<PAGE> 1
As filed with the Securities and Exchange Commission on August 17, 2000
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
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: 000-21391
TURBODYNE TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4699061
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6155 Carpinteria Avenue
Carpinteria, California 93013
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (805) 684-4551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [X]
At August 1, 2000, there were outstanding 54,123,585 shares of the Common Stock
of the Registrant, and the aggregate market value of the shares held on that
date by non-affiliates of the Registrant, based on the closing price ($1.80 per
share) of the Registrant's Common Stock on the EASDAQ Market on that date, was
$97,422,453. For purposes of this computation, it has been assumed that the
shares beneficially held by directors and officers of the Registrant were "held
by affiliates." This assumption is not to be deemed to be an admission by such
persons that they are affiliates of Registrant.
================================================================================
Page 1
<PAGE> 2
THE PURPOSE OF THIS AMENDMENT IS TO AMEND THE FOLLOWING ITEMS OF
REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999 AS FOLLOWS:
PART I
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
To add a new paragraph at the end of the "EASDAQ LISTING" section.
To add new paragraphs under the new caption "RECENT DEVELOPMENTS."
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
To add at the end of the "LIQUIDITY AND CAPITAL RESOURCES" section a new
paragraph under the new caption "RECENT DEVELOPMENTS."
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NASDAQ LISTING
The following table sets forth for the periods indicated the high
and low closing sales prices of the Company's Common Stock (symbol: TRBD) on the
Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
1999
----
First Quarter (January 1, 1999 to
January 20, 1999)....................... $ 5.84 $ 4.40
1998
----
Fourth Quarter.......................... $ 5.81 $ 4.09
Third Quarter........................... 17.00 3.25
Second Quarter.......................... 10.81 3.75
First Quarter........................... 4.47 2.03
</TABLE>
Effective as of January 20, 1999, the Common Stock ceased to be
traded on the Nasdaq SmallCap Market. Effective as of April 1, 1999, the Common
Stock was delisted from the Nasdaq SmallCap Market. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Cautionary Statements and Risk Factors -- Our Common Stock was delisted from The
Nasdaq SmallCap Market."
EASDAQ LISTING
The following table sets forth for the periods indicated the high
and low closing sales prices of the Company's Common Stock (symbol: TRBD) on the
EASDAQ Market.
Page 2
<PAGE> 3
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
2000
----
First Quarter........................... $ 4.90 $ 2.48
1999
----
Fourth Quarter.......................... $ 2.55 $ 1.13
Third Quarter........................... 3.00 1.51
Second Quarter.......................... 2.59 1.18
First Quarter........................... 5.60 3.33
1998
----
Fourth Quarter.......................... $ 5.83 $ 4.05
Third Quarter........................... 16.35 3.33
Second Quarter.......................... 10.58 4.10
First Quarter........................... 4.58 2.10
</TABLE>
As of April 10, 2000, the outstanding Common Stock was held of
record by 183 stockholders.
Effective August 2, 2000, EASDAQ suspended trading of the
Company's shares pending a further review by EASDAQ of the Company's press
release of August 1, 2000 reporting on the Company's working capital position
and the Company's investigation into prior management's issuance in 1999 of
approximately 8.7 million shares of Common Stock. The Company has not been
notified by Easdaq regarding the length of EASDAQ's suspension and, accordingly,
the Company is unable to determine when trading of its shares on EASDAQ may
resume, if at all. Thus, the liquidity of the Company's common stock and the
Company's ability to raise capital may be impaired by the suspension of trading
by EASDAQ.
DIVIDENDS
The Company has not paid any dividends on its Common Stock and
currently intends to retain any future earnings for use in its business.
Therefore, it should not be expected that any dividends will be declared on the
Common Stock in the foreseeable future. Any dividend payment will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's earnings, operating and financial condition and capital requirements,
as well as general business conditions.
RECENT DEVELOPMENTS
Sale of Unregistered Shares
As reported on Form 8-K filed August 2, 2000, the Company has
been conducting an investigation into prior management's issuance in 1999 of
approximately 8.7 million shares of Common Stock (the "Issued Shares") at prices
ranging from $0.65 to $3.50 per share, for an aggregate purchase price of
approximately $9.5 million. Based upon this review of transactions effected in
1999, the Company has concluded that it did not effectively register the Issued
Shares under the Securities Act of 1933, or otherwise perfect an exemption from
the registration requirements of the Act, and did not disclose the failure to
register the Issued Shares or perfect an exemption in its reports filed under
the federal securities laws.
Page 3
<PAGE> 4
The investigation was undertaken by the Company's new management
and new legal counsel. The issuance of the Issued Shares, to the extent reported
in the Company's filings with the Securities and Exchange Commission (the
"SEC"), were erroneously reported as being the result of a repricing and
subsequent exercise of options. The Company has reported its failure to register
and properly report the issuance of the Issued Shares to the SEC in the United
States and to EASDAQ in Europe, and intends to cooperate with these regulatory
bodies in any further investigation.
The Issued Shares were sold to eight institutional investors and
three individuals, each of whom was located outside the United States.
