SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-21391
TURBODYNE TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4699061
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
21700 Oxnard Street, Suite 1550, Woodland Hills, California 91367
(Address of Principal Executive Offices) (Zip Code)
(818) 593-2282
(Registrant's Telephone Number, Including Area Code)
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
------ ------
<PAGE>
Shares of Common Stock, par value $0.001, outstanding as of November 10, 1998:
41,305,483 shares.
TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations - Three and
Nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures about Market Risks 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Default Upon Senior Securities 20
Item 4. Submission of Matters to Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
1998 1997
--------------- ----------------
Current Assets:
<S> <C> <C>
Cash 10,011,000 949,000
Trade accounts receivable, net 10,285,000 9,214,000
Inventories 8,149,000 5,469,000
Prepaid expenses and other current assets 1,934,000 1,759,000
--------------- ----------------
Total current assets 30,379,000 17,391,000
Property, Plant and Equipment, at cost, net 20,059,000 18,122,000
Goodwill, net 13,179,000 13,740,000
Other Assets 1,866,000 473,000
--------------- ----------------
65,483,000 49,726,000
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt 177,000 607,000
Current maturities of obligations under capital leases 734,000 1,035,000
Accounts payable 6,373,000 5,283,000
Accrued liabilities 3,056,000 1,850,000
Income taxes payable - 86,000
--------------- ----------------
Total current liabilities 10,340,000 8,861,000
Long term debt, less current maturities 9,605,000 8,155,000
Obligations under capital leases, less current maturities 2,790,000 1,867,000
--------------- ----------------
22,735,000 18,883,000
--------------- ----------------
Stockholders' Equity:
Preferred stock, $0.001 par value. Authorized
1,000,000 shares;10,000 issued; issued and outstanding
none in 1998 and 10,000 shares in 1997 - 9,604,000
Common stock, $0.001 par value. Authorized
60,000,000 shares; issued and outstanding
41,230,097 shares in 1998 and 29,961,612
shares in 1997 41,000 30,000
Additional paid in capital 79,140,000 45,260,000
Cumulative other comprehensive income (195,000) 22,000
Accumulated deficit (36,238,000) (24,073,000)
--------------- ----------------
Total stockholders' equity 42,748,000 30,843,000
--------------- ----------------
65,483,000 49,726,000
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
PAGE 3
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,058,000 $ 8,405,000 $ 29,808,000 $ 28,558,000
Cost of goods sold 7,462,000 7,094,000 24,996,000 22,810,000
------------------------------------- ----------------------------------
Gross profit 1,596,000 1,311,000 4,812,000 5,748,000
Selling, research, general and administrative 4,419,000 3,801,000 14,795,000 12,427,000
expenses
Relocation costs (note 2) 1,471,000 -- 1,471,000 --
------------------------------------- -----------------------------------
Loss from operations (4,294,000) (2,490,000) (11,454,000) (6,679,000)
Other expense (income):
Interest expense, net (22,000) 207,000 559,000 578,000
Other, net (15,000) 11,000 (11,000) (10,000)
------------------------------------- -----------------------------------
Loss before income taxes (4,257,000) (2,708,000) (12,002,000) (7,247,000)
Income tax expense (benefit) (24,000) (374,000) -- 115,000
------------------------------------- -----------------------------------
Net loss $ (4,233,000) $ (2,334,000) $ (12,002,000) $ (7,362,000)
===================================== ===================================
Net loss per common share:
Basic loss per share $ (0.11) $ (0.09) $ (0.35) $ (0.35)
Diluted loss per share (0.11) (0.09) (0.35) (0.35)
===================================== ===================================
Weighted average shares used for basic and
diluted loss per share 37,054,000 25,287,000 34,264,000 21,173,000
===================================== ===================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE 4
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (12,002,000) $ (7,362,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 2,670,000 2,001,000
Stock compensation 375,000 --
(Increase) decrease in operating assets:
Trade accounts receivable (1,071,000) (1,425,000)
Inventories (2,680,000) (3,335,000)
Prepaid expenses and other current assets (175,000) (1,241,000)
Other assets (1,393,000) (240,000)
Increase (decrease) in operating liabilities:
Trade accounts payable 1,090,000 1,655,000
Accrued expenses 1,399,000 (586,000)
Income taxes payable (86,000) 40,000
----------------- ------------------
Net cash used in operating activities (11,873,000) (10,493,000)
----------------- ------------------
Cash flows from investing activities:
Purchase of property and equipment $ (4,046,000) $ (4,308,000)
----------------- ------------------
Net cash used in investing activities (4,046,000) (4,308,000)
----------------- ------------------
Cash flows from financing activities:
Net proceeds from long-term borrowings $ 1,642,000 $ 3,552,000
Proceeds from subordinated convertible debentures 3,000,000 --
Net proceeds from preferred stock issue -- 9,604,000
Proceeds from exercise of stock options and warrants 20,715,000 6,564,000
Issuance costs paid (159,000) (122,000)
----------------- ------------------
Net cash provided by financing activities 25,198,000 19,598,000
----------------- ------------------
Effect of exchange rate changes on cash (217,000) 8,000
----------------- ------------------
Net increase (decrease) in cash 9,062,000 4,805,000
Cash at beginning of period 949,000 3,143,000
----------------- ------------------
Cash at end of period $ 10,011,000 $ 7,948,000
================= ==================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,265,000 537,000
Income taxes 47,000 120,000
================= ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE 5
<PAGE>
TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Turbodyne Technologies Inc., a Delaware corporation, and subsidiaries (the
Company) manufactures aluminum cast automotive products, including engine
components and specialty wheels, and develops products to enhance performance
and reduce emissions of internal combustion engines.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, Turbodyne
Systems, Inc., Turbodyne U.K. Ltd., Turbodyne Europe GMBH and Pacific Baja Light
Metals Corp. (Pacific Baja). All material intercompany accounts and transactions
have been eliminated in consolidation.
