Company has filed a defense denying the existence of
the agreement and, in the alternative, alleging that the agreement was
replaced by a subsequent agreement granting Brad Holt options on only
100,000 shares of the Company. The Company's management is of the view
that the claim is without merit.

With the exception of the action commenced by Brad Holt, the Company and
its subsidiaries are not a party with respect to any material legal
proceedings, no legal proceedings by the Company are contemplated and the
Company is not aware of any possible material legal proceedings by other
parties against the Company.

ITEM 4. CONTROL OF COMPANY
------------------

1. As far as is known to the Company, and except as disclosed herein, the
Company 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 June 30, 1997, information with
respect to (I) any person who is known to the Company to be the owner of
more than 10% of any class of the Company's voting securities and (ii) the
total amount of the class of the Company's voting securities owned by the
officers and directors and by the directors and officers as a group:

PERCENT OF
DIRECTOR/OFFICER NUMBER OF SHARES CLASS(1)
- ---------------- ---------------- --------
Edward Halimi 3,250,000 common shares(2) 13.9%
President & 200,000 options
Director

Officers and 4,818,957 common shares 22.0%
Directors 753,000 options
as Group
(8 persons)

<PAGE>

(1) Based upon 24,539,112 common shares issued and outstanding as at June
30, 1997 and including for Mr. Halimi and the directors and officers
as a group the common shares underlying their respective options.
(2) This figure includes 3,250,000 escrow shares held in the name of March
Technologies Inc., a private company controlled by Mr. Halimi.

As of the date hereof, there are no arrangements known to the Company, the
operation of which may result in a future change of control in the Company.

ITEM 5. NATURE OF TRADING MARKET
------------------------

The common shares of the Company are listed on the Vancouver Stock Exchange
in British Columbia, Canada and on the Nasdaq Small Cap Market.

As of June 30, 1997, the Company's share register indicates that 10,713,679
of the issued and outstanding common shares were held by 85 shareholders
with addresses in the United States, representing approximately 44.4% of
the issued and outstanding common shares of the Company.

1. VANCOUVER STOCK EXCHANGE
------------------------

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.

YEAR AND MONTH HIGH* LOW*
- -------------- ----- ----

April 1, 1997 to June 30, 1997 $11.65 $ 5.00
January 1, 1997 to March 31 1997 $12.50 $ 9.20
October 1, 1996 to December 31, 1996 $12.35 $ 9.70
July 1, 1996 to September 30, 1996 $12.80 $ 9.00
April 1, 1996 to June 30, 1996 $15.00 $ 8.50
January 1, 1996 to March 31, 1996 $12.875 $ 4.90
October 1, 1995 to December 31, 1995 $ 5.75 $ 4.10
July 1, 1995 to Sept 30, 1995 $ 5.625 $ 3.30
April 1, 1995 to June 30, 1995 $ 6.75 $ 1.21

* As quoted by the Vancouver Stock Exchange. Expressed in Canadian
dollars.

<PAGE>

2. NASDAQ SMALL CAP MARKET
-----------------------

The following table sets forth the reported high and low prices for the
common shares as quoted on the Nasdaq Small Cap Market on a monthly basis
since March 26, 1997, being the date the common shares of the Company were
listed on Nasdaq.

YEAR AND MONTH HIGH* LOW*
- -------------- ----- ------

June 1, 1997 to June 30, 1997 $4.88 $3.50
May 1, 1997 to May 31, 1997 $6.88 $4.75
April 1, 1997 to April 30, 1997 $8.38 $5.63
March 26, 1997 to March 31, 1997 $9.38 $8.00

* As quoted by the Nasdaq Small Cap Market. Expressed in U.S. dollars.

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS
----------------------------------------------------------

Except as discussed in Item 7, the Company 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 Company 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 Articles of
Continuation or the By-laws of the Company.

The INVESTMENT CANADA ACT (the "Act") is applicable to acquisitions of a
Canadian business by a non-Canadian person or entity. The Act provides,
among other things, for a review of an investment in the event of
acquisition of control in certain Canadian businesses in the following
circumstances:

(a) if the investor is a non-Canadian and is not a member of a World Trade
Organization ("WTO") country, any direct acquisition having an asset
value exceeding $5,000,000 and any indirect acquisition having an
asset value exceeding $50,000,000;

(b) if the investor is a non-Canadian and is a WTO member, any direct
acquisition having an asset value exceeding $168,000,000, unless the
business is involved in uranium production, financial services,
transportation services or a cultural business. An indirect
acquisition of control by an investor who is a WTO investor is not
reviewable unless the value of the assets of the business located in
Canada represents more than 50% of the asset value of the transaction,
or the business is involved in uranium production, financial services,
transportation services or a cultural business.

The Act provides that a non-Canadian 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 non-Canadian 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).

The Act provides for notification under the Act where a non-Canadian
investor acquires control, directly or indirectly, of a Canadian business
with assets under the thresholds for reviewable transaction. The
notification process consists of filing a notification form within 30 days
following the implementation of an investment.

<PAGE>

ITEM 7. TAXATION
--------

(a) CANADIAN FEDERAL INCOME TAXATION
--------------------------------

The following discussion is a summary of the principal Canadian federal
income tax considerations generally applicable to purchasers of the
Company's common shares ("Common Stock") who, for purposes of the Income
Tax Act (Canada) and Income Tax Regulations (the "Canadian Act"), deal at
arm's length with the Company, hold shares of Common Stock as capital
property, are not residents of Canada at any time when holding Common Stock
and do not use or hold and are not deemed to use or hold Common Stock in
the course of carrying on business in Canada and, in the case of insurers
who carry on an insurance business in Canada and elsewhere, do not hold
Common Stock that is effectively connected with an insurance business
carried on in Canada. Such a purchaser is referred to in this discussion
as a "shareholder."

This summary is based on the current provision of the Canadian Act, the
regulations thereunder and the Canada-United States Income Tax Convention
(1980) (the "Treaty") as amended. This summary takes into account specific
proposals to amend the Canadian Act and the regulations thereunder publicly
announced by the Minister of Finance prior to the date hereof and the
Company's understanding of the current published administrative and
assessing practices of Revenue Canada, Taxation. This summary does not
take into account Canadian provincial income tax laws or the income tax
laws of any country other than Canada.

A shareholder of the Company will generally not be subject to tax pursuant
to the Canadian Act on a capital gain realized on a disposition of Common
Stock unless the Common Stock is "taxable Canadian property" to the
shareholder for purposes of the Canadian Act and the shareholder is not
eligible for relief pursuant to an applicable bilateral tax treaty. Under
proposals to amend the Canadian Act, the Common Stock will not be taxable
Canadian property to a shareholder provided that the Company is listed on a
prescribed Canadian or foreign stock exchange within the meaning of the
Canadian Act and provided that such shareholder, or persons with whom such
shareholder did not deal at arm's length (within the meaning of the
Canadian Act), or any combination thereof, did not own 25% or more of the
issued shares of any class or series of the Company at any time within five
years immediately preceding the date of disposition. In addition, the
Treaty will generally exempt a shareholder who is a resident of the United
States for purposes of the Treaty from tax in respect of a disposition of
Common Stock provided that the value of the shares of the Company is not
derived principally from direct or indirect real property interests
(including resource property) situated in Canada.

Under the Canadian Act, a disposition of shares that constitute taxable
Canadian property will give rise to a capital gain (or a capital loss)
equal to the amount by which the proceeds of disposition of such shares,
net of any cost of disposition, exceeds (or is less than) the adjusted cost
base of such shares to the shareholder. Generally, three quarters of any
capital gain realized by the shareholder on a disposition or deemed
disposition of such shares is included in computing his Canadian income for
that year as a taxable capital gain. Three quarters of any capital loss
realized by a shareholder on a disposition or deemed disposition of such a
share in a taxable year may generally be deducted from his Canadian taxable
capital gains for that year.

Under the Canadian Act, the disposition of a share by a shareholder may
occur or be deemed to occur in a number of circumstances including on sale
or gift of such share or upon the death of the shareholder.

The initial adjusted cost base of a share to a shareholder will be the cost
to him of that share. Under the Canadian Act, certain addition or
reduction adjustments may be required to be made to the cost base of a
share. The adjusted cost base of each common share of a corporation owned
by a shareholder at any particular time will be the average adjusted cost
base to him of all shares of the same class of that corporation owned by
him at that time.

Any dividend, including stock dividends, paid or credited, or deemed to be
paid or credited, by the Company to or for the benefit of a shareholder
will be subject to Canadian withholding tax at the rate of 25% on the gross
amount of the dividend, subject to the provisions of any applicable income
tax convention. Pursuant to the Treaty, the rate

<PAGE>

of withholding tax generally will be reduced to 15% in respect of dividends
paid to a shareholder who is a resident of the United States for purposes
of the Treaty and are further reduced to 5% if the beneficial owner of the
shares is a corporation that is a resident of the United States for
purposes of the Treaty owning at least 10% of the voting shares of the
Company.

(b) UNITED STATES TAXATION
----------------------

For federal income tax purposes, an individual who is a citizen or resident
of the United States or a domestic corporation ("U.S. Taxpayer") will
recognize a gain or loss on the sale of the Company's Common Stock equal to
the difference between the proceeds from such sale and the adjusted cost
basis in the Common Stock. The gain or loss will be a capital gain or
capital loss if the Company's Common Stock is a capital asset in the hands
of the U.S. Taxpayer.

For federal income tax purposes, a U.S. Taxpayer will be required to
include in gross income dividends received on the Company's Common Stock.
A U.S. Taxpayer who pays Canadian tax on a dividend on the Common Stock
will be entitled, subject to certain limitations, to a credit (or
alternatively, a deduction) against federal income tax liability. A
domestic corporation that owns at least 10% of the voting stock of the
Company should consult its tax advisor as to applicability of the dividends
received deduction or deemed paid foreign tax credit with respect to
dividends paid on the Company's Common Stock.

ITEM 8. SELECTED FINANCIAL DATA
-----------------------

This Report includes financial statements for the Company and financial
statements for Pacific Baja. The following is selected financial
information from these financial statements. This information should be
read in conjunction with such Financial Statements and notes thereto
included elsewhere in this Report.

(A) COMPANY
-------

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. The
Company's Financial Statements are prepared according to Canadian Generally
Accepted Accounting Principles (CDN GAAP). In addition, the Company's
accountants have reconciled the Financial Statements for the periods ending
December 31, 1993, December 31, 1994, December 31, 1995, and December 31,
1996 in accordance with U.S. Generally Accepted Accounting Principles (US
GAAP). The reconciliation is contained in the notes to the financial
statements.

The financial condition and operating results for the Company described for
the period from January 1, 1996 to December 31, 1996 includes the
financial condition and operating results of Pacific Baja Light Metals from
July 2, 1996 to December 31, 1996.

SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY FINANCIAL STATEMENTS
(CANADIAN GAAP)(CANADIAN $)

<TABLE>
<CAPTION>
Year Ending Year Ending Year Ending April 30, 1993
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994 TO DEC. 31, 1993
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
OPERATING DATA:

Sales $19,007,000 Nil Nil Nil
Gross Profit $ 2,509,000 Nil Nil Nil

<PAGE>

Net Loss ($2,558,000) ($1,528,000) ($ 936,000) ($ 112,000)

BALANCE SHEET DATA:

Working capital (Deficit) $ 9,964,000 $ 83,000 ($ 426,000) ($ 336,000)
Total Assets $64,495,000 $5,202,000 $1,899,000 $1,371,000
Long Term Liabilities $ 8,666,000 $ 483,000 Nil Nil
Total Liabilities $17,517,000 $ 966,000 $ 458,000 $ 336,000
Shareholders Equity $46,978,000 $4,236,000 $1,441,000 $1,035,000
Number of Shares Outstanding 23,580,098 16,542,121 10,663,052 1,078,052
</TABLE>

SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY FINANCIAL STATEMENTS
(U.S. GAAP)(CANADIAN $)

Sales $19,007,000 Nil Nil Nil
Gross Profit $ 2,509,000 Nil Nil Nil
Net Loss ($ 7,492,000) ($ 6,788,000) ($2,867,000) ($292,000)

BALANCE SHEET DATA:

Working capital (Deficit) $ 9,964,000 $ 83,000 ($ 426,000) ($336,000)
Total Assets $ 59,561,000 $ 1,317,000 $ 79,656 $ 44,500
Long Term Liabilities $ 8,666,000 $ 20,000 Nil Nil
Total Liabilities $ 17,517,000 $ 503,000 $ 458,000 $336,000
Shareholders Equity $ 38,273,000 $ 813,460 ($ 378,795) ($291,632)
Number of Shares Outstanding 23,580,098 16,542,121 10,663,052 1,078,052
</TABLE>

(b) PACIFIC BAJA
------------

The Financial Statements for Pacific Baja represent the financial condition
and operating results of Pacific Baja Light Metals Holding Inc. prior to
the acquisition by the Company for the fiscal years ending December 31,
1993, 1994 and 1995 and for the six months ending June 30, 1996. The
financial information for the years ending December 31, 1993, 1994 and 1995
is based on audited financial statements. The financial information for
the six months ending June 30, 1996 is based on unaudited financial
statements prepared by management. The Financial Statements for Pacific
Baja Light Metals are prepared according the U.S. GAAP.

SUMMARY OF FINANCIAL INFORMATION IN PACIFIC BAJA FINANCIAL STATEMENTS
(U.S. GAAP)($U.S.)

<TABLE>
<CAPTION>
YEARS ENDING
SIX MONTHS ENDING DECEMBER 31
JUNE 30, 1996(1) 1995(1) 1994(1)
---------------- ------- -------
OPERATING DATA:
<S> <C> <C> <C>
Sales
Custom Wheels: $13,665,000 $17,262,000 $12,956,000
Cast Aluminum Parts: $ 6,359,000 $11,724,000 $ 6,436,000
---------- ---------- ----------
$20,024,000 $28,986,000 $19,392,000
Gross Profit
Custom Wheels: $ 2,650,000 $ 3,077,000 $ 1,749,000
Cast Aluminum Parts: $ 2,482,000 $ 2,576,000 $ 2,240,000
---------- ---------- ----------
$ 5,132,000 $ 5,653,000 $ 3,989,000

Net Income $ 1,894,000 $ 815,000 $ 480,000
========== ========== ==========

BALANCE SHEET DATA:

Working Capital (Deficit) $ 225,000 ($ 1,019,000) $ 343,000
Total Assets $18,733,000 $16,118,000 $12,213,000
Long Term Liabilities $ 1,655,000 $ 2,177,000 $ 1,841,000
Total Liabilities $12,028,000 $11,307,000 $ 8,217,000
Shareholders' Equity
Dollar Amount: $ 6,705,000 $ 4,811,000 $ 3,996,000
No. Of Common Shares 1,131,247 1,131,247 1,131,247

</TABLE>

(1) Financial Information is for Pacific Baja, prior to the merger of
Pacific Baja Light Metals Holding Inc. with Pacific Baja Acquisition
Corp. to form Pacific Baja Light Metals.

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$/US$)

<PAGE>

December, 1996 1.3697 1.3632 (CDN$/US$)

DIVIDENDS
- ---------

To date, the Company has not paid any dividends on its common shares. The
Company'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 condition of the Company and such other factors as
the Board of Directors of the Company may consider appropriate. Since the
Company is currently in an expansion stage, it is unlikely that earnings
will be available for the payment of dividends in the foreseeable future.

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
Report.

1. RESULTS OF OPERATIONS
---------------------

1.1 THE COMPANY
-----------

From the date of the acquisition of the Turbodyne Technology in April, 1993
to the completion of the acquisition of Pacific Baja, the Company was
engaged, through Turbodyne Systems, principally in researching and
developing products incorporating the Turbodyne Technology to enhance
engine performance and reduce emissions of internal combustion engines.
During this period, the Company commenced development of the Turbodyne
System, the Turbopac product and the Dynacharger product. In addition, the
Company's research and development resulted in the filing of the patent
applications in respect of the Turbodyne System and the Turbopac and
Dynacharger products. While Turbodyne Systems undertook low volume
production of its products, the products produced were used for testing and
evaluation with OEMs and major retrofit customers. The Company did not
record any revenues during this period and has expended $8,705,000 to
December 31, 1996 as development costs for the Turbodyne products. The
development of the Turbodyne products was financed during this period
primarily from private placement equity financings. The Company's
financial results for the period from July 2, 1996 to December 31, 1996
include financial results from both the Turbodyne Business and the Pacific
Baja Business.

(a) DECEMBER 31, 1996
-----------------

The Company's audited financial statements for the year ending December 31,
1996 are based on the consolidation of the Company and Pacific Baja Light
Metals and its subsidiaries effective July 2, 1996. The consolidation date
is the date agreed by the Company and Pacific Baja that all material
conditions precedent to the completion of the acquisition of Pacific Baja
had been satisfied.

Sales of the Company for the period ending December 31, 1996 increased from
nil in prior years to $19,007,000. These sales are attributable solely to
the sales recorded by Pacific Baja Light Metals for the period from July 2,
1996 to December 31, 1996. The Company recorded a gross profit of
$2,509,000 which also was attributable to the Pacific Baja Business. Of
the total sales attributable to the Pacific Baja Business, sales of
aftermarket wheel products accounted for sales of $9,799,000 and sales of
cast aluminum products, including compressor housings and manifolds,
accounted for sales of $9,208,000. Of the gross profit attributable to the
Pacific Baja Business, sales of aftermarket wheel products accounted for
gross profits of $1,309,000 and sales of cast aluminum products, including
compressor housings and manifolds, accounted for a gross profit of
$1,200,000. Gross profit from sales of aftermarket wheel products declined
from $2,650,000 U.S. for the first six months of 1996 to $1,309,000 Cdn.
for the six month period from July 2, 1996 to December 31, 1996 due to
seasonal declines in the aftermarket wheel product business. Sales of
aftermarket wheel products typically peak in the spring of each year while
operating costs continue throughout the year. Gross profit from sales of
cast aluminum products declined from $2,482,000 U.S. for the first six
months of 1996 to $1,200,000 Cdn. for the six month period from July 2,
1996 to December 31, 1996 due to increases in the

<PAGE>

price of raw aluminum and increased labour costs. Pacific Baja Light
Metals' profitability is affected by increasing aluminum costs as the
prices of its cast aluminum products are fixed under contract in advance of
production. Increased labour costs resulted from Pacific Baja Light Metals
increased production of cast aluminum products in order to meet deliveries
required under contracts. Revenues from this production are not realized
until such time as the product is delivered under the contract.

The Company recorded product development costs of $4,934,000 during the
period from January 1, 1996 to December 31, 1996. These costs are
attributable solely to product development costs incurred by Turbodyne
Systems. The costs for the year ending December 31, 1996 exceeded the
product development costs incurred in 1995. The increase is attributable
to the finalization of development of the 1500 Turbopac product, ongoing
development of the 2500 Turbopac product and the Dynacharger product and
gearing up for full scale commercial production of the 1500 Turbopac
product. Product development costs included establishing a quality control
laboratory at Turbodyne Systems, designing an electronic controller unit
for the Turbopac products and continuing development and evaluation of the
Turbopac and Dynacharger products. Project staff salaries increased as a
result of the establishment of an electronic engineering department for
Turbodyne Systems and the continued hiring of technical staff for
development of the Turbopac and Dynacharger products.