The Company has determined that its financial statements for the
year ended December 31, 1999 properly reflect the issuance of the Issued Shares,
the direct costs associated therewith and the per share calculations.
It is possible that the Company may face sanctions imposed by the
SEC, or claims from buyers and sellers of the Company's securities in the
market, from the initial purchasers of the Issued Shares or from persons who
have purchased securities directly from the Company since the sale of the Issued
Shares. The Company currently lacks the financial resources to pay any such
sanction or claim. Any such sanction or claim may have a material adverse effect
on the financial condition of the Company.
The Company and its legal counsel continue to conduct an inquiry
into the legality of the issuance of the Company's securities.
Suspension of Trading on EASDAQ
Effective August 2, 2000, EASDAQ suspended trading of Turbodyne
shares. See "Item 5- Market for Registrant's Common Equity and Related
Stockholder Matters - EASDAQ Listing."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company designs, develops and manufactures charging
technology for internal combustion engines. In addition, the Company has
designed and developed high speed, high powered, DC/AC, electronically
commutated electric motors which is the core of the Company's charging
technology (the "Turbodyne Technology"). The Company has incorporated the
Turbodyne Technology into its two primary products, the Turbopac(TM) and the
Dynacharge(TM) (collectively, the "Turbodyne Products").
In 1999, the Company shifted its emphasis from aftermarket to
automotive original equipment manufacturers ("OEM's"). As such, the Company
entered into joint development, license and intellectual property and product
rights agreements with Honeywell Turbocharging Systems, a division of Honeywell
International, Inc. (formerly, "Allied Signal, Inc."), a leading manufacturer of
turbochargers ("Honeywell"), under which the Company assigned to Honeywell its
patent and trademark portfolios (including both the Dynacharger(TM) and the
Turbopac(TM)) for $6.8 million. This amount was used in settlement of a
judgment. See "Item 3. Legal Proceedings -- Grand Technologies et al. v.
Turbodyne Technologies, et al." In addition, under these agreements, the Company
and Honeywell are sharing the development costs of the Dynacharger(TM) and the
Turbopac(TM), the Company 40% and Honeywell 60%. The Company retains the sole
worldwide rights to manufacture, market and sell all motors, generators,
electronic controls and light metals for the Dynacharger(TM)and Turbopac(TM),
and Honeywell holds the sole worldwide rights to manufacture, market and sell
the Dynacharger(TM) and
Page 4
<PAGE> 5
Turbopac(TM) product lines. The Company will receive from Honeywell royalties of
3.7% of the net sales of the Dynacharger(TM) and Turbopac(TM) product lines.
Prototypes of the Dynacharger(TM) have been delivered to two automotive
manufacturers in 1999, and three additional automobile manufacturers have signed
agreements for the delivery of prototypes in 2000. Mass production for
automotive manufacturers of the Dynacharger(TM) and Turbopac(TM) product lines
is expected to commence in calendar year 2003. See "Item 1. Business --Joint
Development Agreement."
The Company undertook low volume production and limited sales of
the Turbopac(TM) 2500 model in 1999 pursuant to its contract with Detroit Diesel
Corporation, a major global diesel engine producer. The contract with Detroit
Diesel Corporation is the main source of sales of the Turbodyne Products. Under
the Company's joint development agreement with Honeywell, sales to Detroit
Diesel Corporation will be made by Honeywell. At December 31, 1999, the Company
had expended an aggregate of $28,634,327 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 and funds
generated through the Company's Light Metal Division. See "Item 1. Business
--Product Development."
In September 1999, the Company sold substantially all of the
assets of Pacific Baja pursuant to an order of the U.S. Bankruptcy Court.
Pacific Baja accounted for substantially all of the Company's sales revenue on a
consolidated basis for the nine months ended September 30, 1999. The Company is
liable as a guarantor on certain leases assumed or rejected by the buyer. The
Company currently is not able to determine the amount of this liability. See
"Item 1. Business -- Sale of Light Metals Division."
The Company did not realize the anticipated favorable effects on
its profit margins of the modernization and relocation of Pacific Baja's
facilities. The result was an increase in the cost of goods sold. In addition,
the costs associated with the relocation were higher then anticipated. The
resulting net losses resulted in limited cash flows and delinquency in payments
to suppliers.
The Company has reported net losses in each year since it began
operations. The Company does not have substantial cash on hand. If financing
transactions are not completed timely, the Company's research and product
development efforts may be substantially delayed or eliminated and its business
and results of operations will be materially adversely affected. In previous
years, the Company has relied on the cash flows generated by the Light Metals
Division to help support the research and development efforts of the Company.
The Company is now solely dependent on its ability to raise funds for its
working capital and research and development through financings.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
SALES. Sales for the year ended December 31, 1999 increased to
$50,218,161 from $40,858,000 for the year ended December 31, 1998, an increase
of $9,360,161 or 22.9%.
Sales in these periods were primarily attributable to the Light
Metals Division. The increase in sales is primarily attributable to an increase
in the automotive components segment of the Light Metals Division and the
commencement of sales of the Turbodyne Products. For the year ended December 31,
1999 and 1998, sales attributable to the Light Metals Division accounted for
$48,503,000 and $40,135,000, respectively, and sales attributable to the
Turbodyne Products accounted for $1,715,161 and $723,000, respectively.