Effective July 18, 1997, the Company formally delisted its shares from trading
on the Vancouver Stock Exchange. On March 24, 1997, the Company's shares became
listed on the Nasdaq Small Capital Market and continue to trade in that market.
As a result, effective January 1, 1998, the Company changed its reporting
currency from the Canadian dollar (Cdn$) to the U.S. dollar (U.S.$).
Accordingly, the unaudited condensed consolidated financial statements for the
nine months and three months ended September 30, 1997 have been restated to the
new reporting currency of U.S.$.
Additionally, a cumulative translation adjustment of $195,000 has been included
as other comprehensive income in stockholders' equity reflecting the translation
of the Cdn$ reporting currency consolidated financial statements to the newly
adopted and retroactively applied U.S.$ reporting currency, and other
translation adjustments associated with the Company's foreign operations. There
are no other items of comprehensive income in the nine months ended September
30, 1998. The adoption of Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") did not have a material impact
on the Company's unaudited condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles. These
unaudited consolidated financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and nine months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 1998. For further information
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 20-F for the year ended December 31, 1997.
PAGE 6
<PAGE>
GOODWILL
Goodwill is associated with the purchase of Pacific Baja on July 2, 1996 by the
Company and is being amortized on a straight-line basis over 20 years. The
Company assesses the recoverability of goodwill by determining whether the
amortization of the balance over the remaining life can be recovered through
undiscounted future operating cash flows of the Company's operations.
Accumulated amortization was $1,743,000 and $1,182,000 at September 30, 1998 and
December 31, 1997, respectively.
RECOGNITION OF REVENUE AND SIGNIFICANT CUSTOMERS
The Company recognizes revenue upon shipment of product. The Company had sales
to three significant customers constituting approximately 47%, 14% and 14% and
50%, 10% and 18%, respectively, of net sales for the nine months and three
months ended September 30, 1998, respectively. The Company had sales to two
significant customers constituting approximately 33% and 22% and 40% and 20%,
respectively, of net sales for the nine months and three months ended September
30, 1997, respectively. Additionally, these customers comprised 46%, 8% and 21%
and 31%, 23% and 12%, respectively, of accounts receivable at September 30, 1998
and December 31, 1997, respectively. The loss of any of these customers could
have a material adverse effect on the Company.
EARNINGS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. For the nine months ended September 30, 1998 and 1997,
options and warrants to purchase 6,535,428 and 3,872,833 shares of common stock,
respectively, at prices ranging from $2.35 to $8.50 were outstanding during the
periods but were not included in the computation of diluted loss per share
because the options and warrants would have an antidilutive effect on net loss
per share.
RESEARCH AND DEVELOPMENT
Research and development costs related to present and future products are
charged to operations in the year incurred. Research and development costs
aggregated $4,374,000 and $4,178,000 for the nine months ended September 30,
1998 and 1997, respectively, and $1,249,000 and $1,042,000 for the three months
ended September 30, 1998 and 1997, respectively.
USE OF ESTIMATES
Management of Turbodyne Technologies Inc. has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these unaudited
interim condensed consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
PAGE 7
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NOTE 2. RELOCATION OF OPERATIONS
During 1998, the Company commenced a relocation of certain of its operations and
has incurred expenses aggregating $1,471,000. The effect of these unusual
expenses was $0.04 per common share. The Company is in the process of completing
a two-phase plan to significantly reduce operating and overhead cost, while
increasing capacity and improving product quality of its Light Metals Division.
The Company expects this action to significantly improve profitability and
provide the physical capacity required to increase sales of precision cast and
machined engine and vehicle components and assemblies.
The plan includes relocating all foundry and machine shop operations from the La
Mirada, California facility to consolidate all light metals manufacturing in its
new facility in Ensenada, Mexico. At the same time the Company is investing in
the modernization of both manufacturing facilities in Ensenada to further reduce
cost, improve quality and increase capacity. During the first nine months of
fiscal 1998, the Company completed the relocation of all wheel machining
operations and expects to complete the relocation of the remaining automotive
engine components foundry and machining operations by the end of the 1998 fiscal
year. In connection with the relocation of the wheel machining operations and
the majority of the automotive engine components foundry and machining
operations, the Company incurred expenses in excess of management's projections
and experienced delays in the relocation process. These costs include costs
associated with the relocation of machinery and equipment from the La Mirada,
California facility to the new facility in Ensenada, Mexico, the hiring of new
employees at the Ensenada facility, retention and severance costs of the labor
force at the La Mirada facility, overtime premiums and transportation expedite
premiums incurred to meet increased demand in the automotive components business
and production inefficiencies incurred in operating two production plants during
the relocation. All such costs have been expensed as incurred and are included
in the $1,471,000 described above. The Company may continue to experience
substantial costs and delays in connection with the relocation of the automotive
engine components foundry and machining operations which may adversely affect
the Company's results of operations and profitability. Such future costs will be
expensed as incurred.
