SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[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>
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.*
______________________
*Previously filed
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 Amendment No. 1 to Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TURBODYNE TECHNOLOGIES INC.
(COMPANY)
/s/ Leon Nowek
LEON NOWEK
CHIEF FINANCIAL OFFICER
(AUTHORIZED SIGNATORY)
DATE: July 28, 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
-------- -------
$ 64,495 $ 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)
<CAPTION>
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 $(0.15) $(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
(C) Short term interest free loan - 212
------- -----
$ 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 Amendment No. 1 to the Company's Annual Report on
Form 20F. We also consent to application of such report to the financial
information in Amendment No. 1 to 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 29, 1997 Chartered Accountants