Operating expenses for the year ending December 31, 1996 increased to
$5,060,678, in comparison to total operating expenses of $1,527,342 in
1995. This increase is primarily attributable to the consolidation of
operating expenses for Pacific Baja Light Metals for the period from July
2, 1996 to December 31, 1996. The increase resulted from the acquisition
of Pacific Baja and inclusion of salaries for its employees for the period
from July 2, 1996 to December 31, 1996. In addition, in 1996 Turbodyne
Systems increased salaries payable to several of its vice-presidents. See
"Executive Compensation."

Liquidity of the Company during the year was enhanced by the completion of
the Series A Special Warrant Offering and the Series C Special Warrant
Offering, each as discussed in Item 12 "Options to Purchase Securities from
the Company and its Subsidiaries." The Company received cash proceeds from
the Series A Special Warrant Offering of $17,918,000, which was used for
the acquisition of Pacific Baja and payment of expenses associated with
this offering. The Company received cash proceeds of $4,010,000 after
completion of the Series C Special Warrant Offering on December 6, 1996.

(b) DECEMBER 31, 1995 AND 1994
-------------------------

During the 1994 and 1995 financial years, the Company's sole business was
the Turbodyne Business as carried on by Turbodyne Systems. Turbodyne
Systems did not record any sales during this period. The business
activities consisted of research and development of the Turbodyne System
and the Turbopac and Dynacharger products. The Company incurred product
development costs of $2,016,726 in 1995. Cumulative product development
costs prior to December 31, 1994 totalled $1,754,157. Operating expenses
increased from $935,992 in 1994 to $1,527,342 in 1995 as the Company
increased its product development activities. Operating expenses included
travel and business development expenses equal to $335,811 for the year
ending December 31, 1995 and equal to $245,297 for the year ending December
31, 1994. The travel and business development expenses were incurred in
connection with establishing relationships and joint evaluation testing
programs with potential OEM manufacturers and establishing contacts with
suppliers and manufacturers for the Turbodye products.

Product development costs for the year ended December 31, 1995 were
$3,770,883 in comparison to cumulative total product development costs
equal to $1,754,157 as of December 31, 1994. The majority of product
development costs were accounted for by project development costs (testing,
evaluations and research and development ) for the Turbodyne products and
associated staff salaries and benefits.

The Company's business activities during 1994 and 1995 were financed
primarily from private placement financings of the Company's common shares.

<PAGE>

1.2 PACIFIC BAJA
------------

(a) JUNE 30, 1996
-------------

The consolidated net sales of Pacific Baja Light Metals for the first six
months of 1996 were $20,024,000 U.S., compared with $14,661,000 U.S. for
the first six months of 1995. Net income for the six month period
increased to $1,894,000 U.S. as compared with net income of $664,000 U.S.
for the same period during 1995. Operations during the six month period
were funded by revenues from product sales and advances under the credit
facilities of Pacific Baja Light Metals. The outstanding balance of the
credit facilities as of June 30, 1996 area summarized as follows:

COMPANY CREDITOR OUTSTANDING BALANCE
------- -------- -------------------
Optima Wheel Wells Fargo Bank $3,239,000 U.S.
Baja Pacific Wells Fargo Bank $1,246,000 U.S.

The increase in both sales and net income of Pacific Baja Light Metals is
attributable to continued expansion of both the aftermarket wheel business
and the cast aluminum products business of Pacific Baja Light Metals.

General and administrative expenses for the six month period ending June
30, 1996 totalled $1,386,000 U.S. in comparison to general and
administrative expenses of $3,128,000 U.S. for the year ended December 31,
1995. Salaries payable to the employees of Pacific Baja Light Metals
accounted for $381,000 of the total general and administrative expenses for
this six month period.

(b) DECEMBER 31 1995 AND 1994
-------------------------

The consolidated sales of Pacific Baja for 1995 were $28,986,000 U.S.
compared with sales of $19,392,000 U.S. for 1994, an increase of 49%. This
sales increase resulted from increases in both the wheel market and general
castings. Wheel sales increased because of additional orders from
Interstate Tire Company in North Carolina, one of the United States'
largest buyers of after market styled wheels, as well as a broader and more
accepted product line. The general castings sales increase resulted from
additional business from AlliedSignal.

Net income for 1995 was $815,000 U.S. compared with $480,000 U.S. for 1994.
Gross margins remained consistent at approximately 20% for both years.
Operating expenses decreased slightly as a percent of sales for 1994 to
1995. Interest expenses increased to $519,000 U.S. in 1995 from $355,000
U.S. in 1994. This increase resulted from the additional borrowing used to
support the capital additions in 1995. These capital expenditures were
made at both the La Mirada and Ensenada facilities to support projected
sales increases in 1996 and beyond.

General and administrative expenses for the year ended December 31, 1995
increased to $3,128,000 U.S. from $2,019,000 U.S. for the period ending
December 31, 1994. The increase was primarily due to salaries payable to
the employees of Pacific Baja Light Metals which accounted for $1,113,000
of the total general and administrative expense for 1995.

The consolidated sales of Pacific Baja for 1994 were $19,392,000 U.S.
compared with 1993 sales of $13,871,000 U.S., an increase of 40%. The
sales increase was a result of the addition of the compressor housing
product line from AlliedSignal, increased manifold sales and increased
wheel sales. The increased wheel sales resulted mainly from the addition
of additional customers, resulting in greater distribution and product-line
acceptance.

Profits for 1994 were $480,000 U.S. compared to $245,000 U.S. for 1993.
Gross margins increased from 18% in 1993 to approximately 20% in 1994.
This increase resulted from greater manufacturing efficiencies due to
increased volume.

<PAGE>

The installation of quality systems resulted in slightly higher operating
expenses in 1994. Interest expenses were also slightly higher in 1994 but
were consistent with the sales and working capital increases.

2. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

(a) CASH AND WORKING CAPITAL
------------------------

As of December 31, 1996, the Company had cash in the amount of $4,304,000
U.S. As at December 31, 1996, the Company had working capital equal to
$9,964,000 U.S. At March 31, 1997, the Company had working capital equal
to $10,899,000 U.S.

(b) PACIFIC BAJA LINES OF CREDIT
----------------------------

Pacific Baja Light Metals has the following line of credit facilities for
the Pacific Baja Business:

(a) Optima Wheel has an operating line of credit facility with Wells
Fargo Bank in the maximum amount of $6,000,000 (U.S.);

(b) Baja Pacific has an operating line of credit facility with Wells
Fargo Bank in the maximum amount of $3,000,000 (U.S.).

The outstanding balances of the operating credit lines of Pacific Baja
Light Metals as at December 31, 1996 are as follows:

OUTSTANDING BALANCE
COMPANY CREDITOR AT DECEMBER 31/96
------- -------- -------------------

Optima Wheel Wells Fargo Bank $3,224,000 U.S.
Baja Pacific Wells Fargo Bank $1,215,000 U.S.

As at December 31, 1995 and December 31, 1996, Pacific Baja was in
violation of certain covenants under its line of credit facilities with
respect to tangible net worth criteria, total liabilities to tangible net
worth ratios and delivery of projected financial statements. Pacific Baja
Light Metals has remedied these violations of covenants by obtaining the
agreement of Wells Fargo Bank to revise the covenants such that Pacific
Baja Light Metals is in good standing with respect to each line of credit
facility as of the date of this Report.

The Company is a guarantor of each of these line of credit facilities.

The operating expenses of the Company are expected to increase as the
Company finalizes its preparations for commercial production of the
Turbodyne products. The Company believes that its working capital will be
sufficient to fund its operating plan through 1997. The Company's
projection of its working capital being sufficient to fund its operating
plan through 1997 is exclusive of any funds which may be available from the
Pacific Baja Business. The Company intends to keep the cash flow from the
Pacific Baja Business for the operation and expansion of the Pacific Baja
Business.

The Company believes that additional funding will be available upon the
commencement of commercial production of the Turbodyne products and sales
indicating market acceptance of the Turbodyne products. The Company's
working capital should be sufficient to finance operations until additional
revenues are achieved or until additional financing becomes available, if
required.

<PAGE>

The Company is using its best efforts to enter into contracts with OEMs and
major retrofitters for the incorporation of its Turbodyne products. The
liquidity of the Company will be affected if the Company is unable to:

(a) finalize agreements with OEMs and major retrofitters for the
incorporation of its Turbodyne products in new diesel engines and
after-market diesel engine products;

(b) achieve sales of its Turbodyne products directly to aftermarket
customers at commercially viable rates.

ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
-------------------------------------

The following table sets forth as of June 30, 1997 all directors and
executive officers of the Company, with each position and office held by
them in the Company, 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, CEO
& Promoter

LEON E. NOWEK 40 October 18, 1993
Surrey, British Columbia
Director and CFO

DANIEL GERONAZZO 65 January 24, 1995
Christina Lake, British Columbia
Director

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 as Director
Calgary, Alberta January 1, 1997 as Chief
Director and Chief Operating Officer
Operating Officer

DR. SADAYAPPA DURAIRAJ 54 September 16, 1996
Carpinteria, California
Director

ANDREW O.D. LEE 39 January 1, 1997
Vancouver, British Columbia
Secretary and Controller

<PAGE>

Edward Halimi is the President and Chief Executive Officer of the Company
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 Company and has an accounting background
and is responsible for corporate finance, finance reporting and regulatory
compliance. He was appointed as a director of the Company 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 Company. 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 Company. 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 practice 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 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.

Eugene A. Hodgson is a director of the Company. 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 was appointed a director of the Company as of July 12,
1996 and became the Chief Operating Officer of the Company on January 1,
1997. Mr. Taylor is a chartered accountant and is a member of the
Institute of Chartered Accountants of Alberta, Canada. Mr. Taylor was
appointed a director and president of Shell Canada Products in 1993 and has
served in various capacities with Shell since 1967 in Calgary, Toronto and
London, England. Mr. Taylor retired from Shell in 1996.

Sadayappa Durairaj is a director of the Company. Mr. Durairaj is a
cardiologist and businessman based in California. He obtained his Medical
degree from Madural Medical College in India in 1966 and has been certified
by both the American Board of Internal Medicine and the Canadian Board of
Internal Medicine and Cardiology. Currently he is the President and Chief
Executive Officer of the Pacifica Hospital and Sierra Medical Clinic. Dr.
Durairaj also serves as associate Clinical Professor of Medicine at USC Los
Angeles. Dr. Durairaj was Chairman and founder of Pacific Baja Light
Metals Holding Inc. which was acquired by the Company on September 5, 1996.
Dr. Durairaj is also Chairman of Brentwood Bank (California) and VSK Ferro
Alloys (India).

<PAGE>

Andrew Lee was appointed controller of the Company as of January 1, 1997.
Mr. Lee is a member of the Institute of Chartered Accountants of British
Columbia. Prior to joining the Company, Mr. Lee practised as a chartered
accountant with Morgan & Company in Vancouver, British Columbia. Mr. Lee
devotes his full time as controller of the Company. Mr. Lee was appointed
secretary of the Company on April 25, 1997.

Edward M. Halimi, Andrew Lee, and Leon E. Nowek presently devote 100% of
their business time to the Company. Daniel D. Geronazzo, Richard W.
Donaldson, Wendell R. Anderson, Dr. Sadayappa Durairaj and Robert F.
Taylor devote such percentage of their time to the business of the Company
as is required by the Company. Eugene A. Hodgson devotes a majority of his
business time to the business of the Company.

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.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
-------------------------------------

As of June 30, 1997, the compensation payable to directors and officers of
the Company and its subsidiaries is summarized below:

1. GENERAL
-------

The Company does not compensate directors for acting solely as directors.
Except for reimbursement of reasonable out-of-pocket expenses in connection
with attendance at Board of Directors and Committee meetings, and as
otherwise described below, the Company does not have any arrangements
pursuant to which directors are remunerated by the Company or its
subsidiaries for their services in their capacities as directors, other
than options to purchase shares of the Company which are granted to the
Company's directors from time to time. The Company does not have any
pension plans.

2. DIRECTORS AND OFFICERS OF THE COMPANY
-------------------------------------

Edward M. Halimi is party to an employment agreement dated March 14, 1994
between the Company, Mr. Halimi, and Turbodyne Systems, Inc. ("Turbodyne
Systems"), a subsidiary of the Company. Mr. Halimi is employed as
President and Chief Executive Officer of the Company and Turbodyne Systems
under the employment agreement. The employment agreement has a five year
term. Mr. Halimi is paid a salary of US $60,000 per year and is entitled
to participate in share option plans, share purchase plans and other
financial assistance plans at the discretion of the Board of Directors of
the Company. Mr. Halimi is entitled to terminate the employment agreement
upon three months written notice to the Company.

Mr. Halimi was paid a salary of US $60,000 per year in 1994, 1995, and 1996
and was granted options to purchase 500,000 shares and 200,000 shares of the
Company in 1995 and 1997, respectively. 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 Company's shares
for the period immediately prior to granting of the options. Mr. Halimi did
not receive any share purchase options in 1994 or 1996. The salary payable
to Mr. Halimi is currently under review by the Company's Compensation
Committee. The Compensation Committee reports that it anticipates
recommending a substantial increase to the salary paid to Mr. Halimi.

The Company has retained Robert Taylor, a director of the Company, as Chief
Operating Officer of the Company pursuant to a consultant agreement between
the Company and Mr. Taylor dated January 1, 1997. Mr. Taylor will be based
at the office of Turbodyne Systems in Carpinteria, California and will be
responsible for managing the day to day operations of the Company and
providing direction on the business and financial affairs of the Company.
The consultant agreement has an initial six month term with automatic
renewals for additional six month terms unless Mr. Taylor or the Company
elects not to renew. Mr. Taylor is paid a consultant fee of Cdn. $20,833
per month. In addition, the Company has agreed to grant to Mr. Taylor
options to acquire 100,000 shares of the Company at prices

<PAGE>

determined in accordance with the policies of the Vancouver Stock Exchange.
Thereafter, Mr. Taylor will be eligible for grants of additional options as
a director and officer of the Company.

The services of Leon Nowek, a director of the Company, are provided to the
Company pursuant to a management agreement dated August 1, 1994 between the
Company and Seeds Investment Corporation ("Seeds"), a private company
controlled by Mr. Nowek. The Company pays a management fee of $2,500 per
month in consideration of Seeds providing the services of Mr. Nowek as
Chief Financial Officer of the Company.

The services of Eugene Hodgson, a director of the Company, are provided to
the Company pursuant to an agreement between the Company and E.A. Hodgson &
Associates Inc. The Company pays a monthly consultant fee of $8,916 per
month in consideration for E.A. Hodgson & Associates Inc. providing the
consultant services of Mr. Hodgson in connection with providing investor
relations and corporate finance advice to the Company. The consultant fee
payable on account of Mr. Halimi's services is currently under review by
the Company's Compensation Committee. The Compensation Committee
anticipates recommending a substantial increase to the consultant fee
payable to Mr. Hodgson.

The Company pays to Wendell Anderson, a director of the Company, a
consultant fee of US $1,000 per month in connection with the services
provided by Mr. Anderson as a director of the Company.

3. DIRECTORS AND OFFICERS OF PACIFIC BAJA
---------------------------------------

Michael Joyce is party to an employment agreement with Pacific Baja Light
Metals and the Company dated September 5, 1996 whereby he is employed as
President of Pacific Baja Light Metals. The employment agreement has a
three year term. Mr. Joyce is paid a base salary of US $12,500 per month
plus an annual cash bonus based on the annual net operating profit of
Pacific Baja Light Metal which exceeds US $5,500,000. The maximum bonus
payable is 150% of base salary. Mr. Joyce is also entitled to receive
options to purchase 50,000 shares of the Company upon the completion of
each anniversary of the execution of the employment agreement.

The consulting services of Lennart Renberg are provided to Pacific Baja
Light Metals pursuant to a consulting agreement between Pacific Baja, the
Company and Lykar Specialties, Inc. ("Lykar Specialties") dated September
5, 1996. The consulting agreement has a three year term. Pacific Baja pays
a base consulting fee for Mr. Renberg's services equal to US $12,500 per
month plus an annual bonus based on the annual net operating profit of
Pacific Baja Light Metals which exceeds US $5,500,000. The maximum bonus
payable is 150% of base salary. Options to purchase 50,000 shares of the
Company are also to be issued to Lykar Specialties upon each anniversary of
the term of the consulting agreement.

4. OFFICERS OF TURBODYNE SYSTEMS
-----------------------------

Dr. William Woollenweber is employed as Vice-President-Turbocharger
Technology of Turbodyne Systems pursuant to an employment agreement between
Dr. Woollenweber and Turbodyne Systems dated September 1, 1995. Dr.
Woollenweber was paid an initial salary of $120,000 U.S. per annum for the
initial three year term of the employment agreement. The salary was
increased to $158,400 U.S. per annum as of January 1997. Dr. Woollenweber
provides engineering services related to the design and development for
turbocharger and turbocharging systems as applied to internal combustion
engines in connection with the Company's Turbodyne products.

David Willett is employed as Vice-President-Electronics and Controller
Technology of Turbodyne Systems pursuant to an employment agreement dated
January 30,1996 between Mr. Willett and Turbodyne Systems. Mr. Willett was
paid an initial salary of $110,000 U.S. for the initial three year term of
the employment agreement. The salary was increased to $130,000 U.S. per
annum as of January 1997. Mr. Willett provides engineering services in
connection with electronic and controller technology for the Company's
Turbodyne products.

<PAGE>

Ralph Maloof is employed as Vice-President and Chief Engineer of Turbodyne
Systems pursuant to an employment agreement between Mr. Maloof and
Turbodyne Systems. Mr. Maloof is paid a salary of $120,000 U.S. per annum.
Mr. Maloof provides engineering services to the Company as chief of
engineering for Turbodyne Systems.

5. AGGREGATE COMPENSATION
----------------------

In aggregate, the Company and its subsidiaries, Turbodyne Systems and
Pacific Baja, paid a total of $1,529,600 to its directors and officers for
services in all capacities during the fiscal year ended December 31, 1996.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM COMPANY OR SUBSIDIARIES
-----------------------------------------------------------

1. OPTIONS TO PURCHASE COMMON SHARES
---------------------------------

As at June 30, 1997 the Company had outstanding options to purchase common
shares as follows:

NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
- ---------------- -------------- -----------

150,000 $4.20 July 28, 1997
250,000 $4.75 August 17, 1997
422,000 $4.66 December 27, 1997
431,000 $7.13 February 27, 1997
475,000 $9.00 September 3, 1998
305,000 $9.00 September 12, 1998
480,000 $9.85 January 6, 1999
1,511,500 $6.25 June 6, 2002

The officers and directors of the Company as a group hold an aggregate of
753,000 options to purchase common shares.