NOTE 3. INVENTORIES
Inventories are comprised of the following at September 30, 1998 and December
31, 1997:
1998 1997
-------------------- -------------------
Raw materials $ 2,592,000 2,123,000
Work in process 2,661,000 686,000
Finished goods 2,896,000 2,660,000
-------------------- -------------------
$ 8,149,000 5,469,000
==================== ===================
PAGE 8
<PAGE>
NOTE 4. LONG-TERM DEBT
Long-term debt at September 30, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Revolving bank lines of credit (A) $ 9,329,000 8,144,000
Notes payable to bank, principal of $12,534 plus interest payable
monthly at prime plus .25% through July 31, 2001 426,000 547,000
Other 27,000 71,000
------------- -------------
Total long-term debt 9,782,000 8,762,000
Less current maturities 177,000 607,000
------------- -------------
Long-term debt, excluding current maturities $ 9,605,000 8,155,000
============= =============
</TABLE>
(A) The Company's wholly owned subsidiary, Pacific Baja, has a revolving line
of credit with a bank permitting borrowings up to $10 million, secured by
all receivables and inventory. The borrowings bear interest at the
Company's option at LIBOR plus 2% or at prime. The line of credit expires
June 1, 2000. The Company is a guarantor on this line of credit.
The Company was not in compliance with all of its financial covenants related to
its debt facilities at September 30, 1998, but has received an appropriate
waiver from its lender.
NOTE 5. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
On September 4, 1998 the Board of Directors approved an incentive stock option
plan (the "1998 Plan"). The 1998 Plan was approved by the stockholders at the
1998 Annual Meeting. Under the 1998 Plan, the Company may grant options to its
directors, officers, employees and consultants for up to 4,000,000 shares of
common stock. The option's maximum term is ten years. The Stock Option Committee
shall determine the terms of any options or other rights granted under the 1998
Plan, including the grant date of any option, the exercise price and the term,
which in any event shall not exceed 10 years. The maximum number of shares of
common stock with respect to which options or rights may be granted under the
1998 Plan to any participant is 200,000 per participant per year. As of
September 30, 1998, the Company had options to purchase 2,001,600 shares of
common stock outstanding under the 1998 Plan.
On March 3, 1997, the Company established an incentive stock option plan (the
"1997 Plan"). Under the 1997 Plan, the Company may grant options to its
directors, officers and employees for up to 2,840,000 shares of common stock. As
of September 30, 1998, options to purchase the maximum number of shares of
common stock allowable under the 1997 Plan had been granted.
Options granted under the 1997 Plan to participants, other than the Chairman,
President, Chief Executive Officer, the Chief Financial Officer, Secretary and
any directors of the Company or its subsidiaries, shall be subject to a vesting
formula. The vesting formula will provide that options shall vest equally over a
three-year period commencing on the date of the grant so that the options can
only be exercised as to an aggregate of 33.3% in the first year, 66.6% in the
second year and 100% in the third year and each year thereafter. No options
granted to an employee of the Company or an affiliate of the Company shall be
exercisable until the optionee has been employed
PAGE 9
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by the Company or affiliate for a period of six months. The directors have the
discretion to waive the vesting requirements at their discretion in appropriate
circumstances.
At September 30, 1998, the Company had options to purchase an aggregate of
5,993,541 shares of common stock outstanding. The options have exercise prices
ranging from $2.35 to $8.50 and expiration dates between December 1998 and
September 2003.
SPECIAL WARRANTS
On July 2, 1996, the Company completed a private placement of 3,750,000 Series
"A" Special Warrants at a price of $5.00 (Cdn$) per special warrant. 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
common stock for no additional consideration. Each unit consists of one common
stock and one nontransferable stock purchase warrant. The stock purchase warrant
entitles the holder to purchase one share of common stock at $5.50 (Cdn$) until
July 2, 1997.
During 1997, all of the Series "A" Special Warrants were exercised for an
aggregate of 4,125,000 shares of common stock and stock purchase warrants for
the purchase of an additional 4,125,000 shares. Total net proceeds of
$12,943,000, received upon the issuance of these special warrants less issuance
costs, were transferred to paid-in capital. During 1997, 705,000 of the Series
"A" stock purchase warrants were exercised for common stock for total proceeds
of $2,791,800. The remaining Series "A" stock purchase warrants expired in 1997.
On December 6, 1996, the Company completed a brokered private placement of
500,000 Series "C" Special Warrants at a price of $9.00 (Cdn$) per special
warrant. Each Series "C" Special Warrant can be exercised into one unit of the
Company for no additional consideration. Each unit consists of one common stock
and one stock purchase warrant. Each Series "C" stock purchase warrant will
entitle the holder to purchase one common stock at $9.50 (Cdn$) per share for a
period of one year. During 1997, a warrant amendment was signed to change the
exercise price of the Series "C" stock purchase warrant from $9.50 (Cdn$) to
$4.50 (U.S.$) and extend the exercise date of the Series "C" Special Warrants
and Series "C" stock purchase warrant.
During 1997, all of the Series "C" Special Warrants were exercised into common
stock with stock purchase warrants for an aggregate of 500,000 common stock and
stock purchase warrants. Total net proceeds of $2,845,000, received upon the
issuance of these special warrants, were transferred to paid-in capital. For the
six months ended June 30, 1998, 272,000 Series "C" stock purchase warrants were
exercised for common stock. At June 30, 1998, no Series "C" stock purchase
warrants were outstanding.
