UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2009
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period _______________ to _______________
Commission File Number 000-21391
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TURBODYNE TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
NEVADA 95-4699061
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
888 SEVENTH AVENUE, 17TH FLOOR, NEW YORK, NY 10106
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (805) 512-9511
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NOT APPLICABLE
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(Former name, former address and former fiscal year end,
if changed since last report)
Indicate by checkmark 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 whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer' and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non -accelerated filer [ ] Smaller reporting company [X]
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) [ ] Yes [ X ] No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 550,513,491 shares of common stock
issued and outstanding as of NOVEMBER 6, 2009.
TURBODYNE TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
SEPTEMBER 30, 2009
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2009
and December 31, 2008 4
Condensed Consolidated Statements of Operations for the three
and nine month periods ended September 30, 2009 and
September 30, 2008 5
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 2009 and September 30, 2008 6
Notes to the Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk NA
Item 4. Controls and Procedures 34
PART II -OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 1A. Risk Factors NA
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities NA
Item 4. Submission of Matters to a Vote of Security Holders NA
Item 5. Other Information 35
Item 6. Exhibits 36
SIGNATURES 37
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2009 AND 2008
(UNAUDITED - EXPRESSED IN US DOLLARS)
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30 DECEMBER 31
2009 2008
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ASSETS (UNAUDITED)
CURRENT
Cash $ 69 $ 68
------------------------------
TOTAL CURRENT ASSETS 69 68
PROPERTY AND EQUIPMENT, net 13,323 17,829
------------------------------
TOTAL ASSETS $ 13,392 $ 17,897
=================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
CURRENT
Accounts payable $ 1,999,312 $ 1,869,757
Accrued liabilities 348,600 320,000
Provision for lawsuit settlements (Note 5) 5,634,637 5,345,113
Loans payable (Note 3) 540,139 508,227
------------------------------
TOTAL CURRENT LIABILITIES 8,522,688 8,043,097
------------------------------
LONG-TERM
Loans payable (Note 4) 130,567 --
Deferred licensing fee 258,162 274,830
------------------------------
TOTAL LONG-TERM LIABILITIES 388,729 274,830
------------------------------
TOTAL LIABILITIES 8,911,417 8,317,927
------------------------------
STOCKHOLDERS' DEFICIT
Share Capital (Note 2)
Authorized
1,000,000 preferred shares, par value $0.001
1,000,000,000 common shares, par value $0.001
Issued
12,675 preferred shares in 2009 and 2008 12 12
550,513,491 common shares in 2009 and 549,513,491 2008 550,514 549,514
Treasury stock, at cost (5,278,580 shares) (1,963,612) (1,963,612)
Additional paid-in capital 127,952,523 127,897,291
Other comprehensive income -
Foreign exchange translation gain 35,119 35,119
Accumulated deficit (135,472,581) (134,818,354)
------------------------------
TOTAL STOCKHOLDERS' DEFICIT (8,898,025) (8,300,030)
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 13,392 $ 17,897
=================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - EXPRESSED IN US DOLLARS)
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30 SEPTEMBER 30
2009 2008 2009 2008
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REVENUE
Licensing fees
$ 5,556 $ 5,556 $ 16,668 $ 16,668
------------------------------------------------------------------------
TOTAL REVENUE 5,556 5,556 16,668 16,668
------------------------------------------------------------------------
EXPENSES
General and administrative 134,214 168,094 326,346 598,451
Research and development -- 77,703 74,029 280,623
Litigation expense 96,508 88,017 289,524 268,412
Depreciation and amortization 1,502 890 4,506 2,670
------------------------------------------------------------------------
TOTAL EXPENSES
232,224 334,704 694,405 1,150,156
------------------------------------------------------------------------
LOSS FROM OPERATIONS (226,668) (329,148) (677,737) (1,133,488)
OTHER INCOME (EXPENSES)
Interest expense (15,138) (6,209) (38,198) (63,841)
Amortization of discount on
convertible notes (4,317) (80,339) (7,201) (414,915)
Debt conversion expense -- (91,200) -- (1,247,657)
Gain on extinguishment of debt -- -- 70,510 --
------------------------------------------------------------------------
LOSS BEFORE TAXES (246,123) (506,896) (652,626) (2,859,901)
INCOME TAX EXPENSE -- -- (1,600) (1,600)
------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (246,123) $ (506,896) $ (654,226) $ (2,861,501)
========================================================================
Loss per common share
BASIC AND DILUTED $ (0.00) $ (0.00) $ (0.00) $ (0.01)
======================================================================================================================
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED 550,513,491 496,245,781 549,850,487 442,678,078
======================================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - EXPRESSED IN US DOLLARS)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30 2009 2008
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OPERATING ACTIVITIES
Net loss for the period $ (654,226) $ (2,861,501)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Amortization of deferred licensing fees (16,668) (16,668)
Depreciation and amortization 4,506 2,670
Amortization of discount on convertible debt (Note 3 & 4) 7,201 414,915
Stock for services 5,333 28,111
Debt conversion expense (Note 3) -- 1,247,657
Warrant compensation (Note 2) 17,979 119,075
(Increase) decrease in operating assets
Prepaid expenses and other current assets -- --
Increase (decrease) in operating liabilities
Accounts payable 129,555 387,073
Accrued liabilities and provision for lawsuit settlements 356,321 379,761
----------------------------
Net cash used in operating activities (149,999) (298,907)
----------------------------
INVESTING ACTIVITIES
Purchase assets -- (14,325)
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Net cash used in investing activities -- (14,325)
----------------------------
FINANCING ACTIVITIES
Convertible Notes Payable 150,000 300,000
Notes payable -- 23,500
----------------------------
Net cash provided by financing activities 150,000 323,500
----------------------------
NET INCREASE (DECREASE) IN CASH 1 10,268
CASH, beginning of period 68 2,786
----------------------------
CASH, end of period $ 69 $ 13,054
===============================================================================================
SUPPLEMENTARY DISCLOSURE OF NON-CASH INFORMATION
BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE DEBT $ -- $ 122,250
VALUE OF WARRANTS ISSUED WITH CONVERTIBLE DEBT 34,257 72,250
CONVERSION OF CONVERTIBLE DEBT AND INTEREST TO COMMON STOCK -- 1,281,123
CONVERSION OF SHORT-TERM NOTES AND INTEREST TO COMMON STOCK -- 60,937
===============================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Expressed in US Dollars)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Turbodyne Technologies, Inc., a Nevada corporation, and its subsidiaries
(the "Company") engineer, develop and market products designed to enhance
performance and reduce emissions of internal combustion engines.
The Company's operations have been financed principally through a
combination of private and public sales of equity and debt securities. If
the Company is unable to raise equity capital or generate revenue to meet
its working capital needs, it may have to cease operating and seek relief
under appropriate statutes. These consolidated financial statements have
been prepared on the basis that the Company will be able to continue as a
going concern and realize its assets and satisfy its liabilities and
commitments in the normal course of business and do not reflect any
adjustment which would be necessary if the Company is unable to continue
as a going concern.
GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has suffered net operating losses in recent periods, has an accumulated
deficit of $135,472,581 at September 30, 2009 and a total capital deficit
of $8,898,025 at September 30, 2009. It has used most of its available
cash in its operating activities in recent years, has a significant
working capital deficiency and is subject to lawsuits brought against it
by other parties. These matters raise substantial doubt about the
Company's ability to continue as a going concern.
BASIS OF PRESENTATION
The interim financial statements included herein, presented in accordance
with United States generally accepted accounting principles and stated in
US dollars, have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission and
with the instruction to Form 10-Q and Rule 8-03 of Regulation S-X. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These financial statements reflect all adjustments, consisting of normal
recurring adjustments, which in the opinion of management are necessary
for fair presentation of the information contained therein. It is
suggested that these interim financial statements be read in conjunction
with the audited financial statements of the Company for the years ended
December 31, 2008 and 2007 included in the Company's 10-K Annual Report.