The granting of options by the Company 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 Board of Directors have approved options to purchase an additional
2,840,000 shares of the Company at a price of $6.25 on or before June 6,
2002. These stock options are to be issued pursuant to a stock option plan
approved by the Board of Directors of the Company and the shareholders of
the Company.

2. SHARE PURCHASE WARRANTS
-----------------------

The Company has outstanding as of April 30, 1997, non-transferable warrants
to purchase 33,333 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 Company issuable upon the exercise of the
warrants in connection with each private placement:

NUMBER OF SHARES EXERCISE PRICE OF WARRANTS WARRANTS EXPIRY DATE
- --------------- -------------------------- --------------------

33,333 $9.00 September 3, 1997

<PAGE>

None of the warrants described above have been exercised as of the date of
this Registration Statement. All of the issued and outstanding options
and warrants are currently exercisable.

<PAGE>

3. SERIES C SPECIAL WARRANTS
-------------------------

The Company completed a private placement of Series C special warrants on
December 6, 1996 (the "Series C Special Warrant Offering") for total
proceeds of $4,500,000. Each Series C Special Warrant is exercisable into
one unit (a 'C-Unit') of the Company 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 Company and
one transferable share purchase warrant (a 'C-Warrant'). Each C-Warrant
will entitle the subscriber to purchase a further Common Share of the
Company at the price of $9.50 per share at any time prior to December 8,
1997.

The Series C 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 C-Units in the Provinces of British
Columbia and Ontario; and
(b) December 8, 1997.

The Company is obligated to use its best efforts to file a prospectus with
the securities commissions in the Provinces of British Columbia and Ontario
in order to qualify for re-sale within these provinces of the 500,000
common shares and 500,000 C-Warrants to be issued to the subscribers of the
Company's Series C Special Warrant private placement upon conversion of the
Series C Special Warrants . Upon issue of a final prospectus receipt by
each of the above securities commissions, the 500,000 common shares and
500,000 C-Warrants will be freely tradable within the Provinces of British
Columbia and Ontario, subject to additional restrictions under applicable
securities legislations. If receipts for a final prospectus are not
obtained, the 500,000 common shares and 500,000 C-Warrants will be subject
to a hold period and additional restrictions under applicable securities
legislation until at least December 6, 1997.

The price for the Series C Special Warrants was determined in accordance
with the policies of the Vancouver Stock Exchange applicable to the Company.
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 Company was 15%
from the market price of the Company's shares, assuming the Company's
shares are trading at a price greater than $2.00 per share.

4. SERIES A CONVERTIBLE PREFERENCE SHARES
--------------------------------------

The Company has entered into a private placement engagement agreement dated
June 17, 1997 with GEM Advisors, Inc. ("GEMA") a member of the Global
Emerging Markets Group ("GEM") for the placement of convertible preferred
shares and warrants with GEM or accredited investors introduced by GEMA.

The Company proposes to issue Class A Preference Shares pursuant to the
private placement agreement which will be issued at a price per share equal
to $1,000 U.S. and will be convertible into common shares at any time
during the period commencing four months from closing and ending three
years from closing at the lesser of:

1. A fixed price equal to 110% of the bid price of the common shares at
the time of closing, or

2. A floating price varying from 80% to 90% (depending on time
outstanding) of the 10-day average closing bid price of the Company's
common shares at the time of conversion.

The preference shares will be deemed to be converted three years from
closing.

In the event the Company redeems the preference shares, the holders thereof
will receive a warrant entitling the holders to purchase for a period of
three years, at the fixed price described above, common shares having a
value of

<PAGE>

33 1/3% of the amount of the funding. The convertible preference shares
will have a dividend rate of 7% per annum payable in cash or common shares
(at the Company's option) at the time of conversion.

The Company has the option to redeem the preference shares in consideration
for:

i. a cash payment equal to the value of the common shares issuable
upon conversion based on the lesser of 110% of the bid price of
the Company's shares at the date of closing or 80% of the 10 day
average closing bid price at the time of conversion; and

ii. a warrant at 110% of the bid price of the Company's shares at the
date of closing to purchase a number of common shares equal in
value, based on 110% of the bid price of the Company's shares at
the date of closing, to the preference shares, with a term
expiring concurrently with that of the original preference
shares.

Funding is expected to take place in two tranches, with the first tranche
of US $2,500,000 expected to close no later than July 30, 1997 and the
second tranche of US $2,500,000 to close at a date to be mutually agreed
approximately 120 days after the first closing. The proceeds will be used
by the Company for working capital. The Company will pay a fee equal to 3%
of the gross proceeds raised to GEM.

As a condition of funding, the Company will be required to delist it shares
from the Vancouver Stock Exchange. The shares will continue to trade on the
Nasdaq Small Cap Market. The Company is also required to file a
registration statement with the United States Securities and Exchange
Commission for the common shares underlying the preference shares and
warrants and to use commercially reasonable efforts to cause the
registration statement to be effective on or before four months from the
issuance of the preference shares.

The financing is subject to completion of satisfactory due diligence
investigations by GEM and the execution of formal legal documents by the
Company and the investors. There is no assurance the financing will be
completed timely or at all.

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
----------------------------------------------

1. MATERIAL AGREEMENTS
-------------------

Edward M. Halimi, a director of the Company, 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 Company 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 Company issued 1,000,000
common shares to Halimi.

Pursuant to an agreement between the Company and Centrepoint Equities Inc.
("Centrepoint"), the Company pays Centrepoint $2,500 per month in
consideration of Centrepoint providing office space and secretarial and
reception services to the Company. During the fiscal year ended December
31, 1996 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
Company.

2. STOCK OPTIONS
-------------

Management has an interest in the stock options and share purchase warrants
described under Items 4 and Items 12 of this Report.

<PAGE>

PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
-----------------------------------------

Inapplicable

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 Company which follows.

ITEM 18. FINANCIAL STATEMENTS
--------------------

Inapplicable

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------

(a) INDEX TO FINANCIAL STATEMENTS
-----------------------------

(a) Audited Financial Statements of the Company for the period ending
December 31, 1996, with U.S. GAAP reconciliation:

- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statements of Operations and Deficit
- Consolidated Statements of Stockholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements

(b) Consent letter of Morgan & Company, in regard to the inclusion of
Independent Auditors' Reports in the Report.

(b) EXHIBITS
--------
1(a) Certificate of Incorporation of Dundee Resources Corp. dated
May 18, 1983. Incorporated herein by reference to Exhibit
1(a) to the Company's Registration Statement on Form 20-F
filed on September 18, 1996.

1(b) Articles of Dundee Resources Corp. Incorporated herein by
reference to Exhibit 1(b) to the Company's Registration
Statement on Form 20-F filed on September 18, 1996.
<PAGE>

1(c) Memorandum of Dundee Resources Corp. Incorporated herein by
reference to Exhibit 1(c) to the Company's Registration
Statement on Form 20-F filed on September 18, 1996.

1(d) Certificate of Name Change from Dundee Resources Corp. to
Clear View Ventures Inc. dated January 20, 1993.
Incorporated herein by reference to Exhibit 1(d) to the
Company's Registration Statement on Form 20-F filed on
September 18, 1996.

1(e) Amended Memorandum of Clear View Ventures Inc. Incorporated
herein by reference to Exhibit 1(e) to the Company's
Registration Statement on Form 20-F filed on September 18,
1996.

1(f) Certificate of Name Change from Clear View Ventures Inc. to
Turbodyne Technologies Inc. dated April 28, 1994.
Incorporated herein by reference to Exhibit 1(f) to the
Company's Registration Statement on Form 20-F filed on
September 18, 1996.

1(g) Amended Memorandum of the Company. Incorporated herein by
reference to Exhibit 1(g) to the Company's Registration
Statement on Form 20-F filed on September 18, 1996.

1(h) Articles of the Company. Incorporated herein by reference to
Exhibit 1(h) to the Company's Registration Statement on Form
20-F filed on September 18, 1996.

1(i) Articles of Continuation of the Company. Incorporated
herein by reference to Exhibit 1(i) to the Company's
Registration Statement on Form 20-F filed on September 18,
1996.

1(j) By-laws of the Company adopted upon Continuation.
Incorporated herein by reference to Exhibit 1(j) to the
Company's Registration Statement on Form 20-F filed on
September 18, 1996.

1(k) Certificate of Continuation under the CANADA BUSINESS
CORPORATIONS ACT.

2(a) Specimen Common Share Certificate. Incorporated herein by
reference to Exhibit 2(a) to the Company's Registration
Statement on Form 20-F filed on September 18, 1996.

3(i) Employment Agreement between the Company and Edward M.
Halimi. Incorporated herein by reference to Exhibit 3(i) to
the Company's Registration Statement on Form 20-F filed on
September 18, 1996.

3(ii) Management Agreement between the Company and Seeds
Investment Corporation. Incorporated herein by reference to
Exhibit 3(ii) to the Company's Registration Statement on
Form 20-F filed on September 18, 1996.

3(iii) Sub-Lease between American Appliance, Inc. and Carole D.
King dated December 1, 1994 for Carpinteria Property.
Incorporated herein by reference to Exhibit 3(iii) to the
Company's Registration Statement on Form 20-F filed on
September 18, 1996.

3(iv) Distribution Agreement between Turbodyne Systems and
Granatelli Performance, Inc. Incorporated herein by
reference to Exhibit 3(iv) to the Company's Registration
Statement on Form 20-F filed on September 18, 1996.

3(v) Acquisition Agreement between the Company, Pacific Baja
Light Metals Holding Inc., and Lenart Renberg, Michael
Joyce, Sadayappa Durairaj Family Trust, Naresh Saxens and
Mugerdish Balabanian dated March 15, 1996. Incorporated
herein by reference to Exhibit 3(v) to the Company's
Registration Statement on Form 20-F filed on September 18,
1996.
<PAGE>

3(vi) Amendment Agreement between the Company, Pacific Baja Light
Metals Holding Inc., and Lenart Renberg, Michael Joyce,
Sadayappa Durairaj Family Trust, Naresh Saxens and Mugerdish
Balabanian dated June 14, 1996. Incorporated herein by
reference to Exhibit 3(vi) to the Company's Registration
Statement on Form 20-F filed on September 18, 1996.

3(vii) Line of Credit Agreement between Optima Wheel and Wells
Fargo Bank dated September 1, 1995.

3(viii) Line of Credit Agreement between Pacific Baja Light Metals
and Wells Fargo Bank dated September 1, 1995.

3(ix) Employment Agreement between Pacific Baja Light Metals, the
Company and Michael Joyce dated September 5, 1996.

3(x) Consulting Agreement between Pacific Baja Light Metals, the
Company and Lykar Specialties, Inc. dated September 5, 1996.

3(xi) Agreement in Principle between Turbodyne Systems, Inc. and
Kuhnle, Kopp & Kausch AG dated April 11, 1997.

3(xii) Supply Agreement between Baja Oriente and AlliedSignal dated
September 1, 1994.

SIGNATURE
---------

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.

TURBODYNE TECHNOLOGIES INC.
(COMPANY)

/s/ Edward M. Halimi

EDWARD M. HALIMI
PRESIDENT AND DIRECTOR
(AUTHORIZED SIGNATORY)

DATE: July 11, 1997

<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in Canadian Dollars)
(Revised)

<PAGE>

[LETTERHEAD OF MORGAN & COMPANY, CHARTERED ACCOUNTANTS]

AUDITORS' REPORT

To the Shareholders of
Turbodyne Technologies Inc.

We have audited the revised consolidated balance sheets of Turbodyne
Technologies Inc. as at December 31, 1996 and 1995 and the revised consolidated
statements of operations and deficit, stockholders' equity and cash flows for
the years ended December 31, 1996, 1995, and 1994. These revised consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these revised consolidated 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 an audit to obtain
reasonable assurance 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 consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
revised financial statement presentation.

In our opinion, these revised consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 1996 and 1995 and the results of its operations and its cash flows for the
years ended December 31, 1996, 1995, and 1994 in accordance with 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.

In our report dated February 14, 1997, except for the last paragraph of Note
5(A) which is as of March 12, 1997, we reported that in our opinion the
consolidated financial statements presented fairly, in all material respects,
the financial position of the Company as at December 31, 1996 and 1995 and the
results of its operations and the changes in its cash flows for the years then
ended in accordance with generally accepted accounting principles. Subsequent
to March 12, 1997, the Company has revised these consolidated financial
statements as explained in Note 13. Therefore, our report dated February 14,
1997, except for the last paragraph of Note 5(A) which is as of March 12, 1997,
has been withdrawn.

Vancouver, B.C. /s/ Morgan & Company

February 14, 1997, except for the last paragraph Chartered Accountants
of Note 5(A) which is as of March 12, 1997,
Note 2, Note 13 and Note 14(a) which are as of
May 14, 1997 and Notes 14(b), 14(c), 14(d),
and 14(e), which are as of June 17, 1997.

Page 1
<PAGE>

<TABLE>
TURBODYNE TECHNOLOGIES INC.
--------------------------

CONSOLIDATED BALANCE SHEETS
---------------------------
(Stated in thousands of Canadian dollars)
<CAPTION>
December 31, December 31,
1996 1995
---------- -----------
ASSETS (revised)
<S> <C> <C>
CURRENT
Cash $ 4,304 $ 309
Accounts receivable 8,161 51
Advances receivable 113 113
Inventories (Note 3) 4,730 -
Prepaid expenses and deposits 1,166 93
Deferred tax asset 341 -
-------- -------
18,815 566
CAPITAL ASSETS (Note 4) 15,703 638
PRODUCT DEVELOPMENT COSTS 8,705 3,771
GOODWILL 21,234 -
OTHER 38 227
-------- -------
$ 64,495 $ 5,202
======== =======

LIABILITIES
CURRENT
Accounts payable and accrued
liabilities $ 6,169 $ 251
Notes payable (Note 5) 1,286 223
Current portion of long term debt 1,396 9
-------- -------
8,851 483
LONG TERM DEBT (Note 6) 7,211 20
DEFERRED INCOME TAXES 1,455 -
-------- -------
17,517 503
-------- -------

SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7)
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:
23,580,098 Common shares (of which
4,150,000 are held in escrow) at
December 31, 1996 and 16,542,121
common shares (of which 4,150,000
shares are held in escrow) at
December 31, 1995 30,438 7,139

3,750,000 Series "A" special warrants
and 500,000 Series "C" special
warrants at December 31, 1996 and
0 at December 31, 1995 21,928 -
Add share subscriptions received
0 at December 31, 1996 and
129,767 shares at December 31, 1995 - 463
DEFICIT (5,461) (2,903)
CUMULATIVE TRANSLATION ADJUSTMENT 73 -
-------- -------
46,978 4,699
-------- -------
$ 53,473 $ 5,202
======== =======
</TABLE>
Approved by the Board of Directors:

"Leon E. Nowek" "Eugene A. Hodgson"
- ---------------------------------- -----------------------------------

Page 2
<PAGE>

TURBODYNE TECHNOLOGIES INC.
---------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
--------------------------------------------------
(In thousands of Canadian dollars, except per share information)

Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
------------ ----------- -----------
(revised)
<S> <C> <C> <C>

NET SALES $ 19,007 $ - $ -

COST OF GOODS SOLD 16,498 - -
-------- ------- -------

GROSS PROFIT 2,509 - -

OPERATING EXPENSES 5,061 1,528 936
------- ------- --------

OPERATING LOSS (2,552) (1,528) (936)
------- ------- --------

NON OPERATING ITEMS
Interest income 373 - -
Interest expense (491) - -
Other 56 - -
Amortization of goodwill (545) - -
------- ------- -------
(607) - -
------- ------- -------

LOSS BEFORE PROVISION FOR
INCOME TAXES (3,159) (1,528) (936)

INCOME TAXES RECOVERED 601 - -
------- ------- -------

NET LOSS FOR THE YEAR (2,558) (1,528) (936)

DEFICIT, BEGINNING OF YEAR (2,903) (1,375) (112)
------- ------- -------
(5,461) (2,903) (1,048)
NET ASSET DEFICIENCY OF LEGAL
PARENT AT DATE OF REVERSE
TAKE-OVER TRANSACTION - - (327)
------- ------- -------

DEFICIT, END OF YEAR $ (5,461) $(2,903) $(1,375)
======== ======= =======

LOSS PER SHARE $(0.19) $(0.16) $(0.18)
======== ======= =======

WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 16,641,217 9,805,870 5,106,385
========== ========= =========
</TABLE>
Page 3
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(Stated in thousands of Canadian Dollars)
(revised)

Number of Accumulated
Shares Amount Deficit Total
-------- ------ ----------- -----
<S> <C> <C> <C> <C>
Balance at date of inception,
April 30, 1993 - $ - $ - $ -
Issuance of stock for
project development
costs 100 1,147 - 1,147
Net loss - - (112) (112)
--------- --------- ------- -------
Balance December 31, 1993 100 1,147 (112) 1,035
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 - 40

Issuance of common stock 4,485,000 1,629 - 1,629
Net asset deficiency of legal
parent at date of reverse
take-over transaction - - (327) (327)
Net loss - - (936) (936)
---------- ------- ------- -------
Balance December 31, 1994 10,663,052 2,816 (1,375) 1,441
Issuance of common stock 5,879,069 4,323 - 4,323
Share subscriptions received 129,767 463 - 463
Net loss - - (1,528) (1,528)
---------- ------- ------- -------
Balance December 31, 1995 16,671,888 7,602 (2,903) 4,699
Issuance of common stock 6,908,210 22,836 22,836
Issuance of special warrants 4,250,000 21,928 - 21,928
Cumulative translation
adjustment - - 73 73

Net Loss - - (2,558) (2,558)
---------- ------- ------- --------

Balance December 31, 1996 27,830,098 $ 52,366 $(5,388) $ 46,978
========== ======== ======= ========
</TABLE>
Page 4
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in Thousands of Canadian Dollars)

Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
---------- ----------- -----------
(revised)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES
Loss for the year $ (2,558) $(1,528) $ (936)
-------- ------- -------
ADJUSTMENTS TO RECONCILE
LOSS TO NET CASH USED
BY OPERATING ACTIVITIES
Depreciation and amortization 1,591 6 1
Change in accounts
receivable (8,110) (51) -
Change in advances
receivable - (112) -
Change in inventories (4,730) - -
Changed in deferred tax asset (383) - -
Change in prepaid expense (1,073) (62) (32)
Change in accounts payable 5,918 (162) 77
------- ------ ------
TOTAL ADJUSTMENTS (6,787) (381) 46
------- ------ ------
NET CASH USED IN OPERATING
ACTIVITIES (9,345) (1,909) (890)
------- ------ ------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital assets (net of
depreciation allocated
to product development
costs) (4,502) (482) (4)
Product development costs (4,820) (2,066) (493)
Acquisition of subsidiary (31,705) - -
Net asset deficiency of
legal parent
at date of reverse
take-over transaction - - (327)
Other (38) (227) -
------- ------ ------
NET CASH USED IN INVESTING
ACTIVITIES (41,065) (2,775) (824)
------- ------ ------
CASH FLOW FROM FINANCING
ACTIVITIES
Issuance of common stock 22,836 4,323 1,669
Issuance of special warrants 21,928 - -
Share subscriptions
received - 463 -
Change in notes payable 1,063 178 45
Change in long term debt 8,578 29 -
------- ------ ------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 54,405 4,993 1,714
------- ------ ------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,995 309 -
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 309 - -
------- ------ ------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,304 $ 309 $ -
======== ======= =======
</TABLE>
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
(Continued)

(Stated in Thousands of Canadian Dollars, except share amounts)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for:

Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Interest $ 499 $ 84 $ 9
===== ==== ===
</TABLE>

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.