STOCK PURCHASE WARRANTS
At September 30, 1998, the Company had 541,887 stock purchase warrants
outstanding. These warrants were issued in connection with private placements
and other means of financing. The holders of these warrants are entitled to
receive one share of common stock of the Company for one warrant exercised. The
warrants have exercise prices ranging from $3.50 to $5.00 and expiration dates
between December 1998 and March 2003.
PREFERRED STOCK
On September 19, 1997, the Company completed a private placement of 10,000
shares of Series One Convertible Class A Preference stock, no par value (the
Class A Preferred), for net proceeds of $9,604,000. Conversion of the Class A
Preferred stock into common stock is at the option of the holder for any or all
the outstanding stock after January 8, 1998 or at the option of the Company
after September 8, 2000. Each share of the Class A Preferred stock may be
converted into common stock at a conversion price based on a floating price
formula. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, holders of the Class A Preferred stock
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shall be paid the redemption price plus all accrued dividends to the date of
liquidation, dissolution or winding up of affairs before any payment to other
stockholders. These shares have no voting rights and have a redemption price of
$1,000 per share, together with accrued and unpaid dividends thereon. Redemption
of these shares is at the option of the Company. Dividends on the Class A
Preferred stock is cumulative and at the rate of 7% per annum payable in cash or
common stock at the date of conversion.
During 1998, all the holders of the Class A Preferred stock elected to exercise
the conversion rights under this class of shares. The $10 million face value
amounts were converted into 4,742,522 common shares. The total stock issued on
conversion also includes the pay-out of 7% cumulative dividends in the form of
additional common stock. Dividends paid out for the Class A Preferred stock
amounted to $356,000.
SHARES IN ESCROW
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.
SHARE BUY-BACK PLAN
On September 17, 1998, the Company announced that its Board of Directors
authorized the Company to buy up to $3.5 million of its shares. The actual
number of shares repurchased, and the timing of the purchases, will be based on
the stock price, general conditions and other factors. The Company did not
repurchase any of its stock during the third quarter of 1998.
ITEM 2. 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 herein.
GENERAL
Turbodyne Technologies Inc. and subsidiaries (the "Company" or "Turbodyne")
designs, develops, manufactures and markets proprietary products that enhance
performance and reduce emissions of internal combustion engines (the "Engine
Technology Division") and manufactures aluminum cast automotive products,
including automotive engine components and aftermarket specialty wheels (the
"Light Metals Division").
The Company has developed a patented technology (the "Turbodyne Technology")
designed to optimize air flow to internal combustion engines resulting in
efficient fuel combustion in both diesel and gasoline engines. The Company has
incorporated the Turbodyne Technology into its two primary products: the
Turbopac(TM) and the Dynacharger(TM) (collectively, the "Turbodyne Products").
Through Pacific Baja Light Metals Corp. ("Pacific Baja"), a wholly owned
subsidiary, the Company manufactures critical engine components and assemblies
including intake manifolds, oil pans, rocker arm covers, turbocharger and
compressor housings for OEMs in the automotive industry and aluminum wheels for
the automotive aftermarket. The Company also manufactures engineered aluminum
components for the Turbodyne Products.
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, a wholly owned subsidiary, principally in researching
and developing products incorporating the Turbodyne Technology. During this
period, the Company commenced development of the Turbodyne System, the
Turbopac(TM) product and the Dynacharger(TM) product. In
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addition, the Company's research and development activities resulted in the
filing of patent applications in respect of the Turbodyne Products. The Company
undertook low volume production of its products, for the purpose of testing and
evaluation with OEMs and major retrofit customers. The Company did not record
any revenues during this period and at September 30, 1998 had expended
$17,508,000 as research and development costs for the Turbodyne Products. The
development of the Turbodyne Products was financed during this period primarily
from private placement equity financing. The Company commenced limited sales of
the Turbopac(TM) 2500 model in the second and third quarters of fiscal 1998
pursuant to a contract with Detroit Diesel Corporation, a major global diesel
engine producer.
RESULTS OF OPERATIONS
Net sales for the nine months ended September 30, 1998 increased to $29,808,000
from $28,558,000 for the nine months ended September 30, 1997, an increase of
$1,250,000 or 4.4% and for the three months ended September 30, 1998 increased
to $9,058,000 from $8,405,000 for the three months ended September 30, 1997, an
increase of $653,000 or 7.8%. Sales in these periods were primarily attributable
to the Light Metals Division. Sales attributable to the Engine Technology
Division were minimal during these periods. The increase in sales is primarily
attributable to an increase in the automotive components segment of the Light
Metals business.
The less than expected sales for the first nine months of 1998 primarily is the
result of much weaker than expected aftermarket wheel orders and slower than
expected receipt of sales orders from Detroit Diesel for their Urban Bus
Retrofit Rebuilt Kit (Turbopac(TM) 2500). The aftermarket demand for wheels has
been forecasted to be a slow-growth or declining market as a result of the OEMs
providing more custom wheels on production cars. This has been a driving force
for the Light Metals Division's strategy to aggressively pursue the growing
global OEM demand for precision cast aluminum components and assemblies for
engine and vehicle application.
Aftermarket wheel products represented 54% of the Light Metals Divisions' total
sales in the first nine months of 1997, with the engine and vehicle components
representing only 46%. For the same period in 1998, engine and vehicle
components represented 65% of the Light Metals Division's total sales.
