Turbodyne Reports 1998 Year-End Results
16 April 1999
Turbodyne Reports 1998 Year-End Results
WOODLAND HILLS, Calif.--April 15, 1999-- Turbodyne Technologies Inc. (EASDAQ:TRBD.) regards 1998 as a year of a number of accomplishments, achievement of some key business milestones, fundamental change, reorganization and restructuring, and some disappointments for Turbodyne Technologies Inc.In spite of the many foundational and structural achievements in 1998, the financial results did not meet expectations. Sales for 1998 increased by 4.3 percent to $40,858,000 compared with sales of $39,165,000 for 1997. Turbodyne's Light Metals division accounted for more than 98 percent of total sales for 1998 and all of the company's sales in 1997. The Engine Technology Division accounted for sales equal to $723,000 in 1998.
The lower-than-expected sales for fiscal 1998 primarily were the result of much weaker-than-expected aftermarket wheel orders together with the delayed EPA Certification of the Detroit Diesel Urban Bus Retrofit Rebuild Kit (Turbopac(TM) 2500) and significantly slower than expected receipt of purchase orders from Detroit Diesel under that program.
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.
Gross profit for fiscal 1998 decreased to $5,033,000 or 12.3 percent of sales, compared with $6,839,000 or 17.5 percent of sales for fiscal 1997, a decrease of $1,806,000 or 26.4 percent. Gross profit for these years was primarily attributable to the Light Metals Division.
The reduction in gross profit for fiscal 1998 primarily is attributable to two factors: the nonrecurring 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 during the transition process.
Net loss for fiscal 1998 was $30,033,000, or 88 cents a share, an increase of $16,848,000, compared with the prior period's loss of $13,185,000, or 58 cents a share. The fully diluted weighted average shares outstanding for the year was 34,232,000 compared with 22,685,000 a year ago.
Of the increase in net loss for fiscal 1998, a substantial majority was on a noncash and nonrecurring basis, consisting in part of $1,400,000 of noncash accruals for contingent liabilities associated with certain legal actions pending against the company, approximately $1,000,000 of noncash inventory reserve and write off, $700,000 noncash accrual for potential tax liability and $3,308,000 of noncash nonemployee compensation expenses largely attributable to consultants retained by the company to assist it in connection with marketing, legal and related matters.
On a cash basis, the net cash used in the company's operating activities was $18,269,000, or $4,476,000 greater than the comparable prior period.
In addition to the noncash items discussed above, a significant portion of the increase in net loss and cash used in operating activities also is directly related to the reorganization, modernization and relocation of the Light Metals Division, which as of March 31, 1999, is substantially complete.
For fiscal 1998, the Light Metals Division reported a net loss before taxes of $4,595,000, including $2,323,000 of relocation charges. For fiscal 1997, the Light Metals Division reported a profit before taxes of $1,870,000.
The net impact on the operating results of the Light Metals Division for fiscal 1998 due to the decline in wheel orders and the company's relocation efforts, was a reversal from profitability to a loss in the amount of $6,465,000, or 38 percent of the reported increase in operating loss in fiscal 1998.
During fiscal 1998 and thereafter, the company's efforts in connection with the Engine Technology Division resulted in the following milestones:
-- The shareholders voted in overwhelming majority on Feb. 27, 1998,
in support of a continuance of domestication in the State of
Delaware, USA. The continuance of domestication to Delaware was
formally completed on July 27, 1998.
-- The company changed its internal auditors from Morgan & Co. in
Vancouver, British Columbia, Canada, to KPMG Peat Marwick in the
United States, and converted its financial reporting standards to
U.S. GAAP standards and U.S. dollars for the fiscal reporting
year 1997 and forward.
-- On April 7, 1998, the U.S. Environmental Protection Agency
certified the Detroit Diesel Corp. emission upgrade kit, which
incorporates the Turbodyne Technology through the use of a
Turbopac(TM), as an acceptable solution to reduce emissions of
diesel buses under the EPA's Urban Bus Retrofit/Rebuild Program.
-- The company and Detroit Diesel, a major global diesel engine
producer with a worldwide marketing and distribution network,
have entered into the company's first commercial contract, for
the production of the Turbopac(TM) product. The company made its
first production shipment to Detroit Diesel in May of 1998. To
date, the company has sold 262 Turbopacs(TM) under its contract
with Detroit Diesel. The Engine Technology Division accounted for
sales equal to $723,000 in 1998.
There were no sales in the Engine Technology Division in fiscal
1997 or prior years.
-- In late 1998, the company was awarded rights to two patents
utilizing the Turbopac(TM) relating to a completely different
technology developed jointly with Southwest Research Institute
designed to reduce harmful NOx emissions in addition to
Particulate Matter (black smoke) emissions from internal
combustion engines, which utilizes the Turbopac(TM) product line.
-- On Jan. 28, 1999, the company entered into joint development
and licensing agreements with AlliedSignal Inc. of Morristown,
N.J., for the development and manufacturing engineering for mass
production capability of Dynacharger(TM) turbochargers and other
electrically assisted charge air systems.
-- In March 1999, the California Air Resources Board granted an
Executive Order for a Universal Exemption of the Turbopac(TM)
2500 model for certain heavy-duty, diesel-powered vehicles. While
this Order does not constitute a certification, accreditation,
approval or any other type of endorsement, it enables the company
to advertise, market and install the Turbopac(TM) 2500 on
vehicles equipped with engines covered by the order.