During the year ended December 31, 1996, Turbodyne Technologies Inc.
acquired 100% of Pacific Baja Light Metals Corp. by making a cash payment of
$16,320 and by issuing 3,076,923 common shares.

Page 6
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars)
(revised)

1. a) NATURE OF OPERATIONS

The Company was incorporated under the Company Act of the Province of
British Columbia, Canada, and was continued under the Canada Business
Corporations Act on December 3, 1996. The Company is engaged in the
following business operations through its U.S. subsidiaries:

i) the manufacture of aluminum cast automotive products, including
engine components and specialty wheels; and

ii) the development of products to enhance performance and reduce
emissions of internal combustion engines.

b) SIGNIFICANT ACCOUNTING POLICIES

i) Consolidation

These financial statements include the accounts of the Company and
its wholly owned U.S. subsidiaries Turbodyne Systems, Inc. and
Pacific Baja Light Metals Corp. All significant intercompany
accounts and transactions have been eliminated in consolidation.

ii) 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.

iii) Fair Value of Financial Instruments

The respective carrying value of certain on-balance-sheet financial
instruments, approximate their fair values. These financial
instruments include cash, accounts receivable, advances receivable,
accounts payable and accrued liabilities, bank credit lines and
other conventional debt financing.

iv) Inventories

Inventories are stated at the lower of cost or market. For the
materials portion of inventories, the cost is determined using the
LIFO (last-in, first-out) method. For the other components of
inventories (labour and overhead) the cost is determined using the
FIFO (first-in, first-out) method.

Page 7
<PAGE>

TURBODYNE TECHNOLOGIES INC.
---------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars)
(revised)

b) SIGNIFICANT ACCOUNTING POLICIES (Continued)

v) 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 - 10 years

vi) Product 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.

vii) Goodwill

Goodwill, representing the excess of acquisition costs of shares
over the assigned value of net assets acquired, is being amortized
on a straight line basis over 20 years.

viii) 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 over five years. All other leases are accounted for as
operating leases and the related lease payments are charged to
expense as incurred.

ix) 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.

Page 8
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars, except share amounts)
(revised)

b) SIGNIFICANT ACCOUNTING POLICIES (Continued)

x) Foreign Currency Translation

The financial statements of Pacific Baja Light Metals Corp., a self-
sustaining foreign subsidiary, are translated using the current
method whereby the balance sheet is translated at year end exchange
rates and revenues and expenses at the average exchange rate for the
period. Adjustments arising from the translation of the
subsidiary's financial statements are included as a separate
component of shareholders' equity.

The financial statements of Turbodyne Systems, Inc., a fully
integrated foreign subsidiary, are translated using the temporal
method whereby monetary assets and liabilities are translated at
year end rates, non-monetary items at historical rates and expenses
at the average rate for the year. Gains or losses from exchange
translations are included in the results of operations.

xi) 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.

xii) 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.

xiii) 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 $1,147 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.

Page 9
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars, except per share information)
(revised)

b) SIGNIFICANT ACCOUNTING POLICIES (Continued)

xiii) Basis of Presentation (continued)

b) Ongoing product development costs would have been charged to
expense as incurred not capitalized on the balance sheet.

As such, these financial statements would be changed as follows:
<TABLE>
<CAPTION>
Consolidated Statement of Operations and Deficit:

1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Loss for the period shown on the
financial statements $ (2,558) $(1,528) $ (936)

Increase in loss resulting from
charging project development
costs to expense (4,820) (2,066) (493)
-------- ------- -------

Loss according to generally
accepted accounting principles
in the U.S. (7,378) (3,594) (1,429)

Accumulated deficit, beginning
of period (6,788) (3,194) (1,439)
-------- ------- --------
(14,166) (6,788) (2,868)

Net asset deficiency of legal
parent at date of reverse
take-over transaction - - (327)
-------- ------- --------
Accumulated deficit end of year
according to generally accepted
accounting principles
in the U.S. $(14,166) $(6,788) $(3,195)
======== ======= =======

Loss per share - U.S. GAAP $(0.44) $(0.37) $(0.28)
====== ====== ======
</TABLE>

Page 10
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------
<TABLE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in Canadian Dollars)
(revised)

1996 1995
---- ----
<S> <C> <C>
Consolidated Balance Sheet:
Product development costs as shown
on the balance sheet $ 8,705 $ 3,885
Change as a result of (a) above
Reverse capitalization of product
development costs acquired for shares (1,147) (1,147)
Change as a result of (b) above
Reverse capitalization of ongoing product
development costs (7,558) (2,738)
-------- -------
Product development costs according to
generally accepted accounting principles
in the U.S. $ - $ -
======== =======
Accumulated deficit as shown on the balance
sheet $ (5,461) $(2,903)
Change as a result of (a) above
Charge value attributed to product
development costs acquired for shares
to shareholders' equity (1,147) (1,147)
Change as a result of (b) above
Charge ongoing product development costs
to expense (7,558) (2,738)
-------- -------
Accumulated deficit according to generally
accepted accounting principles in the U.S. $(14,166) $(6,788)
======== =======

</TABLE>
Page 11
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------
<TABLE>

<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars, except share amounts)
(revised)

Consolidated Statement of Stockholders' Equity:

NUMBER ACCUMULATED
OF SHARES AMOUNT DEFICIT TOTAL
---------- ------ ----------- -----
<S> <C> <C> <C> <C>
Balance December 31,
1996 as shown on the
consolidated
financial
statements 27,830,098 $ 52,366 $ (5,461) $ 46,905

Project development
costs acquired
for shares (1,147) (1,147)

Increase in net loss
due to charging
ongoing project
development
costs to
expense (7,558) (7,558)
---------- ------- ------- -------

Balance December 31,
1996, according to
generally accepted
accounting
principles
in the U.S. 27,830,098 $ 52,366 $(14,166) $ 38,200
========== ======== ======== ========

</TABLE>
Page 12
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars, except share amounts)
(revised)

2. BUSINESS ACQUISITION

Effective July 2, 1996, the Company acquired all the issued and outstanding
shares of Pacific Baja Light Metals Corp. ("Pacific Baja"). This
acquisition has been accounted for using the purchase method with the
results of operations of Pacific Baja Light Metals Corp. for the period
subsequent to July 2, 1996 being included in these consolidated financial
statements. pacific Baja is a manufacturer and distributor of after-market
automotive wheels, compressor housings and manifolds, to wholesale
distributors and original equipment manufacturers in the United Sates and
abroad.

Details of this acquisition are as follows:
<TABLE>
<CAPTION>
Fair value of net assets acquired:
<S> <C> <C>
Net working capital $ 2,098
Capital assets 11,749
Long term debt (1,635)
Deferred income taxes (1,394)
--------
Net tangible assets 10,818
Goodwill 20,887
--------
Cost of the acquisition $ 31,705
========
Consideration:

Cash resources $ 16,320

Common shares issued (3,076,923 common
shares with a deemed fair market
value of $5.00 per share) 15,385
--------
$ 31,705
========

3. INVENTORIES

1996 1995
------- ------
Finished goods $ 1,794 $ -
Work in progress 893 -
Raw materials 2,043 -
------- -----
$ 4,730 $ -
======= =====
</TABLE>
Page 13
<PAGE>
TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars)
(revised)

<TABLE>
<CAPTION>
4. CAPITAL ASSETS

1996 1995
------ ------
<S> <C> <C>
Land $ 95 $ -
Buildings 25 -
Furniture and fixtures 343 149
Machinery and equipment 12,542 241
Transportation equipment 618 91
Leasehold improvements 2,642 116
-------- -----
16,265 597
Less accumulated depreciation (1,280) ( 73)
-------- -----
14,985 524
Machinery under construction 469 -
Patents and trademarks 249 114
-------- ------

$ 15,703 $ 638
======== ======
</TABLE>
The Company was committed to purchase manufacturing machinery at December
31, 1996 of $195.

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 $5,108 (1995 - $4,678).

5. NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
(A) Lines of credit $ 6,080 $ -
Less amounts reclassified as
long-term debt 4,794 -
------- -----
1,286 -
------- -----

(B) Promissory note - 11

$ 1,286 $ 223
======= =====
</TABLE>
(A) The Company's subsidiary, Pacific Baja, has an $8,000 U.S. line of
credit agreement with a bank, secured by all receivables, inventory
and equipment. The borrowings bear interest at LIBOR (5.55% at
December 31, 1996) plus 2% or prime (8.25% at December 31, 1996).
The note is due November 1998 and is annually reviewed for a
continuing two year commitment. Advances are limited to 30% of
eligible inventory (up to a maximum of $2,500) and 80% of eligible
accounts receivable and contains a seasonal over advance up to $500
from April through July each year.

Page 14
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian Dollars, except share amounts)
(revised)

5. NOTES PAYABLE (Continued)

Management has classified the portion of the lines of credit that are not
expected to be repaid during 1997 as long-term.

At December 31, 1996, the Company was in violation of certain liquidity
ratios and net worth covenants. Subsequent to December 31, 1996, the
bank waived these violations through June 30, 1997, and the bank has
agreed to amend the covenants so that the Company is anticipated to be in
compliance with all covenants through at least January 1, 1998.

(B) Promissory note, repayable at $517 per month, including interest at
10% per annum.
(C) Short term interest free loan, secured by the personal guarantee of
two of the Company's directors. 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 million 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.

<TABLE>
<CAPTION>
6. LONG TERM DEBT

1996 1995
------- ------
<S> <C> <C>
Notes payable to a bank, interest at
prime rate (8.25% at December 31,
1996) plus 1% with monthly installments
of $49, including interest,
secured by equipment, maturing
September 1997. $ 1,372 $ -
Notes payable, interest ranging from
7% to 15%, with monthly installments
of $106, including interest,
secured by equipment, maturing at
various dates through 1999. 2,252 -
Long-term portion of lines of credit 4,794
Other 22 29

Capital lease obligations 167 -
------- -----
8,607 29
Less: current portion 1,396 9
------- -----
$ 7,211 $ 20
======= =====

</TABLE>
Page 15
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(In thousands of dollars, except share amounts)
(revised)

6. LONG TERM DEBT (Continued)

Aggregate maturities of long-term debt for the years ending December 31, are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 1,510
1998 $ 5,898
1999 $ 863
2000 $ 85
2001 $ 251
</TABLE>
The Company leases various equipment under the terms of a capital lease.
The following is a schedule of future minimum lease payments over the life
of the lease:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 54
1998 59
1999 45
2000 32
2001 15
-----
205
Less amount representing interest
ranging from 9.3% to 11.3% 38
-----
Balance of obligation $ 167
=====
</TABLE>

7. 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.

b) As at December 31, 1996, the Company had outstanding share purchase
warrants entitling the holders to acquire 339,730 common shares at
exercise prices of $4.35 to $9.50 per share.

c) As at December 31, 1996, the Company had outstanding directors and
employees incentive stock options to acquire 2,300,500 common shares at
exercise prices of $1.65 to $9.00 per share.

Page 16
<PAGE>

TURBODYNE TECHNOLOGIES INC.
---------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(In thousands of dollars, except share amounts)
(revised)

8. SPECIAL WARRANTS

On July 2, 1996 the Company completed a private placement of 3,750,000
Series "A" special warrants at a price of $5.00 per special warrant for net
proceeds of $17,976,595 after deducting costs of the issue. Commission paid
to the brokers was 10% of the gross proceeds and the brokers elected to
receive the commission in special warrants (375,000 Series "A" Special
Warrants issued). Each Series "A" special warrant can be exercised into one

unit of the Company for no additional consideration. Each unit consists of
one common share and one non transferable share purchase warrant. The share
purchase warrant will entitle the holder to purchase one common share at

$5.50 per share until July 2, 1997.

On December 7, 1996 the Company completed a brokered private placement of
500,000 Series "C" special warrants at a price of $9.00 per special warrant
for net proceeds of $3,951,196 after deducting costs of the issue. Each "C"
special warrant can be exercised into one unit of the Company for no
additional consideration. Each unit consists of one common share and one-
half of one non-transferable share purchase warrant. Each whole Series "C"
share purchase warrant will entitle the holder to purchase one common share
at $9.50 per share for a period of one year. Commissions paid to the broker
was 10% of the gross proceeds and the broker elected to receive the
commission in cash.

The Company has undertaken to use its best efforts to file and obtain a
receipt for a prospectus qualifying the distribution of the Series "A" and
"C" units on the exercise of the Series "A" and "C" special warrants, within
90 days following the closing date of the Series "C" special warrants. In
the event that the prospectus is not receipted in the 90 day period, then
the Series "C" units will consist of one common share and one share purchase
warrant.

9. INCOME TAXES

At December 31, 1996, the Company has approximately $11,750 in net operating
loss carryforwards available to offset future taxable income. These
carryforwards, if unused, will expire from 2001 to 2010. The potential
income tax benefits related to these items have not been reflected in the
accounts.

Page 17
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian dollars)
(revised)

10. COMMITMENTS

a) Consulting Commitments

The Company has entered into consulting 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:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 429
1998 $ 199
1999 $ 180
2000 $ 180
2001 $ 180
</TABLE>
Certain of the consulting agreements are payable for a total of $16 U.S.
per month and continue indefinitely until either party terminates the
agreement in writing with advance notice ranging from two to three
months.

b) Lease Commitments

The Company's subsidiaries lease certain factory and office premises in
California, U.S.A. and Ensenada, Mexico until September, 2006. The
annual rents of the premises consist of a minimum rent plus realty taxes
and utilities. Minimum rents payable for the premises for the next five
years is as follows:
<TABLE>
<CAPTION>
<S> <C>

1997 $ 646
1998 $ 717
1999 $ 736
2000 $ 750
2001 $ 457
</TABLE>
The Company's head office and Turbodyne development factory premises are
rented on a month to month basis.

11. RELATED PARTY TRANSACTIONS

a) The Company made payments to related parties as follows:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Project management fees $ 82 $ 80
Consulting fees $ 86 $ -
Management fees $ 30 $ 30
Rent and administrative services $ 176 $ 30
</TABLE>
Page 18
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian dollars)
(revised)

11. RELATED PARTY TRANSACTIONS (Continued)

b) The following amounts are due from (to) related parties:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advances receivable from a director,
interest free and payable on demand $ 113 $ 113
===== =====
</TABLE>

12. SEGMENTED INFORMATION

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
and castings prepared to customer specifications on a contract basis.
Operations are considered to be in one geographical area - North America.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
NET SALES
After-market automotive wheels $ 9,799 $ -
Compressor housings and manifolds 9,208 -
-------- -------

$ 19,007 $ -
======== =======
GROSS PROFIT
After-market automotive wheels $ 1,309 $ -
Compressor housings and manifolds 1,200 -
-------- -------

$ 2,509 $ -
======== =======

GENERAL OPERATING COSTS
Manufacture of aluminum cast automotive
products 2,666 -
Development of Turbodyne products 3,002 1,528
-------- -------

$ 5,668 $ 1,528
======== =======

LOSS BEFORE PROVISION FOR INCOME TAXES (3,159) (1,528)

INCOME TAXES RECOVERED 601 -
-------- -------

NET LOSS $ (2,558) $(1,528)
======== =======

Page 19
<PAGE>

TURBODYNE TECHNOLOGIES INC.
--------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
--------------------------
(Stated in thousands of Canadian dollars)
(revised)

12. SEGMENTED INFORMATION (Continued)

Year ended Year ended
December 31, December 31,
1996 1995
---------- -----------
DEPRECIATION
After-market automotive wheels $ 348 $ -
Compressor housings and manifolds 630 -
Turbodyne products 68 6
-------- -------
$ 1,046 $ 6
======== =======
IDENTIFIABLE ASSETS
After-market automotive wheels $ 21,996 $ -
Compressor housings and manifolds 26,779 -
Turbodyne products 15,720 5,202
-------- -------
$ 64,495 $ 5,202
======== =======
</TABLE>
13. REVISION TO FINANCIAL STATEMENTS

The Company has revised the accounting for the acquisition of Pacific Baja
Light Metals Holding Inc. ("Pacific Baja") by increasing the value assigned
to the common share component of the consideration paid by the Company in
connection with this acquisition. This revision, which is in accordance
with generally accepted accounting principles, reflects the fair market
value of the shares issued as consideration for the Company's acquisition of
Pacific Baja. The Company had previously accounted for the acquisition
using a purchase price of $20,400 based on the fair market value of the net
assets of Pacific Baja resulting in the assignment of $4,080 to the common
share component of the consideration paid by the Company. The effect of
using the fair market value of the Company's common shares issued results in
the assignment of $15,385 to the common share component of the consideration
paid by the Company. This revision results in an increase in goodwill and
share capital in the amount of $11,305 and an increase in amortization of
goodwill and net loss for the year, and deficit of $262.

14. SUBSEQUENT EVENTS

Subsequent to December 31, 1996:

a) The Company has withdrawn its originally issued December 31, 1996
consolidated financial statements and has issued revised December 31,
1996 consolidated financial statements as detailed in Note 13.

Page 20
<PAGE>

TURBODYNE TECHNOLOGIES INC.
---------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1996 AND 1995
---------------------------
(Stated in thousands of Canadian dollars)
(revised)

14. SUBSEQUENT EVENTS (Continued)

b) The Company has issued 297,014 common shares for cash consideration of
$1,801,680 as a result of the exercise of share purchase warrants.

c) The Company has issued 520,000 common shares for cash consideration of
$2,164,395 as a result of the exercise of incentive stock options.

d) The Company has granted the following incentive stock options:

<TABLE>
<CAPTION>
Number of Shares Exercise Price Expiry Date
---------------- -------------- -----------
<S> <C> <C> <C>
480,000 $ 9.85 January 6, 1999
1,511,500 $10.15 March 3, 1999
</TABLE>

e) The Company has entered into a private placement engagement agreement,
subject to the agent's due diligence and the preparation of acceptable
documentation, which proposes the issue of up to U.S. $5,000,000 of
convertible preferred shares in two tranches, with the first tranche
of U.S. $2,500,000 expected to close by July 15, 1997, and the second
tranche of U.S. $2,500,000 to close within 120 days of the first
closing. The convertible preferred shares will have a dividend rate
of 7% per annum payable in cash or common shares (at the Company's
option) at the time of conversion. The convertible preferred shares
are convertible into common shares at any time during the period
commencing four months from closing and ending three years from
closing at the lessor of, a fixed price equal to 110% of the market
price of the common shares at the time of closing, or a floating price
varying from 80% to 90% (depending on time outstanding) of the 10 day
average price of the Company's common shares at the time of
conversion. In conjunction with the issue of the preferred shares,
the Company will issue warrants entitling the holders to purchase, for
a period of three years, at the fixed price described above, common
shares having a value of 33 1/3% of the convertible preferred shares
issued.