Aftermarket wheels represented only 35% of total division sales.
Although the automotive components segment of the Light Metals Division grew
faster than expected in the first nine months of the year, it did not grow fast
enough to offset the decline in the aftermarket wheel segment. The Company
expects a continued growth in the automotive components segment of its business
and a continued decline in the aftermarket wheel segment as a percentage of its
total business. This is a forward looking statement however and actual results
may differ. For example, if the Company's strategy to pursue the growing OEM
demand for precision cast aluminum components and assemblies is not successful,
the automotive engine components segment may not continue to grow as expected.
Even though the aftermarket wheel segment is not a growth business, the Company
believes that it is financially advantageous to remain in that industry as it
provides above average gross margins and accordingly has developed a plan
designed to ensure that Turbodyne obtains a significant and profitable market
share position as one of the leading remaining wheel producers.
Profitability of the Light Metals Division is affected by seasonal factors as
sales of aftermarket wheel products typically peak in the spring of each year
while operating costs continue throughout the year and by increasing aluminum
costs as the prices of its cast aluminum products are fixed under contract in
advance of production. See "Cautionary Statements -- Potential Fluctuations in
Quarterly Results and Seasonality" and "Cautionary Statements -- Raw Materials"
in the Company's Registration Statement on Form S-1 filed on October 1, 1998.
PAGE 12
<PAGE>
Cost of goods sold consists primarily of material and labor costs attributable
to the Light Metals Division. Cost of goods sold for the nine months ended
September 30, 1998 increased to $24,996,000 from $22,810,000 for the nine months
ended September 30, 1997, an increase of $2,186,000 or 9.6%, and for the three
months ended September 30, 1998 increased to $7,462,000 from $7,094,000 for the
three months ended September 30, 1997, an increase of $368,000 or 5.2%. Cost of
goods sold as a percentage of net sales for the nine months ended September 30,
1998 increased to 83.9% from 79.9% for the nine months ended September 30, 1997
and for the three months ended September 30, 1998 decreased to 82.4% from 84.4%
for the three months ended September 30, 1998. The decrease in costs of goods
sold as a percentage of net sales in the third quarter of 1998 is attributable
to reduced manufacturing costs being realized as a result of the relocation of
all wheel production and the majority of the automotive engine components
foundry to the new Ensenada, Mexico plant.
During the first nine months of 1998, the Light Metals Division incurred costs
and expenses attributable to the modernization and relocation of all existing
aluminum foundry and machining operations currently in place in its La Mirada,
California facility to its newly acquired facility in Ensenada, Mexico. During
the third quarter of 1998, the Company began to realize favorable effects of the
modernization and relocation on its profit margins as a result of greater
productivity and reduced costs. The Company expects further significant
improvements in the quality of its products, and expects greater productivity
and reduced costs as the modernization and relocation efforts are fully
completed. In addition, the Company anticipates that the new facility will
provide the Company with adequate capacity to meet current production volume and
expected growth from both new third party customers as well as increased
production for the Turbodyne Products. These are forward looking statements
however and actual results may differ. For example, if the modernization and
relocation of the manufacturing operations of the Company does not timely occur
or if the costs associated with these activities exceed management's
expectations, the Company's results of operations may be adversely effected. The
Company believes that its investment in modernization and relocation of the
aluminum foundry and machining operations to Ensenada is essential to support
the expected growth in both the engine technology and light metals divisions
over at least the next three years.
Phase I of the relocation which consisted of the relocation and modernization of
all wheel machining operations from the existing La Mirada facility to Ensenada
was completed during the first six months of 1998. The Company expects that
Phase II, the final phase of the relocation to Ensenada, which consists of the
relocation and modernization of the remaining automotive engine components
foundry and machining operations located in La Mirada to the new Ensenada
facility, will be completed by the end of the fourth quarter of fiscal 1998.
These are forward looking statements however and actual results may differ. For
example, if the set up of operations in the new facility is not completed
timely, the Company may incur additional costs of production and its results of
operations may be adversely effected.
The Company experienced an acceleration of orders in the automotive engine
components segment in the first nine months of 1998. These orders were received
by the Company prior to the relocation of its automotive components
manufacturing operations to the Ensenada facility and therefore the Company
incurred extraordinary costs to ensure the customer orders were timely met.
The Company also incurred costs in the first nine months of 1998 due to a ramp
up of production activities relating to the Turbopac 2500 product line to
satisfy the Company's commitments under its contract with Detroit Diesel. The
Company continues to ramp up production activities relating to the Turbopac
product line during the third fiscal quarter in preparation for further
shipments pursuant to its contract with Detroit Diesel and the purchase order
from, and initial deliveries to, the TransBusiness Group of Moscow, Russia. The
first shipment to the TransBusiness Group currently is anticipated to begin in
the fourth fiscal quarter of 1998. This is a forward looking statement however
and actual results may differ. For example, if the financing arrangements with
respect
PAGE 13
<PAGE>
to the TransBusiness purchase order are not finalized, then the Company may not
commence shipment to the TransBusiness Group in the fourth fiscal quarter or at
all.
Gross profit for the nine months ended September 30, 1998 decreased to
$4,812,000 or 16.1% of sales from $5,748,000 or 20.1% of sales for the nine
months ended September 30, 1997, a decrease of $936,000, or 16.3%. For the three
months ended September 30, 1998 gross profit increased to $1,596,000 or 17.6% of
sales from $1,311,000 or 15.6% of sales for the three months ended September 30,
1997, an increase of $285,000, or 21.7%.