Page 5
<PAGE> 6
The Light Metals Division's strategy of aggressively pursuing the
growing global OEM demand for precision cast aluminum components and assemblies
for engine and vehicle application proved successful, providing an increase in
sales for fiscal 1999. Aftermarket wheel sales declined slightly during this
period compared to 1998 as a result of the OEM's providing more custom wheels on
production cars.
For fiscal 1999, aftermarket wheel product sales represented
28.4% of the Light Metals Division's total sales, a decrease of $98,000, or less
than one percent, from fiscal 1998. For fiscal 1999, the engine and vehicle
component sales represented 72% of the Light Metals Division's total sales, an
increase of $8,466,000, or 32%, from fiscal 1998
As a result of the disposition of the Light Metals Division, the
Company will no longer recognize revenues from this segment of the business. The
Company's sole source of revenue will be from sales of the Turbopac(TM) 2500 to
Detroit Diesel Corporation. The marketing and sale of the Turbopac(TM) 2500 is
expected to be assumed by Honeywell as part of its agreement with the Company.
COST OF GOODS SOLD. Cost of goods sold consists primarily of
material and labor costs attributable to the Light Metals Division. Cost of
goods sold in fiscal 1999 increased to $46,430,198 from $35,825,000 in fiscal
1997, an increase of $10,605,198, or 29.6%. Cost of goods sold as a percentage
of net sales for fiscal 1999 increased to 92.5% from 87.7% for fiscal 1998. The
increase in cost of goods sold as a percentage of net sales in fiscal 1999 is
primarily attributable to increased manufacturing costs being realized as a
result of the relocation, consolidation and modernization of all wheel
production and the majority of the automotive engine components foundry and
machine shop operations. These costs include, among others, the reduction in
productivity as a result of relocation, inadequate inventory control and
inefficient production processes resulting in an increase of scrap metal
production, as well as extraordinary costs to ensure that orders received during
the relocation process were timely met.
In fiscal 1999 and 1998, the Light Metals Division incurred costs
and expenses in excess of management's projections and experienced delays
attributable to the final phase of relocation, consolidation and modernization
of all existing aluminum foundry and machining operations. These costs include
costs associated with the relocation of machinery and equipment, higher than
anticipated cost of hiring and training of new employees, overtime premiums and
transportation premiums incurred to meet increased demand in the automotive
components business and lower than expected production efficiencies at the new
facility. All of these costs were expensed as incurred.
During the third and fourth quarter of 1999, the Company did not
realize the anticipated favorable effects of the modernization and relocation on
its profit margins. The result was an increase in cost of goods sold In
addition, the costs associated with the relocation were higher than anticipated.
The Company experienced an acceleration of orders in the
automotive engine components division in fiscal 1998 due in part to its
increased marketing efforts associated with this division. These orders were
received by the Company prior to the relocation of its automotive components
manufacturing operations and, therefore, the Company incurred extraordinary
costs to ensure the customer orders were timely met. In 1999, although orders in
the automotive engine components division continued to increase, increased costs
involved in the relocation adversely affected profit margins.
GROSS PROFIT. Gross profit for fiscal 1999 decreased to
$3,787,963, or 7.54% of sales, compared to $5,033,000, or 12.32% of sales, for
fiscal 1998, a decrease of $1,245,037 or 24.7%. Gross profit for these years was
primarily attributable to the Light Metals Division.
Page 6
<PAGE> 7
The reduction in gross profit for fiscal 1999 primarily is
attributable to two factors: the extraordinary costs associated with the
relocation, consolidation and modernization of the Light Metals Division and the
shift in product mix from aftermarket wheel sales with higher gross margins to
engine component sales with lower gross margins, all as discussed in more detail
above.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses for fiscal 1999 decreased to $12,170,524 from
$15,026,000 for fiscal 1998, a decrease of $2,855,746, or 19.0%. Selling,
general and administrative expenses as a percentage of sales decreased to 24.2%
from 36.8% for the comparable fiscal year periods. These changes are primarily
attributable to a reduction in the administrative and support staff of the Light
Metals Division. In addition, the Company reduced its staff by 42.6% in 1999.
The expenses associated with the Company's marketing efforts have been greatly
reduced.
RESEARCH AND DEVELOPMENT. Research and development costs for
fiscal 1999 decreased to $7,585,327 from $7,915,000 for fiscal 1998, a decrease
of $329,673, or 4.1%. The decrease was primarily attributable to Honeywell's
participation in the development costs of the Dynacharger(TM) product, and
recovery of a portion of the costs associated in developing prototypes for
OEM's. In addition, development costs associated with the development of the
Turbopac 2500 have been reduced. Furthermore, research and development costs
will be attributable to specific programs contracted with automotive
manufacturers or products, or next generation products. Based on the Company's
historical expenditures related to research and development and its current
development goals, the Company anticipates that, for the foreseeable future,
research and development expenses will continue to be significant.