The Company follows the same accounting policies in the preparation of
interim reports.
Results of operations for the interim periods are not indicative of annual
results.
7
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements, stated in United
States dollars, include the accounts of Turbodyne Technologies, Inc. and
its wholly-owned subsidiaries, Turbodyne Systems, Inc., Turbodyne Germany
Ltd., Electronic Boosting Systems, Inc. and Pacific Baja Light Metals
Corp. ("Pacific Baja"). All intercompany accounts and transactions have
been eliminated on consolidation.
FASB ACCOUNTING STANDARDS CODIFICATION
The Company follows accounting standards set by the Financial Accounting
Standards Board, commonly referred to as the "FASB". The FASB sets
generally accepted accounting principles (GAAP) that the Company follows
to ensure consistent reporting of its financial condition, results of
operations and cash flows. References to GAAP issued by the FASB in these
footnotes are to the FASB Accounting Standards Codification, sometimes
referred to as the Codification or ASC. The FASB finalized the
Codification effective for periods ending on or after September 15, 2009.
Prior FASB standards like FASB Statement No. 157, Fair Value Measurements,
are no longer being issued by the FASB. For further discussion of the
Codification see "FASB Codification Discussion" in Management's Discussion
and Analysis of Financial Condition and Results of Operations (commonly
referred to as MD&A) elsewhere in this report.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is computed using
the straight-line method over estimated useful lives as follows:
Computers and measurement equipment - 3 years
Machinery and equipment - 7 to 15 years
Furniture and fixtures - 5 to 10 years
VALUATION OF LONG-LIVED ASSETS
The Company periodically and at least, annually, reviews the carrying
value of long-lived assets for indications of impairment in value and
recognizes impairment of long-lived assets in the event the net book value
of such assets exceeds the estimated undiscounted future cash flows
attributable to such assets. Long-lived assets to be disposed of by sale
are to be measured at the lower of carrying amount or fair value less cost
of sale whether reported in continuing operations or in discontinued
operations. No impairment was required to be recognized during 2009 and
2008.
8
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement date. The
Company reports assets and liabilities that are measured at fair value
using a three-level fair value hierarchy that prioritizes the inputs used
to measure fair value. This hierarchy maximizes the use of observable
inputs and minimizes the use of unobservable inputs. The three levels of
inputs used to measure fair value are as follows:
o Level 1 -- Quoted prices in active markets for identical
assets or liabilities.
o Level 2 -- Observable inputs other than quoted prices included
in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active;
or other inputs that are observable or can be corroborated by
observable market data.
o Level 3 -- Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value
of the assets or liabilities. This includes certain pricing
models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
An asset's or liability's level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair value
measurement. At each reporting period, we perform a detailed analysis of
our assets and liabilities that are measured at fair value. All assets and
liabilities for which the fair value measurement is based on significant
unobservable inputs or instruments which trade infrequently and therefore
have little or no price transparency are classified as Level 3.
All financial liabilities that are measured at fair value have been
segregated into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the measurement
date in the table below. The Company has no financial assets and
non-financial assets and liabilities that are measured at fair value.
9
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
RECOGNITION OF REVENUE
License fee revenue is recognized over the term of the license agreement.
During the year ended December 31, 2003, $400,000 in license fees were
deferred and are being amortized over 18 years. As a result, for the nine
months ended September 30, 2009 $16,668 ($16,668 in 2008) of licensing
fees was recognized as income.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed in accordance with the provisions of
ASC Topic 260, "Earnings Per Share". Basic earnings (loss) per share is
calculated by dividing the net income (loss) available to common
stockholders by the weighted average number of shares outstanding during
the year. Diluted earnings per share reflect the potential dilution of
securities that could share in earnings of an entity. In a loss year,
dilutive common equivalent shares are excluded from the loss per share
calculation as the effect would be anti-dilutive.
For the quarter ended September 30, 2009, 12,675 preferred shares
convertible into 1,267,500 shares of common stock and options and warrants
to purchase 17,274,000 and 50,617,210 shares of common stock, convertible
notes to purchase 29,415,873 shares of common stock were outstanding
during the period. The weighted average cumulative equivalent shares of
550,513,491 were included in the denominator for 2009 computation of
diluted earnings (loss) per share. No other adjustments were made for
purposes of per share calculations.
For the quarter ended September 30, 2008, 12,675 preferred shares
convertible into 1,267,500 shares of common stock and options and warrants
to purchase 18,022,000 and 42,556,106 shares of common stock, convertible
notes to purchase 20,191,110 shares of common stock were outstanding
during the period. The weighted average cumulative equivalent shares of
549,850,487 were included in the denominator for 2009 computation of
diluted earnings (loss) per share. No other adjustments were made for
purposes of per share calculations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
10
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under the fair value
method in accordance with ASC Topic 718, "Compensation - Stock
Compensation," which requires the Company to establish assumptions and
estimates of the weighted-average fair value of stock options granted, as
well as using a valuation model to calculate the fair value of stock-based
awards. The Company uses the Black-Scholes option-pricing model to
determine the fair-value of stock-based awards. All options are amortized
over the requisite service periods of the awards, which are generally the
vesting periods.
RESEARCH AND DEVELOPMENT
Research and development costs related to present and future products are
charged to operations in the period incurred. Previously, research
prototypes were sold and proceeds reflected by reductions in our research
and development costs. As new technology pre-production manufacturing
units are produced and related non-recurring engineer services are
delivered we will recognize the sales proceeds as revenue.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
of accounting for income taxes, which recognizes deferred tax assets and
liabilities for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. The components of the deferred tax assets and liabilities
are classified as current and non-current based on their characteristics.
The components of the deferred tax assets and liabilities are classified
as current and non-current based on their characteristics. A valuation
allowance is provided for certain deferred tax assets if it is more likely
than not that the Company will not realize tax assets through future
operations.
LEGAL FEES
The Company expenses legal fees in connection with litigation as incurred.
11
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
COMPREHENSIVE INCOME
ASC Topic 323, "Investments - Equity Method and Joint Ventures,"
establishes standards to measure all changes in equity that result from
transactions and other economic events other than transactions with
owners. Comprehensive income is the total of net earnings (loss) and all
other non-owner changes in equity. Except for net earnings (loss) and
foreign currency translation adjustments, the Company does not have any
transactions and other economic events that qualify as comprehensive
income. As foreign currency translation adjustments were immaterial to the
Company's consolidated financial statements, net earnings (loss)
approximated comprehensive income for the quarter ended September 30, 2009
and 2008.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB established the "FASB Accounting Standards
Codification" (Codification) as the single source of authoritative U.S.
generally accepted accounting principles (U.S. GAAP) recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants. The Codification
is effective for the Company this period ended September 30, 2009 and
references to pre-codification statements have been removed or replaced in
the Company's consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of
Financial Assets," which has not been added to the Codification. It is an
amendment of ASC Topics 310 (Receivables), 405 (Liabilities), 470 (Debt),
740 (Income Taxes) and 810 (Consolidation) as they pertain SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and requires entities to provide more
information about sales of securitized financial assets and similar
transactions, particularly if the seller retains some risk to the assets.
This statement will improve the relevance, representation faithfulness,
and comparability of the information that a reporting entity provides in
its financial statements about a transfer of financial assets. It will
also take into account the effects of a transfer on its financial
position, financial performance, and cash flows, and a transferor's
continuing involvement. SFAS No. 166 is effective for annual periods
beginning after November 15, 2009. This statement is effective for the
Company beginning January 1, 2010 and is expected to have no material
impact on the consolidated financial statements.