Gross profit improved to 17.6% of sales for the three months ended September 30,
1998 from 15.5% for the six months ended June 30, 1998. This improvement is
attributable to the reclassification of certain costs associated with the
relocation as discussed in note 2, and to the completion of Phase I and the
majority of Phase II of the relocation. During the third quarter of 1998, the
Company began to realize certain favorable effects of the modernization and
relocation on its profit margins as a result of greater productivity and reduced
costs. The Company expects further significant improvements in the quality of
its products, and expects greater productivity and reduced costs as the
modernization and relocation efforts are fully completed.
Selling, research, general and administrative expenses for the nine months ended
September 30, 1998 increased to $14,795,000 from $12,427,000 for the nine months
ended September 30, 1997, an increase of $2,368,000, or 19.1% and for the three
months ended September 30, 1998 increased to 4,419,000 from $3,801,000 for the
three months ended September 30, 1997, an increase of $618,000 or 16.3%.
Selling, research, general and administrative expenses as a percentage of sales
increased to 49.6% from 43.5% for the comparable nine month periods and
increased to 48.9% from 45.2% for the comparable three month periods. These
changes are primarily attributable to the additional expenses associated with
the Company's market development efforts in pursuit of commercial orders and new
strategic relationships, plus the recruiting, hiring and employment of
management to grow the technology business, in combination with the increased
expenses associated with recruiting and training of the new labor force at the
new Light Metals Division facility in Ensenada. The increase was also
attributable to finalizing the Turbopac(TM) 1500 and 2500 models, final
validation testing of the Turbopac(TM) 2500 model, on-going development of the
Dynacharger(TM) product and preparing for full scale commercial production of
the Turbopac(TM) 2500 and 1500 models. Research and development costs also
included the operation of the Company's quality control laboratory at Turbodyne
Systems. Based on the Company's historical expenditures related to research and
development and its current development goals, the Company anticipates for the
foreseeable future, research and development expenses will continue to be
significant.
Loss from operations for the nine months ended September 30, 1998 was
$11,454,000 and excluding the Light Metals Division relocation costs of
$1,471,000, was $9,983,000, an increase of $3,304,000 over the comparable period
a year earlier. Loss from operations for the three months ended September 30,
1998 was $4,294,000 and excluding the year to date relocation costs of
$1,471,000, was $2,823,000, resulting in an increase of $333,000 over the
comparable period a year earlier. The third quarter results without the
relocation costs represent a significant improvement over the first two quarters
of 1998. This improvement is the result of the near completion of the relocation
effort and the related productivity improvements and reduced costs of
production.
Other income and expense consists primarily of interest expense on bank
operating lines of credit and equipment finance contracts and interest income on
cash. Interest expense for the nine and three months ended September 30, 1998
decreased $19,000 or 3.3% and $229,000 or 110.6%, respectively, over the
comparable periods a year earlier. The decrease was attributable to a
capitalization of $211,000 of interest associated with the relocation efforts as
well as additional borrowings and financing for property and equipment purchases
offset by an increase in interest income due to an increase in the Company's
average daily cash position.
PAGE 14
<PAGE>
Based on the financial structure of the Company today net income/loss is closely
approximated by both income/loss from operations and income /loss before taxes.
Net loss for the nine months ended September 30, 1998 was $12,002,000, and
excluding the relocation costs of $1,471,000, was $10,531,000, an increase of
$3,169,000. Net loss for three months ended September 30, 1998 was $4,233,000
and excluding the relocation costs of $1,471,000, was $2,762,000, an increase
of $428,000.
With the relocation program close to completion, management expects sales and
profit on operations (before any relocation costs) are expected to improve in
subsequent quarters as capacity increases and productivity improvements are
realized. This is a forward looking statement however and actual results may
differ. For example, if the relocation takes longer than anticipated, improved
sales and profitability may not be realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet has strengthened from December 31, 1997 to September
30, 1998. Cash on hand has increased by $9.1 million to $10 million. Total
current assets have increased by $13 million or 74.7% to $30.4 million, while
total assets of the company have increased by $15.8 million or 31.7% to $65.5
million. Current liabilities have increased slightly to $10.3 million resulting
in a very strong current ratio of 2.94 compared to 1.96 on December 31, 1997.
Both the debt to equity and debt to assets ratios improved from 37.8% to 31.1%
and from 23.5% to 20.3%, respectively. Total shareholders' equity increased by
$11.9 million or 38.6% to $42.7 million.
The Company's operations have been financed principally through a combination of
private and public sales of equity and debt securities, borrowings under a bank
credit facility and cash flows from the operations of Pacific Baja. At September
30, 1998, the principal source of liquidity for the Company was $10,011,000 of
cash as compared to $949,000 at December 31, 1997.
Cash used in operating activities for the nine months ended September 30, 1998
and 1997, was $11,873,000 and $10,493,000, respectively, primarily as a result
of net losses from operations and the finance of the increase in accounts
receivable and inventory.
Cash used in investing activities for the nine months ended September 30, 1998
and 1997, was $4,046,000 and $4,308,000, respectively, resulting primarily from
the purchase of property and equipment.
Cash provided by financing activities for the nine months ended September 30,
1998 and 1997 was $25,198,000 and $19,598,000, respectively, resulting primarily
from the sale of equity and convertible debt securities as well as bank
borrowings.