COMPENSATION EXPENSE. During fiscal 1999, the Company granted
options to purchase 380,000 shares of Common Stock to consultants for various
services rendered associated with marketing, legal and related matters that the
Company deemed essential to its operations at prices ranging from $1.91 to
$4.50. As a result, the Company recognized $1,043,310 of compensation expense in
fiscal 1999. The Company from time to time, may grant a significant number of
options to non-employees in subsequent periods. In addition, the Company had
$3,574,405 in options granted to employees and non-employees. Compensation cost
has been recognized in accordance with APB Opinion 25.
OTHER INCOME AND EXPENSES. Other income and expense consists of
interest expense on bank operating lines of credit and equipment finance
contracts and interest income on cash. Interest expense for fiscal 1999
increased $738,529, or 92.3%, from fiscal 1998. The increase was attributable to
an increase in interest expense due to a decrease in the Company's average daily
cash position, additional borrowings, bank fees and expenses as a result of
being in default of the Company's credit facility and financing for property and
equipment purchases. On December 20, 1999, the Company assigned its intellectual
property rights and rights to manufacture, market and sell Turbodyne Products to
Honeywell, who in turn paid $6.8 million, $6.5 million of which was used to pay
an outstanding arbitration award of $6.65 million issued on March 3, 1999.
$5,996,789 is recognized as extraordinary one time income as gain on sale of
patents. In addition, the award of $6.65 million is offset by $1.5 million
awarded from an insurance carrier.
NET LOSS. Net loss for fiscal 1999 was $37,488,896, an increase
of $7,455,896 compared to the prior period. Of the increase in net loss for
fiscal 1999, a substantial portion was on a nonrecurring basis, consisting of
(i) $7,551,531 paid in settlement of the March 3, 1999 arbitration award of
$6.65 million and for contingent liabilities associated with certain legal
actions pending against the Company, (ii) $702,400 which is a reversal of an
accrued tax for a Pacific Baja IRS audit which was submitted to the Bankruptcy
Court and (iii) $1,043,310 of non-cash non-employee compensation expenses
largely attributable to consultants retained by the Company to assist it in
connection with marketing, legal, investor relations and related matters. In
addition, a significant portion of the increase in
Page 7
<PAGE> 8
net loss is directly related to the reorganization, modernization and relocation
of the Light Metals Division, which as of March 31, 1999 was substantially
complete. For fiscal 1999, the Light Metals Division reported a net loss from
operations of $6,594,000. For fiscal 1998, the Light Metals Division reported a
loss before taxes of $4,595,000, including $2,323,000 of relocation charges. The
net impact on the operating results of the Light Metals Division for fiscal 1999
is due primarily to the decline in wheel orders and an increase in the cost of
goods sold.
1998 COMPARED TO 1997
SALES. Net sales for the fiscal year ended December 31, 1998
increased to $40,858,000 from $39,165,000 for the fiscal year ended December 31,
1997, an increase of $1,693,000, or 4.3%. The sales in both years were
attributable primarily to the Light Metals Division. The increase in sales was
due to an increase in the automotive components segment of the light metals
business and commencement of sales of the Turbodyne Products. For 1998 and 1997,
sales of aftermarket wheel products accounted for sales of $13,848,000 and
$20,691,000, respectively, of the total sales attributable to the Light Metals
Division, and sales of cast aluminum products, including compressor housings and
manifolds, accounted for sales of $26,287,000 and $18,474,000, respectively. The
net sales for fiscal 1997 also include sales of $2,258,000 related to the
machining business of Pacific Baja with Navistar.
COST OF GOODS SOLD. Cost of goods sold consists primarily of
material and labor costs attributable to the Light Metals Division. Costs of
goods sold for fiscal 1998 increased to $35,825,000 from $32,326,000 for fiscal
1997, an increase of $3,499,000, or 10.8%. The cost of goods sold in each of
these years was attributable solely to the Light Metals Division. The increase
in cost of goods sold as a percentage of net sales in fiscal 1998 was primarily
attributable to increased manufacturing costs as a result of the relocation,
consolidation and modernization of all wheel production and the majority of the
automotive engine components foundry and machine shop operations. These costs
include, among other factors, the reduction in productivity as a result of
operating in two remote locations, as well as extraordinary costs to ensure that
orders received during the relocation process were timely met.
In fiscal 1998 and 1997, the Light Metals Division incurred costs
and expenses in excess of management's projections and experienced delays
attributable to the final phase of relocation, consolidation and modernization
of all existing aluminum foundry and machining operations. These costs include
costs associated with the relocation of machinery and equipment, higher than
anticipated cost of hiring and training of new employees, overtime premiums and
transportation premiums incurred to meet increased demand in the automotive
components business and lower than expected production inefficiencies at the new
facility. All of these costs were expensed as incurred.
The Company experienced an acceleration of orders in the
automotive engine components segment in fiscal 1998 due in part to its increased
marketing efforts associated with this division. These orders were received by
the Company prior to the relocation of its automotive components manufacturing
operations and, therefore, the Company incurred extraordinary costs to ensure
the customer orders were timely met.
Cost of goods sold as a percentage of net sales was 87.7% and
82.5% for fiscal 1998 and fiscal 1997, respectively.