12
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB
interpretation No. 46(R)," which has not been added to the Codification.
It establishes how a company determines when an entity that is
insufficiently capitalized or not controlled through voting should be
consolidated. This statement improves financial reporting by enterprises
involved with variable interest entities, which addresses the effects on
certain provisions of ASC Topic 810 (Consolidation) as it pertains to FASB
interpretation No. 46, "Consolidation of Variable Interest Entities," as a
result of the elimination of the qualifying special-purpose entity concept
in FASB No. 166, "Accounting for Transfers of Financial Assets," and
constituent concerns about the application of certain key provisions of
Interpretation 46(R). SFAS No. 167 is effective for annual periods
beginning after November 15, 2009. This statement is effective for the
Company beginning January 1, 2010 and is expected to have no material
impact on the consolidated financial statements.
In August 2009, the FASB published Accounting Standards Update 2009-05,
Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities
at Fair Value. It clarifies that in circumstances in which a quoted market
price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one of several
acceptable valuation techniques. ASU 2009-05 also clarifies (i) that when
estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustments to other inputs
relating the existence of a restriction that prevents the transfer of the
liability, and (ii) that both a "quoted price in an active market for the
identical liability at the measurement date" and the "quoted price for the
identical liability when traded as an asset in a active market when no
adjustments to the quoted price of the asset are required" are Level 1
fair value measurements. ASU 2009-05 is effective in the fourth quarter of
2009. The Company has not yet determined the impact of the adoption of ASU
2009-05 on its financial statements.
In September 2009, the FASB published FASB Accounting Standards Update No.
2009-12, "Fair Value Measurements and Disclosures (Topic 820) -
Investments in Certain Entities That Calculate Net Asset Value per Share
(or Its Equivalent)". It amends Subtopic 820-10, "Fair Value Measurements
and Disclosures--Overall," to permit a reporting entity to measure the
fair value of certain investments on the basis of the net asset value per
share of the investment (or its equivalent). It also requires new
disclosures, by major category of investments, about the attributes
includes of investments within the scope of this amendment to the
Codification. The provisions of ASU 2009-12 is effective for interim and
annual periods ending after December 15, 2009. Early application is
permitted. The provisions of ASU 2009-12 are not expected to have an
impact on the Company's consolidated financial statements.
13
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS
In October 2009, the FASB published FASB Accounting Standards Update
2009-13, "Revenue Recognition (Topic 605) - Multiple-Deliverable Revenue
Arrangements." It addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services
(deliverables) separately rather than as a combined unit. Specifically,
this guidance amends the criteria in Subtopic 605-25, "Revenue
Recognition-Multiple-Element Arrangements," for separating consideration
in multiple-deliverable arrangements. This guidance establishes a selling
price hierarchy for determining the selling price of a deliverable, which
is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual
method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using
the relative selling price method. In addition, this guidance
significantly expands required disclosures related to a vendor's
multiple-deliverable revenue arrangements. The provisions of ASU 2009-13
is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The provisions of ASU 2009-13 are not
expected to have an impact on the Company's consolidated financial
statements.
In October 2009, the FASB published FASB Accounting Standards Update
2009-14 Software (Topic 985) - Certain Revenue Arrangements that Include
Software Elements." It changes the accounting model for revenue
arrangements that include both tangible products and software elements.
Under this guidance, tangible products containing software components and
non-software components that function together to deliver the tangible
product's essential functionality are excluded from the software revenue
guidance in Subtopic 985-605, "Software-Revenue Recognition." In addition,
hardware components of a tangible product containing software components
are always excluded from the software revenue guidance. The provisions of
ASU 2009-14 is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The provisions of ASU 2009-14 are not
expected to have an impact on the Company's consolidated financial
statements.
In October 2009, the FASB published FASB Accounting Standards Update
2009-15, "Accounting for Own-Share Lending Arrangements in Contemplation
of Convertible Debt Issuance or Other Financing." It includes amendments
to Topic 470, Debt, (Subtopic 470-20), and Topic 260, "Earnings per Share"
(Subtopic 260-10), to provide guidance on share-lending arrangements
entered into on an entity's own shares in contemplation of a convertible
debt offering or other financing. The provisions of ASU 2009-15 is
effective for fiscal years beginning on or after December 15, 2009, and
interim periods within those fiscal years FOR ARRANGEMENTS OUTSTANDING AS
OF THE BEGINNING OF THOSE YEARS. Retrospective application is required for
such arrangements. The provisions of ASU 2009-15 is effective FOR
ARRANGEMENTS ENTERED INTO ON (NOT OUTSTANDING) or after the beginning of
the first reporting period that begins on or after June 15, 2009. Certain
transition disclosures are also required. Early application is not
permitted. The provisions of ASU 2009-15 are not expected to have an
impact on the Company's consolidated financial statements.
14
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
2. SHARE CAPITAL
Transactions not disclosed elsewhere in these consolidated interim
financial statements are as follows:
a) Authorized Capital
At the Annual General Meeting held on June 30, 2004, the
shareholders approved an increase of authorized capital to
1,000,000,000 common shares.
In 2003, 150,000 of the 1 million preferred shares were designated
as Series X preferred shares. These shares have a par value of
$0.001 per share with each share being convertible into 100 common
shares at the discretion of the holder. As of September 30, 2009,
12,675 of Series X preferred shares convertible into 1,267,500
common shares are outstanding.
In addition to outstanding shares of common stock, options and
warrants described in these notes; additional shares are issuable in
connection with the change of control transaction in September 2005
in the event the Company issues any securities directly or
indirectly related to pre-merger events.
b) During the nine months ended September 30, 2009 the Company issued
1,000,000 shares of common stock for payment of services.
During the nine months ended September 30, 2008 the Company issued
162,054,057 shares of common stock, 142,114,317 for conversion of
notes and interest payable, 13,939,740 for additional merger shares
and 6,000,000 for payment of services.
c) Stock Options
The determination of fair value of share-based payment awards to
employees, directors and non-employees on the date of grant using
the Black-Scholes model is affected by the Company's stock price as
well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited
to the expected stock price volatility over the term of the awards,
and actual and projected employee stock option exercise behaviours.
Management has used historical data to estimate forfeitures. The
risk-free rate is based on U.S. Treasury rates in effect during the
corresponding period of grant. The expected volatility is based on
the historical volatility of the Company's stock price.
15
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
2. SHARE CAPITAL - CONTINUED
c) Stock Options - Continued
Grant of Stock Options to Non-employees for Services
During 2006 and 2007, we granted warrants to purchase 78,200,000
shares of our common stock to various consultants that we deemed
essential to our operations. Details of the consultant warrants for
the quarter ended September 30, 2009 are as follows:
Total consultant warrants granted 78,200,000
Vested prior to January 1, 2009 (22,805,549)
Vested January through September 30, 2009 (3,691,661)
Cancelled January through December 2008 (22,044,436)
-----------
Warrants not vested 29,658,354
===========
During the nine months ended September 30, 2009 the Company using
the Black-Scholes model recorded $17,979 ($119,075 in 2008) of
compensation expense, relating to the vesting of stock warrants
previously issued to non-employees for services. The non cash
warrant expense is allocated with $16,171 ($86,209 in 2008) to
general and administrative expenses and $1,808 ($32,866 in 2008) to
research and development.