Page 21

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

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the inclusion of our report dated February 14, 1997,
except for the last paragraph of Note 5(A) which is as of March 12, 1997,
Note 2, Note 13 and Note 14(a) which are as of May 14, 1997 and Notes 14(b),
14(c), 14(d) and 14(e), which are as of June 17, 1997 on the revised
consolidated financial statements of Turbodyne Technologies Inc. for the year
ended December 31, 1996 in the Company's Annual Report on Form 20F. We also
consent to application of such report to the financial information in the
Annual Report on Form 20F, when such financial information is read in
conjunction with the financial statements referred to in our report.

Vancouver, Canada /s/Morgan & Company
July 11, 1997 Chartered Accountants

Industry Canada Industrie Canada

CERTIFICATE CERTIFICAT
OF CONTINUANCE DE PROROGATION

CANADA BUSINESS LOI CANADIENNE SUR
CORPORATION ACT LES SOCIETES PAR ACTIONS

TURBODYNE TECHNOLOGIES INC. 330460-4

- -------------------------------- -----------------------------------
Name of corporation-Denomination Corporation number-Numero de la de la
societe

I hereby certify that the above- Je certifie que societe susmentionnee
corporation was continued under a ete prorogee en vertu de l'article
section 187 of the Canada Business 187 de la Loi cannadienne sur les
Corporations Act, as set out in societes par actions, tel qu'il est
the attached articles of indique dans les clauses de prorogation
continuance. ci-jointes.

/s/ Directeur
Director-Directeur DECEMBER 3, 1996/LE 3 DECEMBRE 1996

Date of Continuance - Date de la prorogation

CANADA

CREDIT AGREEMENT

THIS AGREEMENT is entered into as of September 1, 1995, by and between
Optima Wheel, Inc., a California corporation ("Borrower"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank").

RECITAL
-------

Borrower has requested from Bank the credit accommodations described below
(collectively, the "Credits"), and Bank has agreed to provide the Credits to
Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I
---------

THE CREDITS
-----------

SECTION 1.1. LINE OF CREDIT.

(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including September 1, 1996, not to exceed at any time the aggregate
principal amount of Three Million Dollars ($3,000,000.00) ("Line of Credit"),
the proceeds of which shall be used for working capital. Borrower's obligation
to repay advances under the Line of Credit shall be evidenced by a promissory
note substantially in the form of Exhibit A attached

Page 1
<PAGE>
hereto ("Line of Credit Note"), all terms of which are incorporated herein by
this reference.

(b) LIMITATION ON BORROWINGS. Outstanding borrowings under the Line of
Credit, to a maximum of the principal amount set forth above, shall not at any
time exceed an aggregate of eighty percent (80%) of Borrower's assigned
eligible accounts receivable, plus thirty percent (30%) of the value of
Borrower's eligible inventory (exclusive of work in process and inventory which
is obsolete, unsaleable or damaged), with value defined as lower of cost or
market value; provided however, that the outstanding principal balance of all
borrowings against Borrower's inventory shall not at any time exceed an
aggregate of One Million Dollars ($1,000,000.00). All of the foregoing shall
be determined by Bank upon receipt and review of all collateral reports
required hereunder and such other documents and collateral information as Bank
may from time to time require. Borrower acknowledges that said borrowing base
was established by Bank with the understanding that, among other items, the
aggregate of all returns, rebates, discounts, credits and allowances for the
immediately preceding three (3) months at all times shall be less than five
percent (5%) of Borrower's gross sales for said period. If such dilution of
Borrower's accounts for the immediately preceding three (3) months at any time
exceeds five percent (5%) of Borrower's gross sales for said period, or if
there at any time exists any other matters,

Page 2
<PAGE>
events, conditions or contingencies which Bank reasonably believes may affect
payment of any portion of Borrower's accounts, Bank, in its sole discretion,
may reduce the foregoing advance rate against eligible accounts receivable to a
percentage appropriate to reflect such additional dilution and/or establish
additional reserves against Borrower's eligible accounts receivable.

As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of Borrower's business, upon
which Borrower's right to receive payment is absolute and not contingent upon
the fulfillment of any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include:

(i) any account which is past due more than twice Borrower's
standard selling terms;

(ii) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the ordinary
course of business to promote prompt payment) or for which any defense or
counterclaim has been asserted;

(iii) any account which represents an obligation of any state or
municipal government or of the United States government or any political
subdivision thereof (except accounts which represent obligations of the United
States government and for which Bank's forms N-138 and N-139 have been duly
executed and acknowledged);
Page 3
<PAGE>

(iv) any account which represents an obligation of an account debtor
located in a foreign country, except to the extent any such account, in Bank's
determination, is supported by a letter of credit or insured under a policy of
foreign credit insurance, in each case in form, substance and issued by a party
acceptable to Bank;

(v) any account which arises from the sale or lease to
or performance of services for, or represents an obligation of, an employee,
affiliate, partner, member, parent or subsidiary of Borrower;

(vi) that portion of any account which represents interim or
progress billings or retention rights on the part of the account debtor;

(vii) any account which represents an obligation of any account
debtor when twenty percent (20%) or more of Borrower's accounts from such
account debtor are not eligible pursuant to (i) above;

(viii) that portion of any account from an account debtor which
represents the amount by which Borrower's total accounts from said account
debtor exceeds twenty-five percent (25%) of Borrower's total accounts;

(ix) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the account
debtor, or the industry in which the

Page 4
<PAGE>
account debtor is engaged, to be unsatisfactory.

SECTION 1.2. TERM LOAN I.

(a) TERM LOAN I. Bank has made a loan to Borrower in the original
principal amount of Five Hundred Thousand Dollars ($500,000.00) ("Term Loan
I"), on which the outstanding principal balance as of the date hereof is
$347,221.00. Borrower's obligation to repay Term Loan I is evidenced by a
promissory note substantially in the form of Exhibit B attached hereto ("Term
Note I"), all terms of which are incorporated herein by this reference.
Subject to the terms and conditions of this Agreement, Bank hereby confirms
that Term Loan I remains in full force and effect.

(b) REPAYMENT. The principal amount of Term Loan I shall be repaid in
accordance with the provisions of Term Note I.

SECTION 1.3. TERM LOAN II.

(a) TERM LOAN II. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make a loan to Borrower in the principal amount of Two
Hundred Five Thousand Dollars ($205,000.00) ("Term Loan II"), the proceeds of
which shall be used to purchase equipment. Borrower's obligation to repay Term
Loan II shall be evidenced by a promissory note substantially in the form of
Exhibit C attached hereto ("Term Note II"), all terms of which are incorporated
herein by this reference. Bank's commitment to

Page 5
<PAGE>
grant Term Loan II shall terminate on October 1, 1995.

(b) REPAYMENT. The principal amount of Term Loan II shall be repaid in
accordance with the provisions of Term Note II.

SECTION 1.4. INTEREST/FEES.

(a) INTEREST. The outstanding principal balance of the Line of Credit,
Term Loan I and Term Loan II shall bear interest at the rate of interest set
forth in the Line of Credit Note, Term Loan I Note and Term Loan II Note.

(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Line of Credit Note, Term Note I and Term Note II
(collectively, the "Notes").

(c) LINE OF CREDIT COMMITMENT FEE. Borrower shall pay to Bank a non-
refundable commitment fee for the Line of Credit equal to Five Thousand Dollars
($5,000.00), which commitment fee shall be due and payable in full on the date
of this Agreement.

(d) TERM LOAN II FEE. Borrower shall pay to Bank a non-refundable loan
fee for Term Loan II equal to Five Hundred Dollars ($500.00), which fee shall
be due and payable in full on the date of this Agreement.

SECTION 1.5. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all principal, interest and fees due under each Credit by charging
Borrower's demand deposit account number 4888-

Page 6
<PAGE>

015120 with Bank, or any other demand deposit account maintained by Borrower
with Bank, for the full amount thereof. Should there be insufficient funds in
any such demand deposit account to pay all such sums when due, the full amount
of such deficiency shall be immediately due and payable by Borrower.

SECTION 1.6. COLLATERAL.

As security for the Line of Credit of Borrower to Bank pursuant to this
Agreement, Borrower grants to Bank security interests of first priority in all
Borrower's accounts receivable, inventory, rights to payment, general
intangibles and equipment and as security for Term Loan I and Term Loan II of
Borrower to Bank pursuant to this Agreement, Borrower grants to Bank security
interests of first priority in all of Borrower's equipment.

All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand
for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees and
costs of appraisals, audits and title insurance.

SECTION 1.7. GUARANTIES. All indebtedness of Borrower to Bank pursuant
to this Agreement shall be guaranteed by Pacific Baja Light Metals Holding Inc.
in the principal amount of Three Million Five Hundred Fifty-Five Thousand
Dollars ($3,555,000.00) and Naresh

Page 7
<PAGE>
Saxena, S.K. Durairaj, Mugurdich Balabanian, Lennart Renberg and Michael Joyce
in the principal amount of Seven Hundred Twenty-Five Thousand ($725,000.00),
each, as evidenced by and subject to the terms of guaranties in form and
substance satisfactory to Bank.

ARTICLE II
-----------

REPRESENTATIONS AND WARRANTIES
------------------------------

Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank subject
to this Agreement.

SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the State of California,
and is qualified or licensed to do business (and is in good standing as a
foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.

SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in

Page 8
<PAGE>
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.

SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated June 30, 1995, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated

Page 9
<PAGE>
or unliquidated, fixed or contingent, and (c) has been prepared in accordance
with generally accepted accounting principles consistently applied. Since the
date of such financial statement there has been no material adverse change in
the financial condition of Borrower, nor has Borrower mortgaged, pledged,
granted a security interest in or otherwise encumbered any of its assets or
properties except in favor of Bank or as otherwise permitted by Bank in
writing.

SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.

SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.

SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, franchises and licenses required and rights to
all trademarks, trade names, patents, and fictitious names, if any, necessary
to enable it to conduct the business in which it is now engaged in compliance
with applicable law.

SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended or recodified

Page 10
<PAGE>
from time to time ("ERISA"); Borrower has not violated any provision of any
defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in
ERISA has occurred and is continuing with respect to any Plan initiated by
Borrower; Borrower has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.

SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable Federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted
pursuant thereto, which govern or affect any of Borrower's operations and/or
properties, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, the Federal Toxic Substances Control Act and the California Health and
Safety Code, as any of the same may be amended, modified or supplemented from

Page 11
<PAGE>
time to time. None of the operations of Borrower is the subject of any Federal
or state investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Borrower has no material
contingent liability in connection with any release of any toxic or hazardous
waste or substance into the environment.

ARTICLE III
----------

CONDITIONS
----------

SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:

(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.

(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:

(i) This Agreement and the Notes.

(ii) Corporate Borrowing Resolution

(iii) Certificate of Incumbency

(iv) Articles of Incorporation

(v) Continuing Guaranties from all guarantors listed in Section 1.7.

(vi) Resolution Authorizing Execution of Guaranty

(vii) Security Agreement: Equipment

(viii) Continuing Security Agreement: Rights to Payment and Inventory

Page 12
<PAGE>

(ix) UCC Financing Statement.

(x) Such other documents as Bank may require under any other Section
of this Agreement.

(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a substantial
or material portion of the assets of Borrower or any such guarantor.

SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:

(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and

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<PAGE>
be continuing or shall exist.

(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.

ARTICLE IV
----------

AFFIRMATIVE COVENANTS
---------------------

Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:

SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any of the Credits at
any time exceeds any limitation on borrowings applicable thereto.

SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect,
audit and examine such books and records, to make copies of the same, and to
inspect the properties of Borrower.

SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of

Page 14
<PAGE>

the following, in form and detail satisfactory to Bank:

(a) not later than 120 days after and as of the end of each fiscal year,
a reviewed consolidated and consolidating financial statement of Borrower,
Pacific Baja Light Metals Holding Inc. and Baja Pacific Light Metals, Inc.
prepared by a certified public accountand acceptable to Bank, to include
balance sheet and income statement, statement of cash flow and all footnotes;

(b) not later than 45 days after and as of the end of each fiscal
quarter, a consolidated and consolidating financial statement of Borrower,
Pacific Baja Light Metals Holding Inc. and Baja Pacific Light Metals, Inc.
prepared by Borrower, to include balance sheet and income statement;

(c) not later than 15 days after and as of the end of each month, a
borrowing base certificate, an inventory collateral report, an aged listing of
accounts receivable and accounts payable, and a reconciliation of accounts;

(d) not later than 120 days after and as of the end of each calendar
year, a self-prepared financial statement of Pacific Baja Light Metals Holding
Inc., Naresh Saxena, S. K. Durairaj, Mugurdich Balabanian, Lennart Renberg and
Michael Joyce, to include balance sheet and income statement , and within 30
days after filing, but in no event later than each November 15th, copies of the
filed Federal income tax returns for such year for each individual listed
above;

SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and

Page 15
<PAGE>

franchises necessary for the conduct of its business; and comply with the
provisions of all documents pursuant to which Borrower is organized and/or
which govern Borrower's continued existence and with the requirements of all
laws, rules, regulations and orders of any governmental authority applicable to
Borrower and/or its business.

SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that
of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.

SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.

SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation Federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank's

Page 16
<PAGE>

satisfaction, for eventual payment thereof in the event Borrower is obligated
to make such payment.

SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower.

SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's, Baja Pacific
Light Metals Inc.'s and Pacific Baja Light Metals Holding Inc.'s financial
condition on a consolidated basis as follows using generally accepted
accounting principles consistently applied and used consistently with prior
practices, except to the extent modified by the following definitions:

(a) Working Capital not at any time less than $250,000.00, with "Working
Capital" defined as total current assets minus total current liabilities.

(b) Tangible Net Worth not at any time less than $5,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity
plus subordinated debt less any intangible assets.

(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than 2.0 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" as defined above.

(d) Pre-tax profit not less than $1.00 on a quarterly basis, determined
as of each fiscal quarter end.

(e) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of

Page 17
<PAGE>
each fiscal year end, with "EBITDA" defined as net profit before tax plus
interest expense (net of capitalized interest expense), depreciation expense
and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA
divided by the aggregate of total interest expense plus the prior period
current maturity of long-term debt and the prior period current maturity of
subordinated debt.

SECTION 4.10. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices, except to the
extent modified by the following definitions:

(a) Working Capital not at any time less than $500,000.00, with "Working
Capital" defined as total current assets minus total current liabilities.

(b) Tangible Net Worth not at any time less than $2,500,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity
plus subordinated debt less any intangible assets.

(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than 2.5 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" as defined above.

(d) Pre-tax profit not less than $1.00 on a quarterly basis, determined
as of each fiscal quarter end.

Page 18
<PAGE>

(e) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of each fiscal year
end, with "EBITDA"defined as net profit before tax plus interest expense (net
of capitalized interest expense), depreciation expense and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior period current maturity of
long-term debt and the prior period current maturity of subordinated debt.

SECTION 4.11. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default,
or any condition, event or act which with the giving of notice or the passage
of time or both would constitute an Event of Default; (b) any change in the
name or the organizational structure of Borrower, or any action, claim,
investigation, suit or proceeding pending or asserted by or before any
governmental authority, arbitrator, court or administrative agency challenging
or denying Borrower's qualification for tax treatment as if it were a
partnership for income tax purposes]; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.

Page 19
<PAGE>

ARTICLE V
---------

NEGATIVE COVENANTS
------------------

Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:

SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.

ARTICLE VI
----------

EVENTS OF DEFAULT
-----------------

SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:

(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.

(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any
other party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.

(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections

Page 20
<PAGE>

(a) and (b) above), and with respect to any such default which by its nature
can be cured, such default shall continue for a period of twenty (20) days from
its occurrence.

(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any guarantor
hereunder has incurred any debt or other liability to any person or entity,
including Bank.

(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder.

Page 21
<PAGE>

United States Code, as amended or recodified from time to time ("Bankruptcy
Code"), or under any state or Federal law granting relief to debtors, whether
now or hereafter in effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower or any guarantor hereunder, or Borrower or any such guarantor
shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower or such guarantor shall be
adjudicated a bankrupt, or an order for relief shall be entered against
Borrower or any Guarantor by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors.

(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.

(h) The death or incapacity of any guarantor. The dissolution or
liquidation of Borrower or any guarantor; or Borrower or any such guarantor, or
any of their directors, stockholders or members, shall take action seeking to
effect the dissolution or liquidation of Borrower or such guarantor.

(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of

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<PAGE>

the common stock of Borrower.

SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by Borrower; (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate; and (c) Bank shall have
all rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any of the Credits and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by
law or equity.

ARTICLE VII
-----------

MISCELLANEOUS
-------------

Page 23
<PAGE>

otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must
be in writing and shall be effective only to the extent set forth in such
writing.

SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of
this Agreement must be in writing delivered to each party at the following
address:

BORROWER: Optima Wheel, Inc.
15300 Valley View
La Mirada, CA 90638

BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
100 North Harbor Blvd, Suite 200
Anaheim, CA 92805

or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.

Page 24
<PAGE>

connection with a) the negotiation and preparation of this Agreement and the
other Loan Documents, Bank's continued administration hereof and thereof, and
the preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, and including any of the
foregoing incurred in connection with any bankruptcy proceeding relating to
Borrower.

SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's
rights and benefits under each of the Loan Documents. In connection therewith,
Bank may disclose all documents and information which Bank now has or may
hereafter acquire relating to any of the Credits, Borrower or its business, any
guarantor hereunder or the business of such guarantor, or any collateral
required hereunder.

SECTION 7.5, ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement

Page 25
<PAGE>

between Borrower and Bank with respect to the Credits and supersede all prior
negotiations, communications, discussions and correspondence concerning the
subject matter hereof. This Agreement may be amended or modified only by a
written instrument executed by each party hereto.

SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party. beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.

SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.

SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.

Page 26
<PAGE>

otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

Optima Wheel, Inc. WELLS FARGO BANK,
NATIONAL ASSOCIATION

By: /S/ MICHAEL J. JOYCE PRES By: /S/ FRANK J. WEBER
--------------------------- -------------------------
Michael J. Joyce Frank J. Weber
President Vice President

Page 27
<PAGE>

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is entered into as of March 26, 1996, by and between OPTIMA
WHEEL, INC., a California corporation ("Borrower"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").