GROSS PROFIT. Gross profit for fiscal 1998 decreased to
$5,033,000 from $6,839,000 for fiscal 1997, a decrease of $1,806,000, or 26.4%.
Gross profit for these years also was attributable solely to the Light Metals
Division. Of the gross profit attributable to the Light Metals Division, sales
of aftermarket wheel products accounted for gross profits of $2,974,000 in 1998
and $3,990,000 in 1997 and sales of cast aluminum products, including compressor
housings and manifolds, accounted for a gross
Page 8
<PAGE> 9
profit of $1,938,000 in 1998 and $3,400,000 in 1997. Turbodyne products
generated gross profit of $121,000 in 1998 and a loss of $(551,000) in 1997.
RESEARCH AND DEVELOPMENT. Research and development costs
increased to $7,915,000 in fiscal 1998 from $6,609,000 in fiscal 1997, an
increase of $1,306,000, or 19.8%. This increase was primarily attributable to
finalizing the Turbopac(TM) 1500 and 2500 models, final 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) 3000 and 3500
models. In addition, development programs were also initiated for Turbopac(TM)
1500 and 2500. Research and development costs also included the operation and
expansion of the Company's quality control laboratory.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses increased to $15,026,000 for fiscal 1998 from
$9,136,000 in fiscal 1997, an increase of $5,890,000, or 64.5%. The increase in
operating expenses was largely due to the addition of the operating expenses
associated with the Light Metals Division as well as additional expenses
relating to increased product development efforts, including expenses associated
with overseas travel in conjunction with the Company's pursuit of strategic
relationships and the designation of its Common Stock on the Easdaq Market. The
Company incurred additional expenses associated with start-up costs related to
the Navistar machining work, increased training for the new labor force hired
and more than expected scrapping and recasting of new product lines to obtain
the necessary quality levels.
OTHER INCOME AND EXPENSES. Other income and expense consists
primarily of interest expense on bank operating lines of credit and equipment
finance contracts.
NET LOSS. The Company recorded a net loss of $30,033,000 in
fiscal 1998 and a net loss of $13,185,000 in fiscal 1997 for the reasons set
forth above.
LIQUIDITY AND CAPITAL RESOURCES
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. Borrowings under the bank credit facility and cash flows from the
operations of Pacific Baja ceased as of October 1, 1999 with the bankruptcy
filings of Pacific Baja. The Company will have to rely solely on its ability to
raise funds through the private and public sale of equity and debt securities
and the limited volume of sales to Detroit Diesel Corporation by Honeywell. At
December 31, 1999, the principal source of liquidity for the Company was cash of
$29,025 as compared to $1,257,000 at December 31, 1998.
Cash used in operating activities for fiscal 1999 and 1998 was
$12,479,946 and $18,269,000, respectively. In 1999, cash used in operating
activities decreased approximately $5.8 million. The majority of which is a
decrease in selling, general and administrative costs of $2.9 million, a
decrease in relocation cost of $2.3 million and a decrease in income taxes of
$1.4 million, offset by a decline in gross profit of $1.2 million.
Cash used in investing activities for fiscal 1999 and 1998, was
$1,907,140 and $2,725,000, respectively, resulting primarily from the purchase
of property and equipment primarily related to the relocation of the Company's
manufacturing facilities in 1998.
Cash provided by financing activities for fiscal 1999 and 1998
was $13,044,853 and $21,418,000, respectively, resulting primarily from the sale
of equity and convertible debt securities as well as bank borrowings.
Page 9
<PAGE> 10
In an effort to create operating efficiencies and preserve
working capital, the Company has undergone a restructuring program, closing
offices and focusing its resources on research and development of products using
the Turbodyne Technology with an emphasis on automotive original equipment
manufacturers. The Company plans to continue this restructuring program into the
year 2000.
The Company believes that its current sources of working capital
are sufficient to satisfy its anticipated working capital requirements only to
June 30, 2000. No assurance can be given that additional working capital will be
available on satisfactory terms or at all. Accordingly, there is substantial
doubt about the Company's ability to continue as a going concern.
RECENT DEVELOPMENTS
For a description of the Company's recent developments, see "Item
5. Market for Registrant's Common Equity and Related Stockholder Matters -
Easdaq Listing" and "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters - Recent Developments."
YEAR 2000
The Company's computer based systems have passed all Year 2000
testing and are successfully operating as of March 31, 2000. Certain
infrastructure and information systems have been upgraded and meet Year 2000
requirements. The Company has successfully conducted transactions and the
overall system infrastructure is Year 2000 compliant.
The Company's products are Year 2000 compliant as of March 31,
2000.
The Company's suppliers' operations, and the products and
services they provide, are Year 2000 compliant.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 modifies the
accounting for derivative and hedging activities and as amended by SFAS No. 137
is effective for fiscal years beginning after June 2000. The Company believes
that the adoption of SFAS No. 133 will not have a material impact on the
Company's financial reporting.
In 1999, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5 "Reporting the Costs of Start-Up
Activities." The Company believes that the adoption of SOP 98-5 will not have a
material impact on the Company's financial reporting.