The estimated fair value of warrants issued to non-employees during
the nine months ended September 30, 2009 ranged from $0.0032 to
$0.0088. Assumptions used to value the warrants: expected dividend
yield Nil%; expected volatility ranging from 113.23% to 139.34%;
risk-free interest rate ranging from 2.27% to 3.19% and an expected
life of 7 years.
d) Stock Purchase Warrants
At September 30, 2009 the Company had 50,617,210 share purchase
warrants outstanding and exercisable. These warrants were issued in
connection with private placements, non-employee compensation 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 $0.01 to
$0.04 per share with a weighted average exercise price of $0.016 per
share and expiration dates between 2011 and 2016. Details of share
purchase warrants for the quarter ended September 30, 2009 are as
follows:
16
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
2. SHARE CAPITAL - CONTINUED
INVESTORS EMPLOYEES & CONSULTANTS TOTAL
---------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE
---------------------------------------------------------------------
Outstanding at beginning of period 21,120,000 $0.02 22,805,549 $0.01 43,925,549 $0.02
Vested 3,000,000 $0.01 3,691,661 $0.01 6,691,661 $0.01
---------- ---------- ----------
Warrants outstanding and
exercisable at end of period 24,120,000 $0.02 26,497,210 $0.01 50,617,210 $0.02
---------- ---------- ----------
Weighted average fair value of
warrants granted during the period -- $0.01 $0.01 $0.01
=====================================================================
At September 30, 2009, the following is a summary of share purchase
warrants outstanding and exercisable:
Weighted-
Average Weighted
Remaining Average
Contractual Exercise
Exercise Price Number Life (Years) Price
--------------------------------------------------------------------------
$0.01 28,663,882 5.05 $0.01
$0.025 - 0.04 21,953,328 2.95 0.02
--------------
50,617,210 4.14 $0.02
==============
3. CURRENT LOANS PAYABLE
September December
30, 2009 31, 2008
-----------------------
Unsecured, non-interest bearing loan payable,
due on demand to stockholders and other parties $ 138,600 $ 138,600
Note payable, 5% per annum (see note 6) 52,629 50,905
Convertible notes payable 348,910 318,722
-----------------------
Total Current Loans Payable $ 540,139 $ 508,227
=======================
17
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
3. CURRENT LOANS PAYABLE - CONTINUED
As of September 30, 2009, convertible notes consist of:
Issued Issued Issued Issued Issued Issued
through From from from From From
Sept Nov 06 to Mar07 to Sep 07 to Jan 08 to Apr 08 to
2006 Feb 07 Aug 07 Dec 07 Mar 08 Jun 08 Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Proceeds from issuances of $
convertible debt $ 615,000 $ 95,000 $ 441,000 $ 200,000 100,000 $ 200,000 $ 1,651,000
Less: Debt conversions (530,000) (95,000) (441,000) (200,000) (100,000) -- (1,366,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
85,000 -- -- -- -- 200,000 285,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Discount on convertible debt
Value allocated to warrants 88,144 8,041 118,485 51,035 24,198 48,052 337,955
Beneficial conversion feature 521,756 86,959 322,515 148,965 54,198 68,052 1,202,445
----------- ----------- ----------- ----------- ----------- ----------- -----------
609,900 95,000 441,000 200,000 78,396 116,104 1,540,400
Accumulated amortization of
value allocated to warrants (88,144) (8,041) (118,485) (51,035) (24,198) (48,052) (337,955)
Accumulated amortization of
beneficial conversion feature (521,756) (86,959) (322,515) (148,965) (54,198) (68,052) (1,202,445)
----------- ----------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Accrued Interest 15,010 -- -- -- -- 48,900 63,910
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Convertible Debt $ 100,010 $ -- $ -- $ -- $ -- $ 248,900 $ 348,910
=========== =========== =========== =========== =========== =========== ===========
Lower of
70% of
market or
Original conversion price $0.025 $ 0.005 $ 0.020 $ 0.020 $ 0.020 $ 0.020 --
Modified conversion price $0.005 N/A N/A N/A N/A N/A --
Interest rate 5% 5% 5% 18% 18% 18% --
Maturity from date of issuance 1 year 1 year 1 year 6 months 6 months 6 months --
Warrants issued 12,300,000 1,900,000 8,820,000 4,000,000 2,000,000 4,000,000 33,020,000
Warrants exercised (11,900,000) -- -- -- -- -- (11,900,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Warrants remaining 400,000 1,900,000 8,820,000 4,000,000 2,000,000 4,000,000 21,120,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Market value of warrants at
date of issuance $ 150,884 $ 48,863 $ 398,872 $ 140,612 $ 41,498 $ 69,572
Assumptions for Black-Scholes
valuation of warrants
Original exercise price $ 0.025 $ 0.025 $ 0.020 $ 0.020 $ 0.020 $ 0.020
Modified exercise price $ 0.010 N/A N/A N/A N/A N/A
Term 5 years 5 years 5 years 5 years 5 years 5 years
Volatility rate 146%-151% 153%-155% 112%-155% 112%-155% 109% 107%
Risk free interest rate 4.61%-5.02% 4.45%-4.69% 4.46%-5.01% 2.93%-5.01% 2.93% 1.90%
18
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
3. LOANS PAYABLE - CONTINUED
For the years ended December 31, 2008, 2007 and 2006, the Company issued
$300,000, $691,000 and $660,000, respectively, of convertible notes. All
of the convertible notes were issued with detachable warrants to purchase
6,000,000, 13,820,000, and 13,200,000 shares of the Company's common
stock, respectively. In recording the transaction, the Company allocated
the value of the proceeds to the convertible notes and the warrants based
on their relative fair values. Fair value of the warrants was determined
using the Black-Scholes valuation model. It was also determined that the
convertible notes contained a beneficial conversion feature since the fair
market value of the common stock issuable upon the conversion of the notes
exceeded the value allocated to the notes. The value of the beneficial
conversion feature and the value of the warrants have been recorded as a
discount to convertible notes and are being amortized over the term of the
notes using the straight-line method. For the nine months ended September
30, 2009 and 2008, amortization of the discount was $-0- and $414,915,
respectively. As of September 30, 2009 and 2008, the remaining balance of
the beneficial conversion feature was $-0- and $19,232, and detachable
warrants was $-0- and $13,580, respectively.
In September 2006, the Company offered to decrease the note conversion
price to $0.005 per share if the note holders exercised their warrants at
the reduced exercise price of $0.010 by September 30, 2006. 11,900,000 of
the warrants were exercised. In consideration for the reduction of
conversion price, the maturity of the notes extended for another year.
The modification of conversion terms was substantial such that it was
considered an extinguishment of debt. Accordingly, the unamortized
discount on convertible notes was written off and included in total
amortization for 2006. Conversion of notes in 2008 and 2007 also resulted
in the write off of the corresponding unamortized discount.
In addition, as a result of the inducement to exercise the warrants and to
convert the notes, the Company recognized an expense of $-0- and
$1,247,657 for the nine months ended September 30, 2009 and 2008,
respectively, with a corresponding increase in additional paid-in capital.
In February 2007, the Company changed the per share conversion price from
$0.005 to $0.020 for new lenders. The notes, issued prior to September 1,
2007, bear interest at 5% and mature within one year from date of
issuance. The notes, issued after September 1, 2007, bear interest at 18%
and mature within six months from date of issuance. The warrants are to
purchase the Company's common stock at $0.025 per share expiring in five
years.
19
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
4. LONG-TERM LOANS PAYABLE
For the nine months ended September 30, 2009, the Company issued $150,000
of convertible notes. All of the convertible notes were issued with
detachable warrants to purchase 3,000,000 shares of the Company's common
stock. In recording the transaction, the Company allocated the value of
the proceeds to the convertible notes and the warrants based on their
relative fair values. Fair value of the warrants was determined using the
Black-Scholes valuation model. There was no beneficial conversion feature.