-- The Light Metals Division achieved QS-9000 and ISO-9001 Quality
Certifications. QS-9000 and ISO-9001 are auditable
quality-control standards developed by a joint committee of
United States automotive industry, Original Equipment
Manufacturers and the International Organization for Standards
respectively. The certifications are earned by the individual
company after establishing the required processes and standards
including continuous measurement systems and controls to assure
compliance, which are audited and verified by internationally
recognized third-party service companies to establish that the
company meets the minimum criteria to become certified. After
achieving certification, continuous audits typically every six
months are conducted by the third-party auditors to verify to all
interested parties whether or not the company remains in
compliance. Achieving and maintaining these certifications are
essential to becoming and remaining in a position as a preferred
and in some case even acceptable supplier to the United States
and international automotive Original Equipment Manufacturers.
-- The company substantially completed the management
reorganization, relocation and modernization of the Light Metals
business.
The reorganization, restructuring and modernization of the Light Metals Division, commenced in the first quarter of 1998, is substantially complete as of March 31, 1999. The company is beginning to realize the positive benefits of the significant management effort and investments of 1998 in the first-quarter results of 1999.
Unaudited results for the Light Metals business for the first two months of 1999 are encouraging and show that the reorganization efforts are beginning to pay off.
Cumulative sales for January and February 1999 were $8,505,000, which is 57 percent greater than the first two months of 1998 of $5,418,000. That is also 27 percent greater than the full 12-month average of 1998 of $3,350,000 per month and 18.7 percent greater than the fourth-quarter average of $3,580,000 per month.
Cumulative gross profit for January and February 1999 was $1,450,000, 123 percent greater than the comparable figure for the first two months of the 1998 period.
Management expects further improvements in the turnaround of sales revenues and profitability as the new management team takes hold, the inefficiencies of continuing limited operations in La Mirada cease, and the new workforce with a new facility and machinery in place become increasingly capable and productive.
Turbodyne Systems, the Engine and Pollution Technology Division of Turbodyne, designs, develops, manufactures and markets patented pollution-reduction, fuel economy and performance enhancing products for internal combustion engines in the automotive, transportation, construction, marine, agriculture, mining, military and power generation industries.
Turbodyne's Light Metals Division is a manufacturer of machined aluminum castings and a leading supplier to the automotive industry.
Offices and/or plants are located in Carpinteria, La Mirada, Encinitas and Woodland Hills, Calif.; New York; Ensenada and Mexico City, Mexico; Vancouver, Canada; Paris; and Frankfurt, Germany.
Turbodyne's World Wide Web address is: www.turbodyne.com.
TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
Current assets:
Cash $ 1,257,000 949,000
Trade accounts receivable, less
allowance for doubtful accounts
of $170,000 and $78,000 in 1998
and 1997, respectively 10,623,000 9,264,000
Employee advances receivable 415,000 353,000
Inventories 6,507,000 5,469,000
Prepaid expenses and other
current assets 1,401,000 1,031,000
Total current assets 20,203,000 17,066,000
Property and equipment, at cost, net 20,616,000 18,122,000
Goodwill, net 12,992,000 13,740,000
Other assets 1,235,000 798,000
$ 55,046,000 49,726,000
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 497,000 607,000
Current maturities of obligations
under capital leases 778,000 1,035,000
Accounts payable 8,916,000 5,283,000
Accrued liabilities 5,127,000 1,850,000
Income taxes payable 700,000 86,000
Total current liabilities 16,018,000 8,861,000
Long-term debt, less current maturities 9,941,000 8,155,000
Obligations under capital leases,
less current maturities 3,138,000 1,867,000
Stockholders' equity:
Preferred stock, $0.001 par value
Authorized 1,000,000 shares; issued
10,000 Series A Convertible Preferred
and 10,000 Series B Convertible
Preferred shares and outstanding -- none
in 1998 and 10,000 shares Series
A Convertible Preferred
Shares in 1997 -- 9,604,000
Common stock, $0.001 par value
Authorized 60,000,000 shares;
issued and outstanding 41,313,816
shares in 1998 and 29,961,612 shares
in 1997 42,000 31,000
Treasury stock, at cost, 330,080
shares at December 31, 1998 (1,500,000) --
Additional paid-in capital 81,770,000 45,259,000
Cumulative currency translation
adjustment (94,000) 22,000
Accumulated deficit (54,269,000) (24,073,000)
Total stockholders' equity 25,949,000 30,843,000
Commitments and contingencies
Subsequent events
Liquidity
$ 55,046,000 49,726,000
TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998, 1997
1998 1997
Net sales $ 40,858,000 39,165,000
Cost of goods sold 35,825,000 32,326,000
Gross profit 5,033,000 6,839,000
Selling, general and
administrative
Expenses 15,026,000 9,136,000
Research and development costs 7,915,000 6,609,000
Nonemployees' compensation expense 3,308,000 542,000
Depreciation and amortization 3,631,000 2,695,000
Relocation costs 2,323,000 --
Total operating expense 32,203,000 18,982,000
Loss from operations (27,170,000) (12,143,000)
Other expense (income):
Interest expense, net 800,000 770,000
Litigation expense 1,400,000 --
Other, net (37,000) 66,000
Loss before income taxes (29,333,000) (12,979,000)
Income tax expense (benefit) 700,000 206,000
Net loss $(30,033,000) (13,185,000)
Net loss per common share:
Basic loss per share $ (.88) (.58)
Diluted loss per share (.88) (.58)
Weighted average shares
used for basic and
Diluted loss per share 34,232,000 22,685,000