CAUTIONARY STATEMENTS AND RISK FACTORS
THE MARKET POTENTIAL AND ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN
Our future financial performance will largely depend on the
acceptance of products incorporating the Turbodyne Technology by OEMs and
consumers. There can be no assurance that such acceptance will occur.
Page 10
<PAGE> 11
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN
We have suffered net losses in each of the last four years
resulting in an accumulated deficit of $91,757,896 at December 31, 1999, have
used cash in our operating activities in each of the last four years, have
disposed of our most significant subsidiary through bankruptcy, are subject to a
lawsuit brought against us by shareholders, and based on our projected cash
flows for the ensuring year we will be required to seek additional equity or
debt financing in order to continue our present operations, irrespective of the
amounts to be paid, if any, in connection with the aforementioned lawsuit. These
matters raise substantial doubt about our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
THE COMPANY IS UNDER INVESTIGATION BY THE U.S. SECURITIES AND EXCHANGE
COMMISSION (THE "SEC")
The SEC inquiry is ongoing. The SEC has indicated that its
inquiry should not be construed as an indication by the SEC or its staff that
any violations of law have occurred, nor as an adverse reflection on the merits
of the Company's securities. The Company has cooperated with the SEC and intends
to continue to cooperate with any additional requests from the SEC. Failure to
resolve the SEC inquiry satisfactorily could have a material adverse effect on
the Company.
THE COMPANY RECENTLY SOLD ITS LIGHT METALS DIVISION IN A BANKRUPTCY
COURT APPROVED TRANSACTION
The Company sold substantially all of the assets of Pacific Baja
pursuant to an order of the U.S. Bankruptcy Court. Pacific Baja accounted for
substantially all of the Company's sales revenue on a consolidated basis for the
nine months ended September 30, 1999. The Company is liable as a guarantor on
certain leases assumed or rejected by the buyer. The Company currently is not
able to determine the amount of this liability. See "Item 1. Business --Sale of
Light Metals Division."
WE HAVE NO HISTORY OF REVENUES UNDER OUR RECENT AGREEMENTS WITH
HONEYWELL
None of the Turbodyne Products are commercially produced except
for the Turbopac(TM) 1500 product and limited commercial production of the
Turbopac(TM) 2500 product. The other models of the Turbopac(TM) product and all
models of the Dynacharger(TM) product remain in various stages of development.
We cannot assure you that the other Turbopac(TM) models or the Dynacharger(TM)
products will be developed timely or that they will be commercially accepted.
The failure of the Turbopac(TM) and Dynacharger(TM) products to achieve
commercial success would have a material adverse effect on the business,
operating results and financial condition of the Company.
FUTURE REVENUES DEPEND ON THE ABILITY OF HONEYWELL TO PROTECT
PROPRIETARY ASSETS
The Company assigned its patent and trademark portfolios relating
to the Turbodyne Technology and the Turbopac(TM) and Dynacharger(TM) products to
Honeywell. Patent applications have been filed in the United States and in
certain foreign jurisdictions relating to these products. Certain patents have
been issued and other applications are in various stages of review at the U.S.
or foreign patent offices. Application for a patent offers no assurance that a
patent will be issued or issued without material modification. Moreover, we
cannot assure you that patents will be issued, or that issued patents will not
be circumvented or invalidated, that proprietary information can be maintained
as such or that
Page 11
<PAGE> 12
Honeywell will be able to achieve or maintain a technological advantage.
Protection of trade secrets and proprietary know-how is critical for the Company
to achieve and maintain a competitive position. We cannot assure you that others
may not independently develop similar or superior technologies or gain access to
trade secrets or know-how relevant to the business of the Company.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE FUTURE LOSSES
To date, we have not been profitable. We reported net losses of
$35,988,896, $30,033,000 and $13,185,000 for the fiscal years ended December 31,
1999, 1998 and 1997, respectively. At December 31, 1999, we had an accumulated
deficit of $90,257,896. We cannot assure you that we will report net income in
any future year or period.
WE HAVE ONLY LIMITED WORKING CAPITAL
We believe that our current sources of working capital are
sufficient to satisfy our anticipated working capital requirements only to June
30, 2000. We intend to seek to raise additional funds through public or private
offerings of equity or debt or joint development arrangements. No assurance can
be given that additional funds can be raised or, if they can be raised, that the
terms on which they can be raised will be satisfactory. Any such financing may
involve significant dilution to our current stockholders. Joint development
arrangements may require us to relinquish rights to certain of its technologies
or products. If additional financing transactions are not completed timely, our
research and product development efforts may be substantially delayed or
eliminated and our business and results of operations will be materially
adversely affected.
WE HAVE ENCOUNTERED DELAYS AND START-UP COSTS IN DEVELOPING OUR PRODUCTS
We have commenced only limited commercial production of certain
of the Turbopac(TM) models. Historically, we have encountered unexpected delays
in development due to undetected design defects or changes to specifications and
we may continue to experience such delays. These delays could increase the cost
of development of our products and affect the timing of commercial availability.
Our revenue in fiscal 2000 will depend to a significant degree on sales of the
Turbopac(TM) product through Honeywell. If Honeywell encounters problems in the
marketing of the Turbopac(TM) product or any other new products, our business
and prospects could be materially and adversely affected. Moreover, we have not
begun commercial production of the Dynacharger(TM).