The Convertible Notes have a two year maturity with 12% annual interest
rate payable at maturity or at the time of conversion. The Note may be
converted at any time after issuance until the note is paid in full. The
conversion price is at a price equal to $.01; provided that Conversion
shall be subject to a minimum conversion amount of $10,000, or if less,
the remaining Outstanding Obligation. The warrants will have an exercise
price of $.01 and a 5 year expiration date.
The value of the warrants has been recorded as a discount to convertible
notes and is being amortized over the term of the notes using the
straight-line method. For the nine months ended September 30, 2009,
amortization of the discount was $7,201. As of September 30, 2009, the
remaining balance of the detachable warrants was $27,056. As of September
30, 2009 the accrued interest on the convertible notes is $7,623.
5. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal claims and lawsuits that have arisen
in the normal course of business. There have been no material changes in
the status of these matters since the issuance of the most recent audited
annual financial statements.
LITIGATION
a) TST, Inc.
In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of
Pacific Baja (Note 5(b)) filed an action against the Company
alleging that in order to induce TST to extend credit to a
subsidiary of Pacific Baja, the Company executed guarantees in favor
of TST. TST alleged that the subsidiary defaulted on the credit
facility and that the Company is liable as guarantor.
Agreed to the immediate entry of judgment against the Company in the
amount of $2,068,078 plus interest from the date of entry at the
rate of 10% per annum. The amount of this judgment would immediately
increase by any amount that TST is compelled by judgment or court
order or settlement to return as a preferential transfer in
connection with the bankruptcy proceedings of Pacific Baja; and
TST cannot execute on its judgment until Turbodyne either: (a) files
a voluntary bankruptcy case; (b) is the subject of an involuntary
case; or (c) effects an assignment for the benefit of creditors.
20
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
5. COMMITMENTS AND CONTINGENCIES - LITIGATION CONTINUED
a) TST, Inc. - Continued
Any proceeds received by TST or its president from the sale of the
issued shares will be automatically applied as a credit against the
amount of the judgment against the Company in favor of TST. Prior to
March 31, 2004, 147,000 shares issued in connection with the TST
settlement had been sold which have reduced the provision for
lawsuit settlement by $23,345.
At September 30, 2009, the Company has included $4,232,852 ($3,943,328 in
2008) in regard to this matter in provision for lawsuit settlements. It
was determined that TST received payment in preference to other creditors
before Pacific Baja filed its Chapter 11 petition in bankruptcy. TST and
Pacific Baja settled the preference payment issue with TST paying $20,000
to Pacific Baja and TST relinquishing the right to receive $63,000
therefore; $83,000 has also been included in the provision for lawsuit
settlements.
September 30, 2009 December 31, 2008
--------------------------------------
Settlement amount $ 2,068,079 $ 2,068,079
Interest 2,105,118 1,815,594
Preference payment 83,000 83,000
Proceeds of stock sale (23,345) (23,345)
--------------------------------------
Total $ 4,232,852 $ 3,943,328
----------------------------------------------------------------
b) Pacific Baja Bankruptcy
In July 1999, a major creditor of the Company's wholly-owned major
subsidiary, Pacific Baja, began collection activities against
Pacific Baja which threatened Pacific Baja's banking relationship
with, and source of financing from, Wells Fargo Bank. As a result,
Pacific Baja and its subsidiaries commenced Chapter 11 bankruptcy
proceedings on September 30, 1999.
In September 2001, the Pacific Baja Liquidating Trust (the "Trust")
commenced action against us in the aforesaid Bankruptcy Court. The
Trust was established under the Pacific Baja bankruptcy proceedings
for the benefit of the unsecured creditors of Pacific Baja.
The Company vigorously contested the Complaint until April 22, 2005
when the Company entered into a stipulation for entry of judgment
and assignment in the Pacific Baja bankruptcy proceedings for
$500,000 to be issued in common stock or cash or a combination.
Additionally the Company assigned to the bankruptcy Trust the rights
to $9,500,000 claims under any applicable directors and officers
liability insurance policies. The bankruptcy Trust also agreed to a
covenant not to execute against the Company regardless of the
outcome of the insurance claims.
The Company has completed the assignment of its insurance claims,
but has not completed the cash/stock payment that was to be paid to
the Trust by December 9, 2005. We are negotiating with the Trustee
regarding this default.
21
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
5. COMMITMENTS AND CONTINGENCIES - CONTINUED
c) Former Director
A former director of Turbodyne, Erwin Kramer (the "Plaintiff"),
represented by his attorney Claus Schmidt, a former attorney of
Turbodyne at the time of the alleged claim, filed a legal action in
Germany against Turbodyne, our non-operating subsidiary Turbodyne
Europe GmbH ("Turbodyne GmbH"), and ex-employees of Turbodyne GmbH,
Peter Kitzinski and Marcus Kumbrick (collectively the "Defendants"),
with the Regional Frankfurt court (the "German Court") in September,
2004. The Plaintiff claims damages of Euro 245,620 plus 5% interest
per annum against the Defendants in respect of actions taken by the
Defendants while employed with Turbodyne GmbH.
On September 9, 2004, the German Court, on a motion by the
Defendants to the suit, dismissed the Plaintiff's claims against
Peter Kitzinski and Marcus Kumbrick, and ordered that Turbodyne's
patents in Munich be attached pending the resolution of the
Plaintiff's claim against Turbodyne and Turbodyne GmbH. On June 13,
2005 the Court in Frankfurt dismissed the claim. The Plaintiff filed
an appeal against this judgment with the Higher Regional Court in
Frankfurt.
The Plaintiff's attorney, Claus Schmidt, also filed similar suits on
behalf of Frank Walter and Herbert Taeuber. The German courts are
indicating that all three suits need to be filed in the United
States not Germany. Presently the suits have not been filed in the
United States. We vigorously dispute this claim and have retained
German counsel to defend it and seek its dismissal. At September 30,
2009, the Company has included $405,785 in regard to this matter in
the provision for lawsuit settlements.
d) Crescent Fund, LLC
A former consultant brought an action against the Company in the
Supreme Court of the State of New York for the County of New York
for an action entitled CRESCENT FUND, LLC v TURBODYNE TECHNOLOGIES,
INC. The action sought $300,000 damages based upon claims for
alleged breaches of contract and covenants of good faith and fair
dealing allegedly arising because the Company failed to give
plaintiff an opinion to sell the 5,000,000 shares of the Company's
common stock received for services. The Company in the action sought
the return of such shares and damages based upon plaintiff's breach
and fraud based upon the failure to perform any of the duties and
obligations required of it under the aforesaid contract which was
fraudulently induced. The Company did not anticipate any liability
and therefore did not include an amount in the provision for lawsuit
settlements. The action has been settled pursuant to which the
plaintiff retained a majority of the shares and released the Company
from all liability with any payments.
e) Other
The Company is currently involved in various collection claims and
other legal actions. It is not possible at this time to predict the
outcome of the legal actions.
22
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
6. RELATED PARTY TRANSACTIONS
Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers
have advanced an aggregate of $ 46,000 to the Company plus related
interest expense of $6,629 for 2009 and $4,904 for 2008. The advances are
repayable on demand and bear interest at 5 % per annum. See Note 3 Loan
Payable. As of September 30, 2009 and December 31, 2008 the Company also
owes Aspatuck Holdings Ltd consulting fees of $387,227 and $344,827,
respectively, for the services of Jason Meyers. The Company has included
these consulting fees in accounts payable in the balance sheet. The
Company has included $30,000 of consulting compensation in the general and
administrative expense for the quarters ended September 30, 2009 and 2008.
The Company also included $4,684 and $15,248 of non cash warrant expense
for the quarter ended September 30, 2009 and 2008 respectively.