RECITALS
--------
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of September 1, 1995, as amended fromtime to time ("Credit Agreement").

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:

1. Section 1.1.(a) is hereby amended by deleting "Three Million Dollars
($3,000,000.00)" as the maximum principal amount available under the Line of
Credit, and by substituting for said amount "Three Million Five Hundred
Thousand Dollars ($3,500,000.00)," with such change to be effective upon the
execution and delivery to Bank of a promissory note substantially in the form
of Exhibit A attached hereto (which promissory note shall replace and be deemed
the Line of Credit Note defined in

Page 28
<PAGE>
and made pursuant to the Credit Agreement) and all other contracts, instruments
and documents required by Bank to evidence such change.

2. Section 1.4. (c) is hereby deleted in its entirety, and the following
substituted therefor:

"(c) LINE OF CREDIT COMMITMENT FEE.
Borrower shall pay to Bank a non-
refundable commitment fee for the
Line of Credit equal to Five Hundred
Dollars ($500.00), which commitment
fee shall be due and payable in full
upon execution of this amendment."

3. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.

4. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition, act
or event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.

Page 29
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.

OPTIMA WHEEL, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION

By: /S/ MICHAEL J. JOYCE PRES By: /S/ FRANK J. WEBER
-------------------------- ---------------------
Michael J. Joyce Frank J. Weber
President Vice President

Page 30

CREDIT AGREEMENT

THIS AGREEMENT is entered into as of September 1, 1995, by and between
Baja Pacific Light Metals Inc., a California corporation ("Borrower"), and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

RECITAL
-------

Borrower has requested from Bank the credit accommodation described below,
and Bank has agreed to provide said credit accommodation to Borrower on the
terms and conditions contained herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I
---------

THE CREDIT
----------

SECTION 1.1. LINE OF CREDIT.

(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including September 1, 1996, not to exceed at any time the aggregate
principal amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00)
("Line of Credit"), the proceeds of which shall be used working capital.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of

Page 1
<PAGE>
Exhibit A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.

(b) LIMITATION ON BORROWINGS. Outstanding borrowings under the Line of
Credit, to a maximum of the principal amount set forth above, shall not at any
time exceed an aggregate of eighty percent (80%) of Borrower's assigned
eligible accounts receivable. All of the foregoing shall be determined by Bank
upon receipt and review of all collateral reports required hereunder and such
other documents and collateral information as Bank may from time to time
require. Borrower acknowledges that said borrowing base was established by
Bank with the understanding that, among other items, the aggregate of all
returns, rebates, discounts, credits and allowances for the immediately
preceding three (3) months at all times shall be less than five percent (5%) of
Borrower's gross sales for said period. If such dilution of Borrower's
accounts for the immediately preceding three (3) months at any time exceeds
five percent (5%) of Borrower's gross sales for said period, or if there at any
time exists any other matters, events, conditions or contingencies which Bank
reasonably believes may affect payment of any portion of Borrower's accounts,
Bank, in its sole discretion, may reduce the foregoing advance rate against
eligible accounts receivable to a percentage appropriate to reflect such
additional dilution and/or establish additional reserves against Borrower's
eligible accounts receivable.

As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of

Page 2
<PAGE>
Borrower's business, upon which Borrower's right to receive payment is absolute
and not contingent upon the fulfillment of any condition whatsoever, and in
which Bank has a perfected security interest of first priority, and shall not
include:

(i) any account which is past due more than twice Borrower's standard
selling terms;

(ii) that portion of any account for which there exists any right of set
off, defense or discount (except regular discounts allowed in the ordinary
course of business to promote prompt payment) or for which any defense or
counterclaim has been asserted;

(iii) any account which represents an obligation of any state or municipal
government or of the United States government or any political subdivision
thereof (except accounts which represent obligations of the United States
government and for which Bank's forms N-138 and N-139 have been duly executed
and acknowledged);

(iv) any account which represents an obligation of an account debtor
located in a foreign country except to the any such account, in Bank's
determination, is supported by a letter of credit or insured under a policy of
foreign credit insurance, in each case in form, substance and issued by a party
acceptable to Bank;

(v) any account which arises from the sale or lease to or performance of
services for, or represents an obligation of, an employee, affiliate, partner,
member, parent or subsidiary of Borrower;

Page 3
<PAGE>
(vi) that portion of any account which represents interim or progress
billings or retention rights on the part of the account debtor;

(vii) any account which represents an obligation of any account debtor
when twenty percent (20%) or more of Borrower's accounts from such account
debtor are not eligible pursuant to (i) above;

(viii) that portion of any account from an account debtor which represents
the amount by which Borrower's total accounts from said account debtor exceeds
twenty-five percent (25%) of Borrower's total accounts;

(ix) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the account
debtor, or the industry in which the account debtor is engaged, to be
unsatisfactory.

SECTION 1.2. INTEREST/FEES.

(a) INTEREST. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.

(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the

(c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $1,500.00, which commitment fee
shall be due and payable in full on upon execution of this Agreement.

Page 4
<PAGE>

SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under the Line of Credit by charging
Borrower's demand deposit account number 4888015138 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.

SECTION 1.4. COLLATERAL.

As security for all indebtedness of Borrower to Bank pursuant to this
Agreement, Borrower grants to Bank security interests of first priority in all
Borrower's account receivable, rights to payments, general intangibles,
inventory and equipment.

SECTION 1.5. GUARANTIES. All indebtedness of Borrower to Bank pursuant
to this Agreement shall be guaranteed by Pacific Baja Light Metals Holding Inc.
in the principal amount of One Million Five Hundred Thousand Dollars
($1,500,000.00), and by Naresh Saxena, S. K. Durairaj, Mugurdich Balabanian,
Lennart Renberg and Michael Joyce in the principal amount of Three Hundred
Thousand ($300,000.00) each as evidence by and subject to the terms of
guaranties in form and substance satisfactory to Bank.

Page 5
<PAGE>
licensing is required or in which the failure to so qualify or to be so
licensed could have a material adverse effect on Borrower.

SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby
or at any time hereafter delivered to Bank in connection herewith
(collectively, the "Loan Documents") have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute
legal, valid and binding agreements and obligations of Borrower or the party
which executes the same, enforceable in accordance with their respective terms.

SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower's or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

Page 6
<PAGE>
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated, June 30, 1995, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.

SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.

Page 7
<PAGE>
business in which it is now engaged in compliance with applicable law.

SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with
respect to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.

Page 8
<PAGE>
Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic
Substances Control Act and the California Health and Safety Code, as any of the
same may be amended, modified or supplemented from time to time. None of the
operations of Borrower is the subject of any Federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance
into the environment. Borrower has no material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.

ARTICLE III
-----------

CONDITIONS
----------

SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:

(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.

(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:

(i) This Agreement and the Note

(ii) Corporate Borrowing Resolution

Page 9
<PAGE>

(iii) Certificate of Incumbency

(iv) Articles Incorporation

(v) Security Agreement - Equipment, Rights to Payment and Inventory.

(vi) UCC Financial Statement

(vii) Continuing Guaranties

(viii) Such other documents as Bank may require under any other Section
of this Agreement.

(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank, including without
limitation, policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific hazards
affecting any such real property as may be required by governmental regulation
or Bank.

Page 10
<PAGE>
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.

(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.

ARTICLE IV
----------

AFFIRMATIVE COVENANTS
---------------------

Page 11
<PAGE>
amount by which the outstanding principal balance of the Line of Credit at any
time exceeds any limitation on borrowings applicable thereto.

SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:

(a) not later than 120 days after and as of the end of each fiscal year,
a reviewed consolidated and consolidating financial statement of Borrower,
Optima Wheel, Inc. and Pacific Baja Light Metals Holding Inc. prepared by a
certified public account and and acceptable to Bank, to include balance sheet
and income statement, statement of cash flow and all footnotes;

(b) not later than 45 days after and as of the end of each fiscal
quarter, a consolidated and consolidating financial statement of Borrower,
Optima Wheel, Inc. and Pacific Baja Light Metals Holding Inc. prepared by
Borrower, to include balance sheet and income statement;

Page 12
<PAGE>
(d) not later than 120 days after and as of the end of each calendar
year, a self-prepared financial statement of Naresh Saxene, S. K. Durairaj,
Mugurdich Balabanian, Lennart Renberg and Michael Joyce, to include balance
sheet and income statement , and within 30 days after filing, but in no event
later than each November 15th, copies of the filed Federal income tax returns
for such year for each individual listed above;

(e) from time to time such other information as Bank may reasonably
request.

SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.

Page 13
<PAGE>
(a) REPAYMENT. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.

SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's Optima Wheel,
Inc.'s and Pacific Baja Light Metals Holding Inc.'s financial condition on a
consolidated basis as follows usi ng generally accepted accounting principles
consistently applied and used consistently with prior practices, except to the
extent modified by the following definitions:

(a) Working Capital not at any time less than $250,000.00, with "Working
Capital" defined as total current assets minus total current liabilities.

(b) Tangible Net Worth not at any time less than $5,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity
plus subordinated debt less any intangible assets.

(d) Pre-tax profit not less than $1.00 on a quarterly basis, determined
as of each fiscal quarter end.

Page 14
<PAGE>
total interest expense plus the prior period current maturity of long-term debt
and the prior period current maturity of subordinated debt.

(a) Tangible Net Worth not at any time less than $2,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity
plus subordinated debt less any intangible assets.

(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 2.5 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" as defined above.

Page 15
<PAGE>
court or administrative agency challenging or denying Borrower's qualification
for tax treatment as if it were a partnership for income tax purposes; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each
as defined in ERISA, or any funding deficiency with respect to any Plan; or
(d) any termination or cancellation of any insurance policy which Borrower is
required to maintain, or any uninsured or partially uninsured loss through
liability or property damage, or through fire, theft or any other cause
affecting Borrower's property.

ARTICLE V
---------

NEGATIVE COVENANTS
------------------

SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.

Page 16
<PAGE>

ARTICLE VI
----------

EVENTS OF DEFAULT
-----------------

SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:

(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.

(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.

(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder

Page 17
<PAGE>
in any county in which Borrower or such guarantor has an interest in real
property; or the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of Borrower or any
guarantor hereunder; or the entry of a judgment against Borrower or any
guarantor hereunder.

(f) Borrower or any guarantor hereunder shall become insolvent, or shall
suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment
for the benefit of creditors; Borrower or any guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or Federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any guarantor
hereunder, or Borrower or any such guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any such guarantor by
any court of competent jurisdiction under the Bankruptcy Code or any

Page 18
<PAGE>
other applicable state or Federal law relating to bankruptcy, reorganization or
other relief for debtors.

(h) The death or incapacity of any guarantor who is an individual
hereunder The dissolution or liquidation of Borrower or any guarantor
hereunder; or Borrower or any such guarantor, or any of its directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of Borrower or such guarantor.

(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower.

Page 19
<PAGE>
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition
to any other rights, powers or remedies provided by law or equity.

ARTICLE VII
-----------

MISCELLANEOUS
-------------

SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of
any other right, power or remedy. Any waiver, permit, consent or approval Of
any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.

BORROWER: BAJA PACIFIC LIGHT METALS INC.
15300 VALLEY VIEW
LA MIRADA, CA 90638 - 522800

Page 20
<PAGE>

BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
NORTH ORANGE COUNTY RCBO
100 NORTH HARBOR BLVD., SUITE 200
ANAHEIM, CA 92805

SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.

Page 21
<PAGE>
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's
rights and benefits under each of the Loan Documents. In connection therewith,
Bank may disclose all documents and information which Bank now has or may
hereafter acquire relating to any credit extended by Bank to Borrower, Borrower
or its business, any guarantor hereunder or the business of such guarantor, or
any collateral required hereunder.

SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only by a
written instrument executed by each party hereto.

SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.

Page 22
<PAGE>
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.

SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent Bank has greater rights or remedies under Federal law, whether as a
national bank or otherwise, in which case such choice of California law shall
not be deemed to deprive Bank of any such rights and remedies as may be
available under Federal law.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

WELLS FARGO BANK,
BAJA PACIFIC LIGHT METALS, INC. NATIONAL ASSOCIATION

By: /S/ MICHAEL J. JOYCE PRES By: /S/ FRANK J. WEBER
---------------------------- ----------------------
Michael J. Joyce Frank J. Weber
President Vice President

Page 23

EMPLOYMENT AND STOCK INCENTIVE AGREEMENT

THIS EMPLOYMENT AND STOCK INCENTIVE AGREEMENT is entered into this
5th day of September, 1996, by and between PACIFIC BAJA LIGHT METALS CORP., a
Wyoming Corporation ("Pacific Baja"), TURBODYNE TECHNOLOGIES, INC., a British
Columbian corporation ("Turbodyne"), and MICHAEL JOYCE ("Mr. Joyce").

POSITION: President/CEO of Pacific Baja and its subsidiaries, Optima
Wheel, Inc. ("Optima"), Baja Pacific Light Metals, Inc. ("Baja Pacific") and
Baja Oriente S.A. de C.V. ("Oriente").

Mr. Joyce will report directly to the Board of Pacific Baja.

1. COMPENSATION. Pacific Baja agrees to pay Mr. Joyce during the
term of this agreement the following salary and bonus amounts:

a. BASE SALARY. A base salary of $12,500 per month, payable
in accordance with the normal payroll schedule of Optima.

b. CASH BONUS. Mr. Joyce will be entitled to an annual cash
bonus based on the consolidated net operating profit (before taxes) of Optima,
Baja Pacific and Oriente. Accordingly, the net operating profit before taxes
for Optima, Baja Pacific and Oriente shall be consolidated in accordance with
generally accepted accounting principles applied in the same manner as used
prior to the acquisition of Pacific Baja by Turbodyne. No expenses shall be
considered in this calculation that are not direct expenses of Pacific Baja,
Baja Pacific, Optima or Oriente, and no Turbodyne overhead will be charged.
Any contracts with Turbodyne or any Turbodyne affiliate will be at arm's length
rates for this calculation. Such consolidated net profit shall be calculated
on a calendar year basis during the term of this agreement except that the
bonus for 1999 shall be calculated on the period January 1, 1999, through
August 31, 1999, if Mr. Joyce is employed by Pacific Baja or any of the
subsidiaries on August 31, 1999. If Mr. Joyce is employed by Pacific Baja or
any of the subsidiaries as of the last day of the applicable calendar year then
he shall be entitled to a bonus equal to a percentage of his annual base salary
(i.e., $150,000.00). Mr. Joyce's cash bonus shall be determined in accordance
with tile following schedule:
<TABLE>
<CAPTION>
Consolidated Percentage
NET PROFIT BASE SALARY
------------ -----------
<S> <C> <C>
$0 or less 0%
$1 - $500,000 25%
$500,001 - $1,000,000 50%
$1,000,001 - $2,500,000 80%
$2,500,001 - $5,500,000 100%
$5,500,001 + 150%
</TABLE>

Page 1
<PAGE>
The cash bonus shall be calculated within thirty (30) days following each
calendar year and paid in full within sixty (60) days following each calendar
year.

2. STOCK OPTIONS. Mr. Joyce shall be entitled to options to
acquire 150,000 shares of stock in Turbodyne Technologies, Inc., at the rate of
50,000 shares on the date of this agreement, and 50,000 shares on each of the
next two anniversary dates of this agreement. The option price shall be the
average price of Turbodyne stock on the Vancouver Stock Exchange in the ten-day
period preceding the option date. The options shall be in effect for the three-
year period subsequent to the execution of this Agreement. It is understood
that Turbodyne is acquiring Pacific Baja and this stock option is intended to
give Mr. Joyce an incentive to manage Pacific Baja and its subsidiaries to the
benefit of Turbodyne. To the extent Turbodyne registers any stock in the
United States or Canada under any registration statement filed ninety (90) days
or more after the date of closing of the acquisition of Pacific Baja by
Turbodyne, Turbodyne agrees to register sufficient shares to cover the options
herein described. Turbodyne agrees to implement an Incentive Stock Option plan
within twelve (12) months from the date of execution of this Agreement to
conform to Internal Revenue Code Section 422. The options are granted in
consideration of the execution of this contract and will survive Mr. Joyce's
termination.

a. STOCK FREE AND CLEAR. Turbodyne represents that any shares
referred to above will be issued to Mr. Joyce free and clear of any liens and
encumbrances.

3. SERVICES. Mr. Joyce will be hired as President and Chief
Executive Officer of Pacific Baja and Baja Pacific/Optima Wheel/Oriente
Companies. This means that Mr. Joyce will have general responsibility for
the supervision and management of day by day operations, subject to the policy
decisions made by the board of directors of Pacific Baja or its parent,
Turbodyne. Mr. Joyce agrees to devote his full time and efforts to the
successful development of Pacific Baja's business and not to seek any outside
employment during the term of this agreement.

a. LIMITED LIABILITY. With regard to the services to be
performed by Mr. Joyce pursuant to the terms of this Agreement, shall not be
liable to the Pacific Baja, Turbodyne, or any subsidiary, or to any third
party, for any acts or omissions in the performance of the services on the part
of Mr. Joyce, as long as said acts or omissions of Mr. Joyce are provided or
undertaken in good faith or do not constitute willful misconduct. Mr. Joyce
shall be entitled to rely on the items set forth in Corporations Code Section
309(b). The Corporation shall defend, indemnify (to the maximum extent
permitted by California law) and hold Mr. Joyce and his agents and successors
free and harmless from any and all obligations, costs, claims, judgments,
attorney's fees, attachments or any other liability arising from or growing out
of the services rendered to the Pacific Baja, Turbodyne, or any subsidiary,
pursuant to the terms of this Agreement or in any way connected with the
rendering of the services specified in this such services are provided or
undertaken in good faith or do not constitute willful misconduct.

Page 2
<PAGE>
4. TERM. This agreement shall commence as of execution and shall
continue for a term of three (3) years thereafter, unless otherwise terminated
as provided in paragraph 5 below.

5. TERMINATIONS. This agreement shall be terminated upon the
happening of any of the following events:

a. Whenever Pacific Baja and Mr. Joyce shall mutually agree in
writing to terminate this agreement;

b. Upon the death of Mr. Joyce;

c. At Pacific Baja's option, if Mr. Joyce shall suffer
permanent disability. For purposes of this agreement "permanent disability"
shall be defined as Mr. Joyce's inability, by reason of physical or mental
illness or other cause, to perform the majority of his usual duties. Pacific
Baja's option shall be exercised in writing and delivered to Mr. Joyce and
shall be effective upon delivery.

d. For cause (i.e. substance abuse, repeated mismanagement,
repeated failure to heed the policy directions of the Board of Directors,
dishonesty, etc.), upon written notice which shall be effective upon delivery.

Upon any such termination, Mr. Joyce shall be entitled to receive the
compensation accrued but unpaid as of the date of his termination including a
pro rata bonus, and shall not be entitled to any additional compensation,
except as expressly provided in this agreement.