We have incurred, and likely will continue to incur, substantial
start-up costs associated with the introduction of new products. As a result, we
likely will incur operating losses or experience a reduced level of
profitability in periods following product introduction. We cannot assure you
that any new product will receive market acceptance or that any new product can
be sold at a profit. Additionally, both the Dynacharger(TM) and certain of the
Turbopac(TM) models have undergone only limited testing. Once commercially
introduced, each product could require additional refinement. In the event
government standards regarding emissions are increased, we may need to modify
product designs and improve the Turbodyne Technology to meet these new
standards, which may require significant expenditures and delay production of
the our products. Any delay in commercial production or additional refinement to
these products could result in a material adverse effect on our business,
operating results and financial condition.
OUR MARKETING EFFORTS INVOLVE LONG TESTING PERIODS
We have entered into, and expect to continue to enter into,
relationships with OEM's in an effort to market our products. These parties
typically engage in testing programs concerning our
Page 12
<PAGE> 13
products that last for a period of between three and five years. During this
period, we may provide certain products to these parties free of charge or at a
reduced rate. In addition, we devote a significant amount of time and attention
to pursuing these programs in an effort to obtain purchase orders for the
products tested. These parties are under no obligation to purchase our products
during these testing periods and, following their evaluations, may determine not
to purchase any products from us. Alternatively, these parties may request
modifications to existing products in order to satisfy specific regulations
imposed in the countries in which they operate. Accordingly, we may expend a
significant amount of time and devote substantial resources to these testing
programs which may not result in any sales, or if purchase orders are obtained,
they may only be obtained many years following the commencement of the related
testing program.
WE WILL LIKELY EXPERIENCE POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
AND SEASONALITY
We have experienced, and in the future may experience,
significant fluctuations in quarterly operating results that have been and may
be caused by many factors including:
- introduction or enhancement of products by us and our
competitors,
- customer demand for our products,
- development and marketing expenses relating to the introduction
of new products or enhancements of existing products,
- timing of certification of certain products by the U.S.
Environmental Protection Agency and other environmental
regulatory organizations,
- results from third parties participating in pilot programs
involving our products,
- changes or anticipated changes in pricing by us or our
competitors,
- the mix of products sold and the gross margins attributable to
such products,
- industry and technology developments,
- product delays or other product quality problems,
- currency fluctuations, and
- other unanticipated operating expenses and general economic
conditions.
We anticipate that our operating results will continue to
fluctuate significantly in the future as a result of these and other factors. A
substantial portion of our costs and expenses are related to costs of
engineering services and other personnel costs, product development, facilities
and marketing programs. We cannot adjust the level of spending for these costs
and expenses quickly and our level of spending is based, in significant part, on
our expectations of future revenues. If revenues are below expectations, our
quarterly and annual operating results will be adversely effected, which could
have a material adverse effect on our results of operations.
INTENSE COMPETITION
The business environment in which we operate is highly
competitive. Certain of our competitors have, and potential competitors may
have, greater financial, marketing, technological and other resources. We
believe that no products technologically similar to the Turbopac(TM) and
Dynacharger(TM) products have been sold. However, future competitors may develop
related technologies that improve the performance of internal combustion engines
or reduce emissions that are not encompassed by our patents. In addition, other
companies may be issued patents which may inhibit our ability to develop certain
products encompassed by those patents. There also may be improvements to
existing technologies.
Page 13
<PAGE> 14
If new techniques are developed and are commercially successful,
they may reduce our potential market share or make our products less attractive
or obsolete, each of which will adversely effect our business. In addition, a
relatively small number of OEM's hold a significant share of the automotive
market and the determination of an OEM not to incorporate our products into its
product line may force us to expend additional amounts to gain market share or
significantly reduce our potential market share.
Our strategy is one of aggressive product development and
enhancement and patent support to protect a competitive position to the extent
practicable. However, we cannot assure you that the market will determine that
our products are superior to existing or subsequently developed competitive
products, that we will obtain significant market share or be able to adapt to
evolving markets and technologies, develop new products or achieve or maintain
technological advantages.
WE DEPEND ON KEY PERSONNEL
The skills and efforts of our management team and engineering
staff, including our Chairman of the Board, Prof. Dr.-Ing. Peter Hofbauer, and
Chief Executive Officer, Gerhard Delf, are critical to our success. As we grow,
we will continue to hire, appoint or otherwise change senior management and
members of the engineering staff. We cannot assure you that executive officers
and key personnel will remain with us or that we will attract additional
qualified members to management in the future. The loss of services of Dr.
Hofbauer, Mr. Delf or any key employee could have a material adverse effect on
our business.
WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE
The industries in which we compete are characterized by rapid and
significant technological change. Our success will depend in large part not only
on the success of the initial introduction of the Turbopac(TM) product and the
Dynacharger(TM) product, but also on the ability to enhance these products and
develop new products. Moreover, changes in manufacturing technology could
require us to make significant expenditures on new plant and equipment in order
to remain competitive, all of which could adversely affect our operating costs
and results of operations. We cannot assure you that our products will be
commercially accepted or that we will be able to enhance existing products or
develop new products. We also cannot assure you that technological change will
not render obsolete or uneconomical any of our products. Our ability to continue
to develop and market new and improved products that can achieve significant
market acceptance will determine our future sales and profitability.