The Company has agreed to pay Aspatuck Holdings, Ltd. $64,000 of the
accounts payable owed as funds become available and then $10,000 per month
until repaid. The accounts payable is for the services of the primary
shareholder of Aspatuck, Jason Meyers.
John Adams, co-CEO has advanced an aggregate of $35,000 in convertible
notes as a private investor. The notes were due in November 2006 and July
2007 but remain unpaid as of September 30, 2009 and December 31, 2008,
with total outstanding balance of $41,415 and $40,106, respectively, which
includes accrued interest of $6,418 and $5,106, respectively.
On June 30, 2009 we issued a certificate for 1,000,000 restricted shares
of our common stock to John Adams for the October 2008 through June 30,
2009 representing a portion of the 12,000,000 shares of service based
stock according to the Consulting Agreement effective January 1, 2008. The
Company recorded $1,889 and $10,000 general and administrative expense for
the stock compensation to be issued to John Adams for the quarter ended
September 30, 2009 and 2008, respectively.
As of September 30, 2009 and December 31, 2008 the Company owes Debi
Kokinos, CFO consulting fees of $82,970 and $41,830, respectively. The
Company has included these consulting fees in accounts payable in the
balance sheet. The Company has included $19,380 of consulting compensation
in the general and administrative expense for the quarters ended September
30, 2009 and 2008. The Company also included $1,405 and $4,574 of non cash
warrant expense for the quarter ended September 30, 2009 and 2008
respectively.
23
TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2009 AND 2008
7. SUBSEQUENT EVENTS
Subsequent to September 30, 2009, the Company issued a convertible note
for $50,000. The convertible note was issued with detachable warrants to
purchase 1,000,000 shares of the Company's common stock. The Convertible
Note has a two year maturity with 12% annual interest rate payable at
maturity or at the time of conversion. The Note may be converted at any
time after issuance until the note is paid in full. The conversion price
is at a price equal to $.01; provided that Conversion shall be subject to
a minimum conversion amount of $10,000, or if less, the remaining
Outstanding Obligation. The warrants will have an exercise price of $.01
and a 5 year expiration date.
Subsequent to September 30, 2009 the Company entered into Common Stock
Purchase Agreements for 25,400,000 shares for a total of $89,900. The
proceeds were used for payment of a contract with D. Brown Traktoren, GmbH
for the services to the Company of Augustin Thalhofer for the development
of the TurboPac.
On November 7, 2009 we received notification that The People's Republic of
China granted two patents to Turbodyne Technologies, Inc. on July 22, 2009
for Charge Air Systems for Turbocharged Four-Cycle Internal Combustion
Engines and Two Stage Charge Air System for Four-Cycle Internal Combustion
Engine. The original applications for these patents were filed July 23,
1998. The People's Republic of China represents one of the fastest growing
markets for our products.
The Company has evaluated its subsequent events through November 16, 2009,
the date these financial statements were issued.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, including statements
regarding the Company's capital needs, business strategy and expectations. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expect", "plan", "intend", "anticipate", "believe", "estimate", "predict",
"potential" or "continue", the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks outlined in
the Risk Factors section below, and, from time to time, in other reports the
Company files with the SEC. These factors may cause the Company's actual results
to differ materially from any forward-looking statement. The Company disclaims
any obligation to publicly update these statements, or disclose any difference
between its actual results and those reflected in these statements. The
information constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
As used in this Quarterly Report on Form 10-Q, the terms "we", "us", "our",
"Turbodyne" and "our company" mean Turbodyne Technologies, Inc., unless
otherwise indicated. All dollar amounts in this Quarterly Report on Form 10-Q
are in U.S. dollars unless otherwise stated.
PLAN OF OPERATIONS
We are an engineering Company and have been engaged, for over ten years, in the
design and development of forced-air induction (air-charging) technologies that
improve the performance of gas and diesel internal combustion engines. Optimum
performance of an internal combustion engine requires a proper ratio of fuel to
air. Power available from the engine is reduced when a portion of the fuel is
not used. In a wide range of gas and diesel engines additional air is needed to
achieve an optimal result. Traditional engineered solutions for this problem use
belts or exhaust gas (superchargers or turbochargers) to supply additional air
to an engine. Turbodyne, instead, uses electric motors to supply additional air.
Because an electric motor can be engaged more quickly, compared to the
mechanical delays inherent in a belt or exhaust gas device, Turbodyne's products
under development are designed to reduce this `turbolag' and otherwise adds to
the effectiveness of gas and diesel engines used in automotive, heavy vehicle,
marine, and other internal combustion installations.
On November 7, 2009 we received notification that The People's Republic of China
granted two patents to Turbodyne Technologies, Inc. on July 22, 2009 for Charge
Air Systems for Turbocharged Four-Cycle Internal Combustion Engines and Two
Stage Charge Air System for Four-Cycle Internal Combustion Engine. The original
applications for these patents were filed July 23, 1998. The People's Republic
of China represents one of the fastest growing markets for our products.
25
FINANCING REQUIREMENTS
We will require additional financing if we are to continue as a going concern
and to finance our business operations. While we have obtained some financing in
2009 we need substantially more capital to complete development and continue our
business. There is no assurance that we will be able to raise the required
additional capital. In the event that we are unable to raise additional
financing on acceptable terms, then we may have to cease operating and seek
relief under appropriate statutes. Accordingly, there is substantial doubt about
our ability to continue as a going concern.
We believe, however that recent technical developments provide the Company with
potential for substantial growth but this will require investment. There is no
assurance that we will obtain sufficient funding or otherwise be able to achieve
our goals.
CRITICAL ACCOUNTING POLICIES
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation under the fair value
method in accordance with the provisions of ASC Topic 718, "Compensation -
Stock Compensation," which requires the Company to establish assumptions
and estimates of the weighted-average fair value of stock options granted,
as well as using a valuation model to calculate the fair value of
stock-based awards. The Company uses the Black-Scholes option-pricing
model to determine the fair-value of stock-based awards. All options are
amortized over the requisite service periods of the awards, which are
generally the vesting periods.
FASB CODIFICATION
The FASB recognized the complexity of its standard-setting process and
embarked on a revised process in 2004 that culminated in the release on
July 1, 2009 of the FASB Accounting Standards Codification, sometimes
referred to as the Codification or ASC. The Codification does not change
how the Company accounts for its transactions or the nature of related
disclosures made. However, when referring to guidance issued by the FASB,
the Company refers to topics in the ASC rather than the SFAS or FASB
Statements. The above change was made effective by the FASB for periods
ending on or after September 15, 2009. We have updated references to GAAP
in this quarterly report on Form 10-Q to reflect the guidance in the
Codification.
26
RESULTS OF OPERATIONS
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------------- -------------------------------------------
Percentage Percentage
2009 2008 Increase 2009 2008 Increase
(Decrease) (Decrease)
---------------------------------------- -------------------------------------------
Total Revenue $5,556 $5,556 Nil $16,668 $16,668 Nil
Operating Expenses
($232,224) ($334,704) (31%) ($694,405) ($1,150,156) (40%)
---------------------- ----------------------------
Net Loss from
Operations ($226,668) ($329,148) (31%) ($677,737) ($1,133,488) (40%)
Other Income
(Expenses) ($19,455) ($177,748) (89%) $23,511 ($1,728,013) (101%)
====================== ============================
Net (Loss) ($246,123) ($506,896) 51% ($654,226) ($2,861,501) (77%)
====================== ============================
NET REVENUE
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
Percentage Percentage
2009 2008 Increase 2009 2008 Increase
------------------------------- ------------------------------
License Fee $5,556 $5,556 Nil $16,668 $16,668 Nil
We had no revenue in 2009 other than recognition of amortized license fees.