6. AUTOMOBILE AND EXPENSES. Pacific Baja will provide Mr. Joyce
with a new automobile and reimburse him for any reasonable related automobile
expenses incurred on behalf of the business.

7. MEDICAL INSURANCE. Mr. Joyce will continue to be insured for
medical purposes under the existing company's insurance policy.

8. COVENANT NOT TO COMPETE. During the term of this agreement, Mr.
Joyce agrees not to compete against Turbodyne, Pacific BaJa, Optima, Baja
Pacific or Oriente whether as an officer, shareholder, director, partner, sole
proprietor, employee, or otherwise within a one hundred (100) mile radius of
any current office or manufacturing plant of either Optima or BaJa Pacific. If
Mr. Joyce breaches this agreement then Pacific Baja shall have the right to
enjoin Mr. Joyce from any further competitive action.

9. ARBITRATION. The parties shall use all reasonable efforts to
resolve amicably any controversy or claim arising out of, relating to this
Agreement, or the breach thereof. However, in the event such controversy or
claim cannot be resolved by agreement of the parties, it shall be settled by
arbitration in Los Angeles County, California, in accordance

Page 3
<PAGE>
with the then existing rules of the American Arbitration Association, except
that the parties shall be entitled to all discovery to which they would
normally be entitled in civil litigation in the California Superior Court.
California law shall govern. Any judgment upon the award of the arbitrator may
be rendered and enforced in any court having jurisdiction thereof.

10. MISCELLANEOUS. If any party breaches this agreement the
prevailing party shall be entitled to reasonable attorney's fees and costs
incurred in connection with such breach. No amendment of this agreement shall
be valid unless made in writing and signed by all parties hereto. The parties
agree that this supersedes any prior oral or written conversations or
agreements between the parties regarding employment. This agreement shall be
construed in accordance with the laws of the State of California.

This Agreement will be binding on the successors in interest of the
parties.

EMPLOYER: PACIFIC BAJA ACQUISITION CORP.

By
--------------------------------
Leon E. Nowek, President

EMPLOYEE:
----------------------------------
MICHAEL JOYCE

Turbodyne Technologies, Inc., hereby agrees to the foregoing and
specifically agrees to the stock option provisions.

TURBODYNE TECHNOLOGIES, INC.
By its authorized signatories

By
-----------------------------
Director

By
------------------------------
Director
Page 4

CONSULTANT AGREEMENT

THIS AGREEMENT is made effective as of the 5th day of September,
1996, by and between PACIFIC BAJA LIGHT METALS CORP., a Wyoming corporation, a
Holding Company of OPTIMA WHEEL, INC., BAJA PACIFIC LIGHT METALS INC., and BAJA
ORIENTE S.A. DE C.V., (hereinafter referred to as "Corporation"), TURBODYNE
TECHNOLOGIES, INC., a British Columbian corporation ("Turbodyne"), LYKAR
SPECIALTIES, INC., a California corporation (hereinafter referred to as
"Consultant"). The parties agree and contract as follows:

ARTICLE I. RECITALS
1.01 CORPORATION: Corporation is involved in the manufacture and
sale of cast aluminum products, primarily related to automotive uses, and
wishes to retain Consultant to assist its president in the management of
Corporation.

1.02 CONSULTANT: It is the desire of Consultant to perform the
management functions for the Corporation. In particular, Consultant will
provide the services of LENNART RENBERG (hereinafter referred to as "Swede") to
support the Corporation's management staff and Turbodyne. It is the
Consultant's intention to assist the corporation in increasing sales of non-
wheel or wheel related products.

1.03 TURBODYNE: Turbodyne is the parent company of Corporation, and
it is in the best interests of Turbodyne that Corporation be properly managed.
Accordingly, Turbodyne has agreed

Page 1
<PAGE>
to certain stock options in favor of Swede as hereinafter set forth.

ARTICLE II. SERVICES TO BE PERFORMED BY CONSULTANT

2.01 CONSULTATIONS: The Consultant and Swede shall make themselves
available to consult with Michael Joyce and other members of the Corporation's
management staff and the Turbodyne management and Board of Directors at
reasonable times concerning matters pertaining to (i) day to day operations and
management of the Corporation; (ii) strategic business decisions; and (iii)
such other transactions as may have a material impact on the Corporation's
business operations.

2.02 MANAGEMENT OF CONSULTANT: Except as otherwise provided, Swede
shall, on a day-to-day basis, assist in the management of the corporation under
the direction of its president, Michael Joyce. Swede shall report to the
President of Turbodyne.
Neither the Consultant nor Swede shall have authority to sign
contracts on behalf of the Corporation, to incur on behalf of the Corporation
any short term indebtedness other than in the ordinary course of business, nor
incur any long term indebtedness, without the prior written approval of the
Board of Directors. Furthermore, neither Consultant nor Swede shall purchase,
lease or sell, or obligate the Corporation to purchase, lease or sell, any
capital asset of the Corporation without the prior written approval of the
Board of Directors.

2.03 AMOUNT OF SERVICE: Swede shall work full time for the
Corporation during the term of this Agreement and shall devote

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<PAGE>
a minimum of forty (40) hours per week to the affairs of the Corporation.
These services shall be rendered at the Corporation's premises or in the
offices of persons with whom the Corporation conducts business.

2.04 BOOKS AND RECORDS: Consultant and Swede shall possess access and
the right to review all of the past and present books and records of the
Corporation and consult with Corporation's employees, agents, suppliers and
customers during normal business hours in order to assist Consultant or Swede
in the performance of their duties. During the term of this Agreement,
Consultant and Swede shall assist the Corporation in maintaining its books and
records.

2.05 CONSULTANT'S OTHER ACTIVITIES: Corporation recognizes and
acknowledges that Consultant is an independent consultant which employs Swede
and that Consultant and Swede may, from time to time, serve other clients whose
businesses are not competitive to or in conflict with Corporation during the
term of this Agreement.

ARTICLE III. INDEMNIFICATION

3.01 LIMITED LIABILITY: With regard to the services to be performed
by Consultant and Swede pursuant to the terms of this Agreement, the Consultant
and Swede shall not be liable to the Corporation, or to any third party, for
any acts or omissions in the performance of the services on the part of the
Consultant and Swede, as long as said acts or omissions of the Consultant or
Swede are provided or undertaken in good faith

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<PAGE>
or do not constitute willful misconduct. Consultant and Swede shall be
entitled to rely on the items set forth in Corporations Code Section 309(b).
The Corporation shall defend, indemnify (to the maximum extent permitted by
California law) and hold Swede, Consultant and its agents, successors,
shareholders, directors, officers or employees free and harmless from any and
all obligations, costs, claims, judgments, attorney's fees, attachments or any
other liability arising from or growing out of the services rendered to the
corporation pursuant to the terms of this Agreement or in any way connected
with the rendering of the services specified in this such services are provided
or undertaken in good faith or do not constitute willful misconduct.

ARTICLE IV. TERM OF AGREEMENT

4.01 EFFECTIVE DATE OF AGREEMENT: This Agreement is effective as of
acquisition of Corporation by Turbodyne.

4.02 INITIAL TERM OF AGREEMENT: Unless otherwise terminated as
provided herein, this Agreement shall continue in full force and effect from
the effective date for a period of three (3) years.

4.03 TERMINATION: This agreement shall be terminated upon the
happening of any of the following events:

(a) Whenever Corporation and Consultant shall mutually agree in
writing to terminate this agreement;

(b) Upon the death of Swede;

Page 4
<PAGE>
disability" shall be defined as Consultant's inability, by reason of physical
or mental illness or other cause, to perform the majority of his usual duties.
Corporation's option shall be exercised in writing and delivered to Consultant
and shall be effective upon delivery.

(d) For cause (i.e. substance abuse, repeated mismanagement,
repeated failure to heed the policy directions of the Board of Directors,
dishonesty, etc.), upon written notice which shall be effective upon delivery.

Upon any such termination, Consultant shall be entitled to receive
the compensation accrued but unpaid as of the date of his termination and shall
not be entitled to an additional compensation, except as expressly provided in
this agreement.

ARTICLE V. COMPENSATION

5.01 COMPENSATION: Pacific Baja agrees to pay Consultant during the
term of this agreement the following:

a. BASE COMPENSATION. A base compensation of $12,500 per
month.

B. CASH BONUS. Consultant will be entitled to an annual cash
bonus based on the consolidated net operating profit (before taxes) of Optima,
Baja Pacific and Oriente. Accordingly, the net operating profit before taxes
for optima, Baja Pacific and Oriente shall be consolidated in accordance with
generally accepted accounting principles applied in the same manner as used
prior to the acquisition of Pacific Baja by Turbodyne. No expenses shall be
considered in this calculation that are not direct expenses of

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<PAGE>
Pacific Baja, Baja Pacific, Optima or Oriente, and no Turbodyne overhead will
be charged. Any contracts with Turbodyne or any Turbodyne affiliate will be at
arm's length rates for this calculation. Such consolidated net profit shall be
calculated on a calendar year basis during the term of this agreement except
that the bonus for 1999 shall be calculated on the period January 1, 1999,
through August 31, 1999, if Consultant is employed by Pacific Baja or any of
the subsidiaries on August 31, 1999. If Consultant is employed by Pacific Baja
or any of the subsidiaries as of the last day of the applicable calendar year
then he shall be entitled to a bonus equal to a percentage of his annual base
salary (i.e., $150,000.00). Consultant cash bonus shall be determined in
accordance with the following schedule:
<TABLE>
Consolidated Percentage
NET PROFIT BASE SALARY
------------ -----------
<S> <C> <C>
$0 or less 0%
$1 - $500,000 25%
$500,001 - $1,000,000 50%
$1,000,001 - $2,500,000 80%
$2,500,001 - $5,500,000 100%
$5,500,001 + 150%
</TABLE>

The cash bonus shall be calculated within thirty (30) days following each
calendar year and paid in full within sixty (60) days following each calendar
year.

5.02 DATE OF PAYMENT: The compensation specified in 5.01 above shall
be paid monthly on or before the 10th day of each month.

5.03 EXPENSES: Corporation shall pay for all reasonable expenses and
out of pocket costs incurred by Consultant in the

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<PAGE>
performance of the services required under this Agreement for travel related
expenses, costs, meals and any similar items. The Corporation authorizes
Consultant to advance such costs and make such out of pocket expenditures as
may be reasonably necessary in connection with its services. Corporation shall
reimburse the consultant for any and all such costs and out of pocket
expenditures upon the presentation by the Consultant, from time to time, of an
itemized account of such expenditures and corresponding vouchers.

5.04 WITHHOLDING TAXES: Consultant is an independent contractor.
Therefore, Consultant will pay all taxes, including but not limited to state
and Federal income taxes, SDI and FICA, which may be attributable to
compensation paid to consultant under this Agreement. Consultant will also
withhold and pay over any and all withholding responsible to taxes for its
employees or agents, specifically including but not limited to Swede and the
support staff.

ARTICLE VI. STOCK OPTIONS

6.01 STOCK OPTIONS: Consultant shall be entitled to options to
acquire 150,000 shares of stock in Turbodyne Technologies, Inc., at the rate of
50,000 shares on the date of this agreement, and 50,000 shares on each of the
next two anniversary dates of this agreement. The option price shall be the
average price of Turbodyne stock on the Vancouver Stock Exchange in the ten-day
period preceding the option date. The options shall be in effect for the
three-year period subsequent to the execution of

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<PAGE>
this Agreement. It is understood that Turbodyne is acquiring Pacific Baja and
this stock option is intended to give Consultant an incentive to manage Pacific
Baja and its subsidiaries to the benefit of Turbodyne. To the extent Turbodyne
registers any stock in the United States or Canada under any registration
statement filed ninety (90) days or more after the date of closing of the
acquisition of Pacific Baja by Turbodyne, Turbodyne agrees to register
sufficient shares to cover the options herein described. Turbodyne agrees to
implement an Incentive Stock option plan within twelve (12) months from the
date of execution of this Agreement to conform to Internal Revenue Code Section
422. The options are granted in consideration of the execution of this
contract and will survive Consultant termination.

ARTICLE VII. CONFIDENTIALITY AND COVENANT NOT TO COMPETE

7.01 CONFIDENTIALITY: During the term of this Agreement,
Corporation will make available to Consultant certain confidential information
such as the Corporation's customers, billing, trade secrets and similar
confidential information about the general operation of the Corporation's
business. Since such information is agreed by the parties to be a valuable,
special and unique asset of Corporation, Consultant hereby agrees that the
consultant and its employees, officers, directors and shareholders will-not
during or after the term of such engagement reveal such confidential
information or any part of it to any person, firm, corporation or association
except as may be required by law. In

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<PAGE>
the event of a breach of this covenant, Corporation will be entitled to enjoin
Consultant and its employees, officers, directors and shareholders from the
disclosure of such information, in addition to any other remedies available at
law. This covenant not to disclose confidential information will remain in
effect during the term of this Agreement and in perpetuity from and after the
termination of this Agreement unless waived by Corporation or by virtue of the
terms of sale of the Corporation or its assets. Consultant shall return all
company lists, company manuals and other company documents and including any
photocopies thereof upon termination of this Agreement.

7.02 COVENANT NOT TO COMPETE: During the term of this agreement,
Consultant agrees not to compete against Turbodyne, Pacific Baja Acquisition
Corporation, Optima Wheels, Inc., Baja Pacific Light Metals, Inc. or Baja
Oriente S.A. de C.V., whether as an officer, shareholder, director, partner,
sole proprietor, employee, or otherwise within a one hundred (100) mile radius
of any current office or manufacturing plant of either Optima or Baja Pacific
Light Metals. If Consultant breaches this agreement; then Pacific Baja shall
have the right to enjoin Consultant from any further competitive action.

ARTICLE VIII. GENERAL PROVISIONS

8.01 NOTICES: Any and all notices or other communications required
or permitted by this Agreement or by law to be served on or given to any party
hereto by the other party shall be in writing and shall be deemed duly
delivered when personally

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<PAGE>
delivered to the party to whom they are directed, or in lieu of such personal
service, when deposited in the United States mail, first class, registered or
certified with return receipt requested, postage prepaid, and addressed as
follows:
Corporation: ATTENTION: MIKE JOYCE
15300 Valley View
La Mirada, CA 90638

Consultant: LYKAR SPECIALTIES, INC.
15300 Valley View
La Mirada, CA 90638

Any notice which is mailed shall be deemed delivered two (2) days after the
date when deposited with the United States mail.

8.02 ATTORNEY'S FEES: In the event of arbitration concerning this
Agreement or in relation thereto, the prevailing party in such arbitration
shall be entitled, in addition to any other relief, attorney's fees which shall
be determined by the arbitrator.

8.03 MODIFICATION AND WAIVER: No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by all
of the parties. No waiver of any provisions of this Agreement shall be deemed,
or constitute, a waiver of any other provisions, whether of the shall or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the waiver.

8.04 ASSIGNMENT: Neither this Agreement nor any duties or
obligations under this Agreement may be assigned by either party without the
prior written consent of the other party.

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<PAGE>
8.05 ENTIRE AGREEMENT: This Agreement supersedes the January 1,
1995, Consultant Agreement and constitutes the sole and only agreement or
contract between the parties regarding the services by Consultant for
Corporation and correctly sets forth the obligations of the parties to each
other as of the date of execution. There are no other prior agreements,
promises, representations or understandings not expressly set forth. Any
agreements or representations respecting this Agreement not expressly set forth
in this contract are null and void.

8.06 PARTIAL INVALIDITY: If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions will nevertheless continue in full force without being
impaired or invalidated in any way.

8.07 CONSTRUCTION: Both parties participated in the drafting of
this Agreement. Therefore, no greater or stricter construction shall be
applied to any party hereto.

8.08 Arbitration: The parties shall use all reasonable efforts to
resolve amicably any controversy or claim arising out of, relating to this
Agreement, or the breach thereof. However, in the event such controversy or
claim cannot be resolved by agreement of the parties, it shall be settled by
arbitration in Los Angeles County, California, in accordance with the then
existing rules of the American Arbitration Association, except that the parties
shall be entitled to all discovery to which they would normally be entitled in
civil litigation in the California Superior Court.

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<PAGE>
California law shall govern. Any judgment upon the award of the arbitrator may
be rendered and enforced in any court having jurisdiction thereof.

EXECUTED at La Mirada, California, USA and Vancouver, British
Columbia, CANADA.

CORPORATION:

PACIFIC BAJA ACQUISITION CORP.,
A Wyoming Corporation

By_______________________________
LEON E. NOWEK, President

CONSULTANT:

LYKAR SPECIALTIES, INC.

By /S/ KAREN DAVENPORT
KAREN DAVENPORT, President

Turbodyne Technologies, Inc., hereby agrees to the foregoing and
specifically/agrees to the stock option provisions.

TURBODYNE TECHNOLOGIES, INC.,
By its authorized signatories

By
--------------------------------
Director

By
-------------------------------
Director

LENNART RENBERG hereby agrees to the foregoing.

/S/ LENNART RENBERG
LENNART "SWEDE" RENBERG
Page 11

AGREEMENT IN PRINCIPLE

THIS AGREEMENT in Principle ("Agreement") is entered into, as of the 11th day
of April, 1997, by and between TURBODYNE SYSTEMS, INC., Nevada Corporation,
with offices located at 6155 Carpinteria Avenue, Carpinteria, California 93013,
USA, hereinafter called "Turbodyne" and AG KUHNLE, KOPP & KAUSCH, a German
Aktien gesellshaft, with offices located at Hessheimer Strasse 2m D-67227
Frankenthal, Germany, hereinafter called "KKK".

WHEREAS, Turbodyne is in the business of design, development, manufacturing and
sales of electrically driven turbochargers and turbo compressors and has
established test and development programs with various engine, auto, and truck
manufacturers, and is the owner and beneficiary of several patents, patent
applications and other intellectual property related to its technology; and

WHEREAS, KKK is established in the business of design, development,
manufacturing and sales of turbochargers for the automotive market; and

WHEREAS, Turbodyne has been conducting design, development, prototype
manufacturing and test and evaluations with various engine manufacturers with
respect to motor driven turbochargers; and

WHEREAS, several engine manufacturers have expressed a desire for incorporation
of motor-driven turbochargers in their automotive products and have suggested a
joint cooperation between Turbodyne and a turbocharger manufacturer for joint
design, development and marketing of motor assisted turbochargers.

THEREFORE, in consideration of the mutual covenants and conditions contained
herein, and other good and valuable consideration, the parties agree as
follows:

1. DESIGN AND DEVELOPMENT
----------------------

Turbodyne has developed various versions of brushless motor designs for
incorporation into various turbochargers. Under the terms of this
Agreement, Turbodyne will, in cooperation with KKK and at Turbodyne's own
sole cost and expense, design, develop and manufacture prototype motor and
electronic controller units, as well as the appropriate light metal
castings, as a sub-system for incorporation into turbochargers which will
be specifically designed, developed and prototype manufactured by KKK at
its sole cost and expense. During the design, development and prototype
manufacturing phase, KKK will make space available to Turbodyne engineers
for fabrication and testing at KKK facilities at no cost. Turbodyne will,
however, be responsible for salaries and other related expenses of its own
personnel.