OUR STOCK PRICE IS EXTREMELY VOLATILE
The price of our Common Stock on the Easdaq Market has been and
may continue to be subject to wide fluctuations in response to a number of
events and factors, such as quarterly variations in results of operations,
announcements of new technological innovations or purchase orders for our
products, changes in financial estimates and recommendations by securities
analysts, the operating and stock price performance of other companies that
investors may deem comparable to us, and news relating to trends in our markets.
In addition, the stock market in general, and the market for high technology
stocks in particular, has experienced extreme volatility that often has been
unrelated to the operating performance of these companies. These broad market
and industry fluctuations may adversely affect the price of our Common Stock,
regardless of our operating performance.
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE STOCK
As of April 10, 2000, approximately 56,977,324 shares of Common
Stock will be outstanding assuming the exercise of all outstanding options and
warrants. Although some of these
Page 14
<PAGE> 15
options and warrants are exercisable at prices which may exceed the current
prevailing market prices of our Common Stock, their existence could potentially
limit the scope of increases in the market value of the Common Stock which might
otherwise be realized. The terms on which we may obtain additional financing
during the respective terms of these outstanding stock options and warrants may
be adversely affected by their existence. The holders of these stock options and
warrants may exercise these securities at times when we might be able to obtain
additional capital through one or more new offerings of securities or other
forms of financing on terms more favorable than those provided by these stock
options and warrants.
ABSENCE OF DIVIDENDS
We have never paid cash dividends on the Common Stock and no cash
dividends are expected to be paid on the Common Stock in the foreseeable future.
Any future determination to declare or pay dividends will be at the discretion
of the Board of Directors and will be dependent on our results of operations,
financial condition, contractual and legal restrictions and other factors deemed
relevant by the Board of Directors.
OUR COMMON STOCK WAS DELISTED FROM THE NASDAQ SMALLCAP MARKET
Our Common Stock was delisted from The Nasdaq SmallCap Market on
April 1, 1999. No assurance can be given that our Common Stock will be listed on
any United States securities exchange in the future.
WE MAY BECOME SUBJECT TO RULES RELATING TO LOW-PRICED OR PENNY STOCK
The Company expects that the Common Stock may be traded in the
over-the-counter markets through the "pink sheets" or on the NASD's OTC Bulletin
Board, in which event the Common Stock would be covered by a SEC rule that
imposes additional sales practice requirements on broker-dealers who sell our
securities to certain persons. These rules may affect the ability of
broker-dealers to sell our Common Stock and also may affect the ability of
holders of our Common Stock to resell their shares of Common Stock.
WE HAVE NO HISTORY OF PRODUCT SALES
None of our products have been commercially produced except for
the Turbopac(TM) 1500 product and limited commercial production of the
Turbopac(TM) 2500 product. The other models of the Turbopac(TM) product and all
models of the Dynacharger(TM) product remain in various stages of development.
We cannot assure you that the other Turbopac(TM) models or Dynacharger(TM)
products will be developed timely or that they will be commercially accepted.
The failure of the Turbopac(TM) and Dynacharger(TM) products to achieve
commercial success would have a material adverse effect on the business,
operating results and financial condition of the Company.
Page 15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K:
The Company filed a report on Form 8-K on August 2, 2000 relating to the
working capital position of the Company and the Company's inquiry into the sale
of unregistered securities.
EXHIBITS
The following exhibit is included as part of this Annual Report on Form
10-K/A (Amendment No. 1):
EXHIBIT NUMBER DESCRIPTION
23.1 CONSENT OF MCGOWAN GUNTERMANN.
Page 16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on August 12, 2000.
TURBODYNE TECHNOLOGIES INC.
/S/ GERHARD E. DELF
---------------------------------
By: Gerhard E. Delf
Title: President and Chief Executive
Officer (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on August 12, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ PETER HOFBAUER Chairman of the Board and Director
--------------------------------
Peter Hofbauer
/s/ GERHARD E. DELF President and Chief Executive Officer
-------------------------------- (Principal Executive Officer)
Gerhard E. Delf
/s/ JOSEPH D. CASTANO Chief Financial Officer (Principal
-------------------------------- Financial Officer and Principal
Joseph D. Castano Accounting Officer) and Secretary
/s/ WENDELL R. ANDERSON Director
--------------------------------
Wendell R. Anderson
/s/ SADAYAPPA DURAIRAJ Director
--------------------------------
Sadayappa Durairaj
/s/ DANIEL GERONAZZO Director
--------------------------------
Daniel Geronazzo
* Director
--------------------------------
Friedrich Goes
/s/ PETER KITZINSKI
--------------------------------
Peter Kitzinski
/s/ ROBERT F. TAYLOR Director
--------------------------------
Robert F. Taylor
* By /s/ GERHARD E. DELF
---------------------------
Gerhard E. Delf
Attorney-in-fact
</TABLE>
Page 17