During the year ended December 31, 2003, $400,000 in license fees were deferred
and amortized over 18 years. As a result, for each of the quarters ended
September 30, 2009 and 2008, $5,556 of licensing fees was recognized as income.
Our continued net losses from operations reflect our continued operating
expenses and our inability to generate revenues. We believe that we will not be
able to generate any significant revenues from TurboPac(TM) until we complete
our production models and enter into commercial arrangements.
COST OF SALES
We had no sales in 2009 and 2008; therefore we did not have any costs of sales
during any portion of these years.
27
OPERATING EXPENSES
Due to a lack of funds we reduced our operations in the first and second quarter
of 2009 so that operating expenses decreased from the comparable period in 2008
by 43%. The primary components of our operating expenses are outlined in the
table below:
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
Percentage Percentage
Increase Increase
2009 2008 (Decrease) 2009 2008 (Decrease)
------------------------------- ------------------------------
General and
Administrative Expenses $134,214 $168,094 (20%) $326,346 $598,451 (45%)
Research and
Development Expenses $-0- $ 77,703 (100%) $ 74,029 $280,623 (74%)
Litigation Expenses $ 96,508 $ 88,017 10% $289,524 $268,412 8%
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses primarily included management compensation
costs as well as overhead. The decline of these expenses for the three and nine
months ended September 30, 2009 compared to prior periods in 2008 is due to
decreased spending due to lack of financing as well as a corresponding decrease
in the non cash warrant expense. Management compensation costs included non cash
(i) stock compensation expense of $1,889 and $5,333 for the three months and
nine months ended September 30, 2009 compared to $10,000 and $28,111 in 2008 and
(ii) warrant expense of $6,089 and $16,171 for the three months and nine months
ended September 30, 2009 compared to $19,822 and $86,209 in prior periods of
2008.
RESEARCH AND DEVELOPMENT
The decrease in research and development costs in 2009 is due to decreased
spending for limited development operations due to a lack of funding and the
decrease in the non cash warrant expense amount of $1,808 compared to $32,866 in
2008 as a result of the termination of certain consulting agreements and the
decrease in the per share price of the Company's common stock. Our research and
development costs related to present and future products are charged to
operations in the period incurred. Our research and development activities
during 2009 are associated with the development of our TurboPac.
On November 7, 2009 we received notification that The People's Republic of China
granted two patents to Turbodyne Technologies, Inc. on July 22, 2009 for Charge
Air Systems for Turbocharged Four-Cycle Internal Combustion Engines and Two
Stage Charge Air System for Four-Cycle Internal Combustion Engine. The original
applications for these patents were filed July 23, 1998. The People's Republic
of China represents one of the fastest growing markets for our products.
LITIGATION EXPENSE
The litigation expense is the accrued interest relating to the TST, Inc.
settlement.
28
COMPENSATION EXPENSE
Grant of Stock Options to Non-employees for Services
During 2006 and 2007, we granted warrants to purchase 78,200,000 shares of our
common stock to various consultants that we deemed essential to our operations.
Details of the consultant warrants for the year ended December 31, 2008 are as
follows:
Total consultant warrants granted 78,200,000
Vested prior to January 1, 2009 (22,805,549)
Vested January through September 30 2009 (3,691,661)
Cancelled January through December 2008 (22,044,436)
-----------
Warrants not vested 29,658,354
============
During the nine months ended September 30, 2009 the Company using the
Black-Scholes model recorded $17,979 ($119,075 in 2008) of compensation expense,
relating to the vesting of stock warrants previously issued to non-employees for
services. The non cash warrant expense is allocated with $16,171 ($86,209 in
2008) to general and administrative expenses and $1,808 ($32,866 in 2008) to
research and development.
OTHER INCOME (EXPENSE) AND INCOME TAX
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------- -----------------------------------
Percentage Percentage
Increase Increase
2009 2008 (Decrease) 2009 2008 (Decrease)
--------------------------------- -----------------------------------
Gain on Extinguishment
of debt -- -- Nil $70,510 -- 100%
-------------------- ----------------------
OTHER EXPENSES
Interest Expense ($15,138) ($6,209) (144%) ($38,198) ($63,841) (40%)
Amortization of Discount
on Convertible Notes ($4,317) ($80,339) (95%) ($7,201) ($414,915) (98%)
Inducement Expense -- ($91,200) (100%) -- ($1,247,657) (100%)
Income Tax Expense -- -- -- ($1,600) ($1,600) Nil
------------------------------------------------------------------------
Total Other Expenses ($19,455) ($177,748) (89%) ($46,999) ($1,728,013) (97%)
------------------------------------------------------------------------
Other Income and Expenses ($19,455) ($177,748) (89%) $23,511 ($1,728,013) (101%)
========================================================================
29
The Company continues to negotiate with our creditors and trade debt holders on
settlement of accounts payable from periods prior to the current management
assuming operation of the Company. When achieved, this is represented as a debt
relief of accounts payable. For the nine months ended September 30, 2009, the
Company recorded a gain of $70,510 related to debt relief.
The Company had other expenses for the quarter ended September 30, 2009 of
$19,455 compared to $177,748 in 2008. As indicated above, the reduction resulted
from a reduction in the amortization of discounts on convertible notes and value
of detachable warrants and related debt conversion expenses.
NET LOSS
Our net loss for the Quarter Ended September 30 2009 decreased to $246,123 from
net loss of $506,896 for the Quarter Ended September 30, 2008, representing a
decrease of 47%. The decrease is directly related to limited activity, due to a
lack of funds and a significant decrease in expenses from the amortization of
discounts on convertible notes and value of detachable warrants and for related
debt conversion expenses.
FINANCIAL CONDITION
CASH AND WORKING CAPITAL
Percentage
September 30, 2009 December 31, 2008 Increase/(Decrease)
--------------------------------------------------------------
Current Assets $69 $68 (1%)
Current Liabilities ($8,522,688) ($8,043,097) 6%
--------------------------------------------------------------
Working Capital Deficit ($8,522,619) ($8,043,029) 6%
==============================================================
The increase to our working capital deficit was primarily attributable to an
increase in accounts payable and an increase in provision for lawsuit
settlements as discussed below.
LIABILITIES
Percentage
September 30, 2009 December 31, 2008 Increase/(Decrease)
--------------------------------------------------------------
Provisions for
Lawsuit Settlements $5,634,637 $5,345,113 5%
Accounts Payable $1,999,313 $1,869,757 7%
Accrued Liabilities $348,600 $320,000 9%
Short-Term Loans $540,139 $508,227 6%
The increase in provision for lawsuits is due to accrued interest on outstanding
judgments. Accounts payable increased due to a lack of funds to pay creditors.
Short-term loans increased due to interest expense.
30
We continue to negotiate with our creditors for the payment of our accounts
payable and accrued liabilities. Payment of these liabilities is contingent on
receipt of new funding that would enable us to make payments to the creditors.
Our ability to continue our operations may be conditional upon the forbearance
of our creditors.
Included in short-term loans at September 30, 2009 are unsecured, non-interest
bearing advances of $138,600 that we anticipate will be converted into shares of
our common stock.
CASH FLOWS
At September 30,
-----------------------
2009 2008
---- ----
Net Cash provided by (used in) Operating Activities ($149,999) ($298,907)
Net Cash provided by (used in) Financing Activities -- ($14,325)
Net Cash provided by (used in) Financing Activities $150,000 $323,500
Net Increase (Decrease) in Cash During Period $1 $10,268
CASH USED IN OPERATING ACTIVITIES
The decrease in cash used in operating activities was due to the limited amount
of funds available compared to 2008.