2. SCOPE OF WORK
-------------

The parties will start the implementation of this agreement for mutually
selected customers as soon as possible and will each use their best
efforts in that regard. It is, however,

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<PAGE>
contemplated that by mutual agreement of the parties, similar programs may
be started for additional customers.

3. CUSTOMER EVALUATION
-------------------

During the design and development stage, the parties shall work closely
with mutually selected customers and will conduct testing and evaluation
at Turbodyne, KKK and customer facilities, as required and at each parties
own expense.

4. MANUFACTURING
-------------

The parties recognize that there are various benefits associated with
motor-driven turbochargers on commercial engine applications, including
creating more sales due to improved engine performance. In an effort to
increase the market share of the device and maintain a competitive edge in
the market place (recognizing that the field of automotive supply is an
extremely competitive business), the parties agree to establish a joint
manufacturing policy with the objective of reaching minimum cost to afford
maximum flexibility in penetrating the market and without detriment to
either party. The parties, therefore, agree to conduct the manufacturing
operations on a joint venture basis so that components contributed by each
party to the join-venture will be at cost, based on a cost formula to be
agreed on by the parties and made part of this agreement. Cost of
assembly, marketing and other related costs are to be borne by the join-
venture, which will be added to the unit cost. Details of the commercial
aspects of the joint venture will be mutually agreed upon and finalized
prior to manufacture.

5. MARKETING AND SALES
-------------------

KKK will have the overall responsibility for all marketing and sales of
the joint venture products, and Turbodyne personnel will assist in all
evaluation and sales activities as needed. All such marketing and sales
costs are to be borne by the joint venture under a formula to be agreed to
by the parties.

The parties agree to share proportionately in the profits derived from the
sale of the products in relation to the respective parties' cost
contributions, under a formula to be agreed to by the parties. The join-
venture shall be responsible for administration of all warranty and
services programs. The respective parties shall be responsible to the
joint-venture for any defects in components contributed to the joint-
venture.

6. EXCLUSIVITY
-----------

The parties recognize that extensive resources will be allocated by them
for the development, manufacturing and sale of the joint venture products.
Furthermore, the benefits of motor-driven turbochargers, such as
elimination of turbolag, improvements in performance and

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<PAGE>
reduction in pollution, will encourage auto and truck manufactures to
utilize turbochargers on a larger percentage of their engines,
particularly in cases where turbocharging has been avoided due to
consumers dislike of turbolag. Therefore, while the parties endeavor to
promote expansion of the market, it is important that the parties also
enjoy the benefits of exclusivity. Accordingly, Turbodyne will grant an
exclusive license of its technology to the joint venture for the design,
manufacture and sale of motor-driven turbochargers in Europe for such
automotive manufacturers and in such other territories as KKK and
Turbodyne shall mutually agree shall be commercially beneficial for the
joint venture.

7. TECHNOLOGY
----------

Turbodyne will grant a royalty-free license of its technology to the joint
venture for the purposes set forth above and for the term of the joint
venture. Such license will include any continuations of and improvements
in Turbodyne's technology, and Turbodyne shall have the sole
responsibility for any additional patent filings to cover such
continuations and improvements.

8. TERMINATION AND CONTINUATION OF TECHNOLOGY LICENSE
--------------------------------------------------

If the joint venture shall be terminated at some date, KKK will have the
option to continue the use of the technology licensed hereunder by
Turbodyne, for period of three years from the date of such termination.
KKK will pay a royalty to Turbodyne for such license for the three-year
period under a formula to be agreed to by the parties.

9. FINAL DOCUMENTATION
-------------------

The parties agree to work diligently to finalize and execute a mutually
acceptable Joint Venture Agreement based upon the terms set forth in this
Agreement.

TURBODYNE SYSTEMS, INC.

"EDWARD M. HALIMI"
------------------------------------
By: Edward M. Halimi
President

AG KUHNLE, KOPP & KAUSCH

"KARL WALTER"
-------------------------------------
By: Karl Walter
Ex. V.P. AG KKK
Page 3

SUPPLY AGREEMENT

BAJA ORIENTE

JANUARY 1, 1994

<PAGE>

TABLE OF CONTENTS

Pages Contents
----- --------

1-4 Terms and Conditions

4 Signature Page

5 Exhibit I

6 Exhibit II

7 Attachment A, B

<PAGE>

ALLIEDSIGNAL INC. - T&TBS
GARRETT AUTOMOTIVE GROUP
3201 W. Lomita Blvd.
Torrence, CA 90503

SUPPLY AGREEMENT

Supplier Baja Oriente ("Seller"), address - 13747 Escelsior Dr., Santa Fe
Springs, CA 90670, has entered into a supply agreement with AlliedSignal Inc.
on behalf of Garrett Automotive Group ("Buyer"). In consideration of the
mutual covenants and conditions herein, the parties agree as follows:

1. TERM
----

1.1 The term of this supply agreement (the "Agreement") shall be a period of
three (3) year(s) commencing January 1, 1994 and ending on December 31,
1996. (the "Term")

2. SALE OF PROCEEDS
----------------

2.1 Buyer agrees to purchase and Seller agrees to sell component parts used in
the manufacture of repair of Turbochargers and Charged Air Coolers and
specified on Exhibit I, and Exhibit II of Buyer requirement during the
Term for products as set forth on the fac of the purchase order (Form BWS-
1004A 1/93) as amended by the specific warranty clause, Attachment A,
which is attached hereto and is made a part of this agreement
("Products"). Buyer and Seller agree to commence negotiations for a new
supply agreement no later than September, 1996, and further agree to a
target date of December 1, 1996 for the signing of such new supply
agreement, provided such new supply agreement is acceptable to both
parties.

3. PRICE
-----

3.1(A) The initial price Buyer shall pay to Seller for Products are set
forth in Exhibit I, and Exhibit II.

3.2(B) The price of Aluminum is established at $0.62/lb for 319 Aluminum
alloy, and $0.67/lb for 356 Aluminum alloy per the American Metal
market dated 11/23/93. The prices shall be adjusted to reflect cost
decreases or increases by Seller resulting from changes to the
published prices of plus or minus ten percent (10%) from the prices
stated. The American Metal Market will serve as the agreed upon
published price source. Adjustments shall e no more frequent that
once during any three month period.

4. PRODUCTIVITY
------------

4.1 As of January 1, 1994, 1995 and 1996, Seller will reduce the price for
products by an amount no less than 2% for those items on Exhibit I, and 6%
for those items on Exhibit II commencing on January 1, 1995. The prices
will be reduced in a manner so that the effect of said reduction will
lower the base price of the total volume of work for each exhibit based on
the preceding 12 month period. The base pricing will only change based on
the

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<PAGE>
adjustments for Aluminum ingot as defined in section 3.2, and exceptional
economic hardship as defined in section 5.

4.2 Successful productivity suggestions made under the ASPIRE program will
count 100% toward the commitments shown, up to 6%, after which said cost
savings will be shared with the supplier on a 50-50 basis.

4.3 Machined parts or other value added activity that results in a net savings
to Buyer will be credited 100% toward the productivity commitments
previously stated in section 4.1.

5. ECONOMIC ADJUSTMENT
-------------------

5.1 The prices identified in Exhibit I, and Exhibit II, are based on the
Seller's labor cost and raw material cost. From time to time, but no more
frequently than once during any 12 month period, Buyer or Seller may
initiate negotiations to adjust prices to account for extraordinary
changes to the labor portion of the product cost. The change to the labor
cost must e deemed extraordinary after such economic influences as the
Peso-Dollar Exchange rate is taken into consideration. The Seller will,
at the request of the Buyer, provide documentation to substantiate the
proposed change to the labor percentage of the part cost. The prices
referenced on Exhibit I will remain firm and fixed for entirety of 1994.

5.2 From time to time, but no more frequently than once during a three month
period, Buyer and Seller will agree to change the purchase price of
Product in accordance with section 3.2 to allow for fluctuations greater
than 10% to the published price of aluminum ingot per the American Metal
Market.

6. QUALITY CRITERIA
----------------

6.1 Seller must maintain quality and delivery standards that are at least
consistent with a score of fifty (50) as measured by Buyer on Buyers
Quality Survey (BC-2522). If for some reason, Seller does not meet a
minimum score of fifty (50) on the Buyer's Quality Survey, Seller will
have six months to achieve this minimum score of fifty (50), otherwise,
Buyer may terminate the Agreement with respect to some or all of the
Products, without further obligations to the Seller.

6.2 In addition to Seller's obligations under Paragraph 6.1, Seller shall also
maintain a cumulative rejection rate per Attachment B. Dates for
continued improvements by Seller are included in Attachment B which is
attached to and made a part hereof.

6.3 In the event Seller ships non-conforming Products, Buyer shall so notify
Seller and allow Seller a maxzimum of twenty-four (24) hours to ship
Products conforming to Buyer's specifications. Buyer shall debit Seller a
fee of $105 per rejected shipment whether rejected in whole or in part to
cover internal processing of the rejection and notify Seller of the
rejection and estimated charges. If Seller fails to ship conforming
Products within the twenty-four (24) hour period referred to above, Buyer
shall debit Seller $75 per hour that may be

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<PAGE>
required to sort and/or modify Products to meet specifications only if
approval is obtained by Seller of total cost estimate. Additionally,
Buyer shall debit the costs of returning the non-conforming Products to
the Seller. The $105 per shipment charge will be waived for Seller, given
that the improvements listed on Attachment B are met and that cumulative
rejects of less than 1% are achieved on a quarterly basis subsequent to
January 1, 1994.

7. CHANGES
-------

7.1 If Buyer initiates design, process, or other changes which result in
decreased production costs, prices will be decreased to reflect the entire
effect of the decreased production costs. If Seller initiates design,
process, or other changes as through the framework of the ASPIRE program,
the net effect of the decrease after non-recurring costs will count 100%
toward the commitments mentioned in section 4.1. Additional savings after
the commitment is met will be shared 50-50 between Buyer and Seller.

8. INVENTORY
---------

8.1 Prior to the expiration of any of Seller's labor contracts, Seller will
make best effort to , at its expense, fabricate and locate in an area not
to be affected by any labor disruption, a finished inventory of salable
Products sufficient to fulfill Seller's obligation to Buyer for a minimum
of thirty (30) calendar days after expiration of such contracts.

8.2 As per the terms on the reverse side of Buyer's production schedule, Buyer
commits to thirty (30) days forward schedule during which all efforts will
be made by Buyer to maintain consistent scheduling. In the event that
unforeseen events cause radical changes to the requirements of Buyer, a
mutually acceptable arrangement will be made to relieve Seller of on hand
and in process inventory.

9. PROHIBITION OF USE OF PRODUCTS AND TOOLING
------------------------------------------

9.1 Seller shall not sell or transfer to any third party or allow any such
third party to use Products (including rejected Products, Buyer's drawings
and specifications, or any other confidential information of Buyer) for
any reason whatsoever. Furthermore, Seller shall not manufacture parts
for other customers which would engage the use of Buyer's Tooling, without
the prior written consent of Buyer.

10. SERVICE REPLACEMENT
-------------------

10.1 At Buyer's request, during the seven year period after Buyer completes
current purchases, Seller, will sell Product to fulfill Buyer's past model
service and replacement requirements at the prices specified in this
Agreement plus reasonable actual setup or manufacturing costs. During the
seventh year of such period, Buyer and Seller will negotiate in good faith
with regard to Seller's continued manufacture of service and replacement
Products.

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<PAGE>

11. TERMINATION
-----------

11.1 In addition to its rights under Section 6 and Article 11 of Buyer's
Purchase Order Form, Buyer may terminate this Agreement without liability
upon at least ninety (90) days of written notice if, (a) Buyer determines
in its reasonable discretion that Seller is no longer competitive in price
(including non-competitiveness due to exchange rate fluctuations, if
applicable) or delivery, or quality levels fall below the acceptability
limits established by section 6 and Attachment B, or, (b) Buyer can
substitute parts of significantly advance design or pricing. Upon Buyer's
notice, Seller may respond to Buyer's notice no later than sixty (60) days
prior to the effective date of such termination it being understood that
Seller's opportunity to respond to Buyer's notice shall in no way limit,
modify, or alter Buyer's sole right to terminate this Agreement. Seller
will be given the last right of refusal to meet the competitive price
thereby retaining the business on the part in question. If Buyer
determines that Seller is no longer competitive in price for a product, or
if Quality and Delivery performance falls below acceptable limits, the
Agreement for that part may be terminated by the Agreement for the Balance
of the parts will remain in effect in accordance with the balance of the
terms of this Agreement.

12 INCORPORATION BY REFERENCE
--------------------------

12.1 The terms anc conditions set forth in Buyer's Purchase Order Form (BWS-
1004A-1/93), as amended by Buyer's warranty clause, per Attachment A, and
any releases issued thereunder (GAR-637-5/91) are incorporated herein and
are made a part hereof, in the event of any conflict between the terms and
conditions of the reverse side of the purchase order forms, and the terms
and conditions of the Agreement, the terms and conditions of this
Agreement shall prevail.

SELLER

By: "MICHAEL JOYCE"
-------------------------------
Title: President

BUYER

ALLIED SIGNAL INC.
AUTOMOTIVE SECTOR

By: "J.W. RICHARD"
-------------------------------
Title: Vice President, Materials
Management

Page 4
<PAGE>

EXHIBIT I

Garret Automotive - Mexicali Charged Air Systems

The following pricing structure is based on current pricing and the terms of
this Agreement. FOB will remain "DESTINATION" for the duration of this
Agreement. Allied Signal agrees to procure 100% of the casting requirements
for the following parts as the provisions of this Agreement are upheld.
Additional work that is rewarded to Baja Oriente after January 1, 1994, will
follow a 6% year or year productivity improvement schedule

PART NUMBER CALENDAR '94 CALENDAR '95 CALENDAR '96
- ----------- ------------ ------------ ------------

485442-0002 16.43 16.13 15.80
485444-0002 20.04 19.63 19.23
485446-0002 18.22 17.85 17.49
485448-0002 18.22 17.85 17.49
485456-0001 16.29 15.96 15.64
485458-0001 16.93 16.59 16.25
485622-0003 16.93 16.59 16.25
485622-0004 16.93 16.59 16.25
485632-0001 18.47 18.10 17.73
485634-0001 20.87 20.45 20.04
485642-0002 17.40 17.05 16.70
485644-0002 18.81 18.43 18.06
485806-0001 16.82 16.48 16.15
486002-0001 18.03 17.66 17.30
486004-0001 17.54 17.18 16.83
486122-0003 18.34 17.97 17.61
486124-0003 18.34 17.97 17.61
486132-0005 21.80 21.36 20.93
486132-0006 21.80 21.36 20.93
493815-0002 18.90 18.52 18.14
493816-0002 18.90 18.52 18.14

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<PAGE>
EXHIBIT II

Garrett Automotive - Lomita Turbo Charging

The pricing set forth in this exhibit is reflective of the current prices
quoted by Baja Oriente. Prices shown are FOB Ensenada with delivery to Santa
Fe Springs, CA quoted at .08/lb.

Allied Signal agrees to procure 100% of the casting requirements of the
following parts as long as the provisions of this Agreement are upheld.
Additional work that is awarded to Baja Oriente after January 1, 1994, will
follow a 6% year over year productivity improvement schedule.

PART NUMBER EAU CALENDAR '94 CALENDAR '95 CALENDAR '96
- ----------- ------ ------------ ------------ ------------
409168-0608 6200 23.94 22.50 21.15
443534-0751 3000 19.63 18345 17.34
447296-0004 40,000 25.88 24.33 22.87
442820-0750 5000 20.97 19.71 18.53
442087-0950 1800 20.03 18.82 17.69
442087-0750 7200 20.96 19.70 18.52
408173-0139 8000 7.58 7.15 6.72
443567-0012 6000 25.62 24.08 22.64
448709-0011 23,000 7.33 *6.89 *6.48

* This part is currently scheduled to be phased down by end of calendar year
1994.

Page 6
<PAGE>
ATTACHMENT A

WARRANTY LIABILITY

Beginning January 1, 1994, if Buyer can prove that a failure in the field is
directly attributable to a deviant condition caused by Sell, whether is to the
Seller's part or Seller's part directly causes the failure of another part,
Seller agrees to pay warranty penalty according to the following scale:

Failure Rate Liability

1 to 10,000 PPM Seller replaces the cost of the casting at the current
cost as determined by this Agreement.
> 10,001 PPM * Seller agrees to pay the replacement cost of the
Turbocharger or Charged Air Cooler.

* Estimated liability - Turbo Charger: $250
- CAC: $275

ATTACHMENT B

PPM IMPROVEMENT SCHEDULE

As with reductions to the salable prices of the Products in this Agreement,
Seller agrees that the learning curve guarantee by this long term Agreement
will facilitate the following improvement to Part Per Million Reject Rate. PPM
will be measured starting January 1, 1994, based on a 12 month rolling average.

1994 - 10,000 PPM
1995 - 7,500 PPM
1996 - 5,000 PPM

Page 7
<PAGE>

AlliedSignal Inc. - T&TBS
GARRETT AUTOMOTIVE GROUP
3201 W. Lomita Blvd.
Torrence, CA 90503

SUPPLY AGREEMENT AMENDMENT
June 6, 1994

This Supply Agreement Amendment changes paragraph 3.2(B) under section 3.0
Price of the original Supply Agreement between supplier Baja Oriente ("Seller")
and AlliedSignal Inc. on behalf of Garrett Automotive Group ("Buyer"), signed
January 1, 1994. The parties agree to the Amendment as follows.

3.0 PRICE:

3.2 (B) The price of Aluminum is established at $0.56/lb for
319 Aluminum alloy, fand $0.59/lb foro 356 Aluminum
Alloy per the Metal Week Midwest Transactions dated
11/23/93. The prices shall be adjusted during the
year 1994 only, commencing June 1, to reflect cost
decreases or increases by Seller resulting from
changes to the published prices of plus or minus ten
percent (10%) from the price stated. The Metal Week
Midwest Transactions will serve as the agreed upon
published price source. Adjustments shall be no more
frequent than once during any three month period.

Negotiations will take place between the Seller and
Buyer in November 1994 to determine whether to set the
mutually agreed upon metal market price for the entire
year of 1995, or continue with the paragraph.
Negotiations will take place again in November 1995 to
determine whether to set the mutually agreed upon
metal market price for the entire year of 1996, or
continue with the quarterly adjustments as outlined in
the above paragraph.

SELLER BUYER

Baja Oriente AlliedSignal Inc.
Automotive Sector

BY: "Michael J. Joyce" BY: "Edward B"
--------------------------- -----------------------------

TITLE: President TITLE: MGR, GRP Purchasing