The Company believes that funds generated from Pacific Baja, existing working
capital, and its existing financing activities will be sufficient to satisfy its
anticipated operating requirements for at least the next twelve months.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. The Company is assessing the
internal readiness of its computer systems for handling the year 2000 problem.
The Company has commenced a review of the possible effect of the Year 2000
problem on the computer and other systems used by the Company. As part of this
program, the Company will be contacting each of the vendors it uses and
requesting that each vendor certify to the Company that it is Year 2000
compliant, or is taking action to ensure that its products or services will be
Year 2000 compliant before January 1, 2000. The Company expects to complete this
vendor review process in the second quarter of 1999. To date, the Company has
not identified any internal systems
PAGE 15
<PAGE>
that present a material risk of not being Year 2000 ready, or for which a
suitable alternative cannot be implemented. Based on the results of its internal
and external review to date, which in large part solely addresses the readiness
of the Company's computer systems, the Company does not believe that any
significant financial expenditure or investments will be required by the Company
to conduct its business from January 1, 2000 forward. The Company has not yet
developed a contingency plan related to the Year 2000 problem, but will do so as
deemed necessary. There can be no assurance, however, that there will not be
delay in, or increased costs associated with the implementation of any
alternatives, and the inability to implement such changes could have an adverse
effect on future results of operations. Moreover, the Company's vendors may
indicate that they anticipate problems associated with Year 2000 issues which,
in turn, may adversely affect the Company's operations and profitability.
Readers are cautioned that forward-looking statements contained in this Year
2000 disclosure should be read in conjunction with the Company's disclosures
under the heading, "Special Note Regarding Forward-looking Information," set
forth below. Readers should understand that the dates on which the Company
believes Year 2000 issues will be resolved are based upon Management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Year 2000 compliance project. A delay
in specific factors that might cause differences between the estimates and
actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability of locating and correcting all
relevant computer code, timely responses to and corrections by third parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties and the inter-connection
of national and international businesses, the Company cannot ensure that it has
the ability to timely and cost effectively resolve problems associated with the
Year 2000 issue that may affect its operations and business, or expose it to
third party liability.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 130 did not have a material impact on the Company's financial
reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
selected information in the notes thereto. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the year of adoption, but comparative information is required in the second year
of application. The Company believes that the adoption of SFAS No. 131 will not
have a material impact on the Company's financial reporting.
In 1998, the FASB issued Statement of Financial Statements No.133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No.
133 modifies the accounting for derivative and hedging activities and is
effective for fiscal years beginning after December 15, 1999. The Company
believes that the adoption of SFAS No. 133 will not have a material impact on
the Company's financial reporting.
PAGE 16
<PAGE>
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use." The Company
believes that the adoption of SOP 98-1 will not have a material impact on the
Company's financial reporting.
SPECIAL NOTE REGARDING FORWARD LOOKING INFORMATION
This Report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Exchange Act and Section 27A of the
Securities Act. The words "expect," "estimate," "anticipate," "predict,"
"believe," and similar expressions and variations thereof are intended to
identify forward-looking statements. Such statements appear in a number of
places in this filing and include statements regarding the intent, belief or
current expectations of the Company, its Directors or Officers with respect to,
among other things (a) trends affecting the financial condition or results of
operations of the Company and (b) the business and growth strategies of the
Company. The Company's Stockholders are cautioned not to put undue reliance on
such forward-looking statements. Such forward-looking statement are not
guarantees to future performance and involve risks and uncertainties. Actual
results may differ materially from those projected in this Report, for the
reasons, among others, discussed under the caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk Factors" in
the Company's Registration Statement on Form S-1 filed on October 1, 1998; which
includes a discussion of important factors that could cause actual results to
differ materially from the forward-looking statements filed with the Securities
and Exchange Commission. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors referred
to above and the other documents the Company files from time to time with the
Securities and Exchange Commission, including the company's Annual Report on
Form 10-K for the fiscal year 1998, the quarterly reports on Form 10-Q filed by
the Company during the remainder of fiscal 1999, and any current reports on Form
8-K filed by the Company.
PAGE 17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GRAND TECHNOLOGIES ET. AL. V. TURBODYNE TECHNOLOGIES, ET. AL. On or about July
27, 1998, Grand Technologies, Inc. and certain other claimants submitted an
action for arbitration against the Company, Turbodyne Systems, Inc., Edward
Halimi and certain other respondents. The action states claims arising in
connection with an alleged agreement between the Company and certain of the
plaintiffs to form a company to market and exclusively distribute certain
products of the Company, including the Turbopac. The plaintiffs request
compensatory and punitive damages in unspecified amounts.
On September 25, 1998, the respondents advised the arbitrator that there is no
jurisdiction with respect to certain of the respondents and claims associated
with those respondents are improper. The Company also denied all claims,
submitted affirmative defenses and stated that the agreement was terminated
because, among other matters, plaintiffs had falsified information about the
existence and scope of their distribution network, had failed to perform their
obligations under the agreement and had made false and defamatory statements
about the Turbodyne Products.
On October 22, 1998, the arbitrator ruled that respondents with respect to which
jurisdiction is proper are the Company, Turbodyne Systems, Inc. and Edward
Halimi and the only claimant with respect to which jurisdiction is proper is
Grand Technologies, Inc. The arbitrator also ruled that the only claims that
Grand Technologies, Inc. may pursue are for breach of contract, breach of
purchase order, fraud and negligent misrepresentation. Currently the parties are
involved in the discovery process and the arbitration is scheduled for a hearing
on the merits on December 8, 1998.