31
NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB established the "FASB Accounting Standards Codification"
(Codification) as the single source of authoritative U.S. generally accepted
accounting principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification is effective for the Company this period
ended September 30, 2009 and references to pre-codification statements have been
removed or replaced in the Company's consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of
Financial Assets," which has not been added to the Codification. It is an
amendment of ASC Topics 310 (Receivables), 405 (Liabilities), 470 (Debt), 740
(Income Taxes) and 810 (Consolidation) as they pertain SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," and requires entities to provide more information about sales of
securitized financial assets and similar transactions, particularly if the
seller retains some risk to the assets. This statement will improve the
relevance, representation faithfulness, and comparability of the information
that a reporting entity provides in its financial statements about a transfer of
financial assets. It will also take into account the effects of a transfer on
its financial position, financial performance, and cash flows, and a
transferor's continuing involvement. SFAS No. 166 is effective for annual
periods beginning after November 15, 2009. This statement is effective for the
Company beginning January 1, 2010 and is expected to have no material impact on
the consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB interpretation
No. 46(R)," which has not been added to the Codification. It establishes how a
company determines when an entity that is insufficiently capitalized or not
controlled through voting should be consolidated. This statement improves
financial reporting by enterprises involved with variable interest entities,
which addresses the effects on certain provisions of ASC Topic 810
(Consolidation) as it pertains to FASB interpretation No. 46, "Consolidation of
Variable Interest Entities," as a result of the elimination of the qualifying
special-purpose entity concept in FASB No. 166, "Accounting for Transfers of
Financial Assets," and constituent concerns about the application of certain key
provisions of Interpretation 46(R). SFAS No. 167 is effective for annual periods
beginning after November 15, 2009. This statement is effective for the Company
beginning January 1, 2010 and is expected to have no material impact on the
consolidated financial statements.
In September 2009, the FASB published FASB Accounting Standards Update No.
2009-12, "Fair Value Measurements and Disclosures (Topic 820) - Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)."
It amends Subtopic 820-10, Fair Value Measurements and Disclosures--Overall, to
permit a reporting entity to measure the fair value of certain investments on
the basis of the net asset value per share of the investment (or its
equivalent). It also requires new disclosures, by major category of investments,
about the attributes includes of investments within the scope of this amendment
to the Codification. The provisions of ASU 2009-12 is effective for interim and
annual periods ending after December 15, 2009. Early application is permitted.
The provisions of ASU 2009-12 are not expected to have an impact on the
Company's consolidated financial statements.
32
In October 2009, the FASB published FASB Accounting Standards Update 2009-13,
"Revenue Recognition (Topic 605) - Multiple-Deliverable Revenue Arrangements."
It addresses the accounting for multiple-deliverable arrangements to enable
vendors to account for products or services (deliverables) separately rather
than as a combined unit. Specifically, this guidance amends the criteria in
Subtopic 605-25, "Revenue Recognition-Multiple-Element Arrangements," for
separating consideration in multiple-deliverable arrangements. This guidance
establishes a selling price hierarchy for determining the selling price of a
deliverable, which is based on: (a) vendor-specific objective evidence; (b)
third-party evidence; or (c) estimates. This guidance also eliminates the
residual method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the
relative selling price method. In addition, this guidance significantly expands
required disclosures related to a vendor's multiple-deliverable revenue
arrangements. The provisions of ASU 2009-13 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. The provisions
of ASU 2009-13 are not expected to have an impact on the Company's consolidated
financial statements.
In October 2009, the FASB published FASB Accounting Standards Update 2009-14,
"Software (Topic 985) - Certain Revenue Arrangements that Include Software
Elements." It changes the accounting model for revenue arrangements that include
both tangible products and software elements. Under this guidance, tangible
products containing software components and non-software components that
function together to deliver the tangible product's essential functionality are
excluded from the software revenue guidance in Subtopic 985-605,
"Software-Revenue Recognition." In addition, hardware components of a tangible
product containing software components are always excluded from the software
revenue guidance. The provisions of ASU 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. The provisions
of ASU 2009-14 are not expected to have an impact on the Company's consolidated
financial statements.
In October 2009, the FASB published FASB Accounting Standards Update 2009-15,
"Accounting for Own-Share Lending Arrangements in Contemplation of Convertible
Debt Issuance or Other Financing." It includes amendments to Topic 470, Debt,
(Subtopic 470-20), and Topic 260, Earnings per Share (Subtopic 260-10), to
provide guidance on share-lending arrangements entered into on an entity's own
shares in contemplation of a convertible debt offering or other financing. The
provisions of ASU 2009-15 is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years FOR
ARRANGEMENTS OUTSTANDING AS OF THE BEGINNING OF THOSE YEARS. Retrospective
application is required for such arrangements. The provisions of ASU 2009-15 is
effective FOR ARRANGEMENTS ENTERED INTO ON (NOT OUTSTANDING) or after the
beginning of the first reporting period that begins on or after June 15, 2009.
Certain transition disclosures are also required. Early application is not
permitted. The provisions of ASU 2009-15 are not expected to have an impact on
the Company's consolidated financial statements.
33
ITEM 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company's Chief Executive Officer and its Chief
Financial Officer reviewed and evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)).These controls are designed to ensure that material information the
Company must disclose in its reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported on a timely basis. These
officers have concluded, based on that evaluation, that as of such date, the
Company's disclosure controls and procedures were effective at a reasonable
assurance level for a Company with substantially no activities and no personnel.
The Company believes it must devise new procedures as it increases its activity
and its personnel.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). As required by Rule 13a-15 under the Exchange Act the Company's Chief
Executive Officer and its Chief Financial Officer assessed the effectiveness of
our internal control over financial reporting as of December 31, 2008. In making
its assessment of internal control over financial reporting, management used the
criteria described in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment management identified a material weaknesses in the
Company's internal controls over financial reporting due in a significant part
to the pervasive effect of the lack of resources, specifically the limited
number of personnel involved in the financial reporting including the number of
persons that are appropriately qualified in the areas of U.S. GAAP and SEC
reporting. These limitations include an inability to segregate functions.
Because of this weakness there is a possibility that a material misstatement of
the annual financial statements would not have been prevented or detected.
Nevertheless the Company's Chief Executive Officer and Chief Financial Officer
believed that for the limited operations of the Company internal controls over
financial reporting were adequate to provide reasonable assurance of the
accuracy of the Company's financial statements at year end. The adverse effect
of the material weakness over internal controls, however, will become magnified
if the Company increases operations.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
34
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
NONE
ITEM 5. OTHER INFORMATION
The services of Jason Myers, the Company's Chairman of the Board and co Chief
Executive Officer are provided pursuant to a Consulting Agreement with Aspatuck
Holdings, Ltd. dated April 1, 2006 Under the Consulting Agreement. Aspatuck
Holdings is to provide the services of Mr. Myers and receive annual fees of
$120,000. As of September 30, 2009 there were $387,000 of unpaid fees. The
Company has agreed to pay, as funds become available, $64,000 of the unpaid fees
and then $10,000 per month until all amounts, are paid.
On November 7, 2009 we received notification that the Peoples Republic of China
granted two patents to Turbodyne Technologies, Inc. on July 22, 2009 for Charge
Air Systems for Turbocharged Four-Cycle Internal Combustion Engines and Two
Stage Charge Air System for Four-Cycle Internal Combustion Engine. The original
applications for these patents were filed July 23, 1998. The People's Republic
of China represents one of the fastest growing markets for our products.
35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- --------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
36
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
TURBODYNE TECHNOLOGIES, INC.
Signature Title Date
----- ----
/s/ Jason Meyers Co-Chief Executive Officer, November 16, 2009
- --------------------- Director
Jason Meyers
/s/ Debi Kokinos Chief Financial Officer November 16, 2009
- --------------------- and Chief Accounting Officer
Debi Kokinos
37