POLLUTION RESEARCH & CONTROL CORP. ET. AL. V. TURBODYNE TECHNOLOGIES. On October
2, 1998, Pollution Research and Control Corp., Dasibi Environmental Corp., and
Logan Medical Devices filed an action against the Company in the Superior Court
of the State of California for the County of Los Angeles alleging claims in
connection with an alleged agreement between plaintiffs and the Company pursuant
to which the Company was to acquire all of the issued and outstanding stock of
Dasibi and Logan in exchange for $6.5 million. Plaintiffs also allege that the
agreement required the Company to loan to plaintiffs the sum of $1.1 million.
Plaintiffs seek compensatory and punitive damages in an unspecified amount but
in excess of $2.0 million. The Company answered the complaint, has denied the
allegations contained therein and has asserted thirteen separate affirmative
defenses.
The Company believes that the claims described above are without merit and
intends vigorously to defend against them. However, while the Company has been
advised by counsel in these actions that its positions are meritorious, no
assurance can be given that the Company will prevail in these matters and the
possibility exists that an adverse decision might have a material adverse effect
on the financial condition of the Company.
BRADLEY HOLT V. TURBODYNE TECHNOLOGIES. The Company was 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, in the amount of Cdn.
$5,000,000, for breach of an alleged agreement by the Company to grant to Mr.
Holt options to purchase an aggregate of 650,000 shares of Common Stock of the
Company at prices varying from Cdn. $3.50 per shares to Cdn. $7.50 per share.
PAGE 18
<PAGE>
Trial in this action commenced on November 9, 1998. Subsequent thereto, the
parties reached a settlement, pursuant to which the Company shall pay to Mr.
Holt $25,000. In light of the settlement agreement, the Court dismissed the
action on November 12, 1998.
ITEM 2. CHANGES IN SECURITIES
None
PAGE 19
<PAGE>
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on September 11,
1998. The stockholders elected the persons identified below to serve for
three-year terms as Class I Directors of the Company and approved the Company's
1998 Stock Incentive Plan. Set forth below are the voting results with respect
to these two matters.
PROPOSAL VOTES FOR VOTES AGAINST ABSTAIN NOT VOTED
1. Election of Directors
Robert Taylor 11,324,194 7,144 102,338
Walter F. Ware 11,330,794 544 102,338
2. Approval of the 1998
Stock Incentive Plan 1,291,503 683,226 41,238 9,417,709
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
--------
11.1 Statement re computation of per share earnings
27.1 Financial Data Schedule
FORM 8-K
--------
Current Report of Form 8-K filed September 18, 1998, Item 5.
Current Report on Form 8-K filed August 13, 1998, Item 5.
PAGE 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
Date: November 10, 1998 By /S/KHAL A. KADER
---------------------------
Khal A. Kader
Chief Financial Officer
(Principal Accounting Officer)
PAGE 21
Exhibit 11.1
TURBODYNE TECHNOLOGIES INC AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
LOSS PER SHARE Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net loss $ (4,233,000) $ (2,334,000) $ (12,002,000) $ (7,362,000)
Basic EPS - Weighted Average Shares
Outstanding 41,204,000 29,437,000 38,446,000 25,323,000
Less: Shares in Escrow (4,150,000) (4,150,000) (4,150,000) (4,150,000)
Basic EPS - Weighted Average Shares
Outstanding Adjusted 37,054,000 25,287,000 34,296,000 21,173,000
============== ============= =============== ==============
============== ============= =============== ==============
Basic Loss per Share $ (0.11) $ (0.09) $ (0.35) $ (0.35)
============== ============= =============== ==============
Basic EPS - Weighted Average Shares
Outstanding Adjusted 37,054,000 25,287,000 34,296,000 21,173,000
============== ============= =============== ==============
Effect of Diluted Securities:
Warrants and Stock Options (1) - - - -
Diluted EPS - Weighted Average Shares
Outstanding 37,054,000 25,287,000 34,296,000 21,173,000
============== ============= =============== ==============
Diluted Loss per Share $ (0.11) $ (0.09) $ (0.35) $ (0.35)
</TABLE>
(1) The Company's outstanding stock options and warrants have an antidilutive
effect on net loss per share. As a result such amounts have been excluded
from the computations of diluted loss per share.
PAGE 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED
IN FORM 10-Q AS FILED HEREWITH, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED NOTES
</LEGEND>
<CIK> 0001022097
<NAME> TURBODYNE TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 10,011,000
<SECURITIES> 0
<RECEIVABLES> 10,421,000
<ALLOWANCES> 136,000
<INVENTORY> 8,149,000
<CURRENT-ASSETS> 30,379,000
<PP&E> 28,901,000
<DEPRECIATION> 8,842,000
<TOTAL-ASSETS> 65,483,000
<CURRENT-LIABILITIES> 10,616,000
<BONDS> 0
0
0
<COMMON> 41,000
<OTHER-SE> 42,708,000
<TOTAL-LIABILITY-AND-EQUITY> 65,483,000
<SALES> 29,808,000
<TOTAL-REVENUES> 29,819,000
<CGS> 24,996,000
<TOTAL-COSTS> 41,262,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72,000
<INTEREST-EXPENSE> 559,000
<INCOME-PRETAX> (12,002,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,002,000